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, 1996 Commission File Number 1-8644
IPALCO ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
Indiana 35-1575582
(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:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
IPALCO Enterprises, Inc. New York Stock Exchange
Common Stock (without par value) Chicago Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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. ( )
As of January 31, 1997, the aggregate market value of the voting
stock held by non-affiliates of the registrant was: $1,399,383,042
based on the average of the high and low price of the common stock
on such date. As of January 31, 1997, there were 57,036,540 shares
of the registrant's common stock (without par value) outstanding.
_____________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the IPALCO Enterprises, Inc. definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on May 21, 1997
are incorporated by reference into Part III of this Report.
PART I
------
Item 1. BUSINESS
--------
ORGANIZATION
IPALCO Enterprises, Inc. (IPALCO) is a holding company and was
incorporated under the laws of the state of Indiana on September 14, 1983
and has 15 employees. IPALCO has two (2) subsidiaries: Indianapolis
Power & Light Company (IPL), a regulated electric and steam service
utility, and Mid-America Capital Resources, Inc. (Mid-America), a holding
company for unregulated businesses.
DESCRIPTION OF BUSINESS OF SUBSIDIARIES
INDIANAPOLIS POWER & LIGHT COMPANY
GENERAL
IPL was incorporated under the laws of the state of Indiana in 1927
and is a wholly owned subsidiary of IPALCO. 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. No private or municipally-owned electric
public utility companies are competing with IPL in the territory it
serves. Existing Indiana law provides for public utilities to have an
exclusive retail service area.
IPL's business is not dependent on any single customer or group of
customers. IPL's historical retail sales to ultimate consumers for 1992-
1996 are depicted at page I-5.
The electric utility business is affected by the various seasonal
weather patterns throughout the year and, therefore, the operating
revenues and associated operating expenses are not generated evenly by
months 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 which provides for
coordinated planning of generating 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 9 in the Notes to Consolidated Financial Statements.
In addition, IPL is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC), in respect of 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. IPL has developed and substantially implemented a plan to
reduce sulfur dioxide and nitrogen oxide emissions from several
generating units. This plan was approved by the Environmental Protection
Agency (EPA) in 1994. Estimated annual expenditures for all air, solid
waste and water environmental compliance measures are $11 million and $5
million in 1997 and 1998, 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 initiated by IPL. 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 IPL customers. In Indiana, basic rates and charges
are determined after giving consideration, on a proforma basis, to all
allowable costs for ratemaking purposes including a fair return on the
fair value of the utility property dedicated to 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 weather, inflation, customer growth and
usage, the level of actual maintenance and capital expenditures and IURC
restrictions on the level of operating income can impact the return
realized. Substantially all of IPL's retail tariffs provide for the
monthly billing or crediting to customers of increases or decreases,
respectively, in the actual costs of fuel consumed from levelized fuel
costs embedded in base tariffs. Additionally, all such retail tariffs
provide for billing of "lost revenue margins" on estimated kilowatt-hours
(KWH) sales reductions resulting from IPL's approved demand side
manangement program. IPL maintains its books and records consistent with
generally accepted accounting principles reflecting the impact of
regulation. See Note 1 in the Notes to Consolidated 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. 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 in a position to be required to adopt SFAS 101 in the near
term and accordingly has not attempted to estimate the impact of adopting
SFAS 101.
FUEL
In 1996, approximately 99.8% of the total KWH sold by IPL were
generated from coal, 0.1% from middle distillate fuel oil and 0.1% from
gas. 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 the fuel used in
IPL's newer combustion turbines.
IPL's long-term coal contracts provide for the supply of the major
portion of its burn requirements through the year 1999, assuming existing
environmental regulations can be met. The long-term coal agreements are
with three unaffiliated suppliers and the coal is mined entirely in the
state of Indiana. See Exhibits listed under Part IV Item 14(a)2(20.1).
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 90-day supply when strikes are anticipated in
the coal industry.
EMPLOYEE RELATIONS
As of December 31, 1996, IPL had 2,144 employees of whom 1,081 were
represented by the International Brotherhood of Electrical Workers, AFL-
CIO (IBEW) and 379 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 which 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 March 1995, the membership of
the EUWU ratified a new labor agreement which remains in effect until
February 23, 1998. The agreement provided for general pay adjustments of
2% in 1995, 1996 and 1997; lump sum payments of $500 in both 1995 and
1996; and changes in pension and health care coverage.
MID-AMERICA CAPITAL RESOURCES, INC. (Mid-America)
GENERAL
Mid-America, the holding company for the unregulated activities of
IPALCO, has as subsidiaries Indianapolis Campus Energy, Inc. (ICE), Store
Heat And Produce Energy, Inc., which conducts business as SHAPE Energy
Resources (SHAPE) and Mid-America Energy Resources, Inc. (Energy
Resources). Energy Resources operates a district cooling system in
downtown Indianapolis, Indiana and has as subsidiaries Cleveland Thermal
Energy Corporation (Cleveland Thermal) and Cleveland District Cooling
Corporation (Cleveland Cooling). During 1995, Mid-America established
Vital Resource Management (VRM) as an operating division within the
holding company.
Cleveland Thermal operates a district heating system in dowtown
Cleveland. Cleveland Cooling operates a self-constructed district
cooling system also located in downtown Cleveland. Operations at
Cleveland Cooling commenced in April 1993, and the system obtained full
subscription during 1996. Both Cleveland Thermal and Cleveland Cooling
jointly conduct business under the name Cleveland Energy Resources.
During 1995, the plant capacity for Energy Resource's Indianapolis
district cooling system was expanded to 27,250 tons to meet existing
customer loads and is fully subscribed.
At December 31, 1995, Mid-America held 70% of the common stock of
SHAPE and acquired an additional 10% on January 1, 1996, resulting in Mid-
America holding 80% of the common stock of SHAPE at December 31, 1996.
SHAPE conducts research and development of energy storage technology.
ICE was formed to construct, own and operate an energy system in an
industrial complex. During 1993, ICE entered into a contractual
agreement with Eli Lilly and Company (Lilly) to provide cooling capacity
to the Lilly Technology Center, in Indianapolis, Indiana. This chilled
water facility, located near Morris Street and Kentucky Avenue in
Indianapolis began providing chilled water to Lilly in 1996.
In 1995, Mid-America began providing energy services through VRM to
commercial, industrial and institutional customers from sales offices in
Indianapolis, Cleveland, Kansas City and northern Indiana.
EMPLOYEES
As of December 31, 1996, Mid-America and its subsidiaries had 136
employees. There were no labor organizations.
<TABLE>
IPALCO ENTERPRISES, INC.
STATISTICAL INFORMATION - ELECTRIC
The following table of statistical information presents additional data on IPL's operation.
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Revenues (In Thousands):
Residential $ 261,819 $ 243,055 $ 230,805 $ 225,138 $ 212,757
Small industrial and commercial 132,361 130,780 129,346 127,551 126,588
Large industrial and commercial 298,720 275,803 266,703 255,945 243,446
Public lighting 8,147 7,598 6,949 7,186 7,133
Miscellaneous 9,264 8,289 7,186 7,373 6,018
--------------- --------------- --------------- --------------- ---------------
Revenues - ultimate consumers 710,311 665,525 640,989 623,193 595,942
Sales for resale - REMC 1,141 1,105 1,098 897 861
Sales for resale - other 13,312 6,758 7,680 5,237 2,400
--------------- --------------- --------------- --------------- ---------------
Total electric revenues $ 724,764 $ 673,388 $ 649,767 $ 629,327 $ 599,203
=============== =============== =============== =============== ===============
Kilowatt-hour Sales (In Millions):
Residential 4,367 4,277 4,077 4,014 3,675
Small industrial and commercial 2,130 2,209 2,207 2,202 2,171
Large industrial and commercial 6,772 6,509 6,306 6,169 5,843
Public lighting 58 61 64 62 64
--------------- --------------- --------------- --------------- ---------------
Sales - ultimate consumers 13,327 13,056 12,654 12,447 11,753
Sales for resale - REMC 29 28 26 24 23
Sales for resale - other 725 394 456 321 169
--------------- --------------- --------------- --------------- ---------------
Total kilowatt-hours sold 14,081 13,478 13,136 12,792 11,945
=============== =============== =============== =============== ===============
Customers at End of Year:
Residential 370,029 365,163 360,347 356,015 352,139
Small industrial and commercial 40,403 39,781 38,849 38,359 38,171
Large industrial and commercial 3,657 3,557 3,525 3,342 3,163
Public lighting 303 281 266 252 239
--------------- --------------- --------------- --------------- ---------------
Total ultimate consumers 414,392 408,782 402,987 397,968 393,712
Sales for resale - REMC 1 1 1 1 1
--------------- --------------- --------------- --------------- ---------------
Total electric customers 414,393 408,783 402,988 397,969 393,713
=============== =============== =============== =============== ===============
</TABLE>
Item 2. PROPERTIES
----------
IPL
IPL's executive offices are in the IPALCO Corporate Center located at
One Monument Circle, Indianapolis, Indiana. This facility contains
approximately 201,300 square feet of space and contains certain
administrative operations of IPALCO's subsidiaries.
IPL also owns two distribution service centers located at 1230 West
Morris Street and 3600 North Arlington Avenue, both in Indianapolis,
Indiana. IPL's customer service center is located at 2102 North Illinois
Street in Indianapolis.
IPL owns and operates five primarily coal-fired generating plants,
three of which are used for only electric generation and two of which are
used for a combination of electric and steam generation. In relation to
electric generation, there exists a total gross nameplate rating of 3,035
MW, a winter capability of 3,046 MW and a summer capability of 2,968 MW.
In relation to steam generation, there exists a gross capacity of 2,290
Mlbs. (thousands of pounds) per hour.
Total Electric Stations:
H. T. Pritchard plant (Pritchard), 25 miles southwest of
Indianapolis (seven units in service - one 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 and 1,672 MW, respectively.
Combination Electric and Steam Stations:
C.C. Perry Section K plant (Perry K), in the city of 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.
C.C. Perry Section W plant (Perry W), in the city of Indianapolis
with 11 MW nameplate rating (net winter capability 10 MW, summer 12
MW) for electric and a gross capacity of 300 Mlbs. per hour for
steam.
Net electrical generation during 1996, at the Petersburg, Stout and
Pritchard stations accounted for about 74.6%, 20.4% and 5.0%,
respectively, of IPL's total net generation. All steam generation by IPL
for the steam system was produced by the Perry K and Perry W stations.
