FORM 10-K
SECURlTlES AND EXCHANGE COMMlSSlON
WASHINGTON, D. C. 20549
[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 Commission File Number 1-3132-2
INDIANAPOLIS POWER & LIGHT COMPANY
(Exact name of Registrant as specified in its charter)
Indiana 35-0413620
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Monument Circle
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-261-8261
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
518,985 Shares of Cumulative Preferred Stock
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least 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. ( X )
As of January 31, 1999, there were 17,206,630 shares of the registrant's
common stock (without par value) issued and outstanding.
-------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Indianapolis Power & Light Company definitive
Information Statement for the Annual Meeting of Shareholders to be held
on April 21, 1999 are incorporated by reference into Part III of this
Report.
PART I
------
Item 1. BUSINESS
--------
ORGANIZATION
Indianapolis Power & Light Company (IPL) is an operating public utility
incorporated under the laws of the state of Indiana on October 27, 1926. IPL is
a wholly-owned subsidiary of IPALCO Enterprises, Inc. (IPALCO). IPALCO is a
holding company incorporated under the laws of the state of Indiana on September
14, 1983. All common stock of IPL is owned by IPALCO.
IPL has two business segments, electric and "all other." Steam operations
of IPL are in the "all other" segment. Information regarding revenues, pretax
operating income and total assets of both segments can be found in the Financial
Statements and Notes thereto.
GENERAL
IPL is engaged primarily in generating, transmitting, distributing and
selling electric energy in the city of Indianapolis and neighboring cities,
towns, communities, and adjacent rural areas, all within the state of Indiana,
the most distant point being about 40 miles from Indianapolis. It also produces,
distributes and sells steam within a limited area in such city. There have been
no significant changes in the services rendered, or in the markets or methods of
distribution, since the beginning of the fiscal year. IPL intends to do business
of the same general character as that in which it is now engaged. Indiana law
authorizes electricity suppliers to have exclusive retail service areas.
IPL's business is not dependent on any single customer or group of a few
customers. IPL's sales for 1994-1998 are depicted on page I-4.
The electric utility business is affected by seasonal weather patterns
throughout the year and, therefore, the operating revenues and associated
operating expenses are not generated evenly by month during the year.
IPL's generation, transmission and distribution facilities (electric
system) are described in Item 2, "PROPERTIES." IPL's electric system is directly
interconnected with the electric systems of Indiana Michigan Power Company, PSI
Energy, Inc., Southern Indiana Gas and Electric Company, Wabash Valley Power
Association, Hoosier Energy Rural Electric Cooperative, Inc. and the Indiana
Municipal Power Agency.
Also, IPL is a member of the East Central Area Reliability Group (ECAR),
and is cooperating under an agreement that provides for coordinated planning of
generation and transmission facilities and the operation of such facilities to
promote reliability of bulk power supply in the nine-state region served by
ECAR. Smaller electric utility systems, independent power producers and power
marketers participate as associate members.
REGULATION
IPL is subject to regulation by the Indiana Utility Regulatory Commission
(IURC) as to its services and facilities, valuation of property, the
construction, purchase or lease of electric generating facilities,
classification of accounts, rates of depreciation, rates and charges, issuance
of securities (other than evidences of indebtedness payable less than twelve
months after the date of issue), the acquisition and sale of public utility
properties or securities and certain other matters (see Note 10 in the Notes to
Financial Statements).
In addition, IPL is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC), with respect to short-term borrowings not
regulated by the IURC, the sale and transmission of electric energy in
interstate commerce, the classification of its accounts and the acquisition and
sale of utility property in certain circumstances as provided by the Federal
Power Act.
IPL is also subject to federal, state and local environmental laws and
regulations, particularly as to generating station discharges affecting air and
water quality. The impact of compliance with such regulations on the capital and
operating costs of IPL has been and will continue to be substantial. Estimated
new annual capital expenditures for air, solid waste and water environmental
compliance measures are $2.4 million, $1.2 million and $.4 million in 1999, 2000
and 2001, respectively.
RETAIL RATEMAKING
IPL's tariffs for electric and steam service to retail customers (basic
rates and charges) are set and approved by the IURC after public hearings. Such
proceedings, which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility Consumer Counselor, as well as
other interested consumer groups and customers. In Indiana, basic rates and
charges are determined after giving consideration, on a pro-forma basis, to all
allowable costs for ratemaking purposes including a fair return on the fair
value of the utility property used and useful in providing service to customers.
Once set, the basic rates and charges authorized do not assure the realization
of a fair return on the fair value of property. Other numerous factors
including, but not limited to, weather, inflation, customer growth and usage,
the level of actual maintenance and capital expenditures and IURC restrictions
on the level of operating income can affect the return realized. During 1998, in
an order resulting from an IPL initiated proceeding, the IURC declined to
exercise its jurisdiction in part over IPL customers who voluntarily select
service under IPL's Elect Plan option. Under two of these options, the
customer's prices are not adjusted for changes in fuel costs or other factors.
Substantially all other IPL customers are served pursuant to retail tariffs that
provide for the monthly billing or crediting to customers of increases or
decreases, respectively, in the actual costs of fuel consumed from estimated
fuel costs embedded in base tariffs. Additionally, most such retail tariffs
provide for billing of "lost revenue margins" on estimated kilowatt-hour (KWH)
sales reductions along with current and deferred costs resulting from IPL's
IURC-approved demand side management programs (DSM). IPL maintains its books and
records consistent with generally accepted accounting principles reflecting the
impact of regulation (see Note 1 in the Notes to Financial Statements and Item
7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" under "Nature of Operations and Regulatory Matters").
Future events, including the advent of retail competition within IPL's
service territory, could result in the deregulation of all or part of IPL's
existing regulated businesses (see "Competition and Industry Changes" in Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"). Upon deregulation, adjustments to IPL's accounting records may be
required to eliminate the historical impact of regulatory accounting. Such
adjustments, as required by Statement of Financial Accounting Standards No. 101
(SFAS 101), "Regulated Enterprises - Accounting for the Discontinuation of
Application of FASB Statement No. 71," would eliminate the "effects of any
actions of regulators that have been recognized as assets and liabilities...."
Required adjustments could include expensing of any unamortized net regulatory
assets, elimination of certain tax liabilities and a write down of any impaired
utility plant balances. IPL does not expect to be required to adopt SFAS 101 in
the near term.
FUEL
In 1998, approximately 99% of the total KWH sold by IPL were generated
from coal and 1% from middle distillate fuel oil. Gas and purchased steam,
combined, provided less than 1% of the generation of KWH sold by IPL. In
addition to use in oil-fired generating units, fuel oil is used for start up and
flame stabilization in coal-fired generating units as well as for coal thawing
and coal handling. Gas is used in IPL's newer combustion turbines. During 1998,
IPL converted part of its C.C. Perry Section K plant to gas fired boilers. In
the future, approximately 50% of the fuel used by this plant will be gas and 50%
will be coal.
IPL's long-term coal contracts provide for the major portion of its burn
requirements through the year 1999. The long-term coal agreements are with four
suppliers and the coal is mined entirely in the state of Indiana. See Exhibits
listed under Part IV Item 14(a)2(10.1 to 10.3) for a list of coal contracts. It
is presently believed that all coal used by IPL will be mined by others. IPL
normally carries fuel oil and a 60-day supply of coal to offset unforeseen
occurrences such as labor disputes, equipment breakdowns and power sales to
other utilities. IPL increases its stockpile to an approximate 80-day supply
when strikes are anticipated in the coal industry. In order to prepare for
possible supply problems associated with Year 2000 issues, IPL will increase its
stockpile to an approximate 85 to 90 day supply before the end of 1999.
EMPLOYEE RELATIONS
As of December 31, 1998, IPL had 2,020 employees of whom 1,015 were
represented by the International Brotherhood of Electrical Workers, AFL-CIO
(IBEW) and 337 were represented by the Electric Utility Workers Union (EUWU), an
independent labor organization. In December 1996, the membership of the IBEW
ratified a new labor agreement that remains in effect until December 13, 1999.
The agreement provided for general pay adjustments of 3.5% in 1996 and 3.0% in
both 1997 and 1998, and changes in pension and health care coverage. In February
of 1998, the membership of the EUWU ratified a new labor agreement that remains
in effect until February of 2001. The agreement provides for general pay
adjustments of 3% in both 1998 and 1999, as well as an adjustment of 2% in 2000.
The agreement also provides for increases in pension amounts.
DISPOSITION OF ASSETS
In 1997, IPL retired and sold its C.C. Perry Section W plant site,
including land and improvements, to the State of Indiana White River State Park
Commission.
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
STATISTICAL INFORMATION - ELECTRIC
The following table of statistical information presents additional data on IPL's
operation.
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
Operating Revenues (In Thousands): 1998 (1) 1997 (1) 1996 1995 1994
------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Residential $ 269,351 $ 261,832 $ 261,819 $ 243,055 $ 230,805
Small industrial and commercial 122,082 125,131 131,465 130,009 128,597
Large industrial and commercial 321,103 306,761 298,720 275,803 266,703
Public lighting 9,754 9,324 9,043 8,369 7,698
Miscellaneous 12,469 12,050 9,264 8,289 7,186
------------- ------------ -------------- -------------- --------------
Revenues - ultimate consumers 734,759 715,098 710,311 665,525 640,989
Sales for resale - REMC 936 1,082 1,141 1,105 1,098
Sales for resale - other 50,140 21,954 13,312 6,758 7,680
------------- ------------ -------------- -------------- --------------
Total electric revenues $ 785,835 $ 738,134 $ 724,764 $ 673,388 $ 649,767
============= ============ ============== ============== ==============
Kilowatt-hour Sales (In Millions):
Residential 4,320 4,255 4,367 4,277 4,077
Small industrial and commercial 1,873 1,960 2,117 2,197 2,195
Large industrial and commercial 7,095 6,834 6,772 6,509 6,306
Public lighting 70 69 71 73 76
------------- ------------ -------------- -------------- --------------
Sales - ultimate consumers 13,358 13,118 13,327 13,056 12,654
Sales for resale - REMC 31 29 29 28 26
Sales for resale - other 2,252 1,111 725 394 456
------------- ------------ -------------- -------------- --------------
Total kilowatt-hours sold 15,641 14,258 14,081 13,478 13,136
============= ============ ============== ============== ==============
Customers at End of Year:
Residential 379,943 374,686 370,029 365,163 360,347
Small industrial and commercial 42,230 41,137 40,393 39,772 38,840
Large industrial and commercial 4,036 3,960 3,657 3,557 3,525
Public lighting 445 357 313 290 275
------------- ------------ -------------- -------------- --------------
Total ultimate consumers 426,654 420,140 414,392 408,782 402,987
Sales for resale - REMC 1 1 1 1 1
------------- ------------ -------------- -------------- --------------
Total electric customers 426,655 420,141 414,393 408,783 402,988
============= ============ ============== ============== ==============
(1) Includes estimated electric operating revenue and kilowatt-hour sales for
services delivered but not billed during the period (see Note 3 in the Notes
to Financial Statements).
</TABLE>
Item 2. PROPERTIES
----------
IPL's executive offices are in the IPALCO Corporate Center located at One
Monument Circle, Indianapolis, Indiana. This facility houses certain
administrative operations of IPALCO's subsidiaries.
IPL also owns two distribution service centers in Indianapolis at 1230
West Morris Street and 3600 North Arlington Avenue. IPL's customer service
center is located at 2102 North Illinois Street in Indianapolis.
IPL owns and operates three primarily coal-fired generating plants that
are used for electric generation. IPL also operates one coal and gas-fired
plant. During 1998, part of the C.C. Perry Section K plant, used for a
combination of electric and steam generation, was converted to gas-fired
boilers. In the future, approximately 50% of the fuel used by this plant will be
gas and 50% will be coal. For electric generation, the total gross nameplate
rating is 3,024 MW, winter capability is 3,036 MW and summer capability is 2,956
MW. For steam generation, gross capacity is 1,990 Mlbs. (thousands of pounds)
per hour.
Total Electric Stations:
H. T. Pritchard plant (Pritchard), located 25 miles southwest of
Indianapolis (seven units in service - one each in 1949, 1950, 1951, 1956 and
1967 and two in 1953) with 367 MW nameplate rating and net winter and summer
capabilities of 344 MW and 341 MW, respectively.
E. W. Stout plant (Stout) located in the southwest part of Marion County
(eleven units in service - one each in 1941, 1947, 1958, 1961, 1967, 1994 and
1995 and four in 1973) with 921 MW nameplate rating and net winter and summer
capabilities of 1,000 MW and 924 MW, respectively.
Petersburg plant (Petersburg), located in Pike County, Indiana (seven units
in service - four in 1967 and one each in 1969, 1977 and 1986) with 1,716 MW
nameplate rating and net winter and summer capabilities of 1,672 MW.
Combination Electric and Steam Station:
C.C.Perry Section K plant (Perry K), located in Indianapolis with 20 MW
nameplate rating (net winter capability 20 MW, summer 19 MW) for electric and a
gross capacity of 1,990 Mlbs. per hour for steam.
Net electrical generation during 1998, at the Petersburg, Stout and
Pritchard stations accounted for about 72.0%, 21.2% and 6.7%, respectively, of
IPL's total net generation. Perry K produced 0.1% net electrical generation and
all of the steam generated by IPL for the steam system. In addition, IPL
purchases steam from an independent resource recovery system in Indianapolis.
Included in the above totals are three gas turbine units at the Stout
station added in 1973, one gas turbine added in 1994 and one gas turbine added
in 1995 with a combined nameplate rating of 214 MW. Also included is one diesel
unit each at Pritchard and Stout stations and three diesel units at Petersburg
station, all added in 1967. Each diesel unit has a nameplate rating of 3 MW.
During 1998, IPL announced plans to construct up to 200 megawatts of new
combustion turbines (CTs). The new turbines would be used during times of
highest or "peak" electric demand. One turbine is expected to be placed in
service by 2001, and is included in the construction forecast. IPL filed a
petition with the IURC recommending that the IURC decline its jurisdiction over
IPL's planned construction and operation of the new CTs and adopt an alternative
procedure for dealing with the sale of power produced by the CTs to IPL's retail
customers.
IPL's transmission system includes 457 circuit miles of 345,000 volt
lines, 359 circuit miles of 138,000 volt lines and 268 miles of 34,500 volt
lines. Distribution facilities include 4,717 pole miles and 19,892 wire miles of
overhead lines. Underground distribution and service facilities include 596
miles of conduit and 5,990 wire miles of conductor. Underground street lighting
facilities include 108 miles of conduit and 726 wire miles of conductor. Also
included in the system are 73 bulk power substations and 68 distribution
substations.
Steam distribution properties include 22 miles of mains with 260
services. Other properties include coal and other minerals, underlying 798 acres
in Sullivan County, Indiana, and coal underlying about 6,215 acres in Pike and
Gibson Counties, Indiana. Additional land, approximately 4,067 acres in Morgan
County, Indiana and approximately 884 acres in Switzerland County, Indiana has
been purchased for future plant sites.
All of the facilities owned by IPL are well-maintained, in good condition
and meet the present needs of IPL.
The Mortgage and Deed of Trust of IPL, together with the Supplemental
Indentures thereto (the "Mortgage"), secure first mortgage bonds issued by IPL.
Pursuant to the terms of the Mortgage, substantially all property owned by IPL
is subject to a direct first mortgage lien.
Item 3. LEGAL PROCEEDINGS
-----------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 23, 1999
Name, age (at December 31, 1998), and positions and offices held for the
past five years:
From To
---- --
John R. Hodowal (53)
Chairman of the Board February, 1990
Chief Executive Officer May, 1989
Ramon L. Humke (66)
President and Chief Operating
Officer February, 1990
John R. Brehm (45)
Senior Vice President - Finance May, 1998
Senior Vice President - Finance
and Information Services May, 1991 May, 1998
Ralph E. Canter (42)
Senior Vice President -
Customer Services May, 1998
Vice President-
Steam Operations May, 1995 May, 1998
Manager of Steam Operations October, 1990 May, 1995
Bryan G. Tabler (55)
Senior Vice President -
Secretary and General Counsel January, 1995
Partner, Barnes & Thornburg January, 1979 October, 1994
Stephen M. Powell (48)
Senior Vice President -
Energy Supply May, 1998
Manager of Engineering and
Production Services June, 1994 May, 1998
Paul S. Mannweiler (49)
Senior Vice President -
External Affairs January, 1997
Partner, Locke Reynolds Boyd and Weisell July, 1980 December, 1996
Max Califar (45)
Vice President - Human
Resources December, 1992
Steven L. Meyer (40)
Treasurer December, 1992
Stephen J. Plunkett (50)
Controller May, 1991
PART II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
------------------------------------------------------------------------
All common stock of IPL is owned by IPALCO and is not publicly traded on
any stock exchange.
Aggregate dividends paid on the common stock were $214.2 million and $104.6
million during 1998 and 1997, respectively. Dividends were paid on a monthly
basis.
IPL's Board of Directors declared dividends on common stock of $12.5
million on November 24, 1998, and $13.0 million on February 23, 1999, payable
January 15, 1999 and April 15, 1999, respectively.
Dividend Restrictions
- ---------------------
So long as any of the several series of bonds of IPL issued under the
Mortgage and Deed of Trust, dated as of May 1, 1940, as supplemented and
modified, executed by IPL to American National Bank and Trust Company of
Chicago, as Trustee, remain outstanding, IPL is restricted in the declaration
and payment of dividends, or other distribution on shares of its capital stock
of any class, or in the purchase or redemption of such shares, to the aggregate
of its net income, as defined in Section 47 of such Mortgage, after December 31,
1939. The amount which these Mortgage provisions would have permitted IPL to
declare and pay as dividends at December 31, 1998, exceeded retained earnings at
that date. Such restrictions do not apply to the declaration or payment of
dividends upon any shares of capital stock of any class to an amount in the
aggregate not in excess of $1,107,155, or to the application to the purchase or
redemption of any shares of capital stock of any class of amounts not to exceed
in the aggregate the net proceeds received by IPL from the sale of any shares of
its capital stock of any class subsequent to December 31, 1939. In addition,
pursuant to IPL's Articles of Incorporation, no dividends may be paid or accrued
and no other distribution may be made on IPL's common stock unless dividends on
all outstanding shares of IPL preferred stock have been paid or declared and set
apart for payment. The management of IPL believes these restrictions will not
materially restrict anticipated dividends.
<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA
-----------------------
<CAPTION>
(In Thousands) 1998 1997 1996 1995 1994
- --------------------------------------- -------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Total operating revenues (1) $ 821,256 $ 776,427 $ 762,503 $ 709,206 $ 686,076
Operating income 179,511 167,315 163,219 147,588 143,310
Allowance for funds used
during construction 2,300 4,407 9,321 11,370 9,381
Income before cumulative effect
of accounting change (1) 149,147 133,402 122,588 106,273 103,823
Cumulative effect of accounting change (1) - 18,347 - - -
Net income 149,147 151,749 122,588 106,273 103,823
Preferred dividend requirements 3,119 2,760 3,182 3,182 3,182
Income applicable to
common stock 146,028 148,989 119,406 103,091 100,641
Utility plant - net 1,748,460 1,766,383 1,787,969 1,792,007 1,711,772
Total assets 2,023,066 2,049,772 2,052,400 2,108,816 2,000,380
Construction expenditures 79,458 73,130 78,543 166,874 178,295
Common shareholder's equity 767,926 835,492 782,249 747,129 725,762
Nonredeemable cumulative
preferred stock 59,135 9,135 51,898 51,898 51,898
Long-term debt (less current
maturities and sinking
fund requirements) 627,893 627,840 627,791 669,000 654,121
See financial statements.
(1) In 1997, IPL adopted the unbilled revenues method of accounting for
electricity and steam delivered during the period. Revenues are accrued for
services provided but unbilled at the end of each month (see Note 3 in the
Notes to Financial Statements).
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (INCLUDING ITEM 7A)
---------------------------------
IPL has two business segments (electric and "all other"). Steam
operations are in the "all other" category (See the Notes to Financial
Statements).
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Reform Act), IPL is hereby filing cautionary
statements identifying important factors that could cause IPL's actual results
to differ materially from those projected in forward-looking statements of IPL.
The Reform Act defines forward-looking statements as statements that express an
expectation or belief and contain a projection, plan or assumption with regard
to, among other things, future revenues, income, earnings per share or capital
structure. Such statements of future events or performance are not guarantees of
future performance and involve estimates, assumptions, and uncertainties and are
qualified in their entirety by reference to, and are accompanied by, the
following important factors that could cause IPL's actual results to differ
materially from those contained in forward-looking statements made by or on
behalf of IPL. The words "anticipate," "believe," "estimate," "expect,"
"forecast," "project," "objective" and similar expressions are intended to
identify forward-looking statements.
Some important factors that could cause IPL's actual results or outcomes
to differ materially from those discussed in the forward-looking statements
include, but are not limited to, fluctuations in customer growth and demand,
weather, fuel and purchased power costs and availability, regulatory action,
federal and state legislation, interest rates, labor strikes, maintenance and
capital expenditures and local economic conditions. In addition, IPL's ability
to have available an appropriate amount of production capacity in a timely
manner can significantly impact IPL's financial performance. The timing of
deregulation and competition, product development and introductions of
technology changes are also important potential factors.
All such factors are difficult to predict, contain uncertainties which
may materially affect actual results and are beyond the control of IPL.
IPL's ability to predict results or effects of issues related to the Year
2000 is inherently uncertain, and is subject to factors that may cause actual
results to differ materially from those projected. Factors that could affect the
actual results include the possibility that contingency plans or remediation
efforts will not operate as intended; IPL's failure to timely or completely
identify all software, hardware or embedded chip devices requiring remediation;
unexpected costs; and the uncertainty associated with the impact of Year 2000
issues on the utility industry and on IPL's customers, vendors and others with
whom it does business. See "Year 2000" under the section titled "Other," for
information about IPL's efforts.
LIQUIDITY AND CAPITAL RESOURCES
Nature of Operations and Regulatory Matters
-------------------------------------------
Regulation
- ----------
IPL is a regulated public utility and is principally engaged in providing
electric and steam service to the Indianapolis metropolitan area. As a regulated
entity, IPL is required to use certain accounting methods prescribed by
regulatory bodies which may differ from those accounting methods required to be
used by nonregulated entities (see Note 1 in the Notes to Financial Statements).
Voluntary Early Retirement and Separation Program
- -------------------------------------------------
During 1998, IPL offered a voluntary early retirement and separation
program for certain individuals. Those eligible to participate in the program
were selected by virtue of their positions or job classifications and because of
the impact of efficiency improvements from new technologies. IPL provided 42
employees, who accepted the offer, a lump sum payment in the aggregate amount of
$2.2 million.
Demand Side Management (DSM) Agreement
- --------------------------------------
On July 30, 1997, the IURC issued an order approving, without amendment,
a new settlement agreement for IPL's DSM program. The new agreement resulted in
a reduction in required DSM expenditures, authorization to amortize certain
deferred DSM regulatory assets and the recovery of certain additional DSM costs
through a tracker (see Note 10 in the Notes to Financial Statements).
Authorized Annual Operating Income
- ----------------------------------
During quarterly fuel adjustment clause proceedings, the annual
jurisdictional operating income of IPL's electric business is subject to review.
IPL's steam business is subject to annual fuel adjustment clause proceedings.
Customer refunds could result if actual annual jurisdictional operating income
exceeds levels authorized by the IURC (see Note 1 in the Notes to Financial
Statements). IPL does not anticipate any customer refunds to result from such
reviews during 1999.
Elect Plan
- ----------
During 1998, the IURC approved a plan that allows IPL to offer customers
with less than 2,000 kilowatts of demand an opportunity to choose from optional
payment or service plans. Under the plan, eligible IPL customers may enter into
written contracts for:
Fixed Rate - Pay a guaranteed fixed rate per unit of consumption for up to
three years.
Green Power - Purchase environmentally friendly or "green"
power.
Additionally, residential customers may choose a "Sure Bill" option,
paying the same bill each month for 12 months, regardless of how much
electricity is used. Customers not choosing one of these options continue to
receive electric service under existing tariffs. (See Item 1, BUSINESS, under
the subheading "Retail Ratemaking.")
Competition and Industry Changes
--------------------------------
In recent years, various forms of proposed industry-restructuring
legislation and/or rulemakings have been introduced at the federal level and by
some states. Generally, the intent of these initiatives is to encourage an
increase in competition within the regulated electric utility industry. While
federal rulemaking to date has addressed only the electric wholesale market,
various state legislatures are considering or have enacted new laws impacting
the retail energy markets within their respective states. A discussion of the
legislative and regulatory initiatives most likely to affect IPL follows:
Wholesale Energy Market
- -----------------------
In April 1996, the Federal Energy Regulatory Commission (FERC) issued
Orders 888 and 889 concerning open access transmission service for wholesale
sales. These Orders require all utilities under FERC jurisdiction to: 1. file
open, nondiscriminatory transmission access tariffs with FERC; 2. offer
transmission to eligible customers comparable to service they provide
themselves; 3. take service under the tariffs for their own wholesale sales and
purchases of electricity. FERC Order 888 also provides for the recovery of
utility stranded costs. Stranded cost is defined by FERC as the difference
between revenues received by utilities under traditional ratemaking and
market-based prices.
IPL requested and was initially denied a waiver from compliance with
orders 888 and 889. On October 11, 1996, IPL was granted a stay by FERC, pending
disposition of its request for rehearing. IPL requested a waiver because, among
other reasons, the estimated costs of compliance are expected to exceed revenue
derived from its transmission service for others. To date, FERC has not acted on
IPL's request for rehearing.
Retail Energy Market
- --------------------
The legislatures of a few states have enacted, and many other states are
considering, new laws that would allow various forms of competition for retail
sales of electric energy. While each state proposal is different, most provide
for some recovery of a utility's stranded costs and require an extended
transition period before full competition is fully effective. Additionally, a
few states have implemented pilot programs that experiment with allowing some
form of customer choice of electricity suppliers.
In Indiana, competition among electric energy providers for sales has
focused primarily on the sale of bulk power to other public and municipal
utilities. Indiana law provides for electricity suppliers to have exclusive
retail service areas.
In 1995, the Indiana General Assembly, anticipating increasing
competitive forces in the regulated public utility industry, enacted I.C.
8-1-2.5, which enables the IURC to consider and approve, on an individual
utility basis, utility -initiated proposals that the IURC decline to exercise
jurisdiction over the whole or any part of the utility, or its retail energy
service or both. The IPL Elect Plan was approved by the IURC under this law.
During 1997, the Indiana General Assembly authorized a legislative study
committee to assess the issue of electric utility competition and restructuring.
A comprehensive restructuring bill was introduced in the Indiana Senate in 1998,
but failed to pass. Another comprehensive restructuring bill, Senate Bill 648,
has been submitted in 1999.
IPL's Position on Industry Deregulation
- ---------------------------------------
In general, the foregoing FERC wholesale and state-by-state retail
initiatives are inconsistent with IPL beliefs. IPL favors federal legislation to
deregulate the industry for all companies and all customers across the country
at the same time. IPL believes that customers, particularly residential and
small businesses, are best served by the creation of large, diverse markets.
Such markets enable the development of residential aggregators who can deliver
the same benefits of volume purchasing to residential customers as are enjoyed
by large industrial customers. IPL advocates a single, nondistance-based
transmission access price over wide geographic areas to maximize competition;
turning over transmission system operation to an independent system operator to
avoid gamesmanship by incumbents who own both transmission and generation
assets; rejecting the piecemeal opening of markets in favor of national access
to all markets and rejecting recovery of "stranded costs" due to competition
because such recovery would subsidize certain high-cost generators to the
detriment of competition. Absent a comprehensive national approach, IPL believes
state policy makers must recognize and make allowances for the distorted markets
that will inevitably be created by state-by-state approaches. IPL does not
support Senate Bill 648.
There can be no assurance as to the outcome of the debate on electric
utility industry restructuring. IPL intends to remain competitive in the face of
increasing competition through maintaining its low cost structure and continuing
to serve existing customers well, while accessing the wholesale market as it
continues to open.
New Environmental Standards
- ---------------------------
On July 16, 1997, the United States Environmental Protection Agency (EPA)
promulgated final regulations which amended the National Ambient Air Quality
Standards by introducing standards for fine particulate matter and creating new
ozone standards. On October 27, 1998, the EPA issued a final rule calling for
Indiana, along with 22 other jurisdictions in the eastern third of the United
States, to impose more stringent limits on emission of nitrogen oxides from
fossil-fuel fired steam electric generators, such as those operated by IPL.
Because power plants emit nitrogen oxides, as well as certain air pollutants
that could contribute to the formation of fine particulate matter, there is a
possibility that existing IPL sources will be required to be retrofitted with
additional air pollution controls in the future. Numerous entities, including
eight states, IPL and scores of other electric utilities, have challenged EPA's
1998 rule on nitrogen oxides in the United States Court of Appeals. Due to these
uncertainties, it is not presently possible to predict the effects of these
standards on IPL.
Liquidity, Financing Requirements and Capital Market Access
-----------------------------------------------------------
Liquidity is the ability of an entity to meet its short-term and
long-term cash needs. IPL's liquidity is a function of its ability to generate
internal funds, its construction program, its mortgage covenants and loan
agreements and its access to external capital markets.
Sustaining investment grade debt ratings is also a key element for having
adequate liquidity and financial flexibility. As of December 31, 1998, IPL's
senior secured debt was rated AA- by Standard & Poor's, Aa2 by Moody's Investor
Services and AA by Duff & Phelps, and IPL's commercial paper was rated A-1+ by
Standard & Poor's and P-1 by Moody's Investor Services. IPL expects to be able
to maintain investment grade debt ratings into the foreseeable future.
IPL has no long-term debt that matures during 1999. However, other
existing higher-rate debt may be refinanced depending upon market conditions.
On January 13, 1998, IPL issued $50 million of Cumulative Preferred Stock
with a rate of 5.65%. The stock will be redeemable at par value, subject to
certain restrictions, in whole or in part, at any time on or after January 1,
2008, at the option of IPL.
During the next five years, IPL is forecasted to meet its cash
requirements without any additional permanent financing. Cash flows from
operations and temporary short-term borrowings are forecasted to provide the
funds required for IPL's construction program. See the following section for
discussion of the construction program.
Future Performance
------------------
Traditionally, retail KWH sales, after adjustments for weather
variations, have grown in close correlation with growth in service territory
economic activity. During the past 10 years, IPL's retail KWH sales have grown
at a compound annual rate of 2.1%, while the Indianapolis economy grew at an
annual rate of 2.3%. The Indianapolis economy is expected to grow at an annual
rate of 2.4% for 1999 through 2003.
IPL's wholesale KWH sales doubled in 1998 over the level achieved in
1997. As IPL's retail sales grow the amount of generating capacity available for
wholesale sales is more limited. Moreover, IPL plans to perform overhaul
maintenance on more megawatts of generating capacity in 1999 than in 1998 which
further reduces the amount of generating capacity available for wholesale sales.
The ability to sell power in the highly competitive wholesale market is also
highly dependent on market conditions. IPL is unable to predict with any degree
of certainty the level of wholesale sales that may be achieved in 1999.