In addition, IPL purchases steam from an independent resource recovery
system located within the city of 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, 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.
IPL's transmission system includes 457 circuit miles of 345,000 volt
lines, 359 circuit miles of 138,000 volt lines and 269 miles of 34,500
volt lines. Distribution facilities include 4,693 pole miles and 19,826
wire miles of overhead lines. Underground distribution and service
facilities include 477 miles of conduit and 5,276 wire miles of
conductor. Underground street lighting facilities include 109 miles of
conduit and 682 wire miles of conductor. Also included in the system are
74 bulk power substations and 76 distribution substations.
Steam distribution properties include 23 miles of mains with 253
services. Other properties include coal and other minerals, underlying
798 acres in Sullivan County and coal underlying about 6,215 acres in
Pike and Gibson Counties, Indiana. Additional land, approximately 4,722
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.
OTHER SUBSIDIARIES
Energy Resources owns and operates a district cooling facility located
near downtown Indianapolis, which is designed to distribute chilled water
to subscribers located downtown for their air conditioning needs. The
plant is equipped with five 5,000 ton chillers powered by steam purchased
from IPL and one 2,250 ton chiller powered by electricity purchased from
IPL.
Cleveland Thermal owns and operates two steam plants in Cleveland,
Ohio, with a total of nine boilers having a gross capacity of 1,050 Mlbs.
per hour. The distribution system includes 17 miles of mains with 230
services.
Cleveland Cooling owns and operates a district cooling facility
located near downtown Cleveland, which is designed to distribute chilled
water to subscribers located downtown for their air conditioning needs.
The plant is equipped with two 5,000 ton chillers powered by electricity.
ICE owns and operates a chilled water facility in Indianapolis, which
is contracted to service the chilled water requirements of Eli Lilly and
Company's Lilly Technology Center. The plant is equipped with three
5,000 ton chillers powered by electricity purchased from IPL.
Mid-America, through its operating division Vital Resource Management
(VRM), began providing energy services to commercial, industrial and
institutional customers during 1995. This energy services effort has two
major activities: (1) energy accounts, focusing on the energy needs of
commercial and governmental buildings and (2) major projects,
concentrating on the development of large heating and/or cooling projects
in commercial, industrial or institutional settings.
Substantially all the Mid-America property is subject to the lien of
existing debt and/or credit agreements of Mid-America, Energy Resources
and ICE.
Item 3. LEGAL PROCEEDINGS
-----------------
None to be reported
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 25, 1997.
Name, age (at December 31, 1996), and positions and offices held for
the past five years:
From To
---- --
John R. Hodowal (51)
Chairman of the Board and
President of IPALCO May, 1989
Chairman of the Board of IPL February, 1990
Chief Executive Officer of IPL May, 1989
Ramon L. Humke (64)
Vice Chairman of IPALCO May, 1991
President and Chief Operating
Officer of IPL February, 1990
John R. Brehm (43)
Vice President and Treasurer
of IPALCO May, 1989
Senior Vice President -
Finance and Information
Services of IPL May, 1991
N. Stuart Grauel (52)
Vice President - Public Affairs
of IPALCO May, 1991
Joseph A. Gustin (49)
President of Mid-America December, 1994
President of ICE April, 1993
President of Energy Resources May, 1991
Vice President of SHAPE May, 1993 January, 1995
Vice President of Mid-America May, 1991 December, 1994
Robert W. Rawlings (55)
Senior Vice President -
Electric Production of IPL May, 1991
Bryan G. Tabler (53)
Vice President -
Secretary and General Counsel of IPALCO January, 1995
Senior Vice President -
Secretary and General Counsel of IPL January, 1995
Partner, Barnes & Thornburg January, 1979 October, 1994
Gerald D. Waltz (57)
Senior Vice President -
Electric Delivery of IPL May, 1996
Senior Vice President -
Business Development of IPL May, 1991 May, 1996
Paul S. Mannweiler (47)
Senior Vice President -
External Affairs of IPL January, 1997
Max Califar (43)
Vice President - Human
Resources of IPL December, 1992
Assistant Treasurer of IPALCO May, 1989 December, 1992
Treasurer of IPL May, 1989 December, 1992
Steven L. Meyer (38)
Assistant Treasurer of IPALCO May, 1993
Treasurer of IPL December, 1992
Stephen J. Plunkett (48)
Controller of IPALCO
and IPL May, 1991
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
---------------------------------------------------
SECURITY HOLDER MATTERS
-----------------------
At December 31, 1996, IPALCO had 23,858 holders of common stock
of record (including shareholders whose shares are held in IPALCO
PowerInvest, the Dividend Reinvestment and Direct Stock Purchase
Plan of IPALCO Enterprises, Inc.) IPALCO's common stock is
principally traded on the New York Stock Exchange and the Chicago
Stock Exchange. The high and low sale prices for IPALCO's common
stock during 1996 and 1995 as reported on the Composite Tape in The
Wall Street Journal were as follows:
1996 1995
High Low High Low
Sale Price Sale Price Sale Price Sale Price
--------------------- ---------------------
First Quarter $27 3/8 $25 $22 1/2 $19 7/8
Second Quarter 26 3/4 24 5/8 22 20 5/8
Third Quarter 27 5/8 25 1/8 24 1/8 21
Fourth Quarter 28 1/4 26 1/8 25 3/4 23 5/8
The high and low sale prices for IPALCO's common stock as
reported on the Composite Tape in The Wall Street Journal for the
period January 1, 1997, through February 21, 1997, were: High -
$28 3/8, Low - $26 1/2.
Quarterly dividends paid on the common stock during 1996 and
1995 were as follows:
1996 1995
----- -----
First Quarter $.36 $.353
Second Quarter .37 .36
Third Quarter .37 .36
Fourth Quarter .37 .36
At its meeting on February 25, 1997, IPALCO's Board of Directors
declared a regular quarterly dividend on common stock of $.25 per share
($1.00 annually), payable April 15, 1997, to shareholders of record
March 21, 1997. This is a reduction from the previous year's quarterly
dividend which was $.37 per share ($1.48 annually). Future dividend
action will be guided by, among other factors, a policy of paying out
45 to 50 percent of the prior year's earnings. The declaration and payment
of future dividends will be dependent on IPALCO's earnings and financial
condition, economic and market conditions and other factors deemed relevant
by IPALCO's Board of Directors.
Dividend Restrictions
- ---------------------
The following restrictions pertain to IPL but, to the extent
that the dividends of IPALCO depend upon IPL earnings, may have an
effect on IPALCO. 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, 1996, 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.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total utility operating revenues $ 762,503 $ 709,206 $ 686,076 $ 664,303 $ 633,203
Utility operating income 163,219 147,588 143,310 142,368 134,240
Allowance for funds used during
construction 9,321 11,370 9,381 5,527 5,081
Net income (1) 114,275 98,778 92,994 75,422 88,342
Utility plant - net 1,787,969 1,792,007 1,711,772 1,608,871 1,532,964
Total assets 2,183,069 2,231,197 2,099,361 1,966,023 1,894,427
Utility construction expenditures 78,543 166,874 178,295 145,765 112,037
Nonutility construction expenditures 4,187 34,745 9,402 8,788 29,842
Common shareholders' equity 857,726 822,803 801,945 787,211 787,739
Cumulative preferred stock 51,898 51,898 51,898 51,898 51,898
Long-term debt (less current
maturities and sinking
fund requirements) 662,591 698,600 665,971 541,760 550,141
Earnings per share of common stock
(based on weighted average number
of shares outstanding) (1,2) 2.01 1.74 1.64 1.33 1.57
Dividends declared per share of
common stock (2) 1.48 1.44 1.41 1.36 1.31
See consolidated financial statements.
(1) During 1993, IPALCO incurred a one-time charge against earnings of $21.1 million, net of applicable income
taxes, for costs pertaining to IPALCO's efforts to acquire PSI Resources, Inc.
(2) Per share amounts for 1992 through 1995 have been adjusted to reflect the 3-for-2 common stock split
issued in March 1996.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
IPALCO Enterprises, Inc. (IPALCO) is a holding company
incorporated under the laws of the state of Indiana. Indianapolis
Power & Light Company (IPL) and Mid-America Capital Resources, Inc.
(Mid-America) are subsidiaries of IPALCO. Mid-America is the
holding company for the unregulated activities of IPALCO. IPL
represents the regulated subsidiary.
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), IPALCO
Enterprises, Inc. and subsidiaries (collectively, Enterprises) is hereby
filing cautionary statements identifying important factors that could
cause Enterprise's actual results to differ materially from those
projected in forward-looking statements of Enterprises. Management's
Discussion and Analysis contains forward-looking statements, and many of
these statements are contained in this Item 7 under the IPALCO section
entitled "Recapitalization and Dividend Change,"and the IPL section entitled
"Future Performance." 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 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 Enterprises' actual results to differ materially from
those contained in forward-looking statements made by or on behalf of
Enterprises.
Some important factors that could cause Enterprises' 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 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 and technology changes are also
important potential factors. Most of these factors impact Enterprises
through its wholly owned subsidiary, IPL.
All such factors are difficult to predict, contain uncertainties which
may materially affect actual results, and are beyond the control of
Enterprises.
LIQUIDITY AND CAPITAL RESOURCES
IPALCO
Recapitalization and Dividend Change
------------------------------------
On February 25, 1997, the Board of Directors of IPALCO approved a new
financial strategy designed to maximize shareholder value and position it
for an increasingly competitive business environment.
The plan includes:
A recapitalization of IPALCO to employ a higher degree of
leverage in the capital structure while the electric utility industry
is in a transition period between regulation and competition. The
leveraged recapitalization will be accomplished through a self-tender
offer (Offer) to purchase up to 12 million shares, or 21 percent of
IPALCO's outstanding common stock. The Offer, which is scheduled to
commence February 28, 1997 will be effected through a "Dutch auction"
at a price of not less than $29.00 nor more than $34.00 per share. The
transaction of up to $410 million will be financed with a five-
year bank debt facility. The recapitalization is being effected by the
parent company, IPALCO Enterprises, Inc. and will not affect the
capitalization of its wholly owned subsidiary, IPL.
A reduction in the quarterly dividend to $.25 per share ($1.00 annually)
from the previous $.37 per share ($1.48 annually). The dividend is payable
April 15, 1997 to shareholders of record on March 21, 1997 regardless of
whether or when such shares are tendered. Future dividend action will be
guided by, among other factors, a policy of paying out 45 to 50 percent of
the prior year's earnings.
A target consolidated maximum debt-to-capital ratio of 45 percent which
IPALCO believes can be achieved within the next five years.
Purchasing common stock at a premium to its recent market value
enables IPALCO to increase and accelerate the cash received by shareholders.
In fact, the payment of cash amounts through a $410 million repurchase offer
equals nearly five years of dividends based on the previous dividend rate.
Reducing the common stock dividend rate improves IPALCO's financial
flexibility going forward. A dividend payout ratio of 45 to 50 percent of
prior year earnings is more consistent with companies operating today in a
competitive environment compared to the traditional utility payout ratio of
70 percent or more. The declaration and payment of future dividends will be
dependent on IPALCO's earnings and financial condition, economic and market
conditions and other factors deemed relevant by IPALCO's Board of Directors.
IPALCO expects to incur up to $410 million of debt in connection with
the Offer. A reduction in common shareholders' equity will result from
purchasing the common stock according to the Offer and when combined with
the newly incurred debt, will increase IPALCO's debt-to-capital ratio from
42.6 percent at December 31, 1996 to a pro forma level of 68.4 percent.
IPALCO believes that in a competitive environment a target debt-to-total
capital ratio of 45 percent is appropriate. IPALCO believes its earnings
and cash flow will be sufficient to allow it to retain earnings and
reduce debt so that such a target ratio can be achieved within five
years. There can be no assurances, however, that such a target ratio can
be achieved or that economic or industry factors will not make achieving
such a ratio impractical or undesirable.
IPALCO believes its financial strategy will enable it to raise
sufficient funds, when necessary, to replace existing assets and undertake
investments in new growth while maintaining a prudent balance between debt
and equity in the capital structure. IPALCO believes its actions preserve
the financial flexibility necessary to accommodate unexpected future cash
needs. The increased use of debt is a tangible expression of
management's confidence in IPALCO.
IPL
- ---
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 Consolidated
Financial Statements.
Electric Rate Settlement Agreement
- ----------------------------------
On August 24, 1995, the Indiana Utility Regulatory Commission
(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. The
Settlement Agreement authorized IPL to increase its basic rates and
charges for electric service in two steps, to begin the
amortization of certain regulatory assets and approved IPL's plan
to expense and to fund its annual postretirement benefits. These
issues are discussed further in Notes 1, 4, 9 and 11 in the Notes
to Consolidated Financial Statements.
Authorized Annual Operating Income
- ----------------------------------
During quarterly fuel adjustment clause proceedings, the annual
operating income of IPL's electric and steam businesses is subject
to review. Customer refunds could result if actual annual
operating income exceeds levels authorized by the IURC. See Note 1
in the Notes to Consolidated Financial Statements. IPL does not
anticipate any customer refunds to result from such reviews during
1997.
Competition and Industry Changes
--------------------------------
As of year end 1996, 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 impact IPL follows:
Wholesale Energy Market
- -----------------------
Federal Energy Regulatory Commission (FERC) Orders 888 and 889:
In April of 1996, the FERC issued orders 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 the FERC; 2.
offer transmission to eligible customers comparable to service they
provide themselves; and 3. take service under the tariffs for their
own wholesale sales and purchases of electricity. The FERC orders
also provide for the recovery of utility stranded costs. Stranded
cost is 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 the 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.
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, at the retail level, for the kilowatt-hour (KWH)
requirements of electric energy consumers within their respective
states. While each state proposal is different, most provide for
some recovery of a utility's stranded costs and require an extended
transition period before the intended full competition is fully
effective. Additionally, a few states have implemented pilot
"limited direct access" programs that experiment with allowing some
form of customer choice of electric suppliers.
In Indiana, competition among electric energy providers for
sales has primarily focused on the wholesale power markets or the
sale of bulk power to other public and municipal utilities. Such
wholesale sales have historically been and will continue to be made
at market rates. Existing Indiana law provides for public
utilities to have an exclusive retail service area.
In 1995, the Indiana General Assembly, anticipating increasing
competitive forces in the regulated public utility industry,
enacted into law legislation codified at I.C. 8-1-2.5 and commonly
referred to as "Senate Bill 637." This new law enables the IURC to
consider and approve, on an individual utility basis, utility
company initiated proposals providing nontraditional forms of
determining customer tariffs.
During January 1997, a new bill to revise the complete Indiana
code for electric utilities was introduced into the Indiana
legislature. As proposed, this very complex bill requires, among
other things, the mandatory reorganization of all Indiana electric
utilities, a transition period ending in 2004, revenue reductions
during the transition period for utilities with production costs
exceeding the Indiana state average for 1995 and exit fees for
customers electing to purchase energy from new suppliers. On
February 20, 1997, the Indiana Senate sponsor announced his intention
to amend the bill to form a legislative committee to study this issue,
rather than immediately enact retail wheeling.
IPALCO, as explained later, is opposed to the proposed
legislation, as well as to any such legislation on a state-by-state
basis. IPALCO believes that "Senate Bill 637" already provides the
forum for Indiana public utilities to properly address the issues
created from competition and deregulation until comprehensive
federal legislation is enacted.
IPALCO's Position on Industry Deregulation
- ------------------------------------------
In general the foregoing FERC wholesale and state-by-state
retail initiatives are inconsistent with IPALCO beliefs. IPALCO
favors federal legislation to deregulate the industry for all
companies and all customers across the country at the same time.
IPALCO 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. IPALCO 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.
There can be no assurance as to the outcome of the debate on
electric utility industry restructuring. IPALCO 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 new markets as they open.
In 1995, IPL formed four Strategic Business Units: Electric
Production, Electric Delivery, Marketing and Steam, to better
evaluate and control costs and to prepare for the transition to a
more competitive environment.
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, 1996, 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 will retire $11.3 million of maturing long-term debt during
1997. In addition, other existing higher rate debt may be
refinanced depending upon market conditions. See following section
for discussion of construction program.
During the next five years, IPL is forecasted to meet its cash
requirements without additional permanent financing. Cash flows
from operations and temporary short-term borrowings are forecasted
to provide the funds required for IPL's construction program and
the retirement of maturing long-term debt.
Future Performance
------------------
IPL expects operating revenue growth based on a full year of new
tariffs implemented on July 1, 1996, a projected five-year 1.5%
forecasted compound annual increase in retail KWH sales, increasing
sales opportunities in the wholesale power market and expected
annual increases in steam therm sales.
The 1.5% annual KWH sales growth estimate compares to growth
rates IPL actually achieved of 2.2% and 2.6% for the periods 1991
through 1996 and 1986 through 1996, respectively, weather adjusted.
The Indianapolis economy grew at annual rates of 1.9% and 2.0% for
those same periods and is expected to grow 2.0% from 1996 through
2001.
Operating and maintenance expenses were $394.9 million in 1996.
These expenses in 1997 will be influenced by inflation, ongoing
cost controls and increased overhaul expenses of about $7 million.
Purchased power costs are expected to decrease approximately $9
million in 1997 due to a new contract effective in May 1997
Depreciation will increase in 1997 due to a full year's
depreciation on new SO2 removal facilities (scrubbers) placed in
service during 1996, as well as other plant additions. IPL's long-
term interest expense should decrease due to the retirement of $50
million 9 5/8% First Mortgage Bonds in December 1996 and $11.3
million 5 5/8% First Mortgage Bonds in May 1997 partially offset by
a $20 million variable rate note issued in November 1996.
IPL's construction program for the three-year period 1997-1999,
is estimated to cost $225.2 million including AFUDC. The estimated
cost of the program by year (in millions) is $86.2 in 1997, $73.0
in 1998 and $66.0 in 1999. It includes $137.7 million for
additions, improvements and extensions to transmission and
distribution lines, substations, power factor and voltage
regulating equipment, distribution transformers and street lighting
distribution. At December 31, 1996, IPL had completed installation
of substantially all of its Environmental Compliance Plan
facilities.
IPL will amortize approximately $34.3 million of its nontax-
regulatory assets at December 31, 1996, over the next three years.
Other
-----
Preferred Stock and Debt Issuance Restrictions and Dividend Restrictions
- ------------------------------------------------------------------------
IPL is limited in its ability to issue certain securities by
restrictions under its Mortgage and Deed of Trust (Mortgage) and
its Amended Articles of Incorporation (Articles). The restriction
under the Articles requires that the net income of IPL, as
specified therein, shall be at least one and one-half times the
total interest on the funded debt and the proforma dividend
requirements on the outstanding preferred stock and on any
preferred stock proposed to be issued, before any additional
preferred stock can be issued. The Mortgage restriction 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 twelve months ended December 31, 1996,
the ratios under the Articles and the Mortgage are 3.90 and 10.15,
respectively. IPL believes these requirements will not restrict
any anticipated future financings. See Note 5 in the Notes to
Consolidated Financial Statements. At December 31, 1996, and
considering all existing restrictions, IPL had the capacity to
issue approximately $1 billion of additional long-term debt.
MID-AMERICA
- -----------
Nature of Operations
--------------------
Mid-America, the holding company for the unregulated activities
of IPALCO, has as subsidiaries Indianapolis Campus Energy, Inc.
(ICE), Store Heat and Produce Energy, Inc., which conducts business
as SHAPE Energy Resources (SHAPE), and was 80%-owned as of December
31, 1996, and Mid-America Energy Resources, Inc. (Energy
Resources). Energy Resources, in addition to its own operations,
has as subsidiaries Cleveland Thermal Energy Corporation (Cleveland
Thermal) and Cleveland District Cooling Corporation (Cleveland
Cooling), which jointly do business as Cleveland Energy Resources.
Energy Resources operates a fully subscribed district cooling
system in downtown Indianapolis, Indiana. Cleveland Thermal
operates a district heating system in downtown Cleveland, Ohio.
Cleveland Cooling operates a district cooling system in downtown
Cleveland, Ohio. ICE provides chilled water to the Lilly
Technology Center located near downtown Indianapolis. SHAPE became
a majority-owned subsidiary of Mid-America during 1993. During
1995, Mid-America established Vital Resource Management (VRM) as an
operating division within the holding company.
On December 14, 1994, Mid-America's Board of Directors approved
a Long-Term Incentive Plan (the Incentive Plan) that covers key
executives of Mid-America and certain officers of IPALCO effective
January 1, 1995. See Note 12 in the Notes to Consolidated
Financial Statements.