Operating and maintenance expenses were $423.3 million in 1998. These
expenses in 1999 will be influenced by the level of KWH generation, generating
unit availability and overhaul costs, expected increased purchased power costs
(see Note 13 in the Notes to Financial Statements), cost control programs and
inflation.
IPL's construction program for the three-year period 1999-2001 is
estimated to cost $259.5 million including AFUDC. The estimated cost of the
program by year (in millions) is $96.2 in 1999, $95.6 in 2000 and $67.7 in 2001.
It includes $147.8 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage
regulating equipment, distribution transformers and street lighting
distribution. The construction program includes $26.5 million for construction
of a 100-megawatt combustion turbine expected to be in service by 2001.
Other
-----
Cumulative Effect of Accounting Change
- --------------------------------------
On December 31, 1997, effective January 1, 1997, IPL adopted the unbilled
revenues method of accounting for all electric and steam sales to more closely
match revenues with expenses. Under this method, IPL accrues revenues for all
electric and steam energy delivered to customers during the period whether
billed or not. Previously, IPL recognized these revenues only as customers were
billed, with the service rendered after monthly meter reading dates through the
end of a calendar month recognized as operating revenues in the following month.
The cumulative effect of this change in accounting method as of January 1, 1997,
net of income taxes, was a one-time income increase of $18.3 million and was
reported as a separate component of net income for 1997. This accounting change
does not impact IPL's cash flow or liquidity (see Note 3 of the Notes to
Financial Statements for additional information concerning this accounting
change).
Preferred Stock, Debt Issuance and Dividend Restrictions
- --------------------------------------------------------
Restrictions on IPL's ability to issue certain securities or pay cash
dividends are contained in its Mortgage and Deed of Trust (Mortgage) and its
Amended Articles of Incorporation (Articles). The Articles require that the net
income of IPL, as specified therein, be at least one and one-half times the
total interest on the funded debt and the pro forma dividend requirements on the
outstanding, and any proposed, preferred stock before any additional preferred
stock is issued. The Mortgage requires that net earnings as calculated
thereunder be two and one-half times the annual interest requirements before
additional bonds can be authenticated on the basis of property additions. Based
on IPL's net earnings for the 12 months ended December 31, 1998, the ratios
under the Articles and the Mortgage are 5.09 and 11.62, respectively (see Note 6
in the Notes to Consolidated Financial Statements). IPL believes these
requirements will not restrict any anticipated future financings or cash
dividend payments. At December 31, 1998, and considering all existing
restrictions, IPL had the capacity to issue approximately $1.1 billion of
additional long-term debt.
Market Risk Sensitive Instruments and Positions
- -----------------------------------------------
The primary market risk to which IPL is exposed is related to interest
rate risk. IPL uses long-term debt as a primary source of capital in its
business. A portion of this debt has an interest component that resets on a
periodic basis to reflect current market conditions. IPL had $478.8 million of
fixed rate and $150 million of variable rate long-term debt outstanding at
December 31, 1998. The weighted average interest rates of IPL's fixed rate and
variable rate long-term debt were 6.7% and 4.0%, respectively, at December 31,
1998. There are no maturities or sinking fund requirements on long-term debt for
the five years subsequent to December 31, 1998. The fair values of the fixed
rate and variable rate long-term debt were $517.0 million and $150.0 million at
December 31, 1998.
To manage IPL's exposure to fluctuations in interest rates and to lower
funding costs, IPL has entered into an interest rate swap. Under this swap, IPL
agrees with counterparties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated on an agreed
notional amount. This interest differential paid or received is recognized in
the statements of income as a component of interest expense. At December 31,
1998, IPL's interest rate swap agreement had a notional amount of $40 million,
and it expires in January 2023. IPL agrees to pay interest at a fixed rate of
5.21% to a swap counter party and receive a variable rate based on the
tax-exempt weekly rate.
Year 2000
- ---------
IPL is potentially subject to operational problems associated with the
inability of various computer hardware, software and devices containing embedded
chips to properly process the year change from 1999 to 2000. Such problems could
conceivably affect IPL's ability to deliver electricity or steam to its
customers, as well as IPL's internal operations such as billing or payroll
functions. Further, Year 2000 problems experienced by other entities, over which
IPL has no control, such as certain suppliers or other electric utilities with
which IPL is interconnected, could adversely affect IPL's operations.
In 1997, IPL established a Year 2000 Committee. IPL currently manages the
Year 2000 project through two employee committees, the Compliance Testing
Committee and the Contingency Planning Committee, each headed by corporate
officers. Each of those committees reports to a Year 2000 Steering Committee
composed of officers. The Year 2000 Steering Committee reports to the Office of
the Chairman.
The IURC has ordered all Indiana public utilities, including IPL, to "use
their best efforts to identify their mission critical operations and conduct an
inventory of all electronic devices that may be affected by date processing
logic, assess the status of these devices, take steps to correct problems in the
devices and test the devices to determine compliance" in order to be "Year 2000
ready."
The Compliance Testing Committee is engaged in inventorying, reviewing,
analyzing, correcting and testing computer-related systems and embedded chip
devices. The Contingency Planning Committee is in the process of assessing
various operating scenarios associated with potential Year 2000 problems and
formulating plans by which to operate IPL in the event of such problems. Both
the Compliance Testing Committee and the Contingency Planning Committee are
concentrating first on systems critical to the continuity of IPL's business.
Non-critical systems have lower priorities.
IPL is participating in an Electric Power Research Institute program on
the Year 2000 issue, as well as the North American Electric Reliability Council
system readiness assessments.
IPL's Year 2000 Plan includes attention to its generating facilities,
energy management systems, telecommunications systems, substation control and
protection systems, transmission and distribution systems, business information
systems, financial systems and business partners. It includes efforts, such as
assessing Year 2000 risks to computer hardware, software and embedded systems;
identifying options and solutions; evaluating solutions; repairing, upgrading
and replacing systems; testing systems; and contingency planning.
State of Readiness
A. Identification and Assessment
The Compliance Testing Committee is coordinating and reviewing the
enterprise-wide use of information technology and assessing potential Year 2000
problems. That effort involves making an inventory of applications and systems
and evaluating exposures associated with, for example, vendor-provided software
and hardware, IPL-developed software, and various devices containing embedded
chips. The Committee is also in contact with vendors to determine product
compliance and vendors' timeframes for compliance. Computer systems being
reviewed include hardware, machine microcode and firmware, operating systems,
generic applications software, billing software, communications software and
financial software.
The Compliance Testing Committee continues to assess computer systems and
embedded chip devices related to IPL's:
Electricity generating stations and plants producing steam;
Energy management systems;
Substation controls, system protection, and transmission and
distribution systems;
Telecommunications systems; and
Business information systems.
IPL has essentially completed the identification, inventory and
assessment phases for critical systems.
B. Remediation and Testing
The Compliance Testing Committee is coordinating, modifying or replacing
legacy systems which may not be Year 2000 compliant. IPL is in the process of
replacing most of its key financial software applications. Although that project
was not specifically initiated as a Year 2000 effort, it will coincidentally
result in replacement of non-compliant software.
The Compliance Testing Committee is also engaged in establishing and
operating appropriate testing environments to determine, to the extent possible,
the Year 2000 compliance of existing systems and/or devices and the compliance
of replacement or upgraded systems and devices. IPL may employ one or more of
the following techniques: component tests, simulations, outside testing, vendor
verifications or upgrades or change-outs. Some devices or systems, such as
satellite communication links, may not be susceptible to testing, in which cases
IPL must rely on the service providers' verifications.
IPL has inquired of its suppliers and vendors of software,
computer-related equipment, devices and services about Year 2000 compliance.
Some provided the required information and/or assurances and some did not.
IPL's operations could be adversely affected by Year 2000-related
failures of other companies, such as telecommunication providers, that supply
IPL with mission-critical services. Similarly, Year 2000 failures of other
utilities with which IPL is interconnected could adversely affect IPL's ability
to deliver services to its customers.
IPL currently expects to complete the remediation and testing phases for
critical systems by the end of the second quarter 1999 and estimates that it is
now approximately 65% complete.
Costs to Address IPL's Year 2000 Issues
Not including the cost of replacing IPL's business software, a project
not initiated specifically for Year 2000 reasons but which will provide Year
2000 benefits through replacing non-compliant software, IPL currently estimates
that its costs of the phases of identification, assessment, remediation and
testing may be approximately $4 million, which IPL believes is not material to
its results of operations, liquidity and financial condition. Of that figure,
IPL has currently expended approximately $1.2 million. A substantial proportion
of the costs of remediation are associated with functional areas of IPL other
than Information Services. IPL currently estimates that its costs of contingency
planning efforts may be approximately $1.5 million.
Risks of IPL's Year 2000 Issues
In light of the numerous computer-related systems and embedded chip
devices present in business and production equipment used by a utility, and the
interdependent nature of control systems, a large number of potential Year 2000
failure scenarios exist, potentially involving IPL's internal functions (such as
billing), as well as its steam and electricity generation and distribution
functions. Consequences could conceivably range from essentially no operational
problems to a massive disruption of steam and electric service lasting for a
significant period of time. Further, since IPL does not stand alone but is
electrically interconnected with other utilities across a substantial portion of
the nation, even if IPL experiences no significant Year 2000 problems associated
with its own equipment, its ability to deliver electricity could be adversely
affected by Year 2000 failures experienced by other interconnected utilities.
IPL currently expects to experience at least some, hopefully minor, problems
associated with Year 2000. Some particularly bleak, yet conceivable, Year 2000
failure scenarios could be material to IPL's results of operations.
There are both external and internal risks associated with Year 2000 that
could affect IPL's steam and electricity generation, transmission and
distribution operations. Potential internal risk factors include, but are not
limited to, increased risk of generator trips, inability to start or restart
generators, increased risk of transmission facility trips, loss of energy
management systems, loss of Company-owned voice/data communications, system
protection (relay) failures resulting in cascading outages or facility damage,
failure of load-shedding controls to operate properly, failure of load
management systems to operate properly, loss of or incorrect critical operating
data, failure of environmental control systems, loss of distribution systems or
failure of voltage control devices to operate properly. Occurrences of those
internal problems, alone or in combination, could result in varying effects on
IPL's operations.
External risk factors include, but are not limited to, loss of customer
load, uncharacteristic load patterns, loss of leased communication facilities,
failure of delivery systems to maintain supplies of fuel and severe or cold
weather. Occurrences of various of those events, alone or in combination, could
result in varying effects on IPL.
Particularly with respect to responding to contingencies that might
occur, unavailability of skilled labor could exacerbate Year 2000 problems. The
current collective bargaining agreement between IPL and the International
Brotherhood of Electrical Workers, the union representing IPL's production,
distribution, construction and maintenance employees, expires on December 13,
1999. That union rejected a proposed one-year extension of the collective
bargaining agreement that was proposed by management so that negotiations would
not occur near the end of calendar year 1999.
IPL's insurance policies, including policies for liability and property
damage, currently expire, are up for renewal or have anniversary dates during
1999. IPL currently expects that, in line with a general trend in the insurance
industry, insurance policies purchased or renewed during 1999 may exclude
coverage of Year 2000 events or certain elements of damage potentially flowing
therefrom.
In light of the many adverse circumstances that could happen to IPL
associated with Year 2000, along with the speculation that some or many of them
may not happen, it is extremely difficult to hypothesize a most reasonably
likely worst case Year 2000 scenario with any degree of certainty. With that in
mind, IPL currently believes the most reasonably likely worst case scenario
would be the temporary loss of one or more generation units resulting in
interruptions of power to IPL customers. IPL does not believe that the worst
case scenario will occur and, should it occur, IPL believes that the
consequences of that scenario, with regard to either costs of repair or lost
revenues, are not likely to have a material effect on IPL's results of
operations, liquidity and financial condition.
IPL's Contingency Plans
The Contingency Planning Committee is engaged in reviewing hypothetical
scenarios involving various system or device failures and preparing plans by
which to operate IPL in the event those failures occur. IPL's contingency
planning efforts are not yet complete, but are underway within the scope of an
overall outline. IPL's contingency planning involves the phases of plan
development, testing, execution and recovery after Year 2000 events. As with
compliance testing, contingency planning touches essentially every area of IPL's
operations, as well as interactions with interconnected utilities, customers,
critical vendors and emergency and other governmental authorities.
The planning phase attempts to identify and evaluate potential impacts on
business operations, life, property, and the environment; develop emergency
plans including establishing procedures for mitigation of failures and evaluate
contingency planning being done on systems that interface with IPL's systems;
identify dates of action for various contingencies; establish responsibility and
authority for various response efforts; and establish and perform a training
program with respect to responding to contingencies, including practicing and
testing the contingency plans and coordinating the efforts with governmental
functions.
Contingency planning may include consideration of potential interruptions
in the supply chain or transportation of critical fuel, water, chemicals,
material supplies etc., and acquisition of appropriate extra supplies, as well
as potential failures of or other problems associated with the interconnected
electricity grid. Similarly, consideration may be given to cooperative
arrangements with other utilities in the event that Year 2000 problems impact
the supply of skilled labor to effect remediation actions. IPL's existing
disaster recovery plans may form bases for some Year 2000 contingency plans.
In the testing phase, various drills may be conducted to test the plan's
effectiveness. Modifications may be made where testing indicates a need. In the
execution phase, IPL will operate its contingency plans in response to events
actually occurring.
After Year 2000 events, if any, IPL will execute its post-event
contingency plans as required. It will test its system functions, review the
results, restore and restart systems, and notify appropriate authorities of the
resolution of problems.
Cash Flows
- ----------
Additional information regarding IPL's historical cash flows from
operations, investing and financing for the past three years, including the
capital expenditures of IPL, is disclosed in the Statements of Cash Flows and in
the Notes to Financial Statements.
RESULTS OF OPERATIONS
Income applicable to common stock decreased by $3.0 million in 1998
compared to 1997. Income applicable to common stock increased by $29.6 million
in 1997 compared to 1996. The following discussion highlights the factors
contributing to these increases.
The 1998 income applicable to common stock was affected by a pretax gain
of $12.5 million ($7.8 million, net of tax) resulting from the liquidation and
termination of an agreement to purchase power (see Note 13 in Notes to Financial
Statements).
The 1997 income applicable to common stock included a one-time cumulative
effect adjustment of $18.3 million, net of taxes, resulting from IPL's change to
the unbilled revenue method of accounting. The 1997 income applicable to common
stock also included a $5.7 million gain ($3.5 million, net of tax) from the sale
of a retired plant site (see Notes 2 and 3 in the Notes to Financial
Statements).
Utility Operating Revenues
- --------------------------
Operating revenues in 1998 and 1997 increased from the prior year by $44.8
million and $13.9 million, respectively. The increases in revenues resulted from
the following:
Increase (Decrease)
-------------------
1998 over 1997 1997 over 1996
-------------- --------------
(Millions of Dollars)
Electric:
Increase in retail basic rates $ - $ 12.7
Change in retail KWH sales - net of fuel 14.5 (7.4)
Fuel revenue 3.5 (4.7)
Wholesale revenue 28.0 8.6
DSM tracker revenue 1.3 1.3
Steam revenue (2.9) .6
Other revenue .4 2.8
------- -------
Total change in operating revenues $ 44.8 $ 13.9
======= =======
The increase in retail KWH sales in 1998 reflects economic growth in
Indianapolis and an increase in cooling degree days during the summer partially
offset by a decrease in heating degree days during the mild winter of 1998. The
increase in retail basic rates in 1997 is the result of new tariffs, effective
July 1, 1996, designed to produce additional annual base revenues of $25
million. The decrease in retail KWH sales in 1997 reflects a decrease in cooling
and heating degree days in 1997, compared to 1996, due to milder weather. In
both years, total KWH sales, including wholesale KWH sales, increased. Actual
and percentage changes in electric customers and in heating and cooling degree
days for these periods are as follows:
Increase (Decrease)
-------------------
1998 over 1997 1997 over 1996
-------------- --------------
Electric Residential Customers 5,257 1.4% 4,657 1.3%
Commercial & Industrial Customers 1,169 2.6% 1,048 2.4%
Heating Degree Days (1,261) (22.2)% (203) (3.4)%
Cooling Degree Days 381 43.8% (121) (12.2)%
The changes in fuel revenues in 1998 and 1997 from the prior year reflect
differences in fuel costs billed to customers. Wholesale sales were $51.1
million, $23.1 million and $14.5 million for 1998, 1997 and 1996, respectively.
The increases in wholesale revenues in 1998 and 1997 reflect increased wholesale
marketing efforts and energy requirements of other utilities in those years. The
increases in other revenues represent increased service revenues.
Utility Operating Expenses
- --------------------------
Fuel expense increased in 1998 by $16.5 million and only slightly in 1997
from the prior years. The increases were primarily due to increased total KWH
sales.
Other operating expenses in 1998 and 1997 increased from the prior year
by $12.3 million and by $6.1 million, respectively. The increase in 1998 was
partially due to increased administrative and general expenses of $7.7 million.
This increase was due to payments for the voluntary early retirement and
separation program as well as increased outside services and increased labor
costs. Electric distribution expenses also increased $1.7 million and production
expenses increased $1.5 million during 1998. The increase in 1997 was primarily
due to increased administrative and general expense of $6.0 million resulting
from increased outside services and labor costs. Also contributing to the 1997
increase was increased amortization of DSM program expenses of $2.3 million
partially offset by decreased expense at the production plants.
Power purchased decreased by $.7 million and $10.5 million during 1998
and 1997, respectively, compared to the prior periods. The decrease in 1998 was
due to decreased demand charges partially offset by increased purchases of KWH.
The 1997 decrease was primarily due to reduced demand charges as a result of a
new power purchase contract.
Purchased steam decreased during 1998 and 1997 primarily due to decreased
therms purchased from an independent resource recovery system located within the
city of Indianapolis.
Maintenance expenses decreased by $3.2 million during 1998 and increased
by $8.9 million during 1997. The decrease in 1998 was primarily due to decreased
overhaul expenses. The increase in 1997 was primarily due to an overhaul of Unit
3 at Petersburg, as well as repairs to Unit 7 at the Stout plant.
Taxes other than income taxes increased $2.0 million during 1998 while
decreasing $.3 million in 1997. The increase in 1998 was due to increased
property taxes, gross income taxes and employment taxes. The decrease in 1997
was due to decreased property and gross income taxes.
Income taxes - net increased in both 1998 and 1997 from the prior years by
$6.9 million and $5.1 million, respectively. These changes reflect increases in
pretax operating income.
Other Income And Deductions
- ---------------------------
Allowance for equity funds used during construction decreased $2.1
million and $2.5 million during 1998 and 1997, respectively. In mid 1997, the
amortization of deferred carrying charges on a plant asset ended contributing to
the decreases in both 1998 and 1997. Also contributing to the 1997 variance were
decreased carrying charges on other regulatory assets of $1.2 million.
Other-net, which includes the pretax non-operating income from IPL,
decreased by $4.7 million during 1998, and increased by $7.0 million during
1997, as compared to the prior years. The decrease in 1998 was primarily related
to the non-recurring gain from the sale of a retired plant site in 1997. The
increase during 1997 was due to a $5.7 million pretax gain from the sale of the
retired plant site. Also contributing to the increase in other-net during 1997
was an increase in net revenues for contract work by IPL.
During 1998, a gain from the liquidation and termination of an agreement
to purchase power was recognized by IPL in the amount of $12.5 million before
taxes.
Interest Charges
- ----------------
Interest on long-term debt decreased by $.4 million in 1998 and by $4.6
million in 1997 from the prior years. The decrease in 1998 was due to the
redemption of $11.3 million 5 5/8% Series in May 1997. The decrease in interest
expense for 1997 was due to the redemption of $15 million 5 1/8% Series in April
1996, $50 million 9 5/8% Series in December 1996 and $11.3 million 5 5/8% Series
in May 1997, partially offset by the issuance of a $20 variable rate note in
November 1996.
Other interest charges decreased by $.6 million during 1998 and $2.4
million during 1997, from the prior years. The decrease in 1998 was due to
decreased interest on tax assessments and decreased interest on short-term debt
borrowings. The decrease during 1997 was primarily due to decreased short-term
debt borrowings.
As compared to the prior year, the allowance for borrowed funds used during
construction decreased in 1997 by $2.4 million due to a decreased construction
base for that period.
Cumulative Effect of Accounting Change
- --------------------------------------
A cumulative effect of accounting change in the amount of $18.3 million,
net of taxes, was recorded during 1997. Effective January 1, 1997, IPL adopted
the unbilled revenues method of accounting for electricity and steam delivered
during the period. Revenues are accrued for services provided but unbilled at
the end of each month (see Note 3 in the Notes to Financial Statements).
New Accounting Pronouncement
- ----------------------------
The Financial Accounting Standards Board has issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," that IPL will be required to adopt in 2000 (see Note 1 in the Notes
to Financial Statements for further discussion).
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEPENDENT AUDITORS' REPORT
============================
To the Board of Directors of Indianapolis Power & Light Company:
We have audited the accompanying balance sheets of Indianapolis Power & Light
Company as of December 31, 1998 and 1997, and the related statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of IPL'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, such financial statements present fairly, in all material
respects, the financial position of Indianapolis Power & Light Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
As discussed in Note 3 to the Financial Statements, in 1997 the Company
changed its method of accounting for unbilled revenue.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
January 22, 1999
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Income
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands)
OPERATING REVENUES (Notes 3 and 10):
<S> <C> <C> <C>
Electric $ 785,835 $ 738,134 $ 724,764
Steam 35,421 38,293 37,739
------------- -------------- --------------
Total operating revenues 821,256 776,427 762,503
------------- -------------- --------------
OPERATING EXPENSES:
Operation:
Fuel 181,036 164,578 164,339
Other 155,610 143,311 137,192
Power purchased 7,170 7,833 18,365
Purchased steam 5,968 7,075 7,240
Maintenance 73,501 76,679 67,768
Depreciation and amortization 103,223 103,230 102,769
Taxes other than income taxes 35,047 33,071 33,363
Income taxes - net (Note 9) 80,190 73,335 68,248
------------- -------------- --------------
Total operating expenses 641,745 609,112 599,284
------------- -------------- --------------
OPERATING INCOME 179,511 167,315 163,219
------------- -------------- --------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 1,389 3,462 5,967
Other - net (158) 4,507 (2,527)
Gain on termination of agreement (Note 13) 12,500 - -
Income taxes - net (Note 9) (4,196) (1,105) 982
------------- -------------- --------------
Total other income - net 9,535 6,864 4,422
------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 189,046 174,179 167,641
------------- -------------- --------------
INTEREST CHARGES:
Interest on long-term debt 38,395 38,809 43,425
Other interest 675 1,243 3,638
Allowance for borrowed funds used during construction (911) (945) (3,354)
Amortization of redemption premiums and expenses on
debt - net 1,740 1,670 1,344
------------- -------------- --------------
Total interest charges 39,899 40,777 45,053
------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 149,147 133,402 122,588
------------- -------------- --------------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3) - 18,347 -
------------- -------------- --------------
NET INCOME 149,147 151,749 122,588
------------- -------------- --------------
PREFERRED DIVIDEND REQUIREMENTS 3,119 2,760 3,182
------------- -------------- --------------
INCOME APPLICABLE TO COMMON STOCK $ 146,028 $ 148,989 $ 119,406
============= ============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Balance Sheets
December 31, 1998 and 1997
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
(In Thousands)
UTILITY PLANT:
<S> <C> <C>
Utility plant in service (Note 2) $ 2,859,899 $ 2,800,446
Less accumulated depreciation 1,202,356 1,121,317
---------------- ----------------
Utility plant in service - net 1,657,543 1,679,129
Construction work in progress 80,198 77,030
Property held for future use 10,719 10,224
---------------- ----------------
Utility plant - net 1,748,460 1,766,383
---------------- ----------------
OTHER PROPERTY -
At cost, less accumulated depreciation 5,790 5,171
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 4,250 4,950
Accounts receivable and unbilled revenue (less allowance for doubtful
accounts - 1998, $996,000 and 1997, $1,005,000) (Note 3) 36,692 43,053
Fuel - at average cost 38,968 35,000
Materials and supplies - at average cost 48,163 47,648
Tax refund receivable 7,643 4,393
Prepayments and other current assets 3,634 4,093
---------------- ----------------
Total current assets 139,350 139,137
---------------- ----------------
DEFERRED DEBITS:
Regulatory assets (Note 5) 116,801 126,784
Miscellaneous 12,665 12,297
---------------- ----------------
Total deferred debits 129,466 139,081
---------------- ----------------
TOTAL $ 2,023,066 $ 2,049,772
================ ================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1998 1997
- --------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CAPITALIZATION (See Notes 6 and 7):
Common shareholder's equity
Common stock, no par, authorized - 20,000,000 shares,
issued and outstanding - 17,206,630 shares in 1998,
17,206,630 shares in 1997 $ 324,537 $ 324,537
Premium and net gain on preferred stock 2,642 2,329
Retained earnings 440,747 508,626
---------------- ---------------
Total common shareholder's equity 767,926 835,492
Cumulative preferred stock 59,135 9,135
Long-term debt (Note 2) 627,893 627,840
---------------- ---------------
Total capitalization 1,454,954 1,472,467
---------------- ---------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper (Note 8) 19,200 23,700
Accounts payable and accrued expenses 64,461 63,970
Dividends payable 13,158 13,290
Taxes accrued 18,283 18,674
Interest accrued 13,326 13,258
Other current liabilities 13,731 12,556
---------------- ---------------
Total current liabilities 142,159 145,448
---------------- ---------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Deferred income taxes - net (Note 9) 328,417 325,386
Unamortized investment tax credit 41,993 44,783
Accrued postretirement benefits (Note 11) 10,768 17,144
Accrued pension benefits (Note 11) 39,953 39,821
Miscellaneous 4,822 4,723
---------------- ---------------
Total deferred credits and other long-term liabilities 425,953 431,857
---------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 12)
TOTAL $ 2,023,066 $ 2,049,772
================ ===============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C> <C>
Net income $ 149,147 $ 151,749 $ 122,588
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 100,829 98,908 97,313
Amortization of regulatory assets 11,507 15,405 17,680
Deferred income taxes and investment tax credit adjustments - net (2,483) 12,669 3,195
Allowance for funds used during construction (2,300) (4,407) (9,321)
Cumulative effect of accounting change - before taxes (Note 3) - (29,915) -
Premiums on redemptions of debt - - (3,128)
Change in certain assets and liabilities:
Accounts receivable - excluding cumulative effect
of accounting change 6,361 (5,246) 49,260
Fuel, materials and supplies (4,483) (500) 4,293
Accounts payable 491 7,433 (16,516)
Taxes accrued (391) (947) 598
Accrued pension benefits 132 2,538 5,449
Other - net (9,338) (6,200) (17,177)
------------- -------------- -------------
Net cash provided by operating activities 249,472 241,487 254,234
------------- -------------- -------------
CASH FLOWS FROM INVESTING:
Construction expenditures (79,458) (73,130) (78,543)
Other 1,637 (1,528) (13,488)
------------- -------------- -------------
Net cash used in investing activities (77,821) (74,658) (92,031)
------------- -------------- -------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt - - 20,000
Issuance of preferred stock (Note 6) 50,000 - -
Retirement of long-term debt - (11,250) (65,150)
Preferred stock redemptions (Note 6) - (41,814) -
Short-term debt - net (4,500) (10,300) (31,022)
Dividends paid (217,362) (107,384) (86,811)
Other (489) 29 (365)
------------- -------------- -------------
Net cash used in financing activities (172,351) (170,719) (163,348)
------------- -------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (700) (3,890) (1,145)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,950 8,840 9,985
------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,250 $ 4,950 $ 8,840
============= ============== =============
- ------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest (net of amount capitalized) $ 38,644 $ 39,837 $ 45,339
============= ============== =============
Income taxes $ 90,467 $ 75,621 $ 67,979
============= ============== =============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Retained Earnings
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
RETAINED EARNINGS AT BEGINNING OF YEAR $ 508,626 $ 456,349 $ 421,229
NET INCOME 149,147 151,749 122,588
----------- ----------- -----------
Total 657,773 608,098 543,817
DEDUCT:
Cash dividends declared:
Cumulative preferred stock - at prescribed
rate of each series (See Note 6) 3,119 2,760 3,182
Common stock 213,417 96,712 84,286
Capital stock expense 490 - -
-------------- ------------- -------------
Total 217,026 99,472 87,468
-------------- ------------- -------------
RETAINED EARNINGS AT END OF YEAR $ 440,747 $ 508,626 $ 456,349
============== ============= =============
See notes to financial statements.
</TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
==================================
Notes to Financial Statements
For the Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
All the outstanding common stock of Indianapolis Power & Light Company
(IPL) is owned by IPALCO Enterprises, Inc. At December 31, 1998 and 1997, IPL
had a receivable, which is due on demand, for advances made to IPALCO.
Nature of Operations: IPL is engaged principally in providing electric and
steam service to the Indianapolis metropolitan area.
Concentrations of Risk: Substantially all of IPL's business activity is
with customers located within the Indianapolis area. In addition, approximately
67% of IPL's employees are covered by collective bargaining agreements. In
December 1999, the contract of approximately 75% of those employees covered by
collective bargaining agreements will expire.
Regulation: The retail utility operations of IPL are subject to the
jurisdiction of the Indiana Utility Regulatory Commission (IURC). IPL's
wholesale power transactions are subject to the jurisdiction of the Federal
Energy Regulatory Commission. These agencies regulate IPL's utility business
operations, tariffs, accounting, depreciation allowances, services, security
issues and the sale and acquisition of utility properties. The financial
statements of IPL are based on generally accepted accounting principles,
including the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," which gives
recognition to the ratemaking and accounting practices of these agencies.
Revenues: Effective January 1, 1997, IPL adopted the unbilled revenues
method of accounting for electric and steam delivered during the period (see
Note 3). Revenues are accrued for services provided but unbilled at the end of
each month.
A fuel adjustment charge provision, which is established after public
hearing, is applicable to most of the rate schedules of IPL and permits the
billing or crediting of estimated fuel costs above or below the levels included
in such rate schedules. Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively.
Authorized Annual Operating Income: Indiana law requires electric
utilities under the jurisdiction of the IURC to meet operating expense and
income requirements as a condition for approval of requested changes in fuel
adjustment charges. Additionally, customer refunds may result if the utilities
rolling 12-month operating income, determined at quarterly measurement dates,
exceeds the utilities' authorized annual operating income and cannot be offset
by applicable cumulative net operating income deficiencies. In such a
circumstance, the required customer refund for the quarterly measurement period
is calculated to be one-fourth of the excess annual operating income grossed up
for federal and state taxes.
Effective July 1, 1996, IPL's authorized annual jurisdictional electric
net operating income, for purposes of quarterly operating income tests, is $163
million, as established in an IURC order dated August 24, 1995. This level will
be maintained until changed by an IURC order. During 1998, IPL's rolling annual
jurisdictional electric operating income was less than the authorized annual
operating income at each of the quarterly measurement dates (January, April,
July and October). At October 31, 1998, IPL's most recent quarterly measurement
date, IPL had a cumulative net operating deficiency of $65.4 million, of which $
14.7 million expires at varying amounts during the period ending September 1,
2000. The operating deficiency is calculated by summing the 20 most recent
quarterly measurement period annual results. As a consequence, IPL could, for a
period of time, earn above $163 million of electric net operating income without
being required to make a customer refund.
Through the date of IPL's next general electric rate order, IPL is
required to file upward and downward adjustments in fuel cost credits and
charges on a quarterly basis, based on changes in the cost of fuel, irrespective
of its level of earnings.
Pursuant to an order of the IURC, IPL's authorized annual steam net
operating income is $6.2 million, plus any cumulative annual underearnings
occurring during the five-year period subsequent to the implementation of the
new rate tariffs. During 1998, IPL's annual jurisdictional steam operating
income was less than the authorized annual operating income at the January 31,
1998, measurement date.
Allowance For Funds Used During Construction: In accordance with the
prescribed uniform system of accounts, IPL capitalizes an allowance for the net
cost of funds (interest on borrowed funds and a reasonable rate on equity funds)
used for construction purposes during the period of construction with a
corresponding credit to income. IPL capitalized amounts using pretax composite
rates of 9.7%, 9.1% and 7.3% during 1998, 1997 and 1996, respectively.
Utility Plant and Depreciation: Utility plant is stated at original cost
as defined for regulatory purposes. The cost of additions to utility plant and
replacements of retirement units of property, as distinct from renewals of minor
items that are charged to maintenance, are charged to plant accounts. Units of
property replaced or abandoned in the ordinary course of business are retired
from the plant accounts at cost; such amounts plus removal costs, less salvage,
are charged to accumulated depreciation. Depreciation is computed by the
straight-line method based on functional rates approved by the IURC and averaged
3.5% during 1998 and 1997 and 3.4% during 1996. Depreciation expense for 1997
and 1996 include adjustments to spare parts inventory of $0.6 million and $4.5
million, respectively, resulting from recognition of the impairment in value of
excess spare parts.
Sale of Accounts Receivable: IPL has sold, on a revolving basis, an
undivided percentage interest in $50 million of its accounts receivable.
Regulatory Assets: Regulatory assets represent deferred costs that have
been, or that are expected to be, included as allowable costs for ratemaking
purposes. IPL has recorded regulatory assets relating to certain costs as
authorized by the IURC. Specific regulatory assets are disclosed in Note 5. As
of December 31, 1998, all nontax-related regulatory assets have been included as
allowable costs in orders of the IURC (see Note 10). IPL is amortizing such
regulatory assets to expense over periods authorized by these orders.
Tax-related regulatory assets represent the net income tax costs to be
considered in future regulatory proceedings generally as the tax related amounts
are paid .
In accordance with regulatory treatment, IPL deferred as a regulatory
asset certain post in-service date carrying charges and certain other costs
related to its investment in Petersburg Unit 4. As authorized in the 1995
Electric Rate Settlement (see Note 10), IPL, effective September 1, 1995, is
amortizing this deferral to expense over a life that generally approximates the
useful life of the related facility. Also in accordance with regulatory
treatment, IPL defers as regulatory assets non-sinking fund debt and preferred
stock redemption premiums and expenses, and amortizes such costs over the life
of the original debt, or, in the case of preferred stock redemption premiums,
over 20 years.
Derivatives: IPL has only limited involvement with derivative financial
instruments and does not use them for trading purposes. IPL entered into an
interest rate swap agreement as a means of managing the interest rate exposure
on one of its debt facilities. This interest rate swap is accounted for under
the accrual method. Under this method, the differential to be paid or received
on the interest rate swap agreement is recognized over the life of the agreement
in interest expense. Changes in market value of the interest swap accounted for
under the accrual method are not reflected in the accompanying financial
statements.
Income Taxes: Deferred taxes are provided for all significant temporary
differences between book and taxable income. The effects of income taxes are
measured based on enacted laws and rates. Such differences include the use of
accelerated depreciation methods for tax purposes, the use of different book and
tax depreciable lives, rates and in-service dates and the accelerated tax
amortization of pollution control facilities. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of existing
differences between the financial reporting and tax reporting basis of assets
and liabilities.
IPL has recorded as regulatory assets and net deferred tax liabilities,
income taxes payable and includable in allowable costs for ratemaking purposes
in future years.
Investment tax credits that reduced federal income taxes in the years
they arose have been deferred and are being amortized to income over the useful
lives of the properties in accordance with regulatory treatment.
IPL participates in a tax sharing agreement with the consolidated IPALCO
group which allocates taxes as if each company had filed a return on a
stand-alone basis.
Cash and Cash Equivalents: IPL considers all highly liquid investments
purchased with original maturities of 90 days or less to be cash equivalents.
Employee Benefit Plans: Substantially all employees of IPL are covered by a
defined benefit pension plan, a defined contribution plan and a group benefits
plan.
The defined benefit pension plan is noncontributory and is funded through
two trusts. Additionally, a select group of management employees of IPL are
covered under a funded supplemental retirement plan. Collectively, these two
plans are referred to as the Plans. Benefits are based on each individual
employee's years of service and compensation. IPL's funding policy is to
contribute annually not less than the minimum required by applicable law, nor
more than the maximum amount that can be deducted for federal income tax
purposes.
The defined contribution plan is sponsored by IPL as the Employees'
Thrift Plan of Indianapolis Power & Light Company (Thrift Plan). Employees elect
to make contributions to the Thrift Plan based on a percentage of their annual
base compensation. Each employee's contribution is matched in amounts up to, but
not exceeding, 4% of the employee's annual base compensation. IPL's
contributions to the Thrift Plan, net of amounts allocated to related parties
were $3.4 million, $3.3 million and $3.4 million in 1998, 1997 and 1996,
respectively.
The group benefits plan is sponsored by IPL and provides certain
health-care and life insurance benefits to active employees and employees who
retire from active service on or after attaining age 55 and have rendered at
least 10 years of service. The postretirement benefit obligations of this plan
are funded through a Voluntary Employee Beneficiary Association (VEBA) Trust.
IPL's policy is to fund the annual actuarially determined postretirement benefit
cost.
New Accounting Pronouncements: In 1998, IPL adopted Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Comprehensive Income," which
requires that changes in the amounts of certain items, including foreign
currency translation adjustments and gains and losses on certain securities be
shown in the financial statements. The adoption of SFAS 130 had no impact on
IPL's financial position or results of operations.
In 1998, IPL adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." In accordance with the terms of SFAS 131,
IPL has two business segments (electric and "all other"). Adoption of this
standard had no impact on IPL's financial position, results of operations or
cash flows. Steam operations of IPL are in the "all other" segment. Pretax
operating income for the electric segment was $255.4 million, $233.0 million and
$224.8 million and for the "all other" segment was $4.3 million, $7.7 million
and $6.7 million in 1998, 1997 and 1996, respectively. Steam operations of IPL
are included in the caption UTILITY OPERATING INCOME.
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a hedge of
a foreign currency exposure. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends of the intended use of the
derivative and the resulting designation. Management has not yet quantified the
effect of the new standard on the financial statements.
Use of Management Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make certain 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. The reported amounts of
revenues and expenses during the reporting period may also be affected by the
estimates and assumptions management is required to make. Actual results may
differ from those estimates.
Reclassifications: Certain amounts from prior years' financial statements
have been reclassified to conform to the current year presentation.
2. UTILITY PLANT IN SERVICE
The original cost of utility plant in service at December 31, segregated
by functional classifications, follows:
1998 1997
- -----------------------------------------------------------------------------
(In Thousands)
Production................................. $1,716,786 $1,687,190
Transmission............................... 238,453 237,547
Distribution............................... 761,296 743,251
General .................................. 143,364 132,458
----------- ------------
Total utility plant in service.... $2,859,899 $2,800,446
========== ==========
Included above is steam plant in service of $107.4 million and $103.2
million for 1998 and 1997, respectively. Substantially all of IPL's property is
subject to the lien of the indentures securing IPL's First Mortgage Bonds.
In 1997, IPL retired and sold its C.C. Perry W plant site, including land
and improvements, to the state of Indiana White River State Park Commission at
an approximate pretax net gain of $5.7 million included under the caption OTHER
INCOME AND (DEDUCTIONS), "Other - net".
3. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In December 1997, IPL changed its method of accounting (retroactive to
January 1, 1997) to record revenues of all electricity and steam delivered
during the period. Prior to 1997, IPL recognized revenues on a cycle basis as
meters were read. The new accounting method more accurately reports revenues in
the period in which electricity and steam is used by customers. The cumulative
effect of the change in accounting at January 1, 1997 was $18.3 million (net of
income taxes of $11.2 million and other taxes of $.4 million). The change had
the effect of decreasing 1997 income before cumulative effect of the accounting
change by $1.9 million (net of taxes).
If this method had been applied retroactively, net income would have been
$120.4 million for the year ended December 31, 1996.
4. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
IPL using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that IPL could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have an effect on the estimated fair value amounts.
Cash and Cash Equivalents and Notes Payable: The carrying amount
approximates fair value due to the short maturity of these instruments.
Long-Term Debt, Including Current Maturities and Sinking Fund
Requirements: Interest rates that are currently available to IPL for issuance of
debt with similar terms and remaining maturities are used to estimate fair
value. The variable rate debt has been included at the face amount for both
carrying amount and fair value. The fair value of the interest rate swap
agreement has been estimated at $(5.7) million and $(3.3) million, which
represents the amount that IPL would have to pay to enter into an equivalent
agreement at December 31, 1998, and 1997, respectively, with a swap counter
party. The fair value of the debt outstanding has been determined on the basis
of the specific securities issued and outstanding. Accordingly, the purpose of
this disclosure is not to approximate the value on the basis of how the debt
might be refinanced. At December 31, 1998, and 1997, the carrying amount of
IPL's long-term debt, including current maturities and sinking fund
requirements, and the approximate fair value are as follows:
1998 1997
------------------------------------------------------------------------
(In Thousands)
Carrying amount $627,893 $627,840
Approximate fair value 667,035 651,620
5. REGULATORY ASSETS
The amounts of regulatory assets at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Related to deferred taxes (Note 1) $ 46,823 $ 44,099
Postretirement benefit costs in excess of cash payments
and amounts capitalized (Note 11) 10,720 17,152
Unamortized reacquisition premium on debt (Note 1) 22,301 23,751
Unamortized Petersburg Unit 4 carrying charges
and certain other costs (Note 1) 29,174 30,228
Demand side management costs (Note 10) 7,783 10,308
Other - 1,246
--------- ---------
Total regulatory assets $ 116,801 $ 126,784
========= =========
</TABLE>
6. CAPITAL STOCK
Common Stock: There were no changes in IPL common stock during 1998,
1997 and 1996.
Restrictions on the payment of cash dividends or other distributions on
common stock and on the purchase or redemption of such shares are contained in
the indentures securing IPL's First Mortgage Bonds. In addition, pursuant to
IPL's Articles of Incorporation, no dividends may be paid or accrued and no
other distribution may be made on the Common Stock unless dividends on all
outstanding shares of its preferred stock have been paid or declared and set
apart for payment. All of the retained earnings at December 31, 1998, were free
of such restrictions.
Cumulative Preferred Stock of Subsidiary: Preferred stock shareholders
are entitled to two votes per share for IPL matters, and if four full quarterly
dividends are in default on all shares of the preferred stock then outstanding,
they are entitled to elect the smallest number of IPL Directors to constitute a
majority. Preferred stock is redeemable solely at the option of IPL and can be
redeemed in whole or in part at any time at specific call prices.
During 1997, IPALCO purchased 252,675 shares of IPL's $100 par value
Cumulative Preferred Stock pursuant to the terms of a tender offer. All tendered
shares subsequently were purchased from IPALCO by IPL at cost and canceled. Also
during 1997, IPL authorized the redemption of an additional 174,957 shares of
its $100 par value Cumulative Preferred Stock.
On January 13, 1998, IPL issued the 5.65% Preferred Series which is
redeemable at par value, subject to certain restrictions, in whole or in part,
at any time on or after January 1, 2008, at the option of IPL.
At December 31, preferred stock consisted of the following:
December 31, 1998
----------------- December 31
Shares Call -----------
Outstanding Price 1998 1997
----------- ------- ------ ------
(In Thousands)
Cumulative $100 Par Value,
authorized 2,000,000 shares
4% Series............................. 47,611 $118.00 $4,761 $4,761
4.2% Series........................... 19,331 103.00 1,933 1,933
4.6% Series........................... 2,481 103.00 248 248
4.8% Series........................... 21,930 101.00 2,193 2,193
5.65% Series.......................... 500,000 - 50,000 -
------- ------- ------
Total cumulative preferred stock 591,353 $59,135 $9,135
======= ======= ======
During 1998, 1997 and 1996, preferred stock dividends were $3.1 million,
$2.8 million and $3.2 million, respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
------------
1998 1997
---- ----
Series Due (In Thousands)
------ ---
First Mortgage Bonds:
6.05% February 2004.......... $ 80,000 $ 80,000
8% October 2006........... 58,800 58,800
7 3/8% August 2007............ 80,000 80,000
6.10% * January 2016........... 41,850 41,850
5.40% * August 2017............ 24,650 24,650
7.45% August 2019............ 23,500 23,500
5.50% * October 2023........... 30,000 30,000
7.05% February 2024.......... 100,000 100,000
6 5/8% * December 2024.......... 40,000 40,000
Unamortized discount - net................... (907) (960)
-------- --------
Total first mortgage bonds............... 477,893 477,840
IPL Variable Series Notes *
1991 August 2021............ 40,000 40,000
1994A December 2024.......... 20,000 20,000
1995B January 2023........... 40,000 40,000
1995C December 2029.......... 30,000 30,000
1996 November 2029.......... 20,000 20,000
-------- --------
Total long-term debt .................... $627,893 $627,840
======== ========
* Notes are issued to the city of Petersburg, Indiana, by IPL to secure the loan
of proceeds from various tax-exempt instruments issued by the city.
The Series 1991 note provides for an interest rate that varies with the
tax-exempt commercial paper rate. The 1994A, 1995B, 1995C and 1996 notes provide
for an interest rate which varies with the tax-exempt weekly rate. IPL, at its
option, can change the interest rate mode for these notes to be based on other
short-term rates. Additionally, the variable rate notes can be converted into
long-term fixed interest rate instruments by the issuance of an IPL First
Mortgage Bond. The notes are classified as long-term liabilities because IPL
maintains long-term credit facilities supporting these agreements, which were
unused at December 31, 1998.
The year-end interest rates for the variable rate notes are as follows:
Interest Rate at
December 31
1998 1997
----------------------------------------------------------
Series 1991 3.48% 3.78%
Series 1994A 3.56% 3.75%
Series 1995B 5.21% 5.21%
Series 1995C 3.54% 3.75%
Series 1996 3.54% 3.75%
In conjunction with the issuance of the 1995B note, IPL entered into an
interest rate swap agreement. Pursuant to the swap agreement, IPL will pay
interest at a fixed rate of 5.21% to a swap counter party and will receive a
variable rate of interest in return, which is identical to the variable rate
payment made on the 1995B note. The result is to effectively establish a fixed
rate of interest on the 1995B note of 5.21%. The interest rate swap agreement is
accounted for on a settlement basis. IPL is exposed to credit loss in the event
of nonperformance by the counterparty for the net interest differential when
floating rates exceed the fixed maximum rate. However, IPL does not anticipate
nonperformance by the counterparty.
There are no maturities or sinking fund requirements on long-term debt
for the five years subsequent to December 31, 1998.
8. LINES OF CREDIT
IPL has committed lines of credit with banks of $75 million at December
31, 1998, to provide loans for interim financing that require the payment of
commitment fees. These lines of credit, based on separate formal and informal
agreements, have expiration dates ranging from February 1, 1999, to December 31,
1999. No lines of credit were required to support commercial paper at December
31, 1998. IPL has a Liquidity facility in the amount of $150 million to support
certain floating-rate tax-exempt facilities (see Note 7).
The weighted average interest rate on notes payable and commercial paper
outstanding was 6.13% and 6.69% at December 31, 1998, and 1997, respectively.
<PAGE>
9. INCOME TAXES
Federal and state income taxes charged to income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
Operating Expenses: (In Thousands)
Current income taxes:
<S> <C> <C> <C>
Federal..................................................... $72,094 $64,553 $56,676
State....................................................... 10,585 9,474 8,378
-------- -------- --------
Total current taxes....................................... 82,679 74,027 65,054
-------- -------- --------
Deferred federal income taxes............................... (414) 1,444 6,507
Deferred state income taxes................................. 715 803 (398)
-------- -------- --------
Total deferred income taxes.............................. 301 2,247 6,109
-------- -------- --------
Net amortization of investment credit......................... (2,790) (2,939) (2,915)
-------- -------- --------
Total charge to operating expenses........................ 80,190 73,335 68,248
Net debit/ (credit) to other income and deductions............ 4,196 1,105 (982)
-------- -------- --------
84,386 74,440 67,266
Cumulative effect of change in accounting principle........... - 11,209 -
-------- -------- --------
Total federal and state income tax provisions............. $84,386 $85,649 $67,266
======== ======== ========
</TABLE>
The provision for federal income taxes (including net investment tax
credit adjustments) is less than the amount computed by applying the statutory
tax rate to pretax income. The reasons for the difference, stated as a
percentage of pretax income, are as follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Federal statutory tax rate.................... 35.0% 35.0% 35.0%
Effect of state income taxes.................. (1.8) (1.7) (1.5)
Amortization of investment tax credits........ (1.2) (1.2) (1.5)
Other - net................................... (1.0) (0.9) (0.7)
----- ----- -----
Effective tax rate.......................... 31.0% 31.2% 31.3%
==== ==== ====
The significant items comprising IPL's net deferred tax liability
recognized in the balance sheets as of December 31, 1998, and 1997, are as
follows:
1998 1997
- ------------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Relating to utility property................. $412,922 $405,164
Other........................................ 15,113 15,546
-------- --------
Total deferred tax liabilities........... 428,035 420,710
-------- --------
Deferred tax assets:
Relating to utility property................. 44,444 40,731
Investment tax credit........................ 25,547 27,251
Employee Benefit Plans....................... 24,259 22,019
Other........................................ 5,260 5,143
-------- --------
Total deferred tax assets................ 99,510 95,144
-------- --------
Net deferred tax liability........................ 328,525 325,566
Current deferred tax liability............... 108 180
-------- --------
Deferred income taxes - net....................... $328,417 $325,386
======== ========
10. RATE MATTERS
Electric Rate Settlement Agreement: On August 24, 1995, the IURC issued
an order approving without amendment a Stipulation and Settlement Agreement
(Settlement Agreement) resolving all issues in IPL's then pending electric
general rate proceeding. As provided for by the Settlement Agreement, IPL
increased its basic rates and charges for retail electric service in two steps
designed to provide increased annual revenues of $35 million and $25 million
during 1995 and 1996, respectively. Effective with the implementation of new
tariffs in Step 1, IPL was authorized to begin amortization of certain
regulatory assets. Additionally, IPL's existing depreciation rates were
reapproved.
Under terms of the Settlement Agreement, IPL agreed not to file a request
to build any large, base-load generating capacity before January 1, 2000. This
provision can be waived in extreme circumstances. In addition, the parties
agreed to, and subsequently resolved, pending litigation involving IPL's Clean
Air Act compliance plan.
Steam Rate Order: By an order dated January 13, 1993, the IURC authorized
IPL to increase its steam system rates and charges over a six-year period. The
final increase associated with this order took effect on January 13, 1998, and
authorized IPL to increase rates by an estimated cumulative amount of $9.9
million in additional annual operating revenues.
Demand Side Management Program: In compliance with certain orders, IPL is
deferring certain approved DSM costs and carrying charges. In the Settlement
Agreement approved by the IURC on August 24, 1995, IPL was authorized to
amortize $5.3 million of such costs deferred prior to February 1995, over a
four-year period beginning September 1, 1995. On December 19, 1996, IPL filed a
petition with the IURC requesting review, modification and/or termination of,
and related regulatory treatment for, DSM programs approved in the order dated
September 8, 1993. On July 30, 1997, IPL received an IURC order approving a
settlement agreement authorizing IPL to recognize in rates the existing
regulatory asset (consisting of DSM costs deferred after January 31, 1995),
along with carrying charges, and also to approve changes to IPL's DSM programs.
Elect Plan: During 1998, the IURC approved a plan that allows IPL
customers with less than 2,000 kilowatts of demand, an opportunity to choose
optional service or payment plans. This includes a green power option, a fixed
rate per unit of consumption option and a fixed bill option. Customers not
choosing one of these options continue to receive electric service under
existing tariffs.
<PAGE>
11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------ -----------------------
(In Thousands) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning year $254,540 $229,936 $135,982 $146,049
Service cost 5,535 5,708 3,503 3,942
Interest cost 18,021 16,873 9,932 11,088
Actuarial (gain) loss 12,740 7,436 5,155 (20,811)
Amendments (1,408) 6,083 - -
Benefits paid (12,790) (11,496) (5,677) (4,286)
-------- --------- -------- --------
Benefit obligation at end of year 276,638 254,540 148,895 135,982
-------- --------- -------- --------
Change in plan assets
Fair value of plan assets
at beginning of year 262,126 235,250 68,006 49,274
Actual return on plan assets 37,179 37,813 11,232 (314)
Employer contribution 4,254 559 19,036 23,332
Benefits paid (12,789) (11,496) (5,677) (4,286)
--------- --------- --------- --------
Fair value of plan assets at end of year 290,770 262,126 92,597 68,006
--------- --------- --------- --------
Funded status 14,132 7,586 (56,298) (67,976)
Unrecognized net gain (55,065) (47,250) (39,776) (40,568)
Unrecognized prior service cost 15,871 13,056 - -
Unrecognized net transition (asset) obligation (9,755) (11,169) 85,306 91,400
Adjustment to recognize minimum liability (5,136) (2,044) - -
--------- --------- --------- ---------
Accrued benefit cost $(39,953) $(39,821) $(10,768) $(17,144)
========= ========= ========= =========
Weighted-average assumptions as of
December 31
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets 9.00% 8.00% 8.00% 8.00%
Rate of compensation increase 5.10% 5.10% 5.10% 5.10%
</TABLE>
For measurement purposes, a 7.4% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The year in
which the ultimate health care cost trend rate of 4.5% will be achieved is
assumed to be 2003.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------------------- ---------------------------------
(In Thousands) 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 10,617 $ 6,584 $ 6,482 $ 3,503 $ 3,942 $ 3,891
Interest cost 18,021 16,873 16,335 9,932 11,088 10,450
Expected return on plan assets (20,426) (18,344) (17,206) (5,223) (3,734) (2,177)
Amortization of transition (asset) obligation (1,414) (1,414) (1,414) 6,093 6,093 6,093
Amortization of prior service cost 1,124 1,159 1,641 - - -
Recognized actuarial gain (1,545) (910) (570) (1,646) (548) (403)
-------- -------- -------- -------- -------- --------
Periodic benefit cost 6,377 3,948 5,268 12,659 16,841 17,854
Less: amounts to other parties 65 60 121 - - -
-------- -------- -------- -------- -------- --------
Net periodic benefit cost 6,312 3,888 5,147 12,659 16,841 17,854
Less: amounts capitalized 339 621 1,061 1,924 2,930 3,511
-------- -------- -------- -------- -------- --------
Amount charged to expense $ 5,973 $ 3,267 $ 4,086 $ 10,735 $ 13,911 $ 14,343
======== ======== ======== ======== ======== ========
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percentage-point change in
assumed health care cost trend rates would have the following effects:
One-Percentage- One Percentage-
(In Thousands) Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest cost
components $ 1,762 $ (1,762)
Effect on postretirement benefit obligation 16,435 (16,435)
12. COMMITMENTS AND CONTINGENCIES
In 1999, IPL anticipates the cost of its construction program to be
approximately $96.2 million.
IPL is involved in litigation arising in the normal course of business.
While the results of such litigation cannot be predicted with certainty,
management, based upon advice of counsel, believes that the final outcome will
not have a material adverse effect on the financial statements.
With respect to environmental issues, IPL has ongoing discussions with
various regulatory authorities and continues to believe that IPL is in
compliance with its various permits.
13. GAIN ON TERMINATION OF AGREEMENT
During September 1998, a pretax gain of $12.5 million ($7.8 million
after-tax) resulted from the liquidation and termination of an agreement to
purchase up to 150 megawatts of power during the summer months through the year
2000. IPL plans to replace this supply resource and is considering several
alternatives.
<PAGE>
14. QUARTERLY RESULTS (UNAUDITED)
Operating results for the years ended December 31, 1998, and 1997, by
quarter, are as follows (in thousands):
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues......................... $ 190,321 $ 206,706 $ 222,028 $ 202,201
Operating income........................... $ 40,142 $ 49,198 $ 51,665 $ 38,506
Net income................................. $ 30,205 $ 39,815 $ 50,147 $ 28,980
1997
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Operating revenues......................... $ 195,299 $ 183,777 $ 203,872 $ 193,479
Operating income........................... $ 44,534 $ 39,092 $ 48,820 $ 34,869
Income before cumulative effect
of accounting change.................... $ 34,766 $ 30,130 $ 39,507 $ 28,999
Cumulative effect of
accounting change....................... $ 18,347 - - -
Net income................................. $ 53,113 $ 30,130 $ 39,507 $ 28,999
</TABLE>
The 1997 results have been restated for the change in accounting method
to the unbilled revenues method. The change in method was made on December 31,
1997, but each quarter's results have been restated to reflect the results as if
the change had occurred on January 1, 1997, in accordance with generally
accepted accounting principles (see Note 3 regarding the change in accounting
method).
The quarterly figures reflect seasonal and weather-related fluctuations
which are normal to IPL's operations (see Note 10 regarding rate increases).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information relating to the directors of the registrant, set
forth in the Information Statement of Indianapolis Power &
Light Company dated March 15, 1999 (the registrant's
Information Statement), under "Proposal 1-Election of 15
Directors" at pages 3-5 is incorporated herein by reference.
Information relating to the registrant's executive officers is
set forth at page I-7 of this Form 10-K under "Executive
Officers of the Registrant at February 23, 1999."
Item 11. EXECUTIVE COMPENSATION
----------------------
Information relating to executive compensation, set forth in
the registrant's Information Statement under "Compensation of
Executive Officers" at page 13,"Compensation of Directors" at
pages 7-8,"Compensation Committee Interlocks and Insider
Participation" at page 7, "Pensions Plans" at pages 18-19, and
"Employment Contracts and Termination of Employment and Change
in Control Arrangements" at pages 19-20,is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information relating to ownership of the registrant's common
stock by persons known by the registrant to be the beneficial
owners of more than 5% of the outstanding shares of common
stock and by management, set forth in the registrant's
Information Statement under "Voting Securities and Beneficial
Owners" at page 2 is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information relating to certain relationships and related
transactions, set forth in the registrant's Information
Statement under "Certain Business Relationships" at page 8,
is incorporated herein by reference.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The Financial Statements under this Item 14 (a) 1
filed in this Form 10-K are those of Indianapolis
Power & Light Company.
1. Financial Statements
--------------------
Included in Part II of this report:
Independent Auditors' Report
Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996
Balance Sheets, December 31, 1998 and 1997
Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996
Statements of Retained Earnings for the Years
Ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
2. Exhibits
--------
The Exhibit Index beginning on page IV-5 of
this Annual Report on Form 10-K lists the exhibits
that are filed as part of this report.
3. Financial Statement Schedules
-----------------------------
None
(b) Reports on Form 8-K
-------------------
None
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY EXHIBIT 12.1
Ratio of Earnings to Fixed Charges
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996
-------------- -------------- -------------
(Thousands of Dollars)
Earnings, as defined:
<S> <C> <C> <C>
Net income (1) $149,147 $133,402 $122,588
Income taxes 84,386 74,440 67,266
Fixed charges, as below 40,991 41,893 48,570
-------------- -------------- -------------
Total earnings, as defined $274,524 $249,735 $238,424
============== ============== =============
Fixed charges, as defined:
Interest charges $40,810 $41,721 $48,406
Rental interest factor 181 172 164
-------------- -------------- -------------
Total fixed charges, as defined $40,991 $41,893 $48,570
============== ============== =============
Ratio of earnings to fixed charges 6.70 5.96 4.91
============== ============== =============
(1) 1997 Net income excludes after-tax effect of cumulative effect
of accounting change
</TABLE>
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.
INDIANAPOLIS POWER & LIGHT COMPANY
By /s/ John R. Hodowal
---------------------
(John R. Hodowal, Chairman of the Board
and Chief Executive Officer)
Date: February 23, 1999
-----------------
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:
/s/ John R. Hodowal Chairman of the Board and February 23, 1999
------------------------- Chief Executive Officer
(John R. Hodowal)
(ii) Principal Financial Officer:
/s/ John R. Brehm Senior Vice President - February 23, 1999
-------------------------- Finance
(John R. Brehm)
(iii) Principal Accounting Officer:
/s/ Stephen J. Plunkett Controller February 23, 1999
---------------------------
(Stephen J. Plunkett)
(iv) A majority of the Board of Directors of Indianapolis Power & Light
Company:
/s/ Joseph D. Barnette, Jr. Director February 23, 1999
- ------------------------------
(Joseph D. Barnette, Jr.)
/s/ Robert A. Borns Director February 23, 1999
- ------------------------------
(Robert A. Borns)
/s/ Mitchell E. Daniels, Jr. Director February 23, 1999
- ------------------------------
(Mitchell E. Daniels, Jr.)
/s/ Rexford C. Early Director February 23, 1999
- ------------------------------
(Rexford C. Early)
/s/ Otto N. Frenzel III Director February 23, 1999
- ------------------------------
(Otto N. Frenzel III)
/s/ Max L. Gibson Director February 23, 1999
- ------------------------------
(Max L. Gibson)
/s/ John R. Hodowal Director February 23, 1999
- ------------------------------
(John R. Hodowal)
/s/ Andre B. Lacy Director February 23, 1999
- -------------------------------
(Andre B. Lacy)
/s/ Michael S. Maurer Director February 23, 1999
- -------------------------------
(Michael S. Maurer)
/s/ Andrew J. Paine, Jr. Director February 23, 1999
- --------------------------------
(Andrew J. Paine, Jr.)
/s/ Sallie W. Rowland Director February 23, 1999
- --------------------------------
(Sallie W. Rowland)
/s/ Thomas H. Sams Director February 23, 1999
- --------------------------------
(Thomas H. Sams)
EXHIBIT INDEX
-------------
Copies of documents listed below which are identified with an asterisk (*)
are incorporated herein by reference and made a part hereof. The management
contracts or compensatory plans are marked with a double asterisk (**) after the
description of the contract or plan.
Exhibit
No. Description
--- -----------
3.1* Articles of Incorporation of Indianapolis Power & Light Company,
as amended. (Exhibit 3.1 to the Form 10-K dated 12-31-97.)
3.2* Bylaws of Indianapolis Power & Light Company, as amended.
(Exhibit 3.2 to the Form 10-Q dated 3-31-98.)
4.1* Mortgage and Deed of Trust, dated as of May 1, 1940, between
Indianapolis Power & Light Company and American National Bank and
Trust Company of Chicago, Trustee, as supplemented and modified
by 30 Supplemental Indentures.
Exhibits D in File No. 2-4396; B-1 in File No. 2-6210; 7-C
File No. 2-7944; 7-D in File No.2-72944; 7-E in File No. 2-8106;
7-F in File No. 2-8749; 7-G in File No. 2-8749; 4-Q in File No.