Capital and Financing Requirements
----------------------------------
Total capital requirements of Mid-America and its subsidiaries,
including funds needed for construction and the establishment of
product inventories, are estimated to be $1.5 million, $5.4 million
and $1.3 million during the next three years. Such expenditures
are highly contingent upon the development of markets for the
products and services offered by the Mid-America family of
companies. The cash requirements of Mid-America subsidiaries are
expected to be funded by Mid-America from existing liquid assets,
future cash flows from operations and from project-specific debt
financing.
IPALCO ENTERPRISES CONSOLIDATED
- -------------------------------
Additional information regarding IPALCO's historical cash flows
from operations, investing and financing for the past three years,
including the capital expenditures of IPL and Mid-America, are
disclosed in the Statements of Consolidated Cash Flows and in the
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following discussion pertains to the consolidated financial
statements of IPALCO Enterprises.
All per share information for 1995 presented herein has been
restated to reflect the 3-for-2 common stock split in March 1996.
Earnings per share during 1996 were $2.01, or $.27 above the
$1.74 attained in 1995. Earnings per share during 1995 were $1.74,
or $0.10 above the $1.64 attained in 1994. The following
discussion highlights the factors contributing to these results.
Utility Operating Revenues
- --------------------------
Operating revenues in 1996 and 1995 increased from the prior
year by $53.3 million and by $23.1 million, respectively. The
increases in revenues resulted from the following:
Increase (Decrease)
-------------------------------
1996 over 1995 1995 over 1994
-------------------------------
(Millions of Dollars)
Electric:
Increase in retail base rate revenues $ 40.8 $ 12.2
Additional retail KWH sales - net of fuel 11.7 14.1
Fuel revenues (8.7) (2.9)
Wholesale revenues 6.6 (0.9)
Steam revenues 1.9 (0.5)
Other revenues 1.0 1.1
------ ------
Total change in operating revenues $ 53.3 $ 23.1
====== ======
The increase in electric retail base rate revenue is the result
of new tariffs, effective July 1, 1996, and September 1, 1995,
designed to produce additional annual base revenues of $25 million
and $35 million, respectively. The additional KWH sales in both
periods reflect customer growth and the impact of weather on KWH
sales used for heating and cooling. Actual and percentage changes
in electric customers and in heating and cooling degree days for
these periods are as follows:
Increase (Decrease)
-------------------------------
1996 over 1995 1995 over 1994
-------------------------------
Electric Residential Customers 4,866 1.3% 4,816 1.3%
Commercial & Industrial Customers 722 1.7% 964 2.3%
Heating Degree Days 315 5.7% 384 7.4%
Cooling Degree Days (223) (18.4)% 157 14.9%
The changes in fuel revenues in 1996 and 1995 from the prior
year reflect changes in total fuel costs billed customers. The
changes in wholesale revenues in 1996 and 1995 reflect increased
wholesale marketing efforts and energy requirements of other
utilities in those years. Increases in other revenues in both
periods are primarily from increased customer collection charges
effective in 1995.
Utility Operating Expenses
- --------------------------
Fuel costs decreased by $4.9 million and by $0.6 million from
the prior year during 1996 and 1995, respectively. The decrease in
fuel costs during 1996 was due to decreased unit costs of coal and
oil of $9.7 million and decreased deferred fuel costs of $2.5
million, partially offset by increased fuel consumption of $7.3
million. The decrease in 1995 was due to decreased unit costs of
coal and oil of $6.5 million and decreased deferred fuel costs of
$1.2 million, partially offset by increased fuel consumption of
$7.1 million.
Other operating expenses in 1996 and 1995 increased from the
prior year by $20.8 million and by $12.2 million, respectively.
The increases for both 1996 and 1995 are primarily due to increased
administrative and general expenses of $13.5 million and $8.5
million, respectively, resulting from postretirement benefit
expenses recognized since the 1995 electric rate order. Also
contributing to the increased operating expenses in 1996 were
increased electric plant operations of $4.0 million, increased
amortization of Demand Side Management (DSM) program expenses of
$1.2 million, increased uncollectible expenses of $1.3 million and
increased electric distribution operating expense of $1.2 million,
partially offset by $2.0 million of gain from the sale of emission
allowances. Factors contributing to increased other operating
expenses in 1995 were an increase in distribution expenses of $1.5
million, miscellaneous steam power and other production operating
expenses of $1.7 million and an increase in customer accounts
expense of $0.5 million.
Purchased steam increased in 1996 and decreased in 1995
resulting from comparable changes in the volume of therms purchased
from an independent resource recovery system located within the
city of Indianapolis.
Maintenance expenses increased by $4.8 million and decreased by
$5.5 million from the prior year during 1996 and 1995,
respectively. The increase in maintenance expenses in 1996 was
mostly due to increased planned outage expenses of $4.6 million for
Unit 3 at IPL's Petersburg generating plant. The decrease for 1995
reflected decreased unit overhaul expenses of $4.2 million and
decreased distribution and transmission expenses of $1.3 million.
Depreciation and amortization expense increased in 1996 and 1995
from the prior year by $1.8 million and by $14.0 million,
respectively. These changes resulted primarily from increases in
the depreciable utility plant balances, the amortization of
property-related regulatory deferrals effective with the September
1, 1995, electric rate increase, adjustments to spare parts
inventory in 1996 and to property held for future use in 1995.
Depreciable utility plant reflects the addition of new SO2 removal
facilities at IPL's Petersburg generating plant starting in June
1996. An adjustment of $4.5 million was made in 1996 to spare
parts inventory resulting from the recognition of impairment in
value of excess spare parts. The adjustment to property held for
future use was $12.3 million in 1995 reflecting expired regulatory
permits and specific design and engineering costs of a future
generating station in Patriot, Indiana.
Taxes other than income taxes increased $1.7 million and $0.8
million in 1996 and 1995, respectively. These increases were due
primarily to an increase in property and gross income taxes.
Income taxes - net, increased in 1996 and decreased in 1995 from
the prior year by $13.7 million and $1.0 million, respectively.
These changes reflect an increase in pretax operating income in
both years with 1995 being offset by a $2.0 million adjustment to
deferred taxes for removal costs.
Other Income And Deductions
- ---------------------------
Allowance for equity funds used during construction was
unchanged in 1996, while increasing in 1995 from the prior year by
$1.3 million. These amounts reflect carrying charges on regulatory
assets of $2.8 million and $1.4 million in 1996 and 1995,
respectively, and the impact of new environmental facilities placed
in service in June 1996.
Other - net, which includes the pretax operating and investment
income from operations other than IPL, decreased by $0.6 million
and increased by $4.6 million from the prior year during 1996 and
1995, respectively. The increased income for 1995 was the result
of an increase in customers and revenues for Energy Resources and
due to the sale of investment securities at Mid-America.
Operations other than IPL, in total, experienced a net loss of $5.1
million during 1996. This compares to a net loss of $4.3 million
and $7.6 million during 1995 and 1994, respectively.
Interest and Other Charges
- --------------------------
Interest on long-term debt decreased by $1.1 million in 1996 and
slightly decreased in 1995 from the prior year. The decrease in
interest for 1996 was due to the refinancing of two of the higher
rate First Mortgage Bonds, 10 5/8% Series and 9 5/8% Series in
1995, with debt instruments carrying lower interest rates,
partially offset by interest paid on the ICE construction loan.
Other interest charges decreased by $1.1 million during 1996
from the prior year and increased by $3.6 million during 1995 from
the prior year. The decrease during 1996 was primarily due to
decreased short-term debt borrowings, whereas, the increase during
1995 was due to increased short-term debt borrowings.