2-10052; 2-I in File No. 2-12488; 2-J in File No. 2-13903; 2-K in
File No. 2-22553; 2-L in File No.2-24581; 2-M in File No. 2-26156;
4-D in File No. 2-26884; 2-D in File No. 2-38332; Exhibit A to
Form 8-K for October 1970; Exhibit 2-F in File No. 2-47162; 2-F
in File No. 2-50260; 2-G in File No. 2-50260; 2-F in File
No. 2-53541; 2E in File No. 2-55154; 2E in File no. 2-60819;
2F in File No. 2-60819; 2-G in File No. 2-60819; Exhibit A to
Form 10-Q for the quarter ended 9-30-78 File No. 1-3132; 13-4 in
File No. 2-73213; Exhibit 4 in File No. 2-93092. Twenty-eighth,
Twenty-ninth and Thirtieth Supplemental Indentures. (Form 10-K dated
for year ended 12-31-85.)
4.2* Thirty-Second Supplemental Indenture dated as of June 1, 1989.
(Form 10-K for year ended 12-31-89.)
4.3* Thirty-Third Supplemental Indenture dated as of August 1, 1989.
(Form 10-K for year ended 12-31-89.)
4.4* Thirty-Fourth Supplemental Indenture dated as of October 15, 1991.
(Form 10-K for year ended 12-31-91.)
4.5* Thirty-Fifth Supplemental Indenture dated as of August 1, 1992.
(Form 10-K for year ended 12-31-92.)
4.6* Thirty-Sixth Supplemental Indenture dated as of April 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.7* Thirty-Seventh Supplemental Indenture dated as of October 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.8* Thirty-Eighth Supplemental Indenture dated as of October 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.9* Thirty-Ninth Supplemental Indenture dated as of February 1, 1994.
(Form 8-K, dated 1-25-94.)
4.10* Fortieth Supplemental Indenture dated as of February 1, 1994. (Form
8-K, dated 1-25-94.)
4.11* Forty-First Supplemental Indenture dated as of January 15, 1995.
(Exhibit 4.12 to the Form 10-K dated 12-31-94.)
4.12* Forty-Second Supplemental Indenture dated as of October 1, 1995.
(Exhibit 4.12 to the Form 10-K dated 12-31-95.)
10.1* Coal Supply Agreement between Indianapolis Power & Light
Company and Peabody Coal Company as amended. Confidential
portions of this Contract have been omitted and filed
separately with the SEC pursuant to 17 CFR 240.24b-2. (Form
10-Q for the quarter ended 3-31-93.)
10.2* Coal Supply Agreement, between Indianapolis Power & Light Company
and Black Beauty Coal Company,Inc. as amended. Confidential portions
of this Contract have been omitted and filed separately with the
SEC pursuant to 17 CFR 240.24b-2. (Form 10-K dated 12-31-87.)
10.3* Coal Supply Agreement between Indianapolis Power & Light Company
and Triad Mining of Indiana, Inc. and Marine Coal Sales Company
dated December 7, 1994. Confidential portions of this Contract
have been omitted and filed separately with the SEC pursuant to
17 CFR 240.24b-2. (Exhibit 10.2 to the Form 10-Q dated 3-31-95.)
10.4* Interconnection Agreement, dated December 30, 1960, between
IPL and Indiana & Michigan Electric Company (nka Indiana
Michigan Power Company) as modified through Modification 17
and Addendum IV.(Exhibit 10.6 to the Form 10-K dated 12-31-95.)
10.5* Interconnection Agreement dated May 1, 1992, among Indianapolis
Power & Light Company, PSI Energy, Inc. and CINERGY Services,
Inc. as modified through Amendment Number 6. (Exhibit 10.7 to the
Form 10-K dated 12-31-97.)
10.6* Facilities Agreement effective in 1968 among Indianapolis Power
& Light Company, Public Service Company of Indiana, Inc. and
Indiana & Michigan Electric Company. (Exhibit 5-G in File No.
2-28756.)
10.7* Facilities Agreement dated August 16, 1977, between Indianapolis
Power & Light Company and Public Service Company of Indiana, Inc.,
together with Amendment Number 1 and 2. (Exhibit 10.9 to the
Form 10-K dated 12-31-95.)
10.8* East Central Area Reliability Agreement dated August 1, 1967,
between Indianapolis Power & Light Company and 23 other electric
utility companies as supplemented. (Exhibit 10.10 to the Form 10-K
dated 12-31-96.)
10.9* Interconnection Agreement dated December 2, 1969, between
Indianapolis Power & Light Company and Southern Indiana Gas and
Electric Company as modified through Modification Number 9.
(Exhibit 10.11 to the Form 10-K dated 12-31-95).
10.10* Interconnection Agreement dated December 1, 1981, between
Indianapolis Power & Light Company and Hoosier Energy Rural
Electric Cooperative, Inc., as modified through Modification
4. (Exhibit 10.12 to the Form 10-K dated 12-31-95).
10.11* Interconnection Agreement, dated October 7, 1987, between
Indianapolis Power & Light Company and Wabash Valley Power
Association, as modified through Modification 1. (Exhibit 10.13
to the Form 10-K dated 12-31-95).
10.12* Interchange Agreement between Indianapolis Power & Light Company
and ENRON Power Marketing, Inc. dated August 1, 1995.
(Exhibit 10.14 to the Form 10-K dated 12-31-95).
10.13* Interconnection Agreement between Indianapolis Power & Light
Company and Indiana Municipal Power Agency as modified through
Modification 1. (Exhibit 10.15 to the Form 10-K dated
12-31-95).
10.14* Employment Agreement between Indianapolis Power & Light Company
and Ramon L. Humke dated January 1,1997. (Exhibit 10.1 to the Form
10-Q dated 3-31-97.) **
10.15* Employment Agreement by and among IPALCO Enterprises, Inc.,
Indianapolis Power & Light Company and John R. Hodowal dated
July 29, 1986. (Exhibit 10.32 to the Form 10-K dated 12-31-94.) **
10.16 Directors' and Officers' Liability Insurance Policy No. DO392B1A97
effective June 1, 1998 to June 1, 1999. **
10.17 Unfunded Deferred Compensation Plan for IPALCO Enterprises, Inc.
and Indianapolis Power & Light Company Officers and Directors as
amended and restated effective January 1, 1999. **
10.18 Indianapolis Power & Light Company Supplemental Retirement Plan
and Trust Agreement For a Select Group of Management Employees (As
Amended and Restated Effective January 1, 1999.) **
10.19 1998 Management Incentive Program. **
10.20* Form of Termination Benefits Agreement together with schedule
of parties to, and dates of, the Termination Benefits Agreements.
(Exhibit 10.23 to the Form 10-K dated 12-31-97.)**
12.1 Ratio of Earnings to Fixed Charges.
21.1* Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K dated
12-31-96.)
27.1 Financial Data Schedule.
EXHIBIT 10.16
DIRECTORS AND OFFICERS LIABILITY
INSURANCE POLICY
THIS IS A "CLAIMS-FIRST-MADE"
INSURANCE POLICY. PLEASE READ IT CAREFULLY.
Words and phrases which appear in all capital letters have
the special
meanings set forth in
Section II - Definitions
AEGIS
ASSOCIATED ELECTRIC & GAS
INSURANCE SERVICES LIMITED
HAMILTON, BERMUDA
DECLARATIONS
POLICY NO. D0392A1A98
DECLARATIONS NO. 1
Item 1: This POLICY provides indemnification with respect
to the DIRECTORS and OFFICERS of:
IPALCO Enterprises, Inc.
One Monument Circle
Indianapolis, IN 46204
Item 2: POLICY PERIOD: from the 1st day of June, 1998, to
the 1st day of June, 1999 both days at 12:01 A.M.
Standard Time at the address of the COMPANY.
Item 3: RETROACTIVE DATE: the 4th day of December, 1970 at
12:01 A.M. Standard Time at the address of the
COMPANY.
Item 4: A. POLICY PREMIUM: $197,950.
B. MINIMUM PREMIUM: $ 79,180.
Item 5: Limits of Liability:
A. $ 35,000,000 Each WRONGFUL ACT
B. $ 35,000,000 Aggregate Limit of Liability for the
POLICY PERIOD
Item 6: UNDERLYING LIMITS:
This POLICY is written as primary insurance
A. If this POLICY is written as Primary Insurance
with respect to Insuring Agreement I(A)(2)
only:
(1) $ 200,000 Each WRONGFUL ACT not arising from
NUCLEAR OPERATIONS
(2) $ 200,000 Each WRONGFUL ACT arising from
NUCLEAR OPERATIONS
DECLARATIONS
continued
POLICY NO. D0392A1A98
DECLARATIONS NO. 1
B. If this POLICY is written as Excess Insurance:
(1) (a) $ ________ Each WRONGFUL ACT
(b) $ ________ In the Aggregate for all WRONGFUL ACTS
(2) $ ________ Each WRONGFUL ACT not covered
under Underlying Insurance
(3) In the Event of Exhaustion of the
UNDERLYING LIMIT stated in Item
6(B)(1)(b) above with respect to Insuring
Agreement I(A)(2) only:
(a) $ ________ Each WRONGFUL ACT not
arising from NUCLEAR
OPERATIONS
(b) $ ________ Each WRONGFUL ACT arising from
NUCLEAR OPERATIONS
Item 7: Any notice to be provided or any payment to be made
hereunder to the COMPANY shall be made to:
NAME Mr. Bruce H. Smith
TITLE Admin. Benefits & Risk Mgmt.
ENTITY Indianapolis Power & Light Company
ADDRESS One Monument Circle
P.O. Box 1595 (Zip 46206-1595)
Indianapolis, IN 46204
Item 8: Any notice to be provided or any payment to be made
hereunder to the INSURER shall be made to:
NAME AEGIS Insurance Services, Inc.
ADDRESS 10 Exchange Place
Jersey City, New Jersey 07302
ENDORSEMENTS ATTACHED AT POLICY ISSUANCE: 1-5
Countersigned at Jersey City, New Jersey
On July 14, 1998
AEGIS Insurance Services, Inc.
By /s/ Brian Madden
Authorized Representative
POLICY OF DIRECTORS AND OFFICERS LIABILITY INSURANCE EFFECTED
WITH ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
HAMILTON, BERMUDA
(hereinafter referred to as the "POLICY")
THIS IS A "CLAIMS-FIRST-MADE" INSURANCE POLICY.
PLEASE READ IT CAREFULLY.
Words and phrases which appear in all capital letters
have the special meanings set forth in
Section II - Definitions.
In consideration of the payment of premium, and in reliance
upon all statements made and information furnished to
Associated Electric & Gas Insurance Services Limited
(hereinafter referred to as the "INSURER") by the Application
attached hereto which is hereby made a part hereof, and
subject to all the terms hereinafter provided, the INSURER
agrees as follows:
I. INSURING AGREEMENT
(A) Indemnity
(1) The INSURER shall pay on behalf of the
DIRECTORS and OFFICERS any and all sums which
they shall become legally obligated to pay as
ULTIMATE NET LOSS for which the COMPANY has
not provided reimbursement, by reason of any
WRONGFUL ACT which takes place during the
COVERAGE PERIOD and is actually or allegedly
caused, committed or attempted by the
DIRECTORS or OFFICERS while acting in their
respective capacities as DIRECTORS or
OFFICERS, provided such ULTIMATE NET LOSS
arises from a CLAIM first made against the
DIRECTORS or OFFICERS during the POLICY PERIOD
or during the DISCOVERY PERIOD, if purchased.
(2) The INSURER shall pay on behalf of the COMPANY any
and all sums it has incurred, as required or permitted
by applicable common or statutory law or under provisions
of the COMPANY's Charter or Bylaws effected pursuant to
such law, as ULTIMATE NET LOSS, to indemnify DIRECTORS or
OFFICERS for ULTIMATE NET LOSS which they are legally
obligated to pay by reason of any WRONGFUL ACT which
takes place during the COVERAGE PERIOD and is actually
or allegedly caused, committed or attempted by such
DIRECTORS or OFFICERS while acting in their respective
capacities as DIRECTORS or OFFICERS, provided the ULTIMATE
NET LOSS arises from a CLAIM first made against the
DIRECTORS or OFFICERS during the POLICY PERIOD or during
the DISCOVERY PERIOD, if purchased.
(B) Limits of Liability
(1) The INSURER shall only be liable hereunder for
the amount of ULTIMATE NET LOSS in excess of
the UNDERLYING LIMITS as stated in Item 6 of
the Declarations as a result of each WRONGFUL
ACT covered under Insuring Agreement I(A)(1)
or I(A)(2) or both, and then only up to the
Limit of Liability stated in Item 5A of the
Declarations and further subject to the
aggregate Limit of Liability stated in Item 5B
of the Declarations as the maximum amount
payable hereunder in the aggregate for all
CLAIMS first made against the DIRECTORS or
OFFICERS during both:
(a) the POLICY PERIOD and
(b) the DISCOVERY PERIOD, if purchased.
Notwithstanding the foregoing, in the event
that the INSURER cancels or refuses to renew
this POLICY, and a DISCOVERY PERIOD extension
is purchased by the COMPANY, then the
aggregate Limit of Liability stated in Item 5B
of the Declarations shall be reinstated but
only with respect to CLAIMS first made against
the DIRECTORS or OFFICERS during such
DISCOVERY PERIOD.
(2) Multiple CLAIMS arising out of the same
WRONGFUL ACT, even if made against different
DIRECTORS or OFFICERS, shall be deemed to be a
single CLAIM arising from a single WRONGFUL
ACT and to have been reported during the
POLICY PERIOD or, if purchased, during the
DISCOVERY PERIOD in which the first of such
multiple CLAIMS is made against any of the
DIRECTORS or OFFICERS. The Limits of
Liability and UNDERLYING LIMITS, stated in
Items 5 and 6 of the Declarations
respectively, shall apply only once regardless
of the number of CLAIMS arising out of the
same WRONGFUL ACT. All interrelated acts shall
be deemed to be a single WRONGFUL ACT.
(3) The inclusion herein of more than one DIRECTOR
or OFFICER, or the application of both
Insuring Agreements I(A)(1) and I(A)(2), shall
not operate to increase the INSURER'S Limits
of Liability as stated in Item 5 of the
Declarations.
(4) With respect to ULTIMATE NET LOSS arising out
of any WRONGFUL ACT in connection with service
for a NOT-FOR-PROFIT ORGANIZATION as provided
in Section II(E)(2), if:
(a) such WRONGFUL ACT results in liability
being imposed upon one or more DIRECTORS
and OFFICERS under this POLICY and also
upon directors and officers and general
partners under any other directors and
officers or general partner liability
insurance policies issued by the INSURER
to any organization; and
(b) the total of the ULTIMATE NET LOSS under
this POLICY and the ultimate net loss
under such other policies issued by the
INSURER equals or exceeds $35,000,000;
the maximum amount payable by the INSURER
under this POLICY in the aggregate for all
ULTIMATE NET LOSS resulting from such WRONGFUL
ACT shall be the lesser of the applicable
Limit of Liability provided by this POLICY or
the product of:
(i) the applicable Limit of Liability
provided by this POLICY divided by
the total limits of liability per
wrongful act applicable to such
wrongful act under all policies
issued by the INSURER; and
(ii) $35,000,000.
If the amount paid under this POLICY with
respect to such WRONGFUL ACT exceeds the
COMPANY'S proportionate share of the
$35,000,000 as determined above, the COMPANY
shall refund such excess to the INSURER
promptly.
(C) UNDERLYING LIMITS
(1) If this POLICY is written as Primary Insurance
with respect to Insuring Agreement I(A)(2),
the UNDERLYING LIMIT for the COMPANY for each
WRONGFUL ACT shall be as stated in Item 6A(1)
of the Declarations, unless it is based upon,
arises out of or is attributable to NUCLEAR
OPERATIONS, in which event it shall be as
stated in Item 6A(2) of the Declarations;
(2) If this POLICY is written as Excess Insurance:
(a) with respect to Insuring Agreements
I(A)(1) and I(A)(2), the UNDERLYING LIMIT
for each WRONGFUL ACT shall be as stated
in Item 6B(1)(a) of the Declarations and
the maximum UNDERLYING LIMIT for all
WRONGFUL ACTS shall be as stated in Item
6B(1)(b) of the Declarations;
(b) with respect to ULTIMATE NET LOSS covered
hereunder:
(i) in the event of reduction of the
underlying aggregate limit as stated
in Item 6B(1)(b), the UNDERLYING
LIMIT shall be such reduced
underlying aggregate limit; or
(ii) in the event of exhaustion of the
underlying aggregate limit as stated
in Item 6B(1)(b), the UNDERLYING
LIMIT shall be as stated in Item
6B(3) of the Declarations;
(c) with respect to any WRONGFUL ACT covered
hereunder but not covered under such
Underlying Insurance, the UNDERLYING
LIMIT shall be as stated in Item 6B(2) of
the Declarations; and
(d) nothing herein shall make this POLICY
subject to the terms and conditions of
any Underlying Insurance.
(3) Only payment of indemnity or defense expenses
which, except for the amount thereof, would
have been indemnifiable under this POLICY, may
reduce or exhaust an UNDERLYING LIMIT.
(4) In the event that both Insuring Agreement
I(A)(1) and I(A)(2) are applicable to
INDEMNITY and DEFENSE COST resulting from a
WRONGFUL ACT then:
(a) if this POLICY is written as Primary
Insurance, the UNDERLYING LIMIT
applicable to such WRONGFUL ACT shall be
the UNDERLYING LIMIT stated in Item 6A of
the Declarations; and
(b) if this POLICY is written as Excess
Insurance and the UNDERLYING LIMIT has
been exhausted, the UNDERLYING LIMIT
applicable to such WRONGFUL ACT shall be
the UNDERLYING LIMIT stated in Item
6B(3);
and there shall be no UNDERLYING LIMIT
applicable with respect to coverage provided
under Insuring Agreement I(A)(1).
(5) The UNDERLYING LIMITS stated in Item 6 of the
Declarations applicable to Insuring Agreement
I(A)(2) shall apply to all INDEMNITY and/or
DEFENSE COST for which indemnification of the
DIRECTORS and/or OFFICERS by the COMPANY is
legally permissible, whether or not such
indemnification is granted by the COMPANY.
II. DEFINITIONS
A. CLAIM: The term "CLAIM" shall mean:
(1) any demand, suit or proceeding against any
DIRECTORS and/or OFFICERS during the POLICY
PERIOD or during the DISCOVERY PERIOD, if
purchased, which seeks actual monetary damages
or other relief and which may result in any
DIRECTORS and/or OFFICERS becoming legally
obligated to pay ULTIMATE NET LOSS by reason
of any WRONGFUL ACT actually or allegedly
caused, committed or attempted during the
COVERAGE PERIOD by the DIRECTORS and/or
OFFICERS while acting in their capacity as
such; or
(2) written notice to the INSURER during the
POLICY PERIOD or during the DISCOVERY PERIOD,
if purchased, by the DIRECTORS, OFFICERS
and/or the COMPANY, describing with the
specificity set forth in Condition (C) hereof,
circumstances of which they are aware
involving an identifiable WRONGFUL ACT
actually or allegedly caused, committed or
attempted during the COVERAGE PERIOD by the
DIRECTORS and/or OFFICERS while acting in
their capacity as such, which circumstances
are likely to give rise to a demand, suit or
proceeding being made against such DIRECTORS
and/or OFFICERS.
A CLAIM shall be deemed to be first made
against a DIRECTOR or OFFICER at the earlier
of the time at which a demand, suit or
proceeding is first made against the DIRECTOR
or OFFICER, as set forth in section (1) of
this Definition or the time at which written
notice is given to the INSURER, as set forth
in section (2) of this Definition.
Multiple demands or suits arising out of the
same WRONGFUL ACT or interrelated acts shall
be deemed to be a single "CLAIM".
(B) COMPANY: The term "COMPANY" shall mean the
organization(s) named in Item 1 of the Declarations
and, subject to Condition (A) hereof, any
SUBSIDIARIES of such organization(s).
(C) COVERAGE PERIOD: The term "COVERAGE PERIOD" shall
mean the period of time from the RETROACTIVE DATE
to the termination of the POLICY PERIOD.
(D) DEFENSE COST: The term "DEFENSE COST" shall mean
all expense incurred by or on behalf of the
DIRECTORS, OFFICERS or, where reimbursable under
Insuring Agreement I(A)(2), the COMPANY in the
investigation, negotiation, settlement and defense
of any CLAIM except all salaries, wages and benefit
expenses of DIRECTORS, OFFICERS, or the COMPANY.
(E) DIRECTOR and OFFICER: The terms "DIRECTOR" and
"OFFICER" as used herein, either in the singular or
plural, shall mean:
(1) any person who was, is now, or shall be a
director, officer or trustee of the COMPANY
and any other employee of the COMPANY who may
be acting in the capacity of a director,
officer or trustee of the COMPANY with the
express authorization of a director, officer
or trustee of the COMPANY;
(2) any director, officer or trustee of the
COMPANY who is serving or has served at the
specific request of the COMPANY as a director,
officer or trustee of any outside NOT-FOR-
PROFIT ORGANIZATION; or
(3) the estates, heirs, legal representatives or
assigns of deceased persons who were
directors, officers or trustees of the COMPANY
at the time the WRONGFUL ACTS upon which such
CLAIMS were based were committed, and the
legal representatives or assigns of directors,
officers or trustees of the COMPANY in the
event of their incompetency, insolvency or
bankruptcy;
provided, however, that the terms "DIRECTOR" and
"OFFICER" shall not include a trustee appointed
pursuant to Title 11, United States Code, or
pursuant to the Securities Investor Protection Act,
a receiver appointed for the benefit of creditors
by Federal or State courts, an assignee for the
benefit of creditors or similar fiduciary appointed
under Federal or State laws for the protection of
creditors or the relief of debtors.
In the event that a CLAIM which is within the
coverage afforded under this POLICY is made against
any DIRECTOR or OFFICER and such CLAIM includes a
claim against the lawful spouse of such DIRECTOR or
OFFICER solely by reason of (a) such spousal status
or (b) such spouse's ownership interest in property
or assets which are sought as recovery for WRONGFUL
ACTS of a DIRECTOR or OFFICER, such spouse shall be
deemed to be a DIRECTOR or OFFICER hereunder, but
solely with respect to such claim. In no event,
however, shall the lawful spouse of a DIRECTOR or
OFFICER be deemed to be a DIRECTOR or OFFICER as
regards any CLAIM in respect of which there is a
breach of duty, neglect, error, misstatement,
misleading statement or omission actually or
allegedly caused, committed or attempted by or
claimed against such spouse, acting individually or
in his or her capacity as the spouse of a DIRECTOR
or OFFICER.
(F) DISCOVERY PERIOD: The term "DISCOVERY PERIOD"
shall mean the period of time set forth in
Condition (L).
(G) INDEMNITY: The term "INDEMNITY" shall mean all
sums which the DIRECTORS, OFFICERS or, where
reimbursable under Insuring Agreement I(A)(2), the
COMPANY shall become legally obligated to pay as
damages either by adjudication or compromise with
the consent of the INSURER, after making proper
deduction for the UNDERLYING LIMITS and all
recoveries, salvages and other valid and
collectible insurance.
(H) INSURER: The term "INSURER" shall mean Associated
Electric & Gas Insurance Services Limited,
Hamilton, Bermuda, a non-assessable mutual
insurance company.
(I) NOT-FOR-PROFIT ORGANIZATION: The term "NOT-FOR-
PROFIT ORGANIZATION" shall mean:
(1) an organization, no part of the income or
assets of which is distributable to its
owners, stockholders or members and which is
formed and operated for a purpose other than
the pecuniary profit or financial gain of its
owners, stockholders or members; or
(2) a political action committee which is defined
for these purposes as a separate segregated
fund to be utilized for political purposes as
described in the United States Federal
Election Campaign Act (2 U.S.C. 441b(2)(C)).
(J) NUCLEAR OPERATIONS: The term "NUCLEAR OPERATIONS"
shall mean the design, engineering, financing,
construction, operation, maintenance, use,
ownership, conversion or decommissioning of any
nuclear facility.
(K) POLICY: The term "POLICY" shall mean this
insurance policy, including the Application, the
Declarations and any endorsements issued by the
INSURER to the organization first named in Item 1
of the Declarations for the POLICY PERIOD listed in
Item 2 of the Declarations.
(L) POLICY PERIOD: The term "POLICY PERIOD" shall mean
the period of time stated in Item 2 of the
Declarations.
(M) RETROACTIVE DATE: The term "RETROACTIVE DATE"
shall mean the date stated in Item 3 of the
Declarations; provided, however, with respect to
any WRONGFUL ACT actually or allegedly caused,
committed or attempted by the DIRECTORS or OFFICERS
of any SUBSIDIARY formed or acquired by the COMPANY
or any of its SUBSIDIARIES after inception of the
POLICY PERIOD of this POLICY, or after inception of
any other policy issued by the INSURER to the
COMPANY for a prior policy period, the term
"RETROACTIVE DATE" shall mean the date of such
formation or acquisition.
(N) SUBSIDIARIES: The term "SUBSIDIARY" shall mean any
entity more than fifty percent (50%) of whose
outstanding securities or financial interest
representing the present right to vote for election
of directors (or the appointment of a general
partner in respect of a limited partnership or
manager in respect of a limited liability company)
are owned by the COMPANY and/or one or more of its
"SUBSIDIARIES".
(O) ULTIMATE NET LOSS: The term "ULTIMATE NET LOSS"
shall mean the total INDEMNITY and DEFENSE COST
with respect to each WRONGFUL ACT to which this
POLICY applies, provided that ULTIMATE NET LOSS
does not include any amount allocated, pursuant to
Condition (T), to CLAIMS against persons or
entities other than DIRECTORS and OFFICERS or to
non-covered matters.
(P) UNDERLYING LIMITS: The term "UNDERLYING LIMITS"
shall mean the amounts stated in Item 6 of the
Declarations.
(Q) WRONGFUL ACT: The term "WRONGFUL ACT" shall mean
any actual or alleged breach of duty, neglect,
error, misstatement, misleading statement or
omission actually or allegedly caused, committed or
attempted by any DIRECTOR or OFFICER while acting
individually or collectively in their capacity as
such, or claimed against them solely by reason of
their being DIRECTORS or OFFICERS.
All such interrelated breaches of duty, neglects,
errors, misstatements, misleading statements or
omissions actually or allegedly caused, committed
or attempted by or claimed against one or more of
the DIRECTORS or OFFICERS shall be deemed to be a
single "WRONGFUL ACT".
III. EXCLUSIONS
The INSURER shall not be liable to make any payment for
ULTIMATE NET LOSS arising from any CLAIM(S) made against
any DIRECTOR or OFFICER:
(A) (1) for any fines or penalties imposed in a
criminal suit, action or proceeding;
(2) for any fines or penalties imposed in
conjunction with political contributions,
payments, commissions or gratuities; or
(3) for any other fines or penalties imposed by
final adjudication of a court of competent
jurisdiction or any agency or commission
possessing quasi-judicial authority; or
(4) where, at inception of the POLICY PERIOD, such
DIRECTOR or OFFICER had knowledge of a fact or
circumstance which was likely to give rise to
such CLAIM(S) and which such DIRECTOR or
OFFICER failed to disclose or misrepresented
in the Application or in the process of
preparation of the Application, other than in
a Renewal Application; provided, however, that
this exclusion shall not apply to such
CLAIM(S) made against any DIRECTOR or OFFICER
other than such DIRECTOR or OFFICER who failed
to disclose or misrepresented such fact or
circumstance; provided further that this
exclusion shall not limit the INSURER'S right
to exercise any remedy available to it with
respect to such failure to disclose or
misrepresentation other than the remedy
provided for in this Exclusion.
(B) with respect to Insuring Agreement I(A)(1) only:
(1) based upon, arising out of or attributable to
such DIRECTOR or OFFICER having gained any
personal profit, advantage or remuneration to
which such DIRECTOR or OFFICER was not legally
entitled if:
(a) a judgment or other final adjudication
adverse to such DIRECTOR or OFFICER
establishes that he in fact gained such
personal profit, advantage or
remuneration; or
(b) such DIRECTOR or OFFICER has entered into
a settlement agreement to repay such
personal profit, advantage or
remuneration to the COMPANY;
(2) for an accounting of profits made from the
purchase or sale by such DIRECTOR or OFFICER
of securities of the COMPANY within the
meaning of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or
similar provisions of any other federal or
state statutory or common law;
(3) brought about or contributed to by the
dishonest, fraudulent, criminal or malicious
act or omission of such DIRECTOR or OFFICER if
a final adjudication establishes that acts of
active and deliberate dishonesty were
committed or attempted with actual dishonest
purpose and intent and were material to the
cause of action so adjudicated; or
(4) where such payment would be contrary to
applicable law.
(C) for bodily injury, mental anguish, mental illness,
emotional upset, sickness or disease sustained by
any person, death of any person or for physical
injury to or destruction of tangible property or
the loss of use thereof.
(D) for injury based upon, arising out of or
attributable to:
(1) false arrest, wrongful detention or wrongful
imprisonment or malicious prosecution;
(2) wrongful entry, wrongful eviction or other
invasion of the right of private occupancy;
(3) discrimination or sexual harassment;
(4) publication or utterance:
(a) of a libel or slander or other defamatory
or disparaging material; and
(b) in violation of an individual's right of
privacy; or
(5) with respect to the COMPANY'S advertising
activities: piracy, plagiarism, unfair
competition, idea misappropriation under
implied contract, or infringement of
copyright, title, slogan, registered
trademark, service mark, or trade name.
(E) for violation(s) of any responsibility, obligation
or duty imposed upon fiduciaries by the Employee
Retirement Income Security Act of 1974 or
amendments thereto or by similar common or
statutory law of the United States of America or
any state or other jurisdiction therein.
(F) based upon, arising out of or attributable to:
(1) the rendering of advice with respect to;
(2) the interpreting of; or
(3) the handling of records in connection with the
enrollment, termination or cancellation of
employees under the COMPANY'S group life
insurance, group accident or health insurance,
pension plans, employee stock subscription
plans, workers' compensation, unemployment
insurance, social security, disability
benefits and any other employee benefit
programs.
(G) based upon, arising out of or attributable to any
failure or omission on the part of the DIRECTORS,
OFFICERS and/or the COMPANY to effect and maintain
insurance(s) of the type and amount which is
customary with companies in the same or similar
business.
(H) (1) arising from any circumstances, written
notice of which has been given under "any
policy" or any discovery period thereof, which
policy expired prior to or upon the inception
of this POLICY; or
(2) which is one of a number of CLAIMS arising out
of the same WRONGFUL ACT, if any CLAIM of such
multiple CLAIMS was made against the DIRECTORS
or OFFICERS during "any policy" or any
discovery period thereof, which policy expired
prior to or upon the inception of this POLICY.
The term "any policy" refers to any Directors and
Officers Liability Insurance Policy, any General
Partners Liability Insurance Policy or any other
policy affording substantially similar coverage
(whether issued by the INSURER or any other
carrier).
(I) if any other policy or policies also afford(s)
coverage in whole or in part for such CLAIM(S);
except, this exclusion shall not apply:
(1) to the amount of ULTIMATE NET LOSS with
respect to such CLAIM(S) which is in excess of
the limit of liability of such other policy or
policies and any applicable deductible or
retention thereunder; or
(2) with respect to coverage afforded such
CLAIM(S) by any other policy or policies
purchased or issued specifically as insurance
underlying or in excess of the coverage
afforded under this POLICY;
provided always that nothing herein shall be
construed to cause this POLICY to contribute with
any other policy or policies or to make this POLICY
subject to any of the terms of any other policy or
policies.
(J) for any WRONGFUL ACT which took place in whole or
in part prior to the RETROACTIVE DATE.
(K) by, on behalf of, in the right of, at the request
of, or for the benefit of, any security holder of
the COMPANY, any DIRECTOR or OFFICER, or the
COMPANY, unless such CLAIM is:
(1) made derivatively by any shareholder of the
COMPANY for the benefit of the COMPANY and
such shareholder is:
(a) acting totally independent of, and
totally without the suggestion,
solicitation, direction, assistance,
participation or intervention of, any
DIRECTOR or OFFICER, or the COMPANY; and
(b) not any entity within the definition of
the term "COMPANY"; or
(2) made non-derivatively by a security holder who
is not:
(a) a DIRECTOR or OFFICER; or
(b) any entity within the definition of the
term "COMPANY"; or
(3) made non-derivatively by an OFFICER acting
totally independent of, and totally without
the suggestion, solicitation, direction,
assistance, participation or intervention of,
any other DIRECTOR or OFFICER, or the COMPANY,
and (subject to all the other exclusions and
POLICY provisions) arising from the wrongful
termination of that OFFICER.
(L) where such CLAIM(S) arise out of such DIRECTOR'S
or OFFICER'S activities as a director, officer or
trustee of any entity other than:
(1) the COMPANY; or
(2) any outside NOT-FOR-PROFIT ORGANIZATION as
provided in Section II(E)(2).
IV. CONDITIONS
(A) Acquisition, Merger and Dissolution
(1) (a) If, after inception of the POLICY PERIOD,
(i) the COMPANY or any of its
SUBSIDIARIES forms or acquires any
SUBSIDIARY or acquires any entity by
merger into or consolidation with
the COMPANY or any SUBSIDIARY, and
(ii) the operations of such formed or
acquired entity are related to,
arising from or associated with the
production, transmission, delivery
or furnishing of electricity, gas,
water or sewer service to the public
or the conveyance of telephone
messages for the public; and
(iii) the total assets of such formed
or acquired entity are not greater
than the lesser of $100,000,000 or
ten percent (10%) of the COMPANY'S
total assets,
coverage shall be provided for the
DIRECTORS and OFFICERS of such entity
from the date of formation, acquisition,
merger or consolidation, respectively,
but only with respect to WRONGFUL ACTS
actually or allegedly caused, committed
or attempted during that part of the
POLICY PERIOD which is subsequent to the
formation, acquisition, merger or
consolidation.
(b) In respect of any SUBSIDIARY formed or
acquired after the inception of the
POLICY PERIOD and not subject to
paragraph (a) above, or of any entity
acquired by merger into or consolidation
with the COMPANY or any SUBSIDIARY after
the inception of the POLICY PERIOD and
not subject to paragraph (a) above, the
COMPANY shall report such formation or
acquisition within ninety (90) days
thereafter and, if so reported, upon
payment of an additional premium and upon
terms as may be required by the INSURER,
such coverage shall be provided for the
DIRECTORS and OFFICERS of such newly
formed or acquired SUBSIDIARY or merged
or consolidated entity, but only with
respect to WRONGFUL ACTS actually or
allegedly caused, committed, or attempted
during that part of the COVERAGE PERIOD
which is subsequent to such acquisition,
merger or consolidation.
(2) If, prior to or after inception of the POLICY
PERIOD, the COMPANY or any of its SUBSIDIARIES
is or has been acquired by or merged into any
other entity, or is or has been dissolved,
coverage under this POLICY shall continue for
the POLICY PERIOD but only for DIRECTORS and
OFFICERS of the COMPANY or its SUBSIDIARIES
who were serving as such prior to such
acquisition, merger or dissolution and only
with respect to WRONGFUL ACTS actually or
allegedly caused, committed or attempted
during that part of the COVERAGE PERIOD which
is prior to such acquisition, merger or
dissolution.
(B) Non-Duplication of Limits
To avoid the duplication of the INSURER'S Limits of
Liability stated in Item 5 of the Declarations, the
DIRECTORS, OFFICERS and COMPANY agree that:
(1) in the event the INSURER provides INDEMNITY or
DEFENSE COSTS for any WRONGFUL ACT under this
POLICY, neither the DIRECTORS, OFFICERS nor
the COMPANY shall have any right to additional
INDEMNITY or DEFENSE COSTS for such WRONGFUL
ACT under any other policy issued by the
INSURER to the DIRECTORS, OFFICERS or COMPANY
that otherwise would apply to such WRONGFUL
ACT; and
(2) in the event the INSURER provides INDEMNITY or
DEFENSE COSTS for any WRONGFUL ACT under any
other policy issued by the INSURER to the
DIRECTORS, OFFICERS, or COMPANY, neither the
DIRECTORS, OFFICERS nor the COMPANY shall have
any right to additional INDEMNITY or DEFENSE
COSTS for such WRONGFUL ACT under this POLICY.
(C) Notice of Claim
As a condition precedent to any rights under this
POLICY, the DIRECTORS, OFFICERS and/or the COMPANY,
shall give written notice to the INSURER as soon as
practicable of any CLAIM, which notice shall
include the nature of the WRONGFUL ACT, the alleged
injury, the names of the claimants, and the manner
in which the DIRECTOR, OFFICER or COMPANY first
became aware of the CLAIM, and shall cooperate with
the INSURER and give such additional information as
the INSURER may reasonably require.
The Application or any information contained
therein for this POLICY shall not constitute a
notice of CLAIM.
(D) Cooperation and Settlements
In the event of any WRONGFUL ACT which may involve
this POLICY, the DIRECTORS, OFFICERS or COMPANY
without prejudice as to liability, may proceed
immediately with settlements which in their
aggregate do not exceed the UNDERLYING LIMITS. The
COMPANY shall notify the INSURER of any such
settlements made.
The INSURER shall not be called upon to assume
charge of the investigation, settlement or defense
of any demand, suit or proceeding, but the INSURER
shall have the right and shall be given the
opportunity to associate with the DIRECTORS,
OFFICERS and COMPANY or any underlying insurer, or
both, in the investigation, settlement, defense and
control of any demand, suit or proceeding relative
to any WRONGFUL ACT where the demand, suit or
proceeding involves or may involve the INSURER. At
all times, the DIRECTORS, OFFICERS and COMPANY and
the INSURER shall cooperate in the investigation,
settlement and defense of such demand, suit or
proceeding.
The DIRECTORS, OFFICERS and COMPANY and their
underlying insurer(s) shall, at all times, use
diligence and prudence in the investigation,
settlement and defense of demands, suits or other
proceedings.
(E) Appeals
In the event that the DIRECTORS, OFFICERS, COMPANY
or any underlying insurer elects not to appeal a
judgment in excess of the UNDERLYING LIMITS, the
INSURER may elect to conduct such appeal at its own
cost and expense and shall be liable for any
taxable court costs and interest incidental
thereto, but in no event shall the total liability
of the INSURER, exclusive of the cost and expense
of appeal, exceed its Limits of Liability stated in
Item 5 of the Declarations.
(F) Subrogation
In the event of any payment under this POLICY, the
INSURER shall be subrogated to the extent of such
payment to all rights of recovery thereof, and the
DIRECTORS, OFFICERS and COMPANY shall execute all
papers required and shall do everything that may be
necessary to enable the INSURER to bring suit in
the name of the DIRECTORS, OFFICERS or COMPANY.
(G) Bankruptcy or Insolvency
Bankruptcy or insolvency of the COMPANY shall not
relieve the INSURER of any of its obligations
hereunder.
In the event of bankruptcy or insolvency of the
COMPANY, subject to all the terms of this POLICY,
the INSURER shall pay on behalf of the DIRECTORS
and OFFICERS under Insuring Agreement I(A)(1) (in
excess of the UNDERLYING LIMITS, if any, applicable
to Insuring Agreement I(A)(1)) for ULTIMATE NET
LOSS they shall become legally obligated to pay
which would have been indemnified by the COMPANY
and reimbursable by the INSURER under Insuring
Agreement I(A)(2) but for such bankruptcy or
insolvency; provided, however, that the INSURER
shall be subrogated, to the extent of any payment,
to the rights of the DIRECTORS and OFFICERS to
receive indemnification from the COMPANY but only
up to the amount of the UNDERLYING LIMITS
applicable to Insuring Agreement I(A)(2) less the
amount of the UNDERLYING LIMITS, if any, applicable
to Insuring Agreement I(A)(1).
(H) Uncollectibility of Underlying Insurance
Notwithstanding any of the terms of this POLICY
which might be construed otherwise, if this POLICY
is written as excess over any Underlying Insurance,
it shall drop down only in the event of reduction
or exhaustion of any aggregate limits contained in
such Underlying Insurance and shall not drop down
for any other reason including, but not limited to,
uncollectibility (in whole or in part) because of
the financial impairment or insolvency of an
underlying insurer. The risk of uncollectibility of
such Underlying Insurance (in whole or in part)
whether because of financial impairment or
insolvency of an underlying insurer or for any
other reason, is expressly retained by the
DIRECTORS, OFFICERS and the COMPANY and is not in
any way or under any circumstances insured or
assumed by the INSURER.
(I) Maintenance of UNDERLYING LIMITS
If this POLICY is written as Excess Insurance, it
is a condition of this POLICY that any UNDERLYING
LIMITS stated in Item 6 of the Declarations shall
be maintained in full force and effect, except for
reduction or exhaustion of any underlying aggregate
limits of liability, during the currency of this
POLICY. Failure of the COMPANY to comply with the
foregoing shall not invalidate this POLICY but in
the event of such failure, without the agreement of
the INSURER, the INSURER shall only be liable to
the same extent as it would have been had the
COMPANY complied with this Condition.
(J) Changes and Assignment
The terms of this POLICY shall not be waived or
changed, nor shall an assignment of interest be
binding, except by an endorsement to this POLICY
issued by the INSURER.
(K) Outside NOT-FOR-PROFIT ORGANIZATION
If any DIRECTOR or OFFICER is serving or has served
at the specific request of the COMPANY as a
DIRECTOR or OFFICER of an outside NOT-FOR-PROFIT
ORGANIZATION, the coverage afforded by this POLICY:
(1) shall be specifically excess of any other
indemnity or insurance available to such
DIRECTOR or OFFICER by reason of such service;
and
(2) shall not be construed to extend to the
outside NOT-FOR-PROFIT ORGANIZATION in which
the DIRECTOR or OFFICER is serving or has
served, nor to any other director, officer or
employee of such outside NOT-FOR-PROFIT
ORGANIZATION.
(L) DISCOVERY PERIOD
(1) In the event of cancellation or nonrenewal of
this POLICY by the INSURER, the COMPANY shall
have the right, upon execution of a warranty
that all known CLAIMS and facts or
circumstances likely to give rise to a CLAIM
have been reported to the INSURER and payment
of an additional premium to be determined by
the INSURER which shall not exceed two hundred
percent (200%) of the Policy Premium stated in
Item 4 of the Declarations, to an extension of
the coverage afforded by this POLICY with
respect to any CLAIM first made against any
DIRECTOR or OFFICER during the period of
twelve (12) months after the effective date of
such cancellation or nonrenewal, but only with
respect to any WRONGFUL ACT committed during
the COVERAGE PERIOD. This right of extension
shall terminate unless written notice of such
election is received by the INSURER within
thirty (30) days after the effective date of
cancellation or nonrenewal.
The offer by the INSURER of renewal on terms,
conditions or premiums different from those in
effect during the POLICY PERIOD shall not
constitute cancellation or refusal to renew
this POLICY.
(2) In the event of cancellation or nonrenewal of
this POLICY by the COMPANY, the COMPANY shall
have the right upon payment of an additional
premium, which shall not exceed one hundred
percent (100%) of the Policy Premium stated in
Item 4 of the Declarations, to an extension of
coverage afforded by this POLICY with respect
to any CLAIM first made against any DIRECTOR
or OFFICER during the period of twelve (12)
months after the effective date of such
cancellation or nonrenewal, but only with
respect to any WRONGFUL ACT during the
COVERAGE PERIOD. This right of extension shall
terminate unless written notice of such
election is received by the INSURER within
thirty (30) days after the effective date of
cancellation or nonrenewal.
(3) In the event of renewal on terms and
conditions different from those in effect
during the POLICY PERIOD, the COMPANY shall
have the right, upon execution of a warranty
that all known CLAIMS and facts or
circumstances likely to give rise to a CLAIM
have been reported to the INSURER and payment
of an additional premium to be determined by
the INSURER which shall not exceed two hundred
percent (200%) of the Policy Premium stated in
Item 4 of the Declarations, to an extension of
the original terms and conditions with respect
to any CLAIM first made against any DIRECTOR
or OFFICER during the period of twelve (12)
months after the effective date of renewal,
but only with respect to any WRONGFUL ACT
committed during the COVERAGE PERIOD and not
covered by the renewal terms and conditions.
This right of extension shall terminate unless
written notice of such election is received by
the INSURER within thirty (30) days after the
effective date of renewal.
(M) Cancellation
This POLICY may be cancelled:
(1) at any time by the COMPANY by mailing written
notice to the INSURER stating when thereafter
cancellation shall be effective; or
(2) at any time by the INSURER by mailing written
notice to the COMPANY stating when, not less
than ninety (90) days from the date such
notice was mailed, cancellation shall be
effective, except in the event of cancellation
for nonpayment of premiums, such cancellation
shall be effective ten (10) days after the
date notice thereof is mailed.
The proof of mailing of notice to the address of
the COMPANY stated in Item 7 of the Declarations or
the address of the INSURER stated in Item 8 of the
Declarations shall be sufficient proof of notice
and the insurance under this POLICY shall end on
the effective date and hour of cancellation stated
in the notice. Delivery of such notice either by
the COMPANY or by the INSURER shall be equivalent
to mailing.
With respect to all cancellations, the premium
earned and retained by the INSURER shall be the sum
of (a) the Minimum Premium stated in Item 4B of the
Declarations plus (b) the pro-rata proportion, for
the period this POLICY has been in force, of the
difference between (i) the Policy Premium stated in
Item 4A of the Declarations and (ii) the Minimum
Premium stated in Item 4B of the Declarations.
The offer by the INSURER of renewal on terms,
conditions or premiums different from those in
effect during the POLICY PERIOD shall not
constitute cancellation or refusal to renew this
POLICY.
(N) Currency
All amounts stated herein are expressed in United
States Dollars and all amounts payable hereunder
are payable in United States Dollars.
(O) Sole Agent
The COMPANY first named in Item 1 of the
Declarations shall be deemed the sole agent of each
DIRECTOR and OFFICER for the purpose of requesting
any endorsement to this POLICY, making premium
payments and adjustments, receipting for payments
of INDEMNITY and receiving notifications, including
notice of cancellation from the INSURER.
(P) Acts, Omissions or Warranties
The acts, omissions or warranties of any DIRECTOR
or OFFICER shall not be imputed to any other
DIRECTOR or OFFICER with respect to the coverages
applicable under this POLICY.
(Q) Dispute Resolution and Service of Suit
Any controversy or dispute arising out of or
relating to this POLICY, or the breach, termination
or validity thereof, shall be resolved in
accordance with the procedures specified in this
Section IV(Q), which shall be the sole and
exclusive procedures for the resolution of any such
controversy or dispute.
(1) Negotiation. The COMPANY and the INSURER
shall attempt in good faith to resolve any
controversy or dispute arising out of or
relating to this POLICY promptly by
negotiations between executives who have
authority to settle the controversy. Any
party may give the other party written notice
of any dispute not resolved in the normal
course of business. Within fifteen (15) days
the receiving party shall submit to the other
a written response. The notice and the
response shall include (a) a statement of each
party's position and a summary of arguments
supporting that position, and (b) the name and
title of the executive who will represent that
party and of any other person who will
accompany the executive. Within thirty (30)
days after delivery of the disputing party's
notice, the executives of both parties shall
meet at a mutually acceptable time and place,
and thereafter as often as they reasonably
deem necessary, to attempt to resolve the
dispute. All reasonable requests for
information made by one party to the other
will be honored. If the matter has not been
resolved within sixty (60) days of the
disputing party's notice, or if the parties
fail to meet within thirty (30) days, either
party may initiate mediation of the
controversy or claim as provided hereinafter.
All negotiations pursuant to this clause will
be kept confidential and shall be treated as
compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and
state rules of evidence.
(2) Mediation. If the dispute has not been
resolved by negotiation as provided herein,
the parties shall endeavor to settle the
dispute by mediation under the then current
CPR Institute Model Procedure for Mediation of
Business Disputes. The neutral third party
will be selected from the CPR Institute Panels
of Neutrals, with the assistance of the CPR
Institute.
(3) Arbitration. Any controversy or dispute
arising out of or relating to this POLICY, or
the breach, termination or validity thereof,
which has not been resolved by non-binding
means as provided herein within ninety (90)
days of the initiation of such procedure,
shall be settled by binding arbitration in
accordance with the CPR Institute Rules for
Non-Administered Arbitration of Business
Disputes (the "CPR Rules") by three (3)
independent and impartial arbitrators. The
COMPANY and the INSURER each shall appoint one
arbitrator; the third arbitrator, who shall
serve as the chair of the arbitration panel,
shall be appointed in accordance with the CPR
Rules. If either the COMPANY or the INSURER
has requested the other to participate in a
non-binding procedure and the other has failed
to participate, the requesting party may
initiate arbitration before expiration of the
above period. The arbitration shall be
governed by the United States Arbitration Act,
9 U.S.C. Subsection 1 et seq., and judgment
upon the award rendered by the arbitrators may
be entered by any court having jurisdiction
thereof. The terms of this POLICY are to be
construed in an evenhanded fashion as between
the COMPANY and the INSURER in accordance with
the laws of the jurisdiction in which the
situation forming the basis for the
controversy arose. Where the language of this
POLICY is deemed to be ambiguous or otherwise
unclear, the issue shall be resolved in a
manner most consistent with the relevant terms
of this POLICY without regard to authorship of
the language and without any presumption or
arbitrary interpretation or construction in
favor of either the COMPANY or the INSURER.
In reaching any decision the arbitrators shall
give due consideration for the customs and
usages of the insurance industry. The
arbitrators are not empowered to award damages
in excess of compensatory damages and each
party hereby irrevocably waives any such
damages.
In the event of a judgment being entered
against the INSURER on an arbitration award,
the INSURER at the request of the COMPANY,
shall submit to the jurisdiction of any court
of competent jurisdiction within the United
States of America, and shall comply with all
requirements necessary to give such court
jurisdiction and all matters relating to such
judgment and its enforcement shall be
determined in accordance with the law and
practice of such court.
(4) Service of Suit. Service of process in such
suit or any other suit instituted against the
INSURER under this POLICY may be made upon
Messrs. LeBoeuf, Lamb, Greene, & MacRae,
L.L.P., 125 West 55th Street, New York, New
York 10019. The INSURER will abide by the
final decision of the court in such suit or of
any appellate court in the event of any
appeal. Messrs. LeBoeuf, Lamb, Greene &
MacRae, L.L.P. are authorized and directed to
accept service of process on behalf of the
INSURER in any such suit and, upon the
COMPANY's request, to give a written
undertaking to the COMPANY's that they will
enter a general appearance upon the INSURER's
behalf in the event such suit is instituted.
Nothing in this clause constitutes or should
be understood to constitute a waiver of the
INSURER's right to commence an action in any
court of competent jurisdiction in the United
States, to remove an action to a United States
District Court, or to seek to transfer a case
to another court as permitted by the laws of
the United States or of any state in the
United States.
(R) Severability
In the event that any provision of this POLICY
shall be declared or deemed to be invalid or
unenforceable under any applicable law, such
invalidity or unenforceability shall not affect the
validity or enforceability of the remaining portion
of this POLICY.
(S) Non-assessability
The COMPANY (and, accordingly, any DIRECTOR or
OFFICER for whom the COMPANY acts as agent) shall
only be liable under this POLICY for the premium
stated in Item 4 of the Declarations. Neither the
COMPANY nor any DIRECTOR or OFFICER for whom the
COMPANY acts as agent shall be subject to any
contingent liability or be required to pay any dues
or assessments in addition to the premium described
above.
(T) Allocation
If a CLAIM is made against both the DIRECTORS and
OFFICERS and others, including the COMPANY, or if a
CLAIM against the DIRECTORS and OFFICERS includes
both covered and non-covered matters, the DIRECTORS
and OFFICERS, the COMPANY and the INSURER shall
allocate any defense costs, settlement, judgment or
other loss on account of such CLAIM between covered
ULTIMATE NET LOSS attributable to the CLAIM against
the DIRECTORS and OFFICERS and non-covered loss.
Such allocation shall be based upon the relative
exposure of each party to such CLAIM for covered
and non-covered matters and the relative benefit to
each party from the defense or settlement of such
CLAIM.
If the DIRECTORS and OFFICERS, COMPANY and the
INSURER agree on an allocation of DEFENSE COSTS,
the INSURER shall advance on a current basis
DEFENSE COSTS allocated to the covered ULTIMATE NET
LOSS. If the DIRECTORS and OFFICERS, COMPANY and
the INSURER cannot agree on an allocation:
(1) no presumption as to allocation shall exist in
any arbitration, suit or other proceeding;
(2) the INSURER shall advance on a current basis
DEFENSE COSTS which the INSURER believes to be
covered under this Policy until a different
allocation is negotiated, mediated or
arbitrated; and
(3) any disagreement on the allocation of DEFENSE
COSTS is to be settled in accordance with
Condition (Q).
Any negotiated, mediated or arbitrated allocation
of DEFENSE COSTS on account of a CLAIM shall be
applied retroactively to all DEFENSE COSTS on
account of such CLAIM, notwithstanding any prior
advancement to the contrary. Any allocation or
advancement of DEFENSE COSTS on account of a CLAIM
shall not apply to or create any presumption with
respect to the allocation of INDEMNITY on account
of such CLAIM. Advancement by the INSURER of
DEFENSE COSTS shall be conditioned upon the
DIRECTORS, OFFICERS or COMPANY, as applicable,
providing a satisfactory written undertaking to
repay the INSURER any DEFENSE COSTS finally
established not be insured.
IN WITNESS WHEREOF, Associated Electric & Gas
Insurance Services Limited has caused this POLICY
to be signed by its Chairman at Hamilton, Bermuda.
However, this POLICY shall not be binding upon the
INSURER unless countersigned on the Declaration
Page by a duly authorized representative of the
INSURER.
/s/ Bernard J. Kennedy /s/ Alan J. Maguire
Bernard J. Kennedy, Chairman Alan J. Maguire, President
and Chief Operating Officer
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 1 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
DELETION OF FAILURE TO MAINTAIN INSURANCE EXCLUSION
Section III, EXCLUSIONS (G) Failure to Maintain Insurance
Exclusion, is deleted in its entirety.
/s/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 2 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
OUTSIDE POSITION COVERAGE - FOR-PROFIT ORGANIZATIONS
INCLUDING MANAGEMENT OR OPERATING COMMITTEE
I. Definition (E) DIRECTOR and OFFICER is amended to
include the following:
(4) (a) any director, officer, trustee or employee of
the COMPANY who is serving at the specific
written request of the COMPANY in the
position of a director, officer, trustee or
member of the Management or Operating
Committees of the outside FOR-PROFIT
ORGANIZATION, which position and FOR-PROFIT
ORGANIZATION are named in attachment OPC-FPM1,
while such director, officer, trustee or
employee is acting in such capacity; and
(b) any present or former director, officer,
trustee or employee of the COMPANY who has
served at the specific written request
of the COMPANY in the position of a director,
officer, trustee or member of the Management
or Operating Committees of an outside FOR-
PROFIT ORGANIZATION while such director,
officer, trustee or employee was acting in
such capacity; provided, however, that such
director, officer, trustee or employee, such
outside FOR-PROFIT ORGANIZATION and such
position were named in an endorsement (similar
to this Endorsement) to the Directors' and
Officers' Policy of the INSURER in force at
the time at which such director, officer,
trustee or employee was acting in such
capacity.
II. The following Definition is added to the POLICY:
(R) FOR-PROFIT ORGANIZATION: The term "FOR-PROFIT
ORGANIZATION" shall mean an organization other than
a NOT-FOR-PROFIT ORGANIZATION.
III. Exclusion (L) is hereby deleted in its entirety and
replaced with the following:
(L) where such CLAIM(S) arises out of such DIRECTOR'S or
OFFICER'S activities as a director, officer or trustee of any
entity other than:
(1) the COMPANY; or
(2) any outside NOT-FOR-PROFIT ORGANIZATION as
provided in Section II(E)(2); or
(3) any outside FOR-PROFIT ORGANIZATION as
provided in an OUTSIDE POSITION COVERAGE - FOR-
PROFIT ORGANIZATIONS Endorsement.
OUTSIDE POSITION COVERAGE - FOR-PROFIT ORGANIZATIONS
INCLUDING MANAGEMENT OR OPERATING COMMITTEE
IV. Notwithstanding any other provision of the POLICY to the
contrary, the insurance provided by this Endorsement is
specifically in excess of and shall not contribute with
any indemnification or insurance provided by an outside
FOR-PROFIT ORGANIZATION, to any director, officer,
trustee or employee of the COMPANY.
Under no circumstances shall the insurance provided by
this Endorsement apply to:
(1) any director, officer or trustee of the outside FOR-
PROFIT ORGANIZATION who is or was not a director,
officer, trustee or employee of the COMPANY and who
is not named in attachment OPC-FPM1; or
(2) the outside FOR-PROFIT ORGANIZATION
V. The Limits of Liability stated in Item 5 of the
Declarations and the UNDERLYING LIMITS stated in Item 6
of the Declarations shall apply unless a specific Limit
of Liability or UNDERLYING LIMIT is stated below:
Item 5: Limits of Liablity:
A. $ Each WRONGFUL ACT
B. $ Aggregate Limit of Liability for the
POLICY PERIOD
Item 6: UNDERLYING LIMITS:
This POLICY is written as Insurance
A. If this POLICY is written as Primary Insurance
with respect to Insuring Agreement I(A)(2)
only:
(1) $ Each WRONGFUL ACT not arising
from NUCLEAR OPERATIONS
(2) $ Each WRONGFUL ACT arising from
NUCLEAR OPERATIONS
B. If this POLICY is written as Excess Insurance:
(1) (a) $ Each WRONGFUL ACT
(b) $ In the Aggregate for all WRONGFUL ACTS
(2) $ Each WRONGFUL ACT not covered
under Underlying Insurance
(3) In the Event of Exhaustion of the UNDERLYING LIMIT
stated in Item 6(B)(1)(b) above with respect to Insuring
Agreement I(A)(2) only:
(a) $ Each WRONGFUL ACT not arising from
NUCLEAR OPERATIONS
(b) $ Each WRONGFUL ACT arising from NUCLEAR
OPERATIONS
The Limit of Liability stated in this section is
part of and not in addition to the Limits of
Liability stated in Item 5 of the Declarations.
/s/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Attachment OPC-FPM1 to Endorsement No. 2 Effective Date of Endorsement
June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
COMPANY IPALCO Enterprises, Inc.
Name, FOR-PROFIT ORGANIZATION and position of each director,
officer, trustee or employee of the COMPANY covered under
Endorsement No. 2
NAME FOR-PROFIT ORGANIZATION POSITION
John R. Hodowal Tecumseh Coal Corp Director
Ramon L. Humke Tecumseh Coal Corp Director
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 3 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
COMMON WRONGFUL ACT ENDORSEMENT
(OUTSIDE POSITION COVERAGE - FOR-PROFIT ORGANIZATION)
Insuring Agreement I(B) Limits of Liability, is amended by
the addition of the following:
(5) With respect to ULTIMATE NET LOSS arising out of any
WRONGFUL ACT in connection with service for an outside FOR-
PROFIT ORGANIZATION as provided in Endorsement No. 2 "OUTSIDE
POSITION COVERAGE" attached to this POLICY, if:
(a) such WRONGFUL ACT results in liability being imposed
upon one or more DIRECTORS and OFFICERS under this
POLICY and also upon directors and officers and
general partners under any other directors and
officers or general partner liability insurance
policies issued by the INSURER to any organization;
and
(b) the total of the ULTIMATE NET LOSS under this POLICY
and the ultimate net loss under such other policies
issued by the INSURER equals or exceeds $35,000,000;
the maximum amount payable by the INSURER under
this POLICY in the aggregate for all UTLIMATE NET
LOSS resulting from such WRONGFUL ACT shall be the
lesser of the applicable Limit of Liability
provided by this POLICY or the product of:
(i) the applicable Limit of Liability provided by this
POLICY divided by the total limits of liability per wrongful
act applicable to such wrongful act under all policies issued
by the ISSUER; and
(ii) $35,000,000.
If the amount paid under this POLICY with respect
to such WRONGFUL ACT exceeds the COMPANY'S
proportionate share of the $35,000,000 as
determined above, the COMPANY shall refund such
excess to the INSURER promptly.
As used in this Endorsement, reference to Endorsement No. 2
shall include not only the Endorsement as originally issued,
but also any and all subsequent amendments thereto.
/s/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 4 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
WRONGFUL TERMINATION EXCLUSION ENDORSEMENT
The POLICY is amended as follows:
1. Exclusion (D)(3) is deleted in its entirety and replaced with the
following:
(3) discrimination, sexual harassment or wrongful termination
2. Exclusion (K)(3) is deleted in its entirety. The word "or"at the
end of Exclusion (K)(2) is deleted and the semi-colon is changed
to a period.
/s/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 5 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
CORPORATE ENTITY COVERAGE ENDORSEMENT
(SEPARATE LIMIT)
(A) Except as provided in paragraph (B) below, if the COMPANY is made
a defendant in any suit or proceeding in which a DIRECTOR or OFFICER
is also a defendant, in his respective capacity as a DIRECTOR or
OFFICER, the INSURER shall indemnify the COMPANY for any and all sums
required to reimburse it for ULTIMATE NET LOSS it has incurred in
connection with CLAIMS made against the COMPANY in such suit or
proceeding, provided (i) a DIRECTOR or OFFICER is a defendant in such
suit or proceeding as of the date the COMPANY is first named as a
defendant, (ii) such ULTIMATE NET LOSS of the COMPANY directly relates
to a CLAIM which, if made against a DIRECTOR or OFFICER, would be
covered by the POLICY and (iii) such ULTIMATE NET LOSS arises from a
CLAIM first made against the DIRECTORS or OFFICERS during the POLICY
PERIOD or during the DISCOVERY PERIOD, if purchased.
(B) The coverage under paragraph (A) above shall not apply to, and there
shall be no coverage under this Endorsement for ULTIMATE NET LOSS
incurred by the COMPANY in connection with any CLAIM brought by or on
behalf of the COMPANY.