As compared to the prior year, the allowance for borrowed funds
used during construction decreased in 1996 and increased in 1995 by
$2.0 million and by $0.7 million, respectively. These changes
reflect a comparable change in the construction base in those years
and decreased carrying charges on regulatory assets in 1996 and
1995.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of IPALCO Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of
IPALCO Enterprises, Inc. and its subsidiaries as of December 31,
1996 and 1995, and the related statements of consolidated income,
common shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of IPALCO
Enterprises, Inc. and its subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Indianapolis, Indiana
January 24, 1997
(February 25, 1997 as to Note 14)
<TABLE>
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
Statements of Consolidated Income
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
------------- ------------- -------------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
UTILITY OPERATING REVENUES (Note 9):
Electric $ 724,764 $ 673,388 $ 649,767
Steam 37,739 35,818 36,309
------------- ------------- -------------
Total operating revenues 762,503 709,206 686,076
------------- ------------- -------------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 164,339 169,206 169,756
Other 137,192 116,428 104,273
Power purchased 18,365 19,102 19,060
Purchased steam 7,240 6,680 7,653
Maintenance 67,768 63,013 68,562
Depreciation and amortization 102,769 100,984 87,028
Taxes other than income taxes 33,363 31,706 30,891
Income taxes - net (Note 8) 68,248 54,499 55,543
------------- ------------- -------------
Total operating expenses 599,284 561,618 542,766
------------- ------------- -------------
UTILITY OPERATING INCOME 163,219 147,588 143,310
------------- ------------- -------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 5,967 6,003 4,672
Other - net (8,056) (7,407) (12,005)
Income taxes - net (Note 8) 3,645 3,097 4,536
------------- ------------- -------------
Total other income and (deductions) - net 1,556 1,693 (2,797)
------------- ------------- -------------
INCOME BEFORE INTEREST AND OTHER CHARGES 164,775 149,281 140,513
------------- ------------- -------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 45,110 46,170 46,248
Other interest 4,202 5,293 1,685
Allowance for borrowed funds used during construction (3,354) (5,367) (4,709)
Amortization of redemption premiums and expenses on
debt - net 1,360 1,225 1,113
Preferred dividend requirements of subsidiary 3,182 3,182 3,182
------------- ------------- -------------
Total interest and other charges - net 50,500 50,503 47,519
------------- ------------- -------------
NET INCOME $ 114,275 $ 98,778 $ 92,994
============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 56,924 56,745 56,611
(Note 5) ============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK $ 2.01 $ 1.74 $ 1.64
(Note 5) ============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
- ---------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
UTILITY PLANT:
Utility plant in service (Note 2) $ 2,763,305 $ 2,517,790
Less accumulated depreciation 1,048,492 984,910
----------------- -----------------
Utility plant in service - net 1,714,813 1,532,880
Construction work in progress 63,243 249,249
Property held for future use 9,913 9,878
----------------- -----------------
Utility plant - net 1,787,969 1,792,007
----------------- -----------------
OTHER ASSETS:
Nonutility property (Note 2) 121,443 117,215
Less accumulated depreciation 13,153 8,884
----------------- -----------------
Nonutility property - net 108,290 108,331
Other investments 5,371 6,256
----------------- -----------------
Other assets - net 113,661 114,587
----------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents 19,317 11,554
Accounts receivable (less allowance for doubtful
accounts - 1996, $1,159,000 and 1995, $851,000) 11,099 59,073
Fuel - at average cost 30,625 30,250
Materials and supplies - at average cost 52,727 57,605
Prepayments and other current assets 9,931 4,412
----------------- -----------------
Total current assets 123,699 162,894
----------------- -----------------
DEFERRED DEBITS:
Regulatory assets (Note 4) 137,974 142,711
Miscellaneous 19,766 18,998
----------------- -----------------
Total deferred debits 157,740 161,709
----------------- -----------------
TOTAL $ 2,183,069 $ 2,231,197
================= =================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1996 1995
- ---------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CAPITALIZATION:
Common shareholders' equity (Note 5):
Common stock, no par, authorized - 145,000,000 shares,
issued and outstanding - 57,034,912 shares in 1996,
56,802,256 shares in 1995 (Note 5) $ 389,966 $ 385,032
Premium on 4% cumulative preferred stock 1,363 1,363
----------------- -----------------
Retained earnings 466,397 436,408
Total common shareholders' equity 857,726 822,803
Cumulative preferred stock of subsidiary (Note 5) 51,898 51,898
Long-term debt of subsidiaries (Notes 2 and 6) 662,591 698,600
----------------- -----------------
Total capitalization 1,572,215 1,573,301
----------------- -----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper (Note 7) 46,000 69,122
Current maturities and sinking fund requirements (Note 6) 11,250 17,500
Accounts payable and accrued expenses 62,222 81,984
Dividends payable 22,212 21,567
Taxes accrued 23,159 21,225
Interest accrued 13,354 14,719
Other current liabilities 14,519 16,092
----------------- -----------------
Total current liabilities 192,716 242,209
----------------- -----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net (Note 8) 303,473 292,417
Unamortized investment tax credit 47,722 50,636
Accrued postretirement benefits (Note 11) 23,635 30,517
Accrued pension benefits (Note 10) 37,283 31,834
Miscellaneous 6,025 10,283
----------------- -----------------
Total deferred credits and other long-term liabilities 418,138 415,687
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 13)
TOTAL $ 2,183,069 $ 2,231,197
================= =================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income before preferred dividend requirements
of subsidiary $ 117,457 $ 101,960 $ 96,176
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 102,677 103,045 91,713
Amortization of regulatory assets 17,680 6,748 -
Deferred income taxes and investment tax credit adjustments 3,145 (4,517) 2,685
Allowance for funds used during construction (9,321) (11,370) (9,381)
Premiums on redemptions of debt (3,128) (2,506) (1,363)
Change in certain assets and liabilities:
Accounts receivable 47,974 (10,414) 1,107
Fuel, materials and supplies 4,503 7,130 (2,205)
Accounts payable (19,762) 6,727 20,296
Taxes accrued 1,934 2,656 (4,484)
Accrued pension benefits 5,449 4,731 4,563
Other - net (17,484) 4,684 20,612
-------------- -------------- --------------
Net cash provided by operating activities 251,124 208,874 219,719
-------------- -------------- --------------
CASH FLOWS FROM INVESTING:
Proceeds from maturities of marketable securities 3,810 7,984 -
Construction expenditures - utility (78,543) (166,874) (178,295)
Construction expenditures - nonutility (4,187) (34,745) (9,402)
Other (16,607) (19,416) (7,657)
-------------- -------------- --------------
Net cash used in investing activities (95,527) (213,051) (195,354)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 36,000 130,100 202,350
Retirement of long-term debt (78,300) (80,350) (85,928)
Short-term debt - net (23,122) 39,369 (60,247)
Dividends paid (86,811) (84,471) (82,421)
Issuance of common stock related to incentive compensation plans 4,524 1,549 1,768
Other (125) 1,386 (2,452)
-------------- -------------- --------------
Net cash provided by (used in) financing activities (147,834) 7,583 (26,930)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,763 3,406 (2,565)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,554 8,148 10,713
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,317 $ 11,554 $ 8,148
============== ============== ==============
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 47,857 $ 47,310 $ 41,429
============== ============== ==============
Income taxes $ 64,650 $ 50,557 $ 54,103
============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Common Shareholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Common Stock Premium on 4%
-------------------- Cumulative Retained
Shares Amount Preferred Stock Earnings Total
- ----------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 56,539 $ 379,460 $ 1,363 $ 406,388 $ 787,211
Net income 92,994 92,994
Cash dividends declared ($1.41 per share) (80,028) (80,028)
Exercise of stock options 95 1,768 1,768
------- ------------ ------------ ------------- -------------
Balance at December 31, 1994 56,634 381,228 1,363 419,354 801,945
Net income 98,778 98,778
Cash dividends declared ($1.44 per share) (81,724) (81,724)
Exercise of stock options 81 1,549 1,549
Restricted stock grants 87 2,255 2,255
------- ------------ ------------ ------------- -------------
Balance at December 31, 1995 56,802 385,032 1,363 436,408 822,803
Net income 114,275 114,275
Cash dividends declared ($1.48 per share) (84,286) (84,286)
Post-split fractional shares (1) (36) (36)
Exercise of stock options 227 4,560 4,560
Restricted stock grants 7 410 410
------- ------------ ------------ ------------- -------------
Balance at December 31, 1996 57,035 $ 389,966 $ 1,363 $ 466,397 $ 857,726
======= ============ ============ ============= =============
See notes to consolidated financial statements.
Per share amounts and the number of shares have been adjusted for 1994 and 1995 to reflect the three-for-two
no par value common stock split issued in March 1996.
</TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
=========================================
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: IPALCO Enterprises, Inc. (IPALCO) owns
all of the outstanding common stock of its subsidiaries (collectively
referred to as Enterprises). The consolidated financial statements
include the accounts of IPALCO, its regulated utility subsidiary,
Indianapolis Power & Light Company (IPL), and its unregulated subsidiary,
Mid-America Capital Resources, Inc. (Mid-America). Mid-America conducts
its businesses through various wholly-owned subsidiaries, including Mid-
America Energy Resources, Inc. (Energy Resources), Indianapolis Campus
Energy, Inc. (ICE) and Store Heat and Produce Energy, Inc. (SHAPE), an 80%-
owned subsidiary. All significant intercompany items have been eliminated
in consolidation.
The operating components of all subsidiaries other than IPL which had
revenue of $33.6 million, $23.0 million and $16.5 million for 1996, 1995
and 1994, respectively, are included under the captions OTHER INCOME AND
(DEDUCTIONS), "Other-net" and "Income taxes-net" and INTEREST AND OTHER
CHARGES, "Interest on long-term debt," "Other Interest" and "Amortization
of redemption premiums and expenses on debt-net" in the Statements of
Consolidated Income.
Nature of Operations: IPL is engaged principally in providing electric
and steam service to the Indianapolis metropolitan area. Mid-America
operates energy-related businesses in Indianapolis, Indiana, and
Cleveland, Ohio.
Concentrations of Risk: Substantially all of Enterprises' business
activity is with customers located within the Indianapolis area. In
addition, approximately 65% of Enterprises' employees are covered by
collective bargaining agreements.
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: Utility operating revenues are recorded as billed to
customers on a monthly cycle billing basis. Revenue is not accrued for
energy delivered but unbilled at the end of the year. A fuel adjustment
charge provision, which is established after public hearing, is applicable
to substantially all 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 electric 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 1996, IPL's rolling
annual 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, 1996, IPL's most recent
quarterly measurement date, IPL had a cumulative net operating deficiency
of $93 million, of which $63.5 million expires at varying amounts during
the five-year 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.
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 7.3%, 8.5% and 9.5% during 1996,
1995 and 1994, 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 which 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 3.4% during 1996 and
3.5% during 1995 and 1994. Depreciation expense for 1996 includes an
adjustment to spare parts inventory of $4.5 million resulting from
recognition of the impairment in value of excess spare parts.
Depreciation expense for 1995 and 1994 includes adjustments to property
held for future use of approximately $12.3 million and $3.9 million,
respectively. The adjustments in 1995 and 1994 reflect incurred costs of
expired regulatory permits and for designing and engineering a future
generating station in Patriot, Indiana.
Nonutility property is recorded at cost, and depreciation is calculated
by the straight-line method over the estimated service lives of the
related property. Nonutility depreciation expense was $4.5 million, $3.1
million and $2.3 million for 1996, 1995 and 1994, respectively.
Sale of Accounts Receivable: In late December 1996, IPL entered into
an agreement to sell, on a revolving basis, undivided percentage interests
in certain of its accounts receivable, including accounts receivable for
KWH delivered but not billed, up to an aggregate maximum at any one time
of $50 million. Accounts receivable on the Consolidated Balance Sheets
are net of the $50 million interest sold under the IPL agreement at
December 31, 1996. The gross amount of receivables sold was $55.6
million, of which $5.6 million was replaced with a receivable from the
purchasing party.
The Financial Accounting Standards Board has issued Statement No. 125
relating to the accounting for transfers of financial assets. Enterprises
anticipates adopting this standard on its effective date of January 1,
1997, and does not expect that it will have a material effect on its
financial position or results of operations.
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 4. As of December 31, 1996, all nontax-related
regulatory assets have been included as allowable costs in orders of the
IURC authorizing IPL to increase customer tariffs except for approximately
$10 million in costs for Demand Side Management (DSM) incurred subsequent
to January 1995 (see Note 9). IPL is amortizing such regulatory assets to
expense over periods authorized by these orders. Tax-related regulatory
assets represent the net income tax liability for deferred costs and
revenues to be considered in future regulatory proceedings.
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 9), IPL, effective September
1, 1995, is amortizing this deferral to expense over a life which
generally approximates the useful life of the related facility.
Also in accordance with regulatory treatment, IPL defers as regulatory
assets nonsinking 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 limited involvement with derivative financial
instruments, and these financial instruments are not used for trading
purposes. They are used to manage well-defined interest rate risks as
more fully discussed in Note 6.
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 which 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.
Statements of Cash Flows - Cash Equivalents: Enterprises 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 IPALCO and IPL
and certain management employees of Mid-America are covered by a defined
benefit pension plan, a defined contribution plan and a postretirement
benefit plan.
The defined benefit pension plan is noncontributory and is funded
through two trusts. Additionally, a select group of management employees
of IPALCO, IPL and Mid-America are covered under a funded supplemental
retirement plan. Collectively, these two plans are referred to as 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 which 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. IPL matches each employee's
contributions in amounts up to, but not exceeding, 4% of the employee's
annual base compensation.