(C) The maximum amount payable by the INSURER under this Endorsement for
all ULTIMATE NET LOSS arising out of any one WRONGFUL ACT shall be
the amount slated as the limit of liability each WRONGFUL ACT in
Section (H) of this Endorsement. The maximum amount payable by the
INSURER under this Endorsement during the POLICY PERIOD for all
ULTIMATE NET LOSS arising out of all WRONGFUL ACTS shall be the
amount stated as the Aggregate Limit of Liability for the POLICY
PERIOD in Section (H) of this Endorsement.
(D) For purposes of determining and applying the UNDERLYING LIMITS
applicable to the POLICY and this Endorsement, any ULTIMATE NET LOSS
of the COMPANY for which the INSURER shall be liable under this
Endorsement shall be included within and considered a portion of the
ULTIMATE NET LOSS covered under Insuring Agreement I(A)(2) with
respect to the WRONGFUL ACT for which a CLAIM is made against a
co-defendant DIRECTOR or OFFICER. Subject to the foregoing, the
INSURER shall only be liable under this Endorsement for the amount
of ULTIMATE NET LOSS which, together with ULTIMATE NET LOSS covered
under this POLICY without regard to this Endorsement, is in excess
of the amount stated as the UNDERLYING LIMITS applicable to
ULTIMATE NET LOSS covered under Insuring Agreement I(A)(2).
(E) For purposes of determining the INSURER'S Limits of Liability under
the POLICY and this Endorsement, all defense costs, settlement,
judgment or other loss on account of any CLAIM shall be fairly
allocated between the COMPANY and the DIRECTORS and OFFICERS
consistent with the terms of the POLICY.
(F) All capitalized terms under in this Endorsement shall have the same
meaning as ascribed to them in the POLICY, except that for purposes
of the coverage supplied by this Endorsement:
(1) references to "DIRECTORS and OFFICERS" in the definitions of the
terms "CLAIM", "DEFENSE COSTS" and "INDEMNITY" shall be deemed
also to be references to the COMPANY; and
(2) "WRONGFUL ACT" shall also mean any alleged breach of duty,
neglect, error, misstatement, misleading statement or
omission actually or allegedly caused, committed or attempted
by the COMPANY, but only if such breach, neglect, error,
misstatement, misleading statement or omission is
interrelated with WRONGFUL ACTS of DIRECTORS or OFFICERS that
are alleged in the same suit or proceeding. All interrelated
breaches of duty, neglects, errors, misstatements, misleading
statements or omissions actually or allegedly caused,
committed or attempted by the COMPANY shall be deemed to be a
single "WRONGFUL ACT".
(G) (1) Except as otherwise specifically provided in Paragraph (G)(2)
below, all Conditions set forth in the POLICY shall apply to the
coverage supplied under this Endorsement.
(2) (i) The second sentence of Condition (G) shall have no
applicability to the coverage supplied under this
Endorsement, and the bankruptcy or insolvency of
the COMPANY shall not relieve the INSURER of any
of its obligations under this Endorsement.
(ii) For purposes of this Endorsement, reference in any
Condition to "Limits of Liability" shall be deemed
to refer to the Limits of Liability set forth in
paragraph (H) below.
(iii) For purposes of this Endorsement, reference in
Condition (L) to a CLAIM first made against any
DIRECTOR or OFFICER shall be deemed to refer to
CLAIMS first made against the COMPANY.
(iv) For purposes of this Endorsement, reference in
Condition (T) to "covered ULTIMATE NET LOSS
attributable to the CLAIM against the DIRECTORS
and OFFICERS" shall be deemed to include CLAIM(S)
against the COMPANY for which coverage is supplied
under this Endorsement.
(H) Endorsement Limits of Liability:
A. $10,000,000 Each WRONGFUL ACT
B. $10,000,000 Aggregate Limit of Liability for the
POLICY PERIOD
(I) The INSURER shall not be liable, under this Endorsement, to make
any payment for ULTIMATE NET LOSS arising from any CLAIMS arising
from any prior or pending litigation as of , as
well as all future CLAIMS or litigation based upon the prior or
pending litigation or derived from the same or essentially the same
facts (actual or alleged) that gave rise to the prior or pending
litigation.
/s/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 6 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
Endorsement No. 3 - Common Wrongful Act Endorsement is
deleted in its entirety.
/s/ Brian Madden
Signature of Authorized Representative
EXHIBIT 10.17
IPALCO Enterprises, Inc.
and
Indianapolis Power & Light Company
UNFUNDED DEFERRED
COMPENSATION PLAN
FOR
OFFICERS
AND
DIRECTORS
As Amended and Restated January 1, 1999
UNFUNDED DEFERRED COMPENSATION PLAN
FOR OFFICERS AND DIRECTORS
RESOLVED, that effective January 1, 1999, there be and there
hereby is adopted an amended and restated unfunded deferred
compensation plan ("Plan") for Officers and Directors of IPALCO
Enterprises, Inc. and Indianapolis Power & Light Company
(hereinafter collectively referred to as the "Company"), with
respect to all or part of an Officer's base salary or bonus
earned under the Annual Incentive Plan, or a Director's retainer,
attendance and committee fees, the terms and conditions of which
are as follows:
(1) The Plan shall be unfunded so that the Company is under
merely a contractual duty to make payments when due under
the Plan. The promise to pay shall not be represented by
notes and shall not be secured in any way. The Plan shall
not be construed as an agreement, consideration or
inducement of employment or as affecting in any manner the
rights or obligations of the Company or of an Officer to
continue or to terminate the employment relationship at any
time.
(2) On or before December 31 of any year an Officer or a
Director may elect, by written notice to the Secretary of
the Company, to defer receipt of all or a specified part of
his or her base salary, bonus or fees. Provided, however,
that any election regarding bonus shall be made on or before
December 31 before the calendar year on which the bonus is
based. For example, an election must be made on or before
December 31, 1998 in order to defer the bonus awarded as a
result of performance for calendar year 1999. The deferral
shall be for not less than one calendar year and must not
extend beyond the year the Officer or Director reaches his
or her 70th birthday. The form for election is attached
hereto, made a part hereof and marked Exhibit A. A person
elected as an Officer or elected to fill a vacancy on the
Board and who was not an Officer or a Director on the
preceding December 31, or whose term of office did not begin
until after such date, may elect, before his or her term
begins, to defer all or a specified part of his or her base
salary, bonus or fees for the balance of the calendar year
in which they are elected.
(3) With regard to Officers, the amount deferred shall be
withheld in substantially equal bi-weekly installments.
(4) The Company shall maintain a deferred compensation account
for each Officer and Director participating in the Plan with
respect to deferred base salary, bonus or fees and credit
the account with interest at the end of each month at the
Current Interest Rate, as later defined. Interest credited
to the account will bear interest at the same rate.
(5) Amounts deferred under paragraph (2) above, together with
accumulated interest, shall, at the Officer's or Director's
election, be distributed either in a one lump sum payment or
in substantially equal annual installments over any period
of from two to fifteen years. The lump sum or first
installment shall be payable on the date and in the year
elected, or as soon as practicable after such date and with
any additional installments being payable on the same day of
each year thereafter. Amounts held pending distribution
pursuant to this item shall continue to accrue interest at
the Current Interest Rate as defined herein.
(6) An election under paragraphs (2) and (5) above as to the
amount deferred and the timing of the payment of such deferred
amount shall be made by the Officer or Director at the time the
Officer or Director first elects to defer receipt of all or a
portion of his or her base salary, bonus or fees. A new election
must be made for each calendar year. A prior election regarding
the timing of payment may be amended; provided that any amendment
must be made before the December 31 which is at least two (2)
years before the year in which the deferred amounts are to be
paid. For example, if a prior election requested deferred
amounts be payable in the year 2003, any amendment to this
election must be made by December 31, 2000. Any election made by
an Officer or a Director after any such December 31 will not be
given effect by the Company.
Notwithstanding the above provision allowing an amendment to
the timing of payment, any amended election shall not be
given effect and shall be null and void if: (a) the amended
payment election would actually result (if given effect) in
payments being made in a calendar year which is not at least
2 calendar years before the calendar year in which, but for
the election change, the payment of the deferred amount
would have been paid, or (b) payments would have commenced,
but for the change in election, within 2 full calendar years
from the date that the amended payment election was made.
For example, in connection with (a) above, an election was
made to receive deferred payments in 2005. On December 31,
1998 that election is amended to receive payments on
retirement. That individual then retires in 1999 or 2000.
The election is not valid since payments would then begin
within 2 full calendar years of the change in election. An
example of (b) would be an election was made to receive
payments on retirement. On December 31, 1998 that election
is amended to receive payments in 2003. That individual
then retires in 1999 or 2000. The election is not valid
since the payments would have commenced (but for the change
in election) within 2 full calendar years of the change in
election.
(7) If a person becomes a director, proprietor, officer,
partner, employee of, or otherwise becomes affiliated with,
a business that is in competition with the Company, or if
such person shall refuse a reasonable request of the Company
to perform consulting services after retirement while
receiving payments under the Plan, all deferred fees and
interest remaining payable to such person shall be
forfeited.
(8) (a) Upon the death of an Officer or a Director, or a person
who has ceased to be an Officer or a Director, all such deferred
amounts and interest in his or her account shall be payable:
(i) to a beneficiary designated in writing by such
Officer or Director; or
(ii) to the estate of the Officer or Director in one
lump sum within ninety (90) days following his or her
death.
(b) When designating a beneficiary pursuant to paragraph
8(a)(i) above, an Officer or a Director may elect payment to such
beneficiary either:
(i) in one lump sum within ninety (90) days following the date
of death; or
(ii) in substantially equal annual installments over a two to
fifteen year period.
Payments may begin as soon as practicable after the date of
death, or on such date in each year, beginning in the year
after death, as elected by the Officer or Director.
(c) If a designated beneficiary has begun receiving installments
under this paragraph (8), but dies before receiving the last
installment, the balance in the deferred compensation account
shall be paid:
(i) in one lump sum to such beneficiary's estate within ninety
(90) days following his or her death;
(ii) in one lump sum to a beneficiary named by the initial
beneficiary within ninety (90) days following his or her death;
or
(iii) to a secondary beneficiary designated by the
Officer or Director prior to his or her death,
in accordance with the payment schedule elected
for the primary beneficiary.
(d) Amounts held by the Company pending distribution
pursuant to this paragraph (8) shall continue to accrue
interest at the Current Interest Rate.
(9) The Officer or Director and his or her beneficiary, as
determined pursuant to paragraph (8) above, shall not have any
right to anticipate, alienate or assign any rights under this
Plan, and any effort to do so shall be null and void. The
benefits payable under this Plan shall be exempt from the claims
of creditors or other claimants and from all orders, decrees,
levies and executions and any other legal process to the fullest
extent permitted by law.
(10) The Compensation Committee of the Board of Directors of the
Company shall be empowered to place the Plan in effect under such
additional conditions and terms as shall not be inconsistent with
the terms stated above and as shall not jeopardize the status of
the Plan as a deferred compensation plan allowing an Officer or a
Director of the Company not to include deferred amounts
(including interest) in gross income under Federal income tax
laws until the taxable year or years such amounts are actually
paid.
(11) The term "Current Interest Rate" shall mean the rate in
effect on the last day of each calendar month that is equal to
Indianapolis Power & Light Company's ("IPL's") cost of capital as
determined by the Indiana Utility Regulatory Commission in IPL's
last general retail electric rate order, unless otherwise
determined by the Compensation Committee or the Board of
Directors.
(12) Upon the occurrence of an Acquisition of Control (as defined
below) and notwithstanding anything contained in this Plan or in
a deferral agreement entered into by the Company and the Officer
or Director to the contrary, payment of any amounts deferred
under this Plan shall be paid as soon as practicable after the
Acquisition of Control and in no event later than thirty (30)
calendar days following the Acquisition of Control. For purposes
of this Plan, an Acquisition of Control means:
(A) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) of twenty percent (20%) or
more of either (i) the then outstanding shares of common stock of
IPALCO Enterprises, Inc. (the "Outstanding IPALCO Common Stock")
or (ii) the combined voting power of the then outstanding voting
securities of IPALCO Enterprises, Inc. entitled to vote generally
in the election of directors (the "Outstanding IPALCO Voting
Securities"); provided, however, that the following acquisitions
shall not constitute an Acquisition of Control: (a) any
acquisition directly from IPALCO Enterprises, Inc. (excluding an
acquisition by virtue of the exercise of a conversion privilege),
(b) any acquisition by IPALCO Enterprises, Inc., (c) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by IPALCO Enterprises, Inc., Indianapolis
Power & Light Company or any corporation controlled by IPALCO
Enterprises, Inc. or (iii) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection
(C) of this paragraph (12) are satisfied;
(B) Individuals who, as of the date hereof, constitute the Board
of Directors of IPALCO Enterprises, Inc. (the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Board of Directors of IPALCO Enterprises, Inc.; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
IPALCO Enterprises, Inc.'s shareholders, was approved by a vote
of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board of Directors; or
(C) Approval by the shareholders of IPALCO Enterprises, Inc. of
a reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than sixty percent (60%) of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding IPALCO
Common Stock and Outstanding IPALCO Voting Securities immediately
prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or
consolidation, of the Outstanding IPALCO Common Stock and
Outstanding IPALCO Voting Securities, as the case may be, (ii) no
Person (excluding IPALCO Enterprises, Inc., any employee benefit
plan or related trust of IPALCO Enterprises, Inc., Indianapolis
Power & Light Company or such corporation resulting from such
reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, twenty percent
(20%) or more of the Outstanding IPALCO Common Stock or
Outstanding IPALCO Voting Securities, as the case may be),
beneficially owns, directly or indirectly, twenty percent (20%)
or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(D) Approval by the shareholders of IPALCO Enterprises, Inc. of
(i) a complete liquidation or dissolution of IPALCO Enterprises,
Inc. or (ii) the sale or other disposition of all or
substantially all of the assets of IPALCO Enterprises, Inc.,
other than to a corporation, with respect to which following such
sale or other disposition (a) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding IPALCO Common Stock and Outstanding IPALCO Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
IPALCO Common Stock and Outstanding IPALCO Voting Securities, as
the case may be, (b) no Person (excluding IPALCO Enterprises,
Inc. and any employee benefit plan or related trust of IPALCO
Enterprises, Inc., Indianapolis Power & Light Company or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, twenty
percent (20%) or more of the Outstanding IPALCO Common Stock or
Outstanding IPALCO Voting Securities, as the case may be)
beneficially owns, directly or indirectly, twenty percent (20%)
or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled
to vote generally in the election of directors and (c) at least a
majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board of
Directors providing for such sale or other disposition of assets
of IPALCO Enterprises, Inc.; or
(E) The closing, as defined in the documents relating to, or as
evidenced by a certificate of any state or federal governmental
authority in connection with, a transaction approval of which by
the shareholders of IPALCO Enterprises, Inc. would constitute an
"acquisition of control" under subsection (C) or (D) of this
paragraph (12).
EXHIBIT 10.18
INDIANAPOLIS POWER & LIGHT
COMPANY SUPPLEMENTAL RETIREMENT PLAN
AND TRUST AGREEMENT FOR A SELECT
GROUP OF MANAGEMENT EMPLOYEES
(AS AMENDED AND RESTATED EFFECTIVE
JANUARY 1, 1999)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 3
Section 1.01. Accrued Benefit 3
Section 1.02. Actuarial Equivalent 4
Section 1.03. Adjusted Accrued Benefit 4
Section 1.04. Adjusted Preretirement Surviving Spouse
Death Benefit 4
Section 1.05. Administrator 5
Section 1.06. Board 5
Section 1.07. Break In Service 5
Section 1.08. Company 6
Section 1.09. Company Retirement Plan 6
Section 1.10. Compensation 6
Section 1.11. Effective Date 8
Section 1.12. Employer 8
Section 1.13. ERISA 8
Section 1.14. Hour of Service 8
Section 1.15. Maximum Benefit Liability 8
Section 1.16. Normal Retirement Age 13
Section 1.17. Participant 13
Section 1.18. Participant Account 14
Section 1.19. Plan 14
Section 1.20. Plan Year 14
Section 1.21. Post-Tax Adjusted Benefit 14
Section 1.22. Preretirement Surviving Spouse
Death Benefit 17
Section 1.23. Prior Plan 17
Section 1.24. Service 17
Section 1.25. Tax Distributions 18
Section 1.26. Total Disability 18
Section 1.27. Trust Fund 18
Section 1.28. Trustee 19
Section 1.29. Valuation Date 19
Section 1.30. Vested Portion 19
Section 1.31. Participating Employers 20
Section 1.32. Available Net Income 20
Section 1.33. Compensation Committee 21
ARTICLE II PARTICIPATION 21
Section 2.01. Participants 21
Section 2.02. Reemployment 27
ARTICLE III MONTHLY SUPPLEMENTAL PENSION BENEFITS 28
Section 3.01. Senior Executive Officer's
Monthly Supplemental Pension
Benefits 28
Section 3.02. Other Executive Officer's Monthly
Supplemental Pension Benefits 29
Section 3.03. Special Monthly Supplemental
Pension Benefits 30
ARTICLE IV PAYMENT OF RETIREMENT BENEFITS 31
Section 4.01. Entitlement to Retirement Benefits 31
Section 4.02. Non-Vested Benefits 35
Section 4.03. Tax Distribution Payments 36
Section 4.04. Reduction in Accrued Benefit and
Preretirement Surviving Spouse
Death Benefit 41
Section 4.05. Distribution and Recontribution
of Income 46
Section 4.06. One-Time Lump Sum Distribution Election 47
ARTICLE V MONTHLY DEATH BENEFITS 48
ARTICLE VI CONTRIBUTIONS TO THE TRUST FUND 50
Section 6.01. Initial Company Contribution 50
Section 6.02. Annual Company Contribution 50
Section 6.03. Additional Company Contributions 51
Section 6.04. Form of Contribution 51
ARTICLE VII ESTABLISHMENT OF TRUST FUND 52
Section 7.01. Trust Fund 52
Section 7.02. Establishment of Participant Accounts 52
Section 7.03. Allocation of Contributions 53
Section 7.04. Valuations 53
Section 7.05. Reallocation of Excess Participant
Account Balances 54
Section 7.06. Payment of Expenses 55
Section 7.07. Accounting and Record Keeping 56
Section 7.08. Limitation on Liability 57
Section 7.09. Consultation and Indemnification 57
Section 7.10. Litigation 58
Section 7.11. Waiver of Bond 58
ARTICLE VIII INVESTMENT OF TRUST FUND 58
Section 8.01. Management of Trust Fund and
Appointment of Investment Manager 58
Section 8.02. Powers of Trustee 60
ARTICLE IX RESIGNATION, REMOVAL, AND APPOINTMENT
OF SUCCESSOR TRUSTEE 65
Section 9.01. Resignation 65
Section 9.02. Removal 65
Section 9.03. Successor Trustee 66
Section 9.04. Accounting by Trustee 66
Section 9.05. Merger or Consolidation of Trustee 67
ARTICLE X NON-DIVERSION OF TRUST FUND 67
ARTICLE XI ADMINISTRATION 68
Section 11.01. Delegation of Responsibility 68
Section 11.02. Construction of Plan 68
Section 11.03. Tax Information to Participants 69
Section 11.04. Determinations 69
ARTICLE XII MISCELLANEOUS 70
Section 12.01. Amendment or Termination of Plan 70
Section 12.02. Right to Merge Plan 71
Section 12.03. Successors and Assigns 72
Section 12.04. Choice of Law 72
Section 12.05. No Employment Contract 72
Section 12.06. Non-Alienation 72
Section 12.07. Gender and Number 73
Section 12.08. Headings 73
Section 12.09. Payment to Incompetents 73
Section 12.10. Illegal or Invalid Provisions 74
INDIANAPOLIS POWER & LIGHT COMPANY
SUPPLEMENTAL RETIREMENT PLAN AND TRUST
AGREEMENT FOR A SELECT GROUP OF MANAGEMENT EMPLOYEES
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1999)
Pursuant to Section 12.01 of the Indianapolis Power & Light
Company Supplemental Retirement Plan and Trust Agreement for a Select Group
of Management Employees (the "Plan") which was originally executed on
November 1, 1988 by and between Indianapolis Power & Light Company, Inc.
(the "Company") and National City Bank, Indiana (the "Trustee") and last
amended and restated effective March 1, 1996, the Company hereby amends
and completely restates the Plan, effective as of January 1, 1999, as
follows:
WITNESSETH:
WHEREAS, effective May 1, 1983, the Company established the Unfunded
Supplemental Retirement Plan for a Select Group of Management Employees
(the "Prior Plan") which was designed to meet applicable exemptions under
Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA (as hereinafter
defined) and under Department of Labor Regulation Section 2520.104-23; and
WHEREAS, in order to provide the active participants in the Prior Plan
with greater assurance that the benefits provided under such Prior Plan will
be duly made, the Company desires to establish a successor plan and trust
(the "Plan") for the active participants in the Prior Plan (and has
contemporaneously limited their participation in the Prior Plan to preclude
a duplication of benefits) and to transfer thereto sufficient assets to be
held therein and applied against the benefit obligations of the Company under
the terms of the Plan, until paid or returned in accordance with the terms of
this Agreement; and
WHEREAS, in recognition of the management services and other benefits
provided to the Employer (as hereinafter defined) by the key employees who
are Participants (as hereinafter defined) under the Plan, it is the intention
of the Company to make contributions to the Plan in accordance with the terms
of this Agreement; and
WHEREAS, the Plan is not intended to be a tax qualified plan under
Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), but is intended to meet and comply with the requirements of
ERISA and shall be interpreted accordingly to effect the intent of the
parties;
NOW, THEREFORE, in consideration of the services which have been and
shall be performed by such Plan Participants, of the premises and of the
mutual covenants herein contained, the receipt and sufficiency of which are
hereby expressly acknowledged, the parties do hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Accrued Benefit. The term "Accrued Benefit" means the
monthly amount payable to a Participant at age sixty-five (65), based on such
Participant's average Compensation at the date of determination, under
Section 3.01 or Section 3.02, whichever is applicable, multiplied by a
fraction (not to exceed one (1)), the numerator of which is such
Participant's Service at the date of determination and the denominator of
which is the lesser of thirty (30) or the total Service such Participant
would have completed if his employment by the Employer had continued until
his attainment of the Normal Retirement Age; provided, however, that if the
Participant's employment with the Employer is terminated by reason of his
incurring a Total Disability, the fraction described above shall be one (1),
regardless of his Service at the date he incurs a Total Disability.
Section 1.02. Actuarial Equivalent. The term "Actuarial Equivalent"
means the equivalent in value of the aggregate amounts expected to be paid
under different forms of payment under this Plan, on the basis of an assumed
rate of interest of seven percent (7%) and mortality rates under the
Unisex Pension 1984 Mortality Table (UP-84) with no age set back for the
Participant and a three (3) year age set back for the Participant's spouse.
Section 1.03. Adjusted Accrued Benefit. The term "Adjusted Accrued
Benefit" means the Accrued Benefit of each Participant after it is adjusted
in accordance with Section 4.04(a) to reflect any Tax Distributions made to
such Participant and in accordance with Section 4.04(b) to reflect any
distributions made under Section 4.05 and not recontributed to the Plan.
Section 1.04. Adjusted Preretirement Surviving Spouse Death Benefit.
The term "Adjusted Preretirement Surviving Spouse Death Benefit" means the
Preretirement Surviving Spouse Death Benefit of a surviving spouse of a
deceased Participant after it is adjusted in accordance with Section 4.04(a)
to reflect any Tax Distributions made to such deceased Participant or to such
surviving spouse and in accordance with Section 4.04(b) to reflect any
distributions made under Section 4.05 and not recontributed to the Plan.
Section 1.05. Administrator. The term "Administrator" means the
Company, which shall have the sole authority to manage and to control the
operation and administration of this Plan.
Section 1.06. Board. The term "Board" means the Board of Directors
of the Company. Whenever the provisions of this Plan require action by the
Board, it may be taken by the Executive Committee of the Board with the same
force and effect as though taken by the entire Board.
Section 1.07. Break In Service. The term "Break in Service" means
the last calendar day of any consecutive twelve (12) month computation period
as provided in Section 1.24 during which a person completes fewer than five
hundred and one (501) Hours of Service.
Section 1.08. Company. The term "Company" means Indianapolis Power &
Light Company and any successor thereto or predecessor thereof.
Section 1.09. Company Retirement Plan. The term "Company Retirement
Plan" means the Employees'Retirement Plan of Indianapolis Power & Light
Company as now in effect or hereafter amended. The Company Retirement Plan
is not amended or modified in any manner by this Plan, and any benefits
payable to Participants or to their surviving spouses under this Plan shall
have no effect on the benefits payable to Participants or to their surviving
spouses under the Company Retirement Plan.
Section 1.10. Compensation. The term "Compensation" means the base
salary received by a Participant from the Employer for services rendered to
the Employer and bonus payments made to the Participant under the IPALCO
Enterprises, Inc. Annual Incentive Plan; provided, however, that the term
"Compensation" shall also include any current compensation deferred by a
Participant under any qualified or nonqualified plan sponsored or maintained
by the Employer or under any agreement entered into between a Participant and
the Employer, including the IPALCO Enterprises, Inc. Annual Incentive Plan;
provided, further, that any deferred compensation included by the immediate
preceding proviso shall be included as Compensation at the time of the
deferral and not again included as Compensation at the time of payment to the
Participant. For purposes of determining a Participant's Compensation for
a calendar month and notwithstanding anything contained herein to the
contrary, each bonus paid under the IPALCO Enterprises, Inc. Annual Incentive
Plan shall be deemed paid in equal amounts over each of the twelve (12)
calendar months occurring in the calendar year for which such bonus relates
(or, if the Participant was not employed for the entire twelve (12) months of
the calendar year, over each month occurring in the calendar year for which
the bonus relates and during which he completed at least one (1) Hour of
Service). For example, if a bonus of sixty thousand dollars ($60,000) is
paid to a Participant under the IPALCO Enterprises, Inc. Annual Incentive
Plan for the calendar year ending on December 31, 2000, the Participant's
Compensation for each month in 2000 shall include the amount of five thousand
dollars ($5,000) for such bonus, and no amount of such bonus attributable
to the 2000 calendar year shall be included in 2001, regardless of when such
bonus is paid.
Section 1.11. Effective Date. The term "Effective Date" means November
1, 1988.
Section 1.12. Employer. The term "Employer" means the Company, any
entity which is affiliated with the Company within the meaning of Sections
210(b) and 210(c) of ERISA, and any successor thereto or predecessor thereof.
Section 1.13. ERISA. The term "ERISA" means the Employee Retirement
Income Security Act of 1974, as now in effect or hereinafter amended and
shall also include any regulations promulgated thereunder.
Section 1.14. Hour of Service. The term "Hour of Service" means the
hours which are recognized as such under the Company Retirement Plan.
Section 1.15. Maximum Benefit Liability. The term "Maximum Benefit
Liability" means with respect to each Participant Account established
hereunder the lesser of (a) or (b) below:
(a) The greater of:
(i) the present value (as of the date of determination) of
the Vested Portion of a Participant's Adjusted Accrued Benefit (or,
if the payment of monthly benefits has already commenced, the
remaining payments) due under Article IV to the Participant for
whom such Participant Account is established or, if applicable, his
surviving spouse, and
(ii) with respect to a married Participant or the surviving
spouse of a deceased Participant, the present value (as of the date
of determination) of the Adjusted Preretirement Surviving Spouse
Death Benefit (or, if the payment of death benefits has already
commenced, the remaining payments) due under Article V to the
surviving spouse of the Participant for whom such Participant
Account is established.
(b) The present value (as of the date of determination) of the
Vested Portion of a Participant's or, if applicable, his surviving
spouse's Post-Tax Adjusted Benefit (or, if the payment of monthly
benefits has already commenced, the remaining payments) due under
Article IV to the Participant or, if applicable, his surviving spouse
for whom such Participant Account is established.
In calculating the Maximum Benefit Liability as of a determination date, the
following rules are applicable:
(c) Any reductions in the Accrued Benefits and Preretirement
Surviving Spouse Death Benefits of Participants or their surviving
spouses, where applicable, which are to be made as of the date of
determination under Section 4.04 shall be given effect, whether or
not the Tax Distribution payments (or distributions of Available Net
Income not recontributed under Section 4.05) attributable to such
reduction have been made as of the date of calculation; provided,
however, that if such Tax Distribution payment is not ultimately made
by the Company under Section 4.03 (or such distribution of Available
Net Income is not ultimately made under Section 4.05), the reduction
shall not be given effect in any calculations of the Maximum Benefit
Liability of a Participant's Accrued Benefit or Preretirement Surviving
Spouse Death Benefit which are made after the due date of the Tax
Distribution payment (or distribution of Available Net Income); and
(d) The Participant's Adjusted Accrued Benefit and Adjusted
Preretirement Surviving Spouse Death Benefits shall be calculated
based on the Participant's Compensation and Service at the date of
determination and, if the Participant is less than age sixty-five
(65) at the date of determination, shall be calculated based on
the Company Retirement Plan benefit, payable at age sixty-five (65),
accrued on the date of determination.
(e) Once a Participant reaches age sixty-five (65) or he or, if
applicable, his surviving spouse commences pay status under the Plan,
the Maximum Benefit Liability shall be determined based on Subsection
(b) of this Section and without regard to Subsection (a) of this Section
even if it results in a greater amount than the amount determined under
Subsection (a) of this Section.
(f) Unless a Participant or, if deceased, his Surviving Spouse
elects under Section 4.06 to receive the present value of the
Participant's Adjusted Accrued Benefit or Adjusted Preretirement
Surviving Spouse Death Benefits, whichever is applicable, in a single
lump sum payment, the Maximum Benefit Liability shall be determined
without regard to the amount necessary to fund the present value of
such Benefits in a single lump sum payment; provided, however, that
upon the Participant or, if applicable, his Surviving Spouse electing
to receive payments in the form of a single lump sum in accordance with
Section 4.06, the Maximum Benefit Liability shall be recalculated no
later than the fifteenth (15th) calendar day immediately following the
date of the Participant's termination of employment with the Employers
or, if later, from the date on which the election is received by the
Company.
For purposes of making the calculation of present value, the present value
discount rate shall be eight percent (8%), and the mortality assumption
shall be computed in accordance with the 1983 Group Annuity Mortality Table;
provided, however, that for purposes of making a calculation of the required
lump sum amount to be paid under Section 4.06, the applicable interest rate
shall be equal to the product of:
(g) the average annual rate of interest on thirty (30) year
Treasury securities for the twelve (12) month period immediately
preceding the calendar month in which the single lump sum is to be paid,
times
(h) one (1) minus the percentage determined under Section 4.03(b)
for such Participant or, if applicable, his Surviving Spouse.
The Maximum Benefit Liability shall be calculated and certified by an actuary
designated by the Company who is acceptable to the Trustee and who is
enrolled by the Joint Board for the Enrollment of Actuaries.
Section 1.16. Normal Retirement Age. The term "Normal Retirement Age"
means for each Participant age sixty-five (65).
Section 1.17. Participant. The term "Participant" means any individual
designated in Article II of this Plan who is eligible for benefits under this
Plan.
Section 1.18. Participant Account. The term "Participant Account"
means the separate account maintained by the Trustee for each Participant.
Section 1.19. Plan. The term "Plan" means the Indianapolis Power &
Light Company Supplemental Retirement Plan and Trust Agreement for a Select
Group of Management Employees, which is intended to be a continuation of the
Prior Plan with respect to the active participants in the Prior Plan at the
Effective Date.
Section 1.20. Plan Year. The term "Plan Year" means a consecutive
twelve (12) month period beginning on November 1 and ending on October 31.
Section 1.21. Post-Tax Adjusted Benefit. The term "Post-Tax Adjusted
Benefit" means with respect to each Participant or, if applicable, his
surviving spouse the monthly amount that would be needed to be paid to a
Participant or, if applicable, his surviving spouse in any calendar year
for which payments are due under this Plan so that the net amount (without
regard to any applicable withholding) available to the Participant or, if
applicable, his surviving spouse after taking into account applicable
federal, state and local income taxes would be equal to what the net amount
would be if this Plan was a tax-qualified retirement plan under Section
401(a) of the Code and the amount payable to the Participant or, if
applicable, his surviving spouse would be fully taxable and equal to the
amounts determined under Article III or Article V, whichever is applicable,
without regard to the Section 4.04 reductions (other than the reductions
described in Subsection (c) below). A Participant's or, if applicable, his
surviving spouse's Post-Tax Adjusted Benefit shall be redetermined each
January 1 in accordance with the following rules:
(a) For purposes of determining the amount of federal, state and
local income taxes applicable on the amounts payable under this Plan,
it shall be assumed that the Participant or, if applicable, his
surviving spouse
(i) will receive no additional income from any source
during such calendar year and,
(ii) has no personal exemptions and no deductions available,
(iii) if married, will be filing a joint return, and
(iv) if the payment is to be made in a lump sum, the taxes
shall be determined as if the lump sum was spread equally over
the life expectancy of the Participant or Surviving Spouse,
whichever is applicable.
(b) For purposes of determining state and local taxes, the
Participant or, if applicable, his surviving spouse shall be deemed
to be a resident of Marion County, Indiana.
(c) If a Participant or his surviving spouse fails to recontribute
to the Plan the entire amount of Available Net Income distributed to him
under Section 4.05 with respect to a calendar year, the Post-Tax
Adjusted Benefit shall be adjusted in accordance with Subsection (b) of
Section 4.04.
(d) If tax rates are modified in a calendar year after the January
1 determination date, the change in tax rates will not be reflected in
the determination of a Participant's or, if applicable, his surviving
spouse's Post-Tax Adjusted Benefit until the next following January 1;
provided, however, that if on an applicable January 1 determination
date tax rate changes for future calendar years are already established
in the Code, rate changes shall be taken into account for purposes of
Section 1.15.
Section 1.22. Preretirement Surviving Spouse Death Benefit. The term
"Preretirement Surviving Spouse Death Benefit" means the monthly amount
payable to a surviving spouse of a deceased Participant under Article V.
Section 1.23. Prior Plan. The term "Prior Plan" means the Indianapolis
Power & Light Company Unfunded Supplemental Retirement Plan for a Select
Group of Management Employees, as amended through October 31, 1988. The
retired participants or, if applicable, the surviving spouses of deceased
participants in the Prior Plan shall continue to receive their benefits in
accordance with the Prior Plan.
Section 1.24. Service. The term "Service" means the period of
employment of an individual by the Employer and, for purposes of vesting and
benefit accrual, shall be measured in consecutive twelve (12) month
computation periods (hereinafter sometimes referred to as "years") beginning
on the first (1st) calendar day of an individual's employment by the Employer
and anniversaries thereof and disregarding any such periods in which such
individual completes fewer than one thousand (1,000) Hours of Service.
Notwithstanding the above, upon termination of his employment with the
Employer, an individual shall receive credit for a fractional year of Service
for the period from the last such anniversary date.
Section 1.25. Tax Distributions. The term "Tax Distributions"
means the cash payments made by the Company under Section 4.03.
Section 1.26. Total Disability. The term "Total Disability" means a
physical or mental condition which prevents a Participant from performing
his duties for the Employer; provided, however, that a Participant shall not
be deemed to have incurred a Total Disability unless such Participant is
eligible for Disability Retirement under the Company Retirement Plan.
Section 1.27. Trust Fund. The term "Trust Fund" means the trust fund
created hereunder.
Section 1.28. Trustee. The term "Trustee" means the initial Trustee of
the Trust Fund, and any successor acting as Trustee of the Trust Fund.
Section 1.29. Valuation Date. The term "Valuation Date" means each
and every October 31 and December 31.
Section 1.30. Vested Portion. The term "Vested Portion" means the
portion of a Participant's Accrued Benefit, Adjusted Accrued Benefit or Post-
Tax Adjusted Benefit, whichever is applicable, which is vested and
nonforfeitable as determined based on that Participant's Service in
accordance with the following schedule:
Years of Service
Completed by Participant Vested Portion
Less than one (1) year 0%
One (1) year 20%
Two (2) years 40%
Three (3) years 60%
Four (4) years 80%
Five (5) years or more 100%
provided, however, that notwithstanding the above, the Accrued Benefit or, if
applicable, Adjusted Accrued Benefit or Post-Tax Adjusted Benefit of a
Participant shall become one hundred percent (100%) vested and nonforfeitable
upon the Participant's attainment of age sixty-five (65) or upon his
incurring a Total Disability.
Section 1.31. Participating Employers. The term "Participating
Employers" means the Company, IPALCO Enterprises, Inc., Mid-America Capital
Resources, Inc. and any other Employer who has adopted this Plan, whose
participation has been approved by the Company and who has agreed to
reimburse the Company for their pro-rata costs of the benefits provided
under the Plan to their respective employees.
Section 1.32. Available Net Income. The term "Available Net Income"
means, with respect to a Participant for a calendar year, the taxable income
(including all items of ordinary income and capital gains recognized for
federal income tax purposes in that calendar year and reduced by all ordinary
and capital losses recognized for federal income tax purposes in that
calendar year) of the Trust Fund for that calendar year multiplied by a
fraction, the numerator of which is the value of that Participant's
Participant Account at the Valuation Date immediately preceding that calendar
year and the denominator of which is the value of all Participant Accounts
at the Valuation Date immediately preceding that calendar year; provided,
however, that for purposes of these allocations, the value of each
Participant Account shall be decreased by fifty percent (50%) of any
distributions from such Participant Account under Article V and under
Section 4.01 since the applicable Valuation Date. The term "Available Net
Income" shall not include income or loss attributable to any portion of the
Trust Fund that is treated as being owned by a Participant under Sections
671-678 of the Code.
Section 1.33. Compensation Committee. The term "Compensation
Committee" means the Compensation Committee of the Board of Directors of
IPALCO Enterprises, Inc.
ARTICLE II
PARTICIPATION
Section 2.01. Participants. The individuals eligible to participate in
this Plan on the Effective Date shall include only the Senior Executive
Officers and the Other Executive Officers of the Company who are designated
in this Section. Effective January 1, 1999, the Senior Executive Officers
selected to participate in this Plan are as follows:
Name Current Title
John R. Hodowal Indianapolis Power & Light Company
- Chairman of the Board and Chief Executive
Officer; IPALCO Enterprises, Inc. -
Chairman of the Board and President
Ramon L. Humke Indianapolis Power & Light Company
- President and Chief Operating Officer; IPALCO
Enterprises, Inc. Vice Chairman
John R. Brehm Indianapolis Power & Light Company
- Senior Vice President, Finance and
Information Services; IPALCO Enterprises, Inc. -
Vice President and Treasurer
Bryan G. Tabler Indianapolis Power & Light Company
- Senior Vice President, Secretary
and General Counsel; IPALCO Enterprises,
Inc. - Vice President, Secretary and General
Counsel
Ralph E. Canter Indianapolis Power & Light Company
- Senior Vice President, Customer Services
Stephen M. Powell Indianapolis Power & Light Company
- Senior Vice President, Energy Supply
Paul S. Mannweiler Indianapolis Power & Light Company
- Senior Vice President, External Affairs
N. Stuart Grauel IPALCO Enterprises, Inc. - Vice
President, Public Affairs
Gerald D. Waltz Former Indianapolis Power & Light Company -
Senior Vice President, Business
Development (Retired 5-1-98)
Robert W. Rawlings Former Indianapolis Power & Light Company -
Senior Vice President, Electric
Production (Retired 5-1-98)
Maurice O. Edmonds Former IPALCO Enterprises, Inc. -
Vice President, Corporate Affairs
(Retired 5-1-96)
Zane G. Todd Former IPALCO Enterprises, Inc. and
Indianapolis Power & Light Company -
Chairman of the Board and Chief Executive
Officer (Retired 5-01-89)
Robert W. Hill Former IPALCO Enterprises, Inc. -
Vice Chairman (Retired 5-01-91)
Gylith J. Cooper Surviving Spouse of Richard Q.
Cooper - Former Indianapolis Power &
Light Company - Senior Vice President,
Steam System (Retired 5-01-89
and Deceased 4-19-94)
Beverly A. Minter Surviving Spouse of Michael M. Minter - Former
Indianapolis Power & Light Company - Senior
Vice President, Planning and
Engineering (Deceased 12-05-93)
Thomas A. King Former IPALCO Enterprises, Inc. -
Vice President, Corporate Affairs
(Terminated 8/31/92)
Effective January 1, 1999, the Other Executive Officers selected to
participate in this Plan are as follows:
Name Current Title
Joseph A. Gustin Indianapolis Power & Light Company
- Vice President, Information Services
Michael G. Banta Indianapolis Power & Light Company
- Vice President, Financial Strategy
Max Califar Indianapolis Power & Light Company
- Vice President, Human Resources
Kevin P. Greisl Indianapolis Power & Light Company
- Vice President, Business Development
Susan Hanafee IPALCO Enterprises, Inc.- Vice
President, Corporate Affairs
Michael P. Holstein IPALCO Enterprises, Inc. - Vice
President, Strategic Business Initiatives
Donald W. Knight Indianapolis Power & Light Company
- Vice President, Fuel Supply
Steven L. Meyer Indianapolis Power & Light Company
- Treasurer; IPALCO Enterprises,
Inc. - Assistant Treasurer
Stephen J. Plunkett Indianapolis Power & Light Company
- Controller; IPALCO Enterprises, Inc. -
Controller
Joseph A. Slash Indianapolis Power & Light Company
- Vice President, Community and Corporate
Effectiveness
Clark L. Snyder IPALCO Enterprises, Inc. -
Assistant Secretary; Indianapolis Power &
Light Company - Assistant Secretary;
Mid-America Capital Resources, Inc. - Vice
President, Secretary and General Counsel
Thomas A. Steiner Indianapolis Power & Light Company
- Vice President, Internal Audit
William A. Tracy Indianapolis Power & Light Company
- Vice President, Thermal Systems
David J. McCarthy Indianapolis Power & Light Company
- Assistant General Counsel, Washington,
D.C. Office
Michael J. Farmer Store Heat and Produce Energy, Inc.
- President and IPL, Vice President,
Transmission & Distribution
(Terminated August 14, 1998)
Robert A. McKnight, Jr. Former Indianapolis Power & Light
Company - Vice President, Major
Project Management (Retired 4-1-97)
John D. Wilson Former Indianapolis Power & Light
Company - Vice President, Information
Services (Retired 5-1-98)
John C. Berlier, Jr. Former Indianapolis Power & Light
Company - Vice President, Resource
Planning and Rates (Retired 8-1-98)
Wendy V. Yerkes Former Indianapolis Power & Light
Company - Assistant Secretary (Terminated
9-1-97)
Arthur G. Haan Former Indianapolis Power & Light
Company - Vice President, General
Services (Retired 2-01-96)
Michael E. Shriner Former Indianapolis Power & Light
Company - Vice President, Marketing
(Terminated 4-30-95)
Marcus E. Woods Former Indianapolis Power & Light
Company - Vice President, Secretary
and General Counsel; IPALCO Enterprises,
Inc. - Secretary and General Counsel
(Retired 1-01-95)
Arnold A. Gordus Former Indianapolis Power & Light
Company - Assistant Vice President,
Environmental Affairs (Retired 4-30-94)
Donald E. Blue Former Indianapolis Power & Light
Company - Vice President,
Power Production (Retired 5-01-89)
Joseph E. Butler Former Indianapolis Power & Light
Company - Vice President,
Community Affairs and Residential Sales
(Terminated 2/1/91)
Jan E. Lower Former Indianapolis Power & Light
Company - Vice President, Community Affairs
(Terminated 4/30/93)
An Other Executive Officer who is listed above and who subsequently
becomes a Senior Vice President, an Executive Vice President, the President,
Chief Operating Officer, Chief Executive Officer or Chairman of the Board of
the Company or who subsequently becomes a Vice President or Vice Chairman
of the Board of IPALCO Enterprises, Inc. shall be deemed to be a Senior
Officer under this Plan without the necessity of a Plan amendment.
Additional management employees of the Company or officers and
management employees of any other Participating Employer may be added as
Participants to this Plan by action of the Compensation Committee, provided
such corporations have adopted this Plan and each has agreed to reimburse the
Company for their pro-rata costs of the benefits provided under the Plan to
their respective employees. The Committee shall specify whether such
officers or management employees are to be considered Senior Officers or
Other Executive Officers under this Section 2.01.
Section 2.02. Reemployment. Any former Participant whose employment
with the Employer is terminated and who subsequently returns to work for
the Employer after he has a Break in Service shall be reinstated as a
Participant and shall have his prior Service restored in determining his
vested rights and his Accrued Benefits under this Plan; provided, however,
that if a reemployed Participant is receiving monthly benefits under Section
4.01 at the time of his reemployment, such monthly benefits shall cease for
such period as he shall remain employed by the Employer and complete at least
forty (40) Hours of Service per month, and any monthly benefits payable to
him or to his surviving spouse thereafter under Article IV or V, whichever
is applicable, shall be adjusted to reflect any payments previously made to
such Participant before the date he returned to work for the Employer and
any payments made subsequent to the date he returned to work for the Employer
with respect to months in which he fails to complete at least forty (40)
Hours of Service; provided, further, that suspension of benefit payments to
any such reemployed Participant shall be made only after written notice has
been given to him by the Company by personal delivery or certified mail,
and such benefit suspensions shall comply with all requirements imposed
pursuant to Section 2530.203-3 of the Department of Labor regulations
which are incorporated herein by reference.
ARTICLE III
MONTHLY SUPPLEMENTAL PENSION BENEFITS
Section 3.01. Senior Executive Officer's Monthly Supplemental Pension
Benefits. Except as provided by Section 3.03, the monthly supplemental
pension benefits for any Senior Executive Officer shall be equal to sixty
percent (60%) of the average monthly Compensation paid to that Senior
Executive Officer with respect to the thirty-six (36) calendar months, not
necessarily consecutive, during which his Compensation is the highest (or,
if his period of employment with the Employer is less than thirty-six (36)
months, his entire period of employment with the Employer), less the benefits
that would be payable to him for the month he attains age fifty-five (55) or,
if later, the first (1st) month following the date his employment with the
Employer is terminated under the Company Retirement Plan on a single-life
basis regardless of the form in which such benefits are actually paid;
provided, however, that if the Senior Executive Officer's benefits under the
Company Retirement Plan are not payable until his attainment of age
sixty-five (65) because of his not meeting the requirements for early
retirement under the Company Retirement Plan and his employment with the
Employers is terminated before his attainment of age sixty-five (65), his
Company Retirement Plan benefit offset under this Section shall be equal to
the monthly amount payable at the later of his attainment of age fifty-five
(55) or the date on which his employment with the Employers is terminated on a
single life basis which is the Actuarial Equivalent to the monthly amount
payable to him at age sixty-five (65) on a single life basis under the Company
Retirement Plan.
Section 3.02. Other Executive Officer's Monthly Supplemental Pension
Benefits. Except as provided by Section 3.03, the monthly supplemental
pension benefits for any Other Executive Officer shall be equal to fifty
percent (50%) of the average monthly Compensation paid to that Other
Executive Officer with respect to the thirty-six (36) calendar months, not
necessarily consecutive, during which his Compensation is the highest (or,
if his period of employment with the Employer is less than thirty-six (36)
months, his entire period of employment with the Employer), less the benefits
that would be payable to him for the month he attains age fifty-five (55) or,
if later, the first (1st) month following the date his employment with the
Employer is terminated under the Company Retirement Plan on a single-life
basis regardless of the form in which such benefits are actually paid;
provided, however, that if the Other Executive Officer's benefits under the
Company Retirement Plan are not payable until his attainment of age
sixty-five (65) because of his not meeting the requirements for early
retirement under the Company Retirement Plan and his employment with the
Employers is terminated before his attainment of age sixty-five (65), his
Company Retirement Plan benefit offset under this Section shall be equal to
the monthly amount payable at the later of his attainment of age fifty-five
(55) or the date on which his employment with the Employers is terminated on
a single life basis which is the Actuarial Equivalent to the monthly amount
payable to him at age sixty-five (65) on a single life basis under the
Company Retirement Plan.
Section 3.03. Special Monthly Supplemental Pension Benefits. From
time to time the Compensation Committee, in its sole discretion, may provide
for alternative supplemental pension benefits under this Section 3.03 for any
Senior Executive Officer or Other Executive Officer in lieu of, and (in some
cases) not in addition to, the benefits described in Section 3.01 or Section
3.02, whichever Section is applicable, because of special circumstances
relating to such Executive's employment with the Employer. If the
Compensation Committee takes action to add new Participants or to modify the
benefits of current Participants, the action shall designate the name of the
individual and the applicable benefit to be provided for such individual. If
the benefits provided under this Section are offset by the Company Retirement
Plan benefit, the offsets shall be calculated consistent with and in
accordance with the manner the offsets are determined under Sections 3.01 and
3.02.
ARTICLE IV
PAYMENT OF RETIREMENT BENEFITS
Section 4.01. Entitlement to Retirement Benefits. A Participant who
retires or otherwise terminates his employment with the Employer for reasons
other than his death shall be entitled to receive monthly supplemental
pension benefits under this Plan only if:
(a) his employment with the Employer terminates on or after his
attainment of the Normal Retirement Age,
(b) his employment with the Employer terminates by reason of his
incurring a Total Disability, or
(c) his employment with the Employer terminates after his
completion of at least one (1) Year of Service.
The amount of the monthly supplemental pension benefits to which an eligible
Participant is entitled upon his retirement or other termination of
employment shall be equal to the Vested Portion of his Post-Tax Adjusted
Benefit; provided, however, that the amount of a Participant's Post-Tax
Adjusted Benefit shall be redetermined each January 1; provided, further,
that under no circumstances may the Post-Tax Adjusted Benefit payable to a
Participant be less than the Vested Portion of his Adjusted Accrued Benefit
as determined on February 29, 1996. The non-Vested Portion of a
Participant's Post-Tax Adjusted Benefit shall be governed by Section 4.02.
The monthly payments shall begin on the first (1st) calendar day of the
month coinciding with or next following the date on which a Participant
attains his Normal Retirement Age or, if later, the date his employment with
the Employer is terminated and shall continue through the month in which his
death occurs; provided, however, that if a Participant's employment with
the Employer is terminated before his attainment of the Normal Retirement
Age, he may elect with the consent of the Company to have his benefits begin
on the first (1st) calendar day of the month following the date on which his
employment with the Employer is terminated or, if later, the first (1st) day
of the calendar month immediately following his attainment of age fifty-five
(55). If benefit payments to a Participant begin before his attainment of
the Normal Retirement Age, the amount of such Participant's monthly
supplemental pension benefits shall be reduced to the extent and in the same
manner as such payments would be reduced if made from the Company Retirement
Plan; provided, however, that notwithstanding anything contained in this
Section to the contrary, a Participant:
(a) who is:
(i) a Senior Executive Officer or
(ii) an Other Executive Officer specifically designated by
the Compensation Committee, and
(b) who at the date of his employment termination with the
Employer is at least age fifty-five (55) and has completed at least
thirty (30) years of Service shall be eligible to elect the immediate
commencement of his monthly supplemental pension benefits without
reduction; provided, further, that a Participant whose combined age and
Service at the date of his employment termination with the Employer is
at least eighty-five (85) and who has not as of his employment
termination date reached age sixty-two (62) shall under no circumstances
have a reduction in his monthly supplemental pension benefit greater
than twenty-five one-hundredths (0.25) for each calendar month in which
the benefit commencement date precedes the date on which the Participant
would have reached age sixty-two (62). If a Participant is married at
the date his benefit payments are to commence and notwithstanding
anything contained in this Plan to the contrary, his monthly benefits
shall be paid in the form of an actuarially equivalent joint and
survivor annuity determined in the same manner as the Joint and Survivor
Annuity Option under Section 205.50 of the Company Retirement Plan,
unless such Participant, with the written consent of his spouse
witnessed by a Notary Public, elects not to have his benefits paid in
such form.
Payment of benefits under this Section 4.01 shall be made in accordance
with and consistent with the requirements set forth in Section 205 of ERISA;
provided, however, that subject to the applicable spousal consent
requirements contained in Section 205 of ERISA, a Participant may elect for
his benefits to be paid in any actuarially equivalent form of payment which
is available under the Company Retirement Plan (other than a single lump
sum payment).
Section 4.02. Non-Vested Benefits. If a Participant's employment with
the Employer is terminated before his completion of at least five (5) years
of Service, before his attainment of his Normal Retirement Age and not by
reason of his incurring a Total Disability, such Participant shall only be
entitled to the Vested Portion of his Post-Tax Adjusted Benefit, the
non-Vested Portion of his Post-Tax Adjusted Benefit shall be forfeited and
the portion of his Participant Account attributable to the non-Vested Portion
of his Post-Tax Adjusted Benefit shall be reallocated as provided in Section
7.05; provided, however, that if such Participant subsequently returns to
work for the Employer, the non-Vested Portion of his Post-Tax Adjusted
Benefit shall be immediately reinstated, his Participant Account shall be
reestablished and funded in accordance with Section 6.02 and he shall be
entitled to receive monthly supplemental pension benefits upon his subsequent
termination of employment with the Employer to the extent otherwise provided
under this Plan, less any benefits already paid to him under this Plan before
his reemployment with the Employer.
Section 4.03. Tax Distribution Payments. On or before December 20 of
each calendar year in which a Participant or, if applicable, his surviving
spouse is required to take amounts into income for Federal income tax
purposes by reason of his participation in, or eligibility for benefits
(including benefits received under an annuity contract purchased in
accordance with Article X) under this Plan, the Company shall make a Tax
Distribution payment to each Participant or, if applicable, to the surviving
spouse of each deceased Participant equal to the product of:
(a) the amount (excluding amounts paid by the Company under this
Section) which such Participant or, if applicable, his surviving spouse
is required to recognize as income for Federal income tax purposes by
reason of his participation in, or eligibility for benefits under, this
Plan in such calendar year; and
(b) the Participant's marginal individual composite Federal,
Indiana and Marion County income tax rate (based on the Participant's
estimated aggregate Compensation from the Employer during the calendar
year and taking into account the deductibility for Federal income tax
purposes of state and local income taxes, if then allowable, and, except
as otherwise provided below, without regard to Section 1(g) of the Code)
in effect for the calendar year during which the amount described in (a)
above is required to be recognized as income by such Participant; and
(c) one hundred percent (100%) divided by the amount by which
one hundred percent (100%) exceeds the rate in (b) above expressed as a
percent.
The amount of the required Tax Distribution payments shall be certified to
the Company on or before December 10 of each calendar year by the actuary
designated by the Company to calculate the Maximum Benefit Liability under
Section 1.15. For purposes of determining the amount of each Tax
Distribution payment, the amount described in (a) above shall be estimated
by assuming that each Participant, if applicable, shall continue his
employment with the Employer for the remainder of the calendar year, each
Participant's rate of Compensation shall remain unchanged for the remainder
of such calendar year and, if applicable, that the Trust Fund (including the
portion of the Trust Fund attributable to Company contribution made in such
calendar year) shall earn investment income, both realized and unrealized,
for the period of October 31 to December 31 (or, with respect to Company
contributions made after October 31 but before December 31, for the
remainder of period beginning on the date of contribution and ending on
such December 31) of such calendar year at the same rate of return earned
by the Trust Fund for the Plan Year ending on October 31 of such calendar
year; provided, however, that the assumed rate of interest to be applied
against the initial Company contribution made under Section 6.01 shall be
ten percent (10%). Notwithstanding anything contained herein to the
contrary, if before November 1 of a calendar year a Participant or, if
applicable, his surviving spouse files a statement with the Company
certifying that to the best of his or her knowledge all or a portion of his
or her taxable income by reason or his or participation in this Plan shall be
subject to the additional Federal income tax under Section 1(g) of the Code
and provides the Company with information which will enable the actuary
designated by the Company to calculate the additional Federal income tax
under Section 1(g) of the Code resulting from his participation in this
Plan, including his or her estimated taxable income for such calendar year,
the table in Section 1 of the Code to be used by the Participant or, if
applicable, his surviving spouse for his Federal income tax return for such
calendar year and the number of personal exemptions that the Participant or,
if applicable, his surviving spouse intends to claim on his or her Federal
income tax return for such calendar year, the Company shall have its
actuary recalculate the amount of the Tax Distribution payment required
under this Section based on the information provided by the Participant or,
if applicable, his surviving spouse, so that the amount of the Tax
Distribution payment made to the Participant or, if applicable, his surviving
spouse shall equal the estimated tax liability of the Participant or, if
applicable, his surviving spouse for such calendar year by reason of his
participation in this Plan; provided, however, that any adjustments in the
Tax Distribution payments under this sentence shall be limited to adjustments
reflecting the applicability of Section 1(g) of the Code. If the amount
described in (a) above which was estimated for purposes of calculating the
amount of any Tax Distribution payment to a Participant or, if applicable,
his surviving spouse is less than the actual (a) amount, the Company shall
pay to such Participant or, if applicable, his surviving spouse as soon as
practicable after the end of such calendar year and in no event later than
the March 15 immediately following such calendar year during which such
amount was recognized as income an amount equal to the product of:
(d) the amount by which the actual (a) amount exceeded the
estimated (a) amount; and
(e) the rate described in (b) above; and
(f) one hundred percent (100%) divided by the amount by which
one hundred percent (100%) exceeds the marginal individual composite
Federal, Indiana and Marion County income tax rate expressed as a
percent (based on the Participant's estimated aggregate Compensation
from the Employer during the calendar year and taking into account the
deductibility for Federal income tax purposes of state and local income
taxes, if then allowable) in effect for the calendar year during which
such additional Tax Distribution payment is to be made.
If the amount described in (a) above which was estimated for purpose of
calculating the amount of any Tax Distribution payment to a Participant or,
if applicable, his surviving spouse is greater than the actual (a) amount,
the amount of the Tax Distribution payment shall be recalculated by
substituting for the estimated (a) amount the actual (a) amount, and the
amount by which the Tax Distribution payment exceeds the recalculated
amount shall be offset against future Tax Distribution payments due until
exhausted. Notwithstanding anything contained herein to the contrary, Tax
Distribution payments shall not be made by the Company to a married
Participant without the written consent of his spouse witnessed by a Notary
Public.
Section 4.04. Reduction in Accrued Benefit and Preretirement Surviving
Spouse Death Benefit. Each Participant's Accrued Benefit and Preretirement
Surviving Spouse Death Benefit shall be adjusted as follows:
(a) As of the Effective Date and as of each Valuation Date, a
Participant's Accrued Benefit and the Preretirement Surviving Spouse Death
Benefit payable to the surviving spouse of a deceased Participant who dies
while still employed by the Employer shall be reduced to the extent provided
below to reflect the value of each Tax Distribution payment made under
Section 4.03 attributable to his initial Accrued Benefit and the initial
Preretirement Surviving Spouse Death Benefit at the Effective Date and
attributable to increases in the amount of his vested Accrued Benefit or
Preretirement Surviving Spouse Death Benefit. The amount of the Accrued
Benefit and Preretirement Surviving Spouse Death Benefit reduction to be
effected as of the Effective Date shall be determined by multiplying the
Accrued Benefit of a Participant or, if applicable, Preretirement Surviving
Spouse Death Benefit as of the Effective Date which such Participant or, if
applicable, his surviving spouse is required to recognize as income for
Federal income tax purposes in 1988 by a percentage equal to the rate
described in Section 4.03(b) or, if the amount of the 1988 Tax Distribution
payment for the Participant or, if applicable, his surviving spouse was
recalculated in accordance with Section 4.03 based on tax information
provided by the Participant or, if applicable, his surviving spouse, a
percentage equal to the individual composite Federal, Indiana and Marion
County income tax rate used in recalculating the amount of the Tax
Distribution payment under Section 4.03 in 1988 in effect on the Effective
Date. The amount of each Accrued Benefit and Preretirement Surviving Spouse
Death Benefit reduction for each Valuation Date shall be determined by
multiplying any increase in the Adjusted Accrued Benefit of a Participant or,
if applicable, Preretirement Surviving Spouse Death Benefit which as of the
preceding Valuation Date has not yet been recognized as income for Federal
income tax purposes and which such Participant or, if applicable, his
surviving spouse is required to recognize as income for Federal income tax
purposes in the calendar year during which such Valuation Date falls by a
percentage equal to the rate described in Section 4.03(b) in effect on the
Valuation Date as of which the adjustment under this Section is made or, if
the amount of the Tax Distribution payment made in the calendar year during
which the Valuation Date occurs for the Participant or, if applicable, his
surviving spouse was recalculated in accordance with Section 4.03 based on
tax information provided by the Participant or, if applicable, his surviving
spouse, a percentage equal to the individual composite Federal, Indiana and
Marion County income tax rate used in recalculating the amount of the Tax
Distribution payment under Section 4.03 for such calendar year. No reduction
in the Accrued Benefits and Preretirement Surviving Spouse Death Benefits of
a Participant or, if applicable, his surviving spouse shall be made under
this Section with respect to Tax Distribution payments which are not
attributable to increases in the Accrued Benefits or Preretirement Surviving
Spouse Death Benefits. Notwithstanding anything contained herein to the
contrary, if the Tax Distribution payments required under Section 4.03
attributable to such Participant's Accrued Benefit or Preretirement Surviving
Spouse Death Benefit, or increase therein, are not timely paid by the
Company, the amount of the reduction in such Participant's Accrued Benefit
or Preretirement Surviving Spouse Death Benefit shall be retroactively
reinstated as of the date on which the reduction was made.
(b) In the event a Participant fails to recontribute to the Plan the
entire amount of Available Net Income distributed to him under Section 4.05
with respect to a calendar year, his Accrued Benefit and Preretirement
Surviving Spouse Death Benefit shall be reduced as of the date such
distribution is treated under Section 4.05 as having been made to him by an
amount equal to the product of:
(i) his Accrued Benefit (or Preretirement Surviving Spouse Death
Benefit, as the case may be) as of the December 31 Valuation Date of the
calendar year to which the distribution of Available Net Income relates,
but before any adjustment has been made under Section 4.04(a) with
respect to such calendar year;
times
(ii) a fraction, the numerator of which is the amount of
Available Net Income distributed to the Participant (and not
recontributed by him to the Plan) and the denominator of which is the
amount of his Participant Account that has, as of the date of
distribution, been taxed to the Participant for federal income tax
purposes;
provided, however, that a Participant's Accrued Benefit and Preretirement
Surviving Spouse Death Benefit shall not be reduced under this Section
4.04(b) below the Adjusted Accrued Benefit and Adjusted Preretirement
Surviving Spouse Death Benefit accrued by that Participant as of October 31,
1992 without regard to this Section 4.04(b).