The postretirement benefit plan is sponsored by IPL and provides
certain health-care and life insurance benefits to employees who retire
from active service on or after attaining age 55 and have rendered at
least 10 years of service. This plan is funded through a Voluntary
Employee Beneficiary Association (VEBA) Trust. IPL's policy is to fund
the annual actuarially determined postretirement benefit cost.
Substantially all non-management employees of Mid-America and its
subsidiaries are covered by a contributory 401(k) plan.
Long-Lived Assets: Effective January 1, 1996, Enterprises adopted the
provision of Financial Accounting Standards Board, Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
adoption of this new standard did not have a material impact on
Enterprises' financial position or results of operations. As competitive
factors influence pricing in the utility industry, this opinion may change
in the future. The general requirements of SFAS 121 apply to property,
plant and equipment of Enterprises and require impairment to be considered
whenever evidence suggests that it is no longer probable that future cash
flows are at least equal to the carrying amount of the asset.
Stock-Based Compensation: Effective January 1, 1996, Enterprises
adopted the provisions of Financial Accounting Standards Board, Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." The accounting requirements of this
pronouncement are applicable to all new employee awards granted after the
adoption of SFAS 123. The new standard provides for the adoption, at the
option of IPALCO, of a fair value method of accounting for stock options
and similar equity instruments. IPALCO has elected to continue to account
for such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The adoption of SFAS 123 has
no effect on the net income, earnings per share or the cash flows of
IPALCO.
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.
Reclassification: Certain amounts from prior years' financial
statements have been reclassified to conform to the current year
presentation.
2. PLANT IN SERVICE AND OTHER PROPERTY
Utility Plant in Service
------------------------
The original cost of utility plant in service at December 31,
segregated by functional classifications, follows:
1996 1995
- --------------------------------------------------------------------------
(In Thousands)
Production $1,684,705 $1,490,958
Transmission 235,218 231,410
Distribution 712,391 676,240
General 130,991 119,182
---------- ----------
Total utility plant in service $2,763,305 $2,517,790
========== ==========
Substantially all of IPL's property is subject to the lien of the
indentures securing IPL's First Mortgage Bonds.
Nonutility Property
-------------------
The original cost of nonutility property at December 31 follows:
1996 1995
- --------------------------------------------------------------------------
(In Thousands)
District Cooling $100,294 $ 97,537
District Heating 16,984 15,884
General 4,165 3,794
-------- --------
Total nonutility property $121,443 $117,215
======== ========
Substantially all the District Cooling and Heating property is subject
to the lien of existing debt and/or credit agreements.
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments have been
determined by Enterprises 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 Enterprises 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, Cash Equivalents, Marketable Securities 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 and Mid-
America 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 to be $1.2
million and $3.6 million, which represents the amount IPL would have to
pay to enter into an equivalent agreement at December 31, 1996 and 1995,
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, 1996 and 1995, the consolidated carrying
amount of Enterprises' long-term debt, including current maturities and
sinking fund requirements, and the approximate fair value are as follows:
1996 1995
- ------------------------------------------------------
(In Thousands)
Carrying amount $673,841 $716,100
Approximate fair value $680,532 $751,100
4. REGULATORY ASSETS
The amounts of regulatory assets at December 31, 1996 and 1995, are as
follows:
1996 1995
- ----------------------------------------------------------------------------
(In Thousands)
Related to Deferred Taxes (Note 1) $ 39,175 $ 34,178
Postretirement Benefit Costs in Excess of Cash Payments
and Amounts Capitalized (Note 11) 23,584 30,016
Unamortized Reacquisition Premium on Debt (Note 1) 25,151 22,600
Unamortized Petersburg Unit 4 Carrying Charges
and Certain Other Costs (Note 1) 34,005 39,143
Demand Side Management Costs (Note 9) 13,841 10,853
Other 2,218 5,921
--------- ---------
Total Regulatory Assets $ 137,974 $ 142,711
========= =========
5. CAPITAL STOCK
Stock Split: In February 1996, the IPALCO Board of Directors
authorized a 3-for-2 stock split of IPALCO's common stock issued to
shareholders in March 1996. All references to share amounts of common
stock and per share information have been restated to reflect the stock
split.
Common Stock: IPALCO has a Rights Agreement designed to protect
IPALCO's shareholders against unsolicited attempts to acquire control of
IPALCO that do not offer what the Board believes is a fair and adequate
price to all shareholders. The Board declared a dividend of one Right for
each share of common stock to shareholders of record on July 11, 1990.
The Rights will expire at the time of redemption or exchange, or on July
11, 2000, whichever occurs earliest. At this time, the Rights are
attached to and trade with the common stock. The Rights are not taxable
to shareholders or to IPALCO, and they do not affect reported earnings per
share. Under the Rights Agreement, IPALCO has authorized and reserved 60
million shares for issuance.
IPALCO PowerInvest, IPALCO's Dividend Reinvestment and Direct Stock
Purchase Plan, allows participants to purchase shares of common stock and
to reinvest dividends. The plan provides that such shares may be
purchased on the open market or directly from IPALCO at the option of
IPALCO. IPALCO is authorized to issue 1,396,208 additional shares as of
December 31, 1996, pursuant to this plan. All purchases in 1996 were made
on the open market.
Under the Thrift Plan, shares may be purchased either on the open
market or, if available, as original issue shares directly from IPALCO.
There are 1,573,093 additional shares available for issue under the Thrift
Plan as of December 31, 1996. All purchases in 1996 were made on the open
market.
IPALCO is authorized to issue 123,731 additional shares of common stock
pursuant to the Energy Resources 401(k) plan. All purchases in 1996 were
made on the open market.
IPALCO has a stock option plan (1990 Plan) for key employees under
which options to acquire shares of common stock may be granted. One and
one-half million shares of common stock were authorized for issuance under
the 1990 Plan and 65,250 shares are available for future grants. The
maximum period for exercising an option may not exceed 10 years and one
day after grant or 10 years for incentive stock options. Upon the first
anniversary date after the grant, and each anniversary date thereafter,
these options are exercisable in proportion to the number of years expired
in a three-year period.
During 1991, the 1991 Directors' Stock Option Plan (1991 Plan) was
established. This plan provides to the nonemployee Directors of IPALCO
options to acquire shares of common stock. These options are exercisable
for the period beginning on the six-month anniversary of, and ending on
the 10-year anniversary of, the grant date. Under the 1991 Plan, 375,000
shares of common stock were authorized for issuance and 168,000 are
available for future grants.
A summary of options issued under both plans is as follows:
Weighted Average Range of Option Number of
Price per Share Price per Share Shares
- ----------------------------------------------------------------------------
Outstanding, January 1, 1994 $22.08 $16.8317 - $25.3725 1,305,750
Granted 21.29 21.2895 30,000
Canceled 16.83 16.8317 (15,000)
Exercised 17.14 16.8317 - 18.7481 (94,500)
---------
Outstanding, December 31, 1994 22.51 16.8317 - 25.3725 1,226,250
Granted 20.91 20.9146 45,000
Reinstated 16.83 16.8317 15,000
Exercised 17.19 16.8317 - 18.7481 (81,000)
---------
Outstanding, December 31, 1995 22.74 16.8317 - 25.3725 1,205,250
Granted 25.25 25.25 45,000
Exercised 17.02 16.8317 - 25.3308 (226,680)
---------
Outstanding, December 31, 1996 24.12 16.8317 - 25.3725 1,023,570
=========
The number of shares exercisable at December 31, 1996, 1995 and 1994
were: 1,023,570, 983,012 and 781,767, respectively and had a weighted
average exercised price of $24.12, $22.15 and $20.91, respectively. The
weighted average remaining contractual life of the options outstanding at
December 31, 1996 and 1995 was 6.3 years and 6.7 years, respectively.
As approved by the Board of Directors on October 25, 1994, and approved
by the shareholders at the April 19, 1995, Annual Meeting, the 1990 Long-
Term Performance Incentive Plan was amended and restated effective January
1, 1995, as the IPALCO Enterprises, Inc. Long-Term Performance and
Restricted Stock Incentive Plan (1995 Plan). Pursuant to the 1995 Plan,
600,000 shares of common stock of IPALCO have been authorized and reserved
for issuance, and initial awards of 87,304 shares of restricted common
stock were made to participating employees on January 1, 1995. On January
1, 1997 and 1996, an additional 1,628 and 7,319 shares were issued under
this plan. Under the 1995 Plan, shares of restricted common stock with
value equal to a stated percentage of participants' base salary are
initially awarded at the beginning of a three-year performance period,
subject to adjustment to reflect the participants' actual base salary for
the first year of each performance period (except for the first
performance period for which the average of the three years is used). The
shares remain restricted and nontransferable throughout each three-year
performance period, vesting in one-third increments on July 1 of each of
the three years following the end of the performance period. The first
performance period is from January 1, 1995, to December 31, 1997, with
subsequent three-year performance periods commencing annually on January 1
of each year from 1998 to 2004. At the end of a performance period,
awards are subject to adjustment to reflect Enterprises' performance
compared to peer companies under two performance criteria, cost-effective
service and total return to shareholders. Depending on Enterprises'
performance under these criteria, final awards may range from 200% of the
initial awards to zero.
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for the stock based plans have been
applied by Enterprises. No compensation cost has been recognized for the
1990 and 1991 option plans because the stock option price is equal to the
fair value of the underlying common stock at the date of grant.
Compensation expense of $1.2 million and $1.1 million for 1996 and 1995,
respectively, as measured by the market value of the common stock at the
balance sheet date, has been recognized in accordance with the vesting
period for the 1995 Plan.
IPALCO estimated the SFAS 123 fair value by utilizing the binomial
options pricing model with estimated values for risk-free rate of 6.75%,
volatility rate of 15.02%, dividend rates of 6.88% and 5.86% and life
ranges from May 1, 1995 to May 1, 2006. The pro forma compensation
effects of this calculation were insignificant.
Restrictions on the payment of cash dividends or other distributions of
IPL common stock held by IPALCO and on the purchase or redemption of such
shares by IPL 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 IPL's common stock unless dividends on all outstanding shares of IPL's
preferred stock have been paid or declared and set apart for payment. All
of IPL's retained earnings at December 31, 1996, were free of such
restrictions. There are no other restrictions on the retained earnings of
IPALCO.
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 the call prices stated below.