Section 4.05. Distribution and Recontribution of Income. The
Administrator shall, as of each January 1 (or the first business day
thereafter if January 1 falls on a weekend), distribute to each Participant
the entire amount of that Participant's Available Net Income for the
immediately preceding calendar year; provided, however, that the amount of
distribution to which a Participant shall be entitled under this Section 4.05
shall be reduced (but not below zero (0)) by the amount of monthly pension
benefits paid to that Participant under this Plan during that immediately
preceding calendar year. Each Participant to whom a distribution is made
under the preceding sentence shall be deemed to have immediately
recontributed such distribution to his Participant Account unless such
Participant elects (by completing, signing and delivering the appropriate
form to the Administrator on the date such distribution is made) to receive
such distribution in a single lump sum cash payment. A Participant who
elects to receive the entire amount of his Available Net Income in a single
lump sum cash payment shall receive a distribution of such amount as soon
after the Administrator receives his election as is administratively
feasible (but no later than sixty-five (65) days after the end of the
immediately preceding calendar year) and shall have his Adjusted Accrued
Benefit and Preretirement Surviving Spouse Death Benefit and his Post-Tax
Adjusted Benefit reduced in accordance with Section 4.04(b). For all
purposes of this Plan, any distribution under the preceding sentence shall
be treated as having been made on January 1 (or the first business day
thereafter if January 1 falls on a weekend) regardless of when the
Participant actually receives a lump sum payment of such distribution.
The Trustee may, in its sole discretion, elect each year on the appropriate
Internal Revenue Service form to have each distribution under this Section
4.05 treated as having been made in the taxable year of the Trust Fund that
ends within sixty-five (65) days prior to the date on which such distribution
is actually made.
Section 4.06. One-Time Lump Sum Distribution Election. In lieu of
receiving the monthly retirement benefits otherwise payable under this
Article IV or, if applicable, benefits payable to his Surviving Spouse under
Article V, a Participant who has completed at least one (1) Hour of Service
on or after January 1, 1999 or, if applicable, his Surviving Spouse shall, on
a one-time basis, be entitled to receive the present value of his Post-Tax
Adjusted Benefit in a single lump sum payment. The lump sum election must be
made within thirty (30) calendar days of the date of the Participant's
termination of employment with the Employers or, if applicable, the
Participant's death. The lump sum payment shall be required to be made
within thirty (30) calendar days of the date on which the election is
received by the Company.
ARTICLE V
MONTHLY DEATH BENEFITS
If any Participant shall die while still employed by the Employer, such
deceased Participant's surviving spouse, if any, shall be entitled to receive
monthly death benefits ("Preretirement Surviving Spouse Death Benefits")
under this Plan equal to fifty percent (50%) of such deceased Participant's
average monthly Compensation with respect to the last thirty-six (36)
consecutive months (or, if lesser, the deceased Participant's entire period
of employment with the Employer) ending on or before his death, less the
monthly benefits payable to such deceased Participant's surviving spouse for
that month under the Company Retirement Plan; provided, however, that the
monthly Preretirement Surviving Spouse Death Benefits shall be reduced,
where applicable, so that they are actuarially equivalent to the monthly
death benefits that would be payable for the life of an individual who is the
same age and sex as the Participant at the date of his death; provided,
further, that the amount of the monthly Preretirement Surviving Spouse Death
Benefits shall be adjusted to a Post-Tax Adjusted Benefit (as determined in
accordance with Section 1.21). For purposes of determining actuarial
equivalency under this Article V, a seven percent (7%) interest assumption
and the 1971 Group Annuity Mortality Table shall be used. The monthly
payments shall begin on the first (1st) calendar day of the month coinciding
with or next following a Participant's death and shall continue through the
month in which the surviving spouse's death occurs. Notwithstanding
anything contained in this Article V to the contrary, the surviving spouse
of a deceased Participant who immediately before his death met the
requirements for benefits under Section 4.01 shall be entitled to a
qualified preretirement survivor annuity (as such term is defined in Section
205(e) of ERISA) with respect to such deceased Participant's Adjusted
Accrued Benefit in lieu of the monthly death benefits otherwise provided
under this Article if payment in such form would result in a greater monthly
benefit to such surviving spouse.
ARTICLE VI
CONTRIBUTIONS TO THE TRUST FUND
Section 6.01. Initial Company Contribution. On or before December 10,
1988, the Company contributed to the Trust Fund with respect to each
Participant Account established hereunder as of the Effective Date an amount
equal to the Maximum Benefit Liability of such Participant Account
(determined as of the Effective Date).
Section 6.02. Annual Company Contributions. The Maximum Benefit
Liability for each Participant Account established hereunder shall be
re-computed as of each October 31. If the balance credited to a Participant
Account as of any October 31 is less than the Maximum Benefit Liability of
such Participant Account as of such date after the allocation of income and
the reallocation of excess Participant Account balances are completed for
such Valuation Date under Sections 7.04 and 7.05 respectively, the Company
shall within forty (40) calendar days after such October 31 contribute to the
Trust Fund the amount of the deficiency. In addition, the Company shall fund
within fifteen (15) calendar days any increase in the Maximum Benefit
Liability of a Participant Account as a result of a lump sum election made
under Section 4.06.
Section 6.03. Additional Company Contributions. The Company may
at any time or from time to time make additional contributions of cash or
other property to the Trust Fund.
Section 6.04. Form of Contribution. The Company's contributions
under Sections 6.01, 6.02 and 6.03 shall be paid directly by the Company to
the Trustee in cash or, at the option of the Company, in any other form
permissible under ERISA and acceptable to the Trustee; provided, however,
that the Company shall be permitted to meet all or any portion of its funding
requirements by transferring to the Trust Fund insurance policies insuring
the life of one (1) or more Participants in which case the value of the
insurance policies shall be determined based on their respective cash
surrender values.
ARTICLE VII
ESTABLISHMENT OF TRUST FUND
Section 7.01. Trust Fund. The Trustee shall hold all assets contributed
to, or earned by it, under the terms and conditions of this Plan and subject
to applicable requirements under ERISA.
Section 7.02. Establishment of Participant Accounts. The Trustee shall
establish and maintain a Participant Account for each Participant. The
Participant Accounts as established hereunder shall be adjusted as provided
in this Plan. Payment of benefits under Article V and Section 4.01 shall be
charged against the Participant Account of the Participant for whom the
payments are attributable. The maintenance of the Participant Accounts is
for accounting purposes only, and a segregation of Trust Fund assets shall
not be required. Any insurance policies held by the Trust Fund in accordance
with this Plan shall be commingled with the other assets of the Trust Fund
and shall not be credited to the Participant Account of the Participant on
whose life the policy is based.
Section 7.03. Allocation of Contributions. Any contributions made
pursuant to Sections 6.01 and 6.02 of this Plan shall be credited to the
Participants Accounts upon which the contribution was based; provided,
however, that if the amount of the Company contribution is less than the
aggregate required contribution for the Participant Accounts for which the
contribution relates, the amount of the contribution to be allocated to each
Participant Account shall be determined by multiplying the amount of the
contribution by a fraction, the numerator of which is the required
contribution for such Participant Account at the date of contribution and
the denominator of which is the aggregate required contributions for all
Participants Accounts (for which the contribution relates) at the date of
contribution; provided, further, that if the amount of Company contribution
is greater than the aggregate required contributions for all Participant
Accounts, the amount of the excess shall be allocated proportionately among
all Participant Accounts in accordance with the respective Maximum Benefit
Liabilities of such Participant Accounts as of the Valuation Date for which
the contribution relates.
Section 7.04. Valuations. As of each Valuation Date, the Trustee
shall adjust the Participant Accounts to reflect contributions,
distributions, income earned, expenses not paid by the Company, increases or
decreases in the value of the Trust Fund assets and all other transactions
since the last preceding Valuation Date. Any income or losses with respect
to the Trust Fund and appreciation or depreciation in Trust Fund assets shall
be allocated proportionally among all Participant Accounts in accordance with
the value of such Participant Accounts at the last preceding Valuation Date;
provided, however, that for purposes of these allocations, each Participant
Account shall be decreased by fifty percent (50%) of any distributions from
such Participant Account under Article V and under Section 4.01 since the
last preceding Valuation Date; provided, further, that gains or losses from
the sale or exchange of capital assets shall be treated as items of income or
loss and shall be allocated to Participant Accounts accordingly.
Section 7.05. Reallocation of Excess Participant Account Balances. If
any Participant Account is liquidated because payments from such Participant
Account have been made in full or because the Participant on whose behalf
the Participant Account was established has terminated his employment with
the Employer before meeting the vesting requirements described in Section
4.01, the entire remaining balance in the liquidated Participant Account
shall be re-allocated as of such Valuation Date as follows:
(a) first, to the extent that other Participant Accounts on such
Valuation Date have balances less than their Maximum Benefit
Liabilities, the amount available for reallocation under this Section
shall be re-allocated proportionally among the Participant Accounts not
fully funded based on the respective amount of the deficiency of each
such Participant Account at such Valuation Date; and
(b) second, any remaining amount to be re-allocated under this
Section shall be allocated proportionally among all outstanding
Participant Accounts based on their Maximum Benefit Liabilities at such
Valuation Date.
Section 7.06. Payment of Expenses. The Trustee shall be entitled to
receive such reasonable annual compensation for its services as shall be
agreed upon between the Company and the Trustee. The Trustee shall also be
entitled to receive payment of all reasonable and necessary expenses in
administering the affairs of the Trust Fund including, without limitation,
all expenses which may be incurred in connection with the establishment and
administration of the Trust Fund, the employment of such administrative,
legal, accounting, actuarial or other expert and clerical assistance as the
Trustee, in its sole discretion, deems necessary or appropriate in the
performance of its duties, unless the Company elects to pay such
compensation or expenses. Any compensation or expenses for which the
Trustee is entitled to payment or reimbursement under this Section shall be
paid out of the Trust Fund to the fullest extent then permitted under ERISA,
unless the Company elects to pay such compensation or expenses.
Section 7.07. Accounting and Record Keeping. The Trustee shall keep
accurate and detailed accounts of all investments, receipts, disbursements
and other transactions relating to each Participant Account, and all such
records shall be open to inspection and audit at all reasonable times by any
person designated by the Company. As soon as practicable after each
Valuation Date, the Trustee shall file with the Company a written report for
each Participant Account setting forth all gains or losses (both realized
and unrealized) and other transactions relating to the Trust Fund since the
last preceding Valuation Date. As soon as practicable after each Valuation
Date, the Trustee shall provide each Participant with a statement of the
balance credited to his Participant Account at such Valuation Date.
Section 7.08. Limitation on Liability. As long as the Trustee has
performed its duties and met its obligations pursuant to the terms and
conditions of this Plan, it shall have no liability whatsoever to pay any
claims for benefits or expenses or other payments authorized hereunder from
any Participant Accounts, if the assets of such Participant Account shall at
any time be depleted. Except as otherwise provided by ERISA, the duties and
responsibilities of the Trustee shall be governed solely by the terms and
conditions of this Plan, and any amendments thereto.
Section 7.09. Consultation and Indemnification. The Trustee may
consult with counsel, who may, but need not, be counsel to the Company, and
the Trustee shall not be deemed imprudent by taking or refraining from taking
any action in accordance with the opinion of such counsel. The Company
agrees, to the fullest extent then permitted by law, to indemnify and hold
the Trustee harmless from and against any liability which the Trustee may
incur in the administration of the Trust Fund, unless such liability arises
from the Trustee's willful breach of the provisions of this Plan.
Section 7.10. Litigation. The Trustee shall not be required to
commence or defend any litigation or dispute arising in connection with this
Plan, unless the Trustee is first indemnified by the Company against its
prospective costs, expenses and liability, and the Company hereby agrees to
indemnify the Trustee for any such costs, expenses and liability.
Section 7.11. Waiver of Bond. The Trustee shall not be required to
give bond or any other security for the faithful performance of its duties
under this Plan, except such as may be required by a law which prohibits the
waiver thereof.
ARTICLE VIII
INVESTMENT OF TRUST FUND
Section 8.01. Management of Trust Fund and Appointment of Investment
Manager. The Trust Fund shall be managed, invested, and reinvested by the
Trustee, subject, however, to the right of the Company to designate in
writing an investment manager in accordance with Section 402(c)(3) of ERISA
to manage or invest or reinvest the Trust Fund or any part thereof, in which
event the Trustee shall not be liable for the acts or omissions of such
investment manager or have any authority to manage or invest the assets of
the Trust Fund which are subject to management by such investment manager
until said investment manager is dismissed by the Company. Any such
investment manager so designated shall have the same powers and duties with
respect to the management and investment of that portion of the Trust Fund
managed by such investment manager as those granted to the Trustee hereunder,
except to the extent otherwise provided in the instrument designating such
investment manager. Notwithstanding anything contained in this Plan to the
contrary, the Company shall have the right to direct the Trustee to take the
following action with respect to insurance policies:
(a) to maintain or hold insurance policies which are transferred
to the Trust Fund by the Company;
(b) to apply Company contributions to the Trust Fund towards the
purchase of insurance policies or the payment of premiums with respect
to insurance policies transferred to, or purchased by, the Trust Fund;
or
(c) to convert to paid-up form, to surrender for the cash value
thereof or to terminate any insurance policies held by the Trust Fund.
Section 8.02. Powers of Trustee. Except as otherwise provided by
ERISA, the Trustee shall have the following powers in investing the Trust
Fund:
(a) To invest or reinvest all or any part of the Trust Fund in
any real or personal property as the Trustee may deem advisable,
including but not limited to:
(i) any securities normally traded by and obtainable
through a stockbroker or "over the counter" dealer or on a
recognized exchange;
(ii) any shares of an investment company registered under
the Investment Company Act of 1940, as amended;
(iii) any insurance contracts or annuities;
(iv) the deposit of all or any part of the Trust Fund with an
insurer for the payment of interest thereon;
(v) any securities issued or guaranteed by the United States
of America or any of the instrumentalities or states thereof or of
any county, city, town, village, school district or other political
subdivision of any of said states;
(vi) certificates of deposit, time deposits or savings
accounts including, but not limited to, those issued by its own
departments or divisions or related financial institutions;
(vii) commercial paper, money market funds, treasury bills and
similar investments; and
(viii) any combination of (i) through (vii) above and, except
as otherwise provided by ERISA, without being restricted by any
statute or rule of law governing the investments in which a
trustee may invest funds held by it.
(b) To sell or exchange any part of the assets of the Trust Fund.
(c) To vote in person or by proxy the securities and investment company
shares which its holds as Trustee and to delegate such power.
(d) To consent to or participate in dissolutions, reorganizations,
consolidations, mergers, sales, transfers, or other changes in securities
and investment company shares which it holds as Trustee, and, in such
connection, to delegate its powers and to pay all assessments, subscriptions,
and other charges relating thereto.
(e) To exercise all rights, privileges, options and elections with
respect to any insurance policies and to pay the premiums thereon; provided,
however, that any action taken by the Trustee with respect to any such
insurance contracts, including the payment of premiums, shall be subject to
the approval of the Company.
(f) To retain in cash and keep unproductive of income such amount as
the Trustee may deem advisable in its sole discretion, and the Trustee shall
not be required to pay interest on such cash balances or on cash in its hands
pending investment.
(g) To sell, exchange, convey or transfer any property at any time held
by the Trustee upon such terms as it may deem advisable, and no person
dealing with the Trustee shall be bound to see to the application of the
purchase money or to inquire into the propriety of any such transaction.
(h) To enter into, compromise, compound and settle any debt or
obligation due to or from the Trustee and to reduce the rate of interest on,
to extend or otherwise modify or to foreclose upon, default or otherwise
enforce any such obligation.
(i) To cause any bonds, stocks or other securities held by the Trustee
to be registered in or transferred into its name as Trustee or the name of
its nominee or nominees or to hold them unregistered or in form permitting
transferability by delivery, but at all times with full responsibility
therefor as Trustee.
(j) To manage, administer, operate, repair, improve and mortgage or
lease for any number of years, regardless of any restrictions on leases made
by trustees, or otherwise to deal with any real property or interest therein;
to renew or extend or to participate in the renewal or extension of any
mortgage, and to agree to the reduction in the interest on any mortgage or
other modification or change in terms of any mortgage or guarantee thereof
in any manner and upon such terms as may be deemed advisable; to waive any
defaults whether in performance of any covenant or condition of any mortgage
or in the performance of any guarantee or to enforce any such default in such
manner as may be deemed advisable, including the exercise and enforcement of
any and all rights of foreclosure.
(k) To make, execute and deliver as Trustee any and all deeds,
leases, mortgages, advances, contracts, waivers, releases or other
instruments in writing necessary or proper in the employment of any of the
foregoing powers.
(l) To settle, compromise or abandon all claims and demands in favor
of or against the Trust Fund.
(m) To exercise, generally, any of the powers which an individual
owner might exercise in connection with any property, either real, personal
or mixed, held by the Trust Fund, and to do all other acts which the Trustee
may deem necessary or proper to carry out any of the powers set forth in this
Article or otherwise in the best interests of the Trust Fund and the
Participants.
ARTICLE IX
RESIGNATION, REMOVAL, AND APPOINTMENT
OF SUCCESSOR TRUSTEE
Section 9.01. Resignation. The Trustee may resign upon sixty (60)
calendar days' prior notice in writing to the Company. Such prior written
notice may be waived by the Company.
Section 9.02. Removal. The Company may remove the Trustee, with or
without cause, upon sixty (60) calendar days' prior written notice to the
Trustee. Such prior written notice may be waived by the Trustee.
Section 9.03. Successor Trustee. Upon the resignation or removal of
the Trustee or inability of the Trustee for any reason to perform its duties
hereunder, the Company shall promptly appoint a successor Trustee, which
shall be a national bank or a state bank having its deposits insured by the
Federal Deposit Insurance Corporation, having capital and surplus of at least
fifty million dollars ($50,000,000). Any such successor Trustee shall have
the same powers and duties as those conferred upon the initial Trustee
hereunder and shall evidence its acceptance of such appointment by written
instrument addressed to the Company. Upon written notice from the Company of
the acceptance of such appointment by the successor Trustee, the Trustee
shall promptly assign, transfer and pay over the Trust Fund to such successor
Trustee; provided, however, that the Trustee may reserve such sum of money as
it shall deem advisable for payment of its fees and expenses in connection
with the settlement of its account or otherwise.
Section 9.04. Accounting by Trustee. Within sixty (60) calendar days
after the date or resignation or removal of the Trustee, the Trustee shall
furnish a written accounting of the Trust Fund with respect to the period
since the last Valuation Date to the Company, and to the successor Trustee,
which report shall set forth all investments, receipts, disbursements, and
other transactions during such period.
Section 9.05. Merger or Consolidation of Trustee. If the Trustee
shall at any time merge or consolidate with or shall sell or transfer all or
substantially all of its assets and business to another corporation, state
or federal, the corporation resulting therefrom shall be Trustee hereof in
lieu of its predecessor in interest without the execution of any instrument
and without action on the part of the Company; provided, however, that such
successor corporation shall be qualified under the laws of the State of
Indiana to undertake the duties of the Trustee hereunder.
ARTICLE X
NON-DIVERSION OF TRUST FUND
Except as otherwise expressly provided in this Plan and then permitted
by ERISA, the Company shall not have the right or power to direct the Trustee
to return all or any part of the Trust Fund to the Company or to divert to
others any of the assets held in the Trust Fund until all Accrued Benefits
or Preretirement Surviving Spouse Death Benefits under this Plan have been
paid in full or satisfied by the purchase and delivery of single premium
non-transferable deferred annuity contracts.
ARTICLE XI
ADMINISTRATION
Section 11.01. Delegation of Responsibility. The Administrator may
delegate duties involved in the administration of this Plan to the
Compensation Committee or to the Executive Committee of the Board or to such
other person or persons whose services are deemed necessary or convenient.
However, the ultimate responsibility for the administration of this Plan
shall remain with the Administrator.
Section 11.02. Construction of Plan. The Compensation Committee shall
have the power to construe this Plan and to determine all questions of fact
or law arising under it. It may correct any defect, supply any omission or
reconcile any inconsistency in this Plan in such manner and to such extent as
it may deem expedient. Except as otherwise permitted by ERISA, all acts and
determinations of the Compensation Committee shall be final and conclusive on
the Participants and on the surviving spouses of any deceased Participants
and shall not be subject to appeal or review except in those instances where
the Compensation Committee, in its sole discretion, refers such matter to the
Board.
Section 11.03. Tax Information to Participants. The Administrator
shall timely provide necessary tax information to the Plan Participants
relating to their participation in this Plan to enable the Participants to
report properly any income required to be recognized by the Participants.
Section 11.04. Determinations. The Company shall make all
determinations as to the right of any person to a benefit. Any denial by
the Company of a claim for benefits under this Plan by a Participant or by
any deceased Participant's surviving spouse shall be stated in writing by the
Company and delivered or mailed within ninety (90) calendar days to the
Participant or to such deceased Participant's surviving spouse; and such
notice shall comply with all requirements imposed by ERISA and shall set
forth the specific reasons for the denial, written to the best of the
Company's ability in a manner that may be understood without legal or
actuarial counsel. In addition, the Company shall afford a reasonable
opportunity to any Participant or to such deceased Participant's surviving
spouse whose claim for benefits has been denied for a review of its decision
denying the claim in accordance with Section 503 of ERISA.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Amendment or Termination of Plan. This Plan may be
amended, modified, supplemented in any respect or terminated by action of the
Compensation Committee if the continued operation of this Plan is deemed
imprudent by the Compensation Committee as a result of changes in the law or
other circumstances outside of the control of the Company; provided, however,
that no amendment, modification, supplement or termination of this Plan shall
have the effect of:
(a) discontinuing, reducing or eliminating:
(1) the Post-Tax Adjusted Benefit of a Participant or, if
applicable, his surviving spouse, or
(2) any optional form of distribution permitted under this
Plan;
(b) substantially increasing the duties of the Trustee without its
prior written consent;
(c) permitting a reversion of Trust Fund assets to the Company
before the benefits provided under this Plan have been paid in full or
otherwise satisfied as provided in Article X; or
(d) discharging the Company from its obligation to make the Tax
Distribution payments provided under Section 4.03.
Section 12.02. Right to Merge Plan. The Company reserves the right,
by action of its Board, to merge or to consolidate this Plan with, or to
transfer the assets or liabilities of this Plan to, any other similar
retirement plan at any time, except that no such merger, consolidation or
transfer shall be authorized unless each Participant would receive a benefit
immediately after the merger, consolidation or transfer (if the merged,
consolidated or transferred plan then terminated) equal to or greater than
the benefit to which he would have been entitled immediately before the
merger, consolidation or transfer (if this Plan then terminated).
Section 12.03. Successors and Assigns. This Plan shall be binding upon
the successors and assigns of the Company.
Section 12.04. Choice of Law. Except as otherwise required by ERISA,
this Plan shall be construed and interpreted pursuant to, and in accordance
with, the laws of the State of Indiana.
Section 12.05. No Employment Contract. This Plan shall not be
construed as an agreement, consideration or inducement of employment or as
affecting in any manner the rights or obligations of the Employer or of any
Participant to continue or to terminate the employment relationship any time.
Section 12.06. Non-Alienation. Neither a Participant nor his spouse
shall have any right to anticipate, to pledge, to alienate or to assign any
rights under this Plan, and any effort to do so shall be null and void. The
monthly benefits payable under this Plan shall be exempt from the claims of
creditors or other claimants and from all orders, decrees, levies and
executions and any other legal process to the fullest extent then permitted
by law. The preceding sentences shall also apply to the creation, assignment
or recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless such order is
determined to be a qualified domestic relations order as defined in Section
206(d) of ERISA.
Section 12.07. Gender and Number. Words in the masculine gender shall
be construed to include the feminine gender in all cases where appropriate;
words in the singular or plural shall be construed as being in the plural or
singular in all cases where appropriate.
Section 12.08. Headings. The headings in this Plan are solely for
convenience of reference and shall not affect its interpretation.
Section 12.09. Payment to Incompetents. If any Participant or
surviving spouse of a deceased Participant, entitled to benefits under this
Plan is, in the judgment of the Company, legally, physically or mentally
incapable of personally receiving and receipting for any payment due
hereunder, payment may be made to the guardian or other legal representative
of such Participant or such surviving spouse.
Section 12.10. Illegal or Invalid Provisions. If any provision of this
Plan or the application of any such provision to any person or circumstance
shall be invalid under any law of the United States of America or of any
State or any political subdivision thereof, neither the application of such
provision to persons or circumstances other than those as to which such
provision is invalid nor any other provisions of this Plan shall be affected
thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Restatement of the Plan to be signed on this 31st day of December, 1998 and
to be effective as of January 1, 1999. The terms of this Amendment and
Restatement only apply to Employees who have completed at least one (1) Hour
of Service on or after January 1, 1999; provided, however, that under no
circumstances shall this Amendment and Restatement reduce the Accrued Benefit
of a Participant to an amount less than the Accrued Benefit in effect for the
Participant as determined on December 31, 1998.
INDIANAPOLIS POWER & LIGHT COMPANY
By: /s/ Otto N. Frenzel III
Otto N. Frenzel III, Chairman
of the Compensation Committee
of the Board
Exhibit 10.19
Indianapolis Power & Light Company
M E M O R A N D U M
DATE: June 8, 1998
TO: See Distribution Below
FROM: R.L. Humke
SUBJECT: 1998 Management Incentive Plan
DISTRIBUTION:
Officers Directors Section or Shift
Supervisor
Superintendents Assistant Foreman and Multi-
Superintendents Foreman
Managers Division Other First-Line
Supervisors Supervisors
The 1998 Management Incentive Program (MIP) is established to
provide additional incentive and recognition while focusing
on the financial performance of IPL, the performance of our
Strategic Business Units (SBUs) and individual performance.
The Management Incentive Plan for 1998, as with the 1997
program, includes all supervision from the section supervisor
or foreman level to the manager level.
MIP awards will be based on:
- - IPL's Financial Performance
The measurement of IPL financial performance is Net
Income. A threshold, or minimum amount of IPL net
income must be achieved before any award will be
paid. In 1998 that threshold amount is $118.2
million.
- - SBU Performance
Each SBU has established performance goals which
can modify half of the bonus pool for employees of
the SBU. For associates who are part of the
Corporate staff (non-SBU), the actual results of
all four SBU performance goals are averaged to
modify half the bonus pool.
- - Individual Performance
The ultimate award any participant receives will be
based on merit and as such some awards will be
reduced. The measure for individual performance
will range from 0% to 100%. Participants performing
at a high level can expect to receive a full award.
Lesser amounts will be granted to those
participants where further improvement is needed.
Participants whose performance is unsatisfactory
will not receive an award.
Special requests for inclusion in the program need to be
submitted for approval to the Vice President of Human
Resources. Documentation supporting inclusion in the Plan is
required. In addition, at year-end, Organizational Heads may
recommend other associates for a 1998 award who had
assignments that significantly affected IPL's performance.
If a participant retires, becomes disabled or dies during
1998, or if a person becomes eligible after the year begins,
any award payable to such person shall be prorated.
Additionally, the Big Dollar Program is being continued. It
is designed to reward other associates who have made an
extraordinary contribution toward Company performance. A
formal Big Dollar Award Program description is attached.
If you have any questions concerning these programs, please
contact the leadership of your organization.
R.L. Humke
/s/ R.L. Humke
Attachments
Program Name: Big Dollar Award Program
Purpose: The program exists to provide
an immediate cash reward to an
associate who makes significant
contribution which will have a
substantial positive impact on the
Company.
Eligibility: Any non-officer associate who is
not part of the Management Incentive
Program is potentially eligible to
receive a reward under this program.
Award Basis: Associates whose acts, or
achievements are outside their normal
work requirement should be considered
for awards. Extraordinary
contributions to Corporate Objectives
and organization assignments are the
principal criteria for these awards.
Superior work on normal work
assignments alone does not qualify an
individual for an award. More
efficient operations, greater
productivity, better customer service,
reduced costs, higher earnings, and
enhanced public image are examples of
results which would warrant
consideration for an award.
Award Amount: The amount of the award will
depend upon the significance and long-
term benefit to the Company. As a
general rule, awards should be no less
than $200.
Process: All associates and
supervisors are asked to identify acts
or achievements of other associates
which should be considered for an
award. Descriptions of such acts
should be directed to the organization
officer who will assess the achievement
and, if warranted, forward a
recommendation through the appropriate
senior officer to the President.
Recommendations should include
suggested award amounts. The President
will approve and present these special
awards as these extraordinary
contributions are identified and
evaluated throughout the year. The
intent is that an award follow these
acts or achievements as closely as
practical. Therefore, recommendations
for awards should be expedited.
Administration: The Vice President, Human Resources,
will administer this program, with the
assistance of the Controller. All
checks will represent the award, less
necessary tax withholding. The
organization officer should contact
Corporate Communications to arrange
appropriate publicity.
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY EXHIBIT 12.1
Ratio of Earnings to Fixed Charges
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996
-------------- -------------- -------------
(Thousands of Dollars)
Earnings, as defined:
<S> <C> <C> <C>
Net income (1) $149,147 $133,402 $122,588
Income taxes 84,386 74,440 67,266
Fixed charges, as below 40,991 41,893 48,570
-------------- -------------- -------------
Total earnings, as defined $274,524 $249,735 $238,424
============== ============== =============
Fixed charges, as defined:
Interest charges $40,810 $41,721 $48,406
Rental interest factor 181 172 164
-------------- -------------- -------------
Total fixed charges, as defined $40,991 $41,893 $48,570
============== ============== =============
Ratio of earnings to fixed charges 6.70 5.96 4.91
============== ============== =============
(1) 1997 Net income excludes after-tax effect of cumulative effect
of accounting change
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000050217
<NAME> INDIANAPOLIS POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,748,460
<OTHER-PROPERTY-AND-INVEST> 5,790
<TOTAL-CURRENT-ASSETS> 139,350
<TOTAL-DEFERRED-CHARGES> 129,466
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,023,066
<COMMON> 324,537
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 440,747
<TOTAL-COMMON-STOCKHOLDERS-EQ> 767,926
0
59,135
<LONG-TERM-DEBT-NET> 627,893
<SHORT-TERM-NOTES> 19,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 548,912
<TOT-CAPITALIZATION-AND-LIAB> 2,023,066
<GROSS-OPERATING-REVENUE> 821,256
<INCOME-TAX-EXPENSE> 80,190
<OTHER-OPERATING-EXPENSES> 561,555
<TOTAL-OPERATING-EXPENSES> 641,745
<OPERATING-INCOME-LOSS> 179,511
<OTHER-INCOME-NET> 9,535
<INCOME-BEFORE-INTEREST-EXPEN> 189,046
<TOTAL-INTEREST-EXPENSE> 39,899
<NET-INCOME> 149,147
3,119
<EARNINGS-AVAILABLE-FOR-COMM> 146,028
<COMMON-STOCK-DIVIDENDS> 214,243
<TOTAL-INTEREST-ON-BONDS> 38,395
<CASH-FLOW-OPERATIONS> 249,472
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