Preferred stock consists of the following:
December 31, 1996
-----------------
Shares Call December 31,
Outstanding Price 1996 1995
----------- ------- ------- -------
(Thousands of Dollars)
Cumulative - IPL, $100 Par Value,
authorized 2,000,000 shares
4% Series 100,000 $118.00 $10,000 $10,000
4.20% Series 39,000 103.00 3,900 3,900
4.60% Series 30,000 103.00 3,000 3,000
4.80% Series 50,000 101.00 5,000 5,000
6% Series 100,000 102.00 10,000 10,000
8.20% Series 199,985 101.00 19,998 19,998
------- ------- -------
Total cumulative preferred stock 518,985 $51,898 $51,898
======= ======= =======
Variable class - IPL, Par Value undetermined,
authorized 3,000,000 shares, none issued
6. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
----------------
1996 1995
-------- --------
Series Due (Thousands of Dollars)
------ -----
IPL First Mortgage Bonds:
5 1/8% April 1996 (redeemed April 1996) $ - $ 15,000
5 5/8% May 1997 11,250 11,400
6.05% February 2004 (issued February 1994) 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
9 5/8% June 2019 (redeemed December 1996) - 50,000
7.45% August 2019 23,500 23,500
5.50% * October 2023 30,000 30,000
7.05% February 2024 (issued February 1994) 100,000 100,000
6 5/8% * December 2024 (issued February 1995) 40,000 40,000
Unamortized discount - net (1,009) (1,050)
-------- --------
Total first mortgage bonds 489,041 554,150
IPL Variable Series Notes * Due
--------------------------- -----
1991 August 2021 40,000 40,000
1994A December 2024 (issued December 1994) 20,000 20,000
1995B January 2023 (issued October 1995) 40,000 40,000
1995C December 2029 (issued December 1995) 30,000 30,000
1996 November 2029 (issued November 1996) 20,000 -
Current maturities and sinking fund requirements (11,250) (15,150)
-------- --------
Total long-term debt - IPL 627,791 669,000
Long-Term Debt - Other:
Energy Resources-7.25% note, due December 2011 9,500 9,500
Energy Resources-variable note,due September 2030
(issued September 1995) 9,300 9,300
ICE-project loan (redeemed December 1996) - 13,150
ICE-7.59% note, due February 2016
(issued December 1996) 16,000 -
Current maturities - (2,350)
-------- --------
Total long-term debt - other 34,800 29,600
Total long-term debt $662,591 $698,600
======== ========
* Notes are issued to the city of Petersburg, Indiana (City), by IPL to
secure the loan of proceeds from various tax-exempt instruments issued by
the City.
IPL redeemed the $33.2 million, 7.4% Series, the $19.75 million, 7 1/8%
Series and the $25.2 million, 7.65% Series First Mortgage Bonds in March
1994; the $40.0 million, 10 5/8% Series in March 1995; and the $40.0
million, 9 5/8% Series in December 1995.
The Series 1991 note provides for an interest rate which 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 IPL
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,
1996. Energy Resources' 1995 variable long-term note due 2030 was issued
to the Indiana Development Finance Authority and bears interest which
varies with the tax-exempt weekly rate.
The average interest rates and the year-end interest rates for the
variable rate notes are as follows:
Average Interest Rate for Interest Rate at
the Year Ended December 31, December 31,
1996 1995 1996 1995
- ---------------------------------------------------------------
Series 1991 3.53% 3.91% 3.47% 3.72%
Series 1994A 3.53% 3.94% 4.10% 5.10%
Series 1995B 5.21% 5.14% 5.21% 5.21%
Series 1995C 3.52% 4.41% 4.10% 5.10%
Series 1996 3.72% -- 4.05% --
Energy Resources
variable note 3.64% 4.20% 4.35% 5.80%
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%.
On October 7, 1994, ICE entered into an $18 million project loan which
was converted to a $11.3 million fully amortizing 15-year secured term
loan on July 1, 1996. On December 31, 1996, a 7.59% long-term note was
used to redeem the project loan. The net proceeds from the project loan
provided funds to construct a chilled water facility. The facility is
used to provide chilled water for delivery to a customer under a long-term
contract.
There are no maturities or sinking fund requirements on long-term debt
for the five years subsequent to December 31, 1996, other than as shown in
the balance sheet for December 31, 1996.
7. LINES OF CREDIT
IPL has committed lines of credit with banks of $100 million at
December 31, 1996, to provide loans for interim financing and also require
the payment of commitment fees. These lines of credit, based on separate
formal and informal agreements, have expiration dates ranging from January
31, 1997, to December 31, 1997. Lines of credit used to support
commercial paper were $20 million at December 31, 1996. IPL has a
Liquidity facility in the amount of $150 million to support certain
floating rate tax-exempt facilities (see Note 6).
IPL has an uncommitted line of credit with a bank in the amount of $25
million which does not require the payment of a commitment fee. At
December 31, 1996, $11 million was unused.
Mid-America has a line of credit of $30 million which requires the
payment of a commitment fee. At December 31, 1996, $18 million was
unused.
IPALCO has a line of credit of $2 million, of which $2 million was
unused at December 31, 1996. The line of credit requires the payment of a
commitment fee and expires July 1, 1997.
The weighted average interest rate on notes payable and commercial
paper outstanding was 6.08% and 5.82% at December 31, 1996 and 1995,
respectively.
8. INCOME TAXES
Federal and state income taxes charged to income are as follows:
1996 1995 1994
- ---------------------------------------------------------------------------
(In Thousands)
Utility Operating Expenses:
Current income taxes:
Federal $56,676 $51,331 $45,919
State 8,378 7,732 6,919
------- ------- -------
Total current taxes 65,054 59,063 52,838
------- ------- -------
Deferred federal income taxes 6,507 (1,748) 4,896
Deferred state income taxes (398) 309 1,077
------- ------- -------
Total deferred income taxes 6,109 (1,439) 5,973
Net amortization of investment credit (2,915) (3,125) (3,268)
------- ------- -------
Total charge to utility operating expenses 68,248 54,499 55,543
Net credit to other income and deductions (3,645) (3,097) (4,536)
------- ------- -------
Total federal and state income tax provisions $64,603 $51,402 $51,007
======= ======= =======
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:
1996 1995 1994
- ---------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
Effect of state income taxes (1.5) (1.8) (1.9)
Amortization of investment tax credits (1.6) (2.0) (2.2)
Removal cost adjustments - (1.8) (0.8)
Preferred dividends of subsidiary 0.6 0.7 0.8
Other - net (1.4) (1.8) (1.6)
---- ---- ----
Effective tax rate 31.1% 28.3% 29.3%
==== ==== ====
The significant items comprising Enterprises' net deferred tax
liability recognized in the consolidated balance sheets as of December 31,
1996 and 1995, are as follows:
1996 1995
- ------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Relating to utility property $376,121 $366,801
Other 21,070 16,335
-------- --------
Total deferred tax liabilities 397,191 383,136
Deferred tax assets: -------- --------
Relating to utility property 28,298 24,934
Investment tax credit 29,156 30,936
Employee benefit plans 15,388 14,734
Unbilled revenue 10,517 11,157
Other 10,359 8,958
-------- --------
Total deferred tax assets 93,718 90,719
-------- --------
Net deferred tax liability $303,473 $292,417
======== ========
9. 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. It is
estimated that these rate increases will provide the following additional
annual revenues:
Step 1 - $35,000,000 on September 1, 1995
Step 2 - $25,000,000 on July 1, 1996
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 will not seek another
general increase in its basic rates and charges until after July 1, 1997,
except in the event of an emergency. IPL also has 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. Accordingly, IPL will implement new steam tariffs designed
to produce estimated additional annual steam operating revenues as
follows:
Additional
Annual
Year Revenues
---- -----------
January 13, 1997 $ 2,384,000
January 13, 1998 370,000
Demand Side Management Program: In compliance with an order dated
September 8, 1993, 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.
10. EMPLOYEE PENSION BENEFIT PLANS
Pension expense is comprised of the following components:
1996 1995 1994
- ----------------------------------------------------------------------------
(In Thousands)
Service cost-benefits earned during the period $ 6,482 $ 6,375 $ 7,832
Interest cost on projected benefit obligation 16,335 15,348 15,358
Actual (return) loss on plan assets (23,307) (29,529) 10,366
Net amortization and deferral 5,758 13,499 (27,297)
------- ------- -------
Net periodic pension cost 5,268 5,693 6,259
Less amount capitalized 1,061 1,199 1,365
------- ------- -------
Amount charged to expense $ 4,207 $ 4,494 $ 4,894
======= ======= =======
A summary of the Plans' funding status at its October 31, 1996 plan
year-end, evaluation date and the amount recognized in the consolidated
balance sheets at December 31, 1996 and 1995, follows:
1996 1995
- -----------------------------------------------------------------------------
(In Thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $(173,654) $(148,124)
Nonvested benefit obligation (32,705) (27,883)
--------- ---------
Accumulated benefit obligation $(206,359) $(176,007)
========= =========
Projected benefit obligation $(229,937) $(223,137)
Plan assets at fair value 235,250 220,978
Funded status--plan assets less than projected --------- ---------
benefit obligation 5,313 (2,159)
Unrecognized net gain from past experience
different from that assumed (36,126) (30,174)
Unrecognized past service costs 8,132 14,495
Unrecognized net asset at January 1, 1987, being
amortized over an original life of 18.9 years (12,583) (13,996)
Adjustment required to recognize minimum liability (2,019) -
--------- --------
Net accrued pension benefits included in other
long-term liabilities at December 31 $ (37,283) $(31,834)
========= ========
Approximately 41% of the Plans' assets were in equity securities at
October 31, 1996, with the remainder in fixed income securities.
Assumptions used in determining the information presented were:
1996 1995 1994
- ------------------------------------------------------------------------
Discount rate 7.50% 7.50% 8.00%
Rate of increase in future compensation levels 5.10% 5.10% 6.10%
Expected long-term rate of return on assets 8.00% 8.00% 8.00%
11. EMPLOYEE POSTRETIREMENT BENEFIT PLAN
<TABLE>
Postretirement benefit expense is comprised of the following components:
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 3,969 $ 3,941 $ 5,144
Interest cost on accumulated postretirement benefit obligation 10,494 10,838 11,097
Actual (return) loss on plan assets 1,280 (319) (435)
Net amortization and deferral 2,220 4,665 5,767
------- ------- ------
Net periodic postretirement benefit cost 17,963 19,125 21,573
Less:
Amount capitalized 3,511 3,891 4,464
Regulatory asset deferral - 6,978 12,289
------- ------- -------
Amount charged to expense $14,452 $ 8,256 $ 4,820
======= ======= =======
</TABLE>
Also, during 1996 and 1995, IPL expensed postretirement regulatory
asset amortization of $6.4 million and $2.1 million, respectively.
<TABLE>
A summary of the retiree health-care and life insurance plan's funding
status, and the amount recognized in the consolidated balance sheets at
December 31, 1996 and 1995, follows:
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees $ (62,856) $ (60,442)
Fully eligible active plan participants (21,486) (20,802)
Other active plan participants (62,702) (62,134)
--------- ---------
Total (147,044) (143,378)
Plan assets at fair value 49,852 30,269
--------- ---------
Funded status--accumulated postretirement benefit obligation in excess
of plan assets (97,192) (113,109)
Unrecognized net gain from past experience different from that assumed (24,363) (21,447)
Unrecognized net obligation at January 1, 1993, being amortized over
an original life of 20 years 97,920 104,039
--------- ---------
Net accrued postretirement benefit cost included in deferred
liabilities at December 31 $ (23,635) $ (30,517)
========= =========
</TABLE>
Enterprises has expensed its nonconstruction related postretirement
benefits costs associated with its unregulated and regulated steam
businesses and, subsequent to August 1995, with its regulated electric
business. IPL's electric business postretirement benefit costs incurred
prior to September 1, 1995, net of amounts capitalized for construction
and benefits paid to participants, were deferred as a regulatory asset on
the consolidated balance sheets. The Settlement Agreement approved the
amortization to operating expense of this regulatory asset over five years
beginning September 1, 1995. The annual amortization is $6.4 million.
IPL funds its annual postretirement benefit costs in excess of actual
benefits paid to participants to an irrevocable VEBA Trust. Annual
funding is discretionary and is based on the projected cost over time of
benefits to be provided to covered persons consistent with acceptable
actuarial methods. The VEBA Trust provides for full funding of
Enterprises' accumulated postretirement benefit obligation in the event of
certain change of control transactions. During 1996 and 1995, Enterprises
contributed $20.9 million and $19.0 million, respectively, of these costs
to the VEBA.
Plan assets consist of the cash surrender value of life insurance
policies on certain active and retired IPL employees.
The assumed health-care cost trend rate used in measuring the
accumulated postretirement benefit obligation is 8.8% for 1997, gradually
declining to 4.5% in 2003. A 1% increase in the assumed health-care cost
trend rate for each year would increase the accumulated postretirement
benefit obligation, as of December 31, 1996, by approximately $21.0
million and the combined service cost and interest cost for 1996 by
approximately $2.5 million.
Assumptions used in determining the information above were:
1996 1995 1994
- ----------------------------------------------------------------------------
Discount rate 7.50% 7.25% 8.00%
Rate of increase in future compensation levels 5.10% 5.10% 6.10%
Expected long-term rate of return on assets 8.00% 8.00% 8.00%
12. OTHER EMPLOYEE BENEFIT PLANS
Enterprises' contributions to the Thrift Plan were $3.4 million, $3.2
million and $3.3 million in 1996, 1995 and 1994, respectively.
On December 14, 1994, Mid-America's Board of Directors approved a Long-
Term Incentive Plan (the Incentive Plan) that covers key executives of Mid-
America and certain officers of IPALCO effective January 1, 1995.
Pursuant to the Incentive Plan, whole or fractions of eight shares of an
award pool are available to be granted. The value of such shares is zero
at the inception of the Incentive Plan and can grow in value during the
performance period (January 1, 1995 - December 31, 1999). The reward pool
to be distributed to the holders of such shares on December 31, 1999, will
be determined based upon the increase in the valuation of the respective
Mid-America businesses during the performance period and can amount to
.85% up to 15% of the total increase during the performance period. A
minimum increase in value above $34 million is required before any reward
is payable.
Participation in the Incentive Plan will be reviewed on an annual basis
and during the performance period as necessary. The Compensation
Committee of IPALCO's Board of Directors may add or delete participants
from the Incentive Plan and may make modifications to the distribution of
shares during the performance period.
13. COMMITMENTS AND CONTINGENCIES
In 1997, Enterprises anticipates the cost of its subsidiaries'
construction programs to be approximately $88 million.
Enterprises 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 consolidated
financial position and results of operations. 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.
14. SUBSEQUENT EVENT
On February 25, 1997, the Board of Directors authorized the repurchase
of up to 12 million shares of IPALCO's common stock for approximately $410
million through a "Dutch auction" self-tender offer. The Board of Directors
also: (a) Approved the borrowing of up to $410 million to finance the stock
repurchase, and (b) declared a quarterly dividend in the amount of 25 cents
per share of common stock compared to a dividend of 37 cents per share of
common stock paid in the previous quarter.
15. QUARTERLY RESULTS (UNAUDITED)
Operating results for the years ended December 31, 1996 and 1995, by
quarter, are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
1996
- ------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Utility operating revenues $196,446 $177,621 $205,672 $182,764
Utility operating income $ 44,844 $ 36,122 $ 51,163 $ 31,090
Net income $ 35,548 $ 24,459 $ 37,168 $ 17,100
Weighted average common shares 56,863 56,906 56,930 56,999
Earnings per share of common stock $ .63 $ .43 $ .65 $ .30
</TABLE>
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Utility operating revenues $175,518 $159,652 $199,873 $174,163
Utility operating income $ 38,278 $ 30,405 $ 50,802 $ 28,103
Net income $ 25,903 $ 17,884 $ 39,543 $ 15,448
Weighted average common shares 56,721 56,728 56,745 56,784
Earnings per share of common stock $ .46 $ .32 $ .70 $ .27
</TABLE>
The quarterly figures reflect seasonal and weather-related fluctuations
which are normal to IPL's operations. Colder weather was experienced in
the first and second quarters of 1996 as compared to the same periods in
1995. In addition, during the fourth quarter of 1995, IPL expensed
approximately $12.3 million of property held for future use. See Note 9
regarding rate increases.
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
equal the total for the year.
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 Proxy Statement of IPALCO Enterprises, Inc. dated
April 15, 1997 (the registrant's Proxy Statement), under
"Proposal 1-Election of Five Directors" at pages 4-7 is
incorporated herein by reference. Information relating to the
registrant's executive officers is set forth at pages I-9 -
I-10 of this Form 10-K under "Executive Officers of the
Registrant at February 25, 1997."
Information relating to Section 16(a) Beneficial Ownership
Reporting Compliance, set forth in the registrant's Proxy
Statement at page 8 is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
----------------------
Information relating to executive compensation, set forth in
the registrant's Proxy Statement under "Compensation of
Executive Officers" at pages 15-17, "Compensation of Directors"
at page 9, "Compensation Committee Interlocks and Insider
Participation" at page 9, "Pensions Plans" at pages 19-20, and
"Employment Contracts and Termination of Employment and Change
in Control Arrangements" at pages 20-21, 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 Proxy
Statement under "Voting Securities and Beneficial Owners" at
pages 2-3 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 Proxy Statement
under "Certain Business Relationships" at pages 9-10, is
incorporated herein by reference.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
--------------------------------------------------------------
(a) The Consolidated Financial Statements under this Item 14 (a) 1
filed in this Form 10-K are those of IPALCO Enterprises, Inc.
and subsidiaries.
1. Consolidated Financial Statements
---------------------------------
Included in Part II of this report:
Independent Auditors' Report
Statements of Consolidated Income for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Balance Sheets, December 31, 1996 and 1995
Statements of Consolidated Cash Flows
for the Years Ended December 31, 1996,
1995 and 1994
Statements of Consolidated Common Shareholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated 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.
(b) Reports on Form 8-K
-------------------
None
<TABLE>
IPALCO ENTERPRISES, INC. EXHIBIT 11.1
Computation of Per Share Earnings
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/96 56,924,411 56,924,411
Dilutive (Anti-Dilutive) Effect for Stock Options at 12/31/96 87,881 117,754
----------- -----------
Weighted Average Shares at 12/31/96 57,012,292 57,042,165
=========== ===========
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $114,275 $114,275
=========== ===========
Earnings Per Average Common Share $2.00 (a) $2.00 (a)
=========== ===========
YEAR ENDED DECEMBER 31, 1995: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/95 56,744,699 56,744,699
Dilutive (Anti-Dilutive) Effect for Stock Options at 12/31/96 (12,762) 127,151
----------- -----------
Weighted Average Shares at 12/31/95 56,731,937 56,871,850
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $98,778 $98,778
=========== ===========
Earnings Per Average Common Share $1.74 (a) $1.74 (a)
=========== ===========
YEAR ENDED DECEMBER 31, 1994: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/94 56,610,877 56,610,877
Anti-Dilutive Effect for Stock Options at 12/31/94 (13,206) (13,206)
----------- -----------
Weighted Average Shares at 12/31/94 56,597,671 56,597,671
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $92,994 $92,994
=========== ===========
Earnings Per Average Common Share $1.64 (a) $1.64 (a)
=========== ===========
Note:
(a) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required
by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
</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.
IPALCO ENTERPRISES, INC.
By /s/ John R. Hodowal
-----------------------
(John R. Hodowal, Chairman of the
Board and President)
Date: February 25, 1997
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 February 25, 1997
-------------------- and President
(John R. Hodowal)
(ii) Principal Financial Officer:
/s/ John R. Brehm Vice President February 25, 1997
----------------- and Treasurer
(John R. Brehm)
(iii) Principal Accounting Officer:
/s/ Stephen J. Plunkett Controller February 25, 1997
------------------------
(Stephen J. Plunkett)
(iv) A majority of the Board of Directors of IPALCO Enterprises, Inc.:
/s/ Mitchell E. Daniels, Jr. Director February 25, 1997
----------------------------
(Mitchell E. Daniels, Jr.)
/s/ Rexford C. Early Director February 25, 1997
---------------------------
(Rexford C. Early)
/s/ Otto N. Frenzel III Director February 25, 1997
---------------------------
(Otto N. Frenzel III)
/s/ Max L. Gibson Director February 25, 1997
---------------------------
(Max L. Gibson)
/s/ Dr. Earl B. Herr, Jr. Director February 25, 1997
---------------------------
(Dr. Earl B. Herr, Jr.)
/s/ John R. Hodowal Director February 25, 1997
---------------------------
(John R. Hodowal)
/s/ Ramon L. Humke Director February 25, 1997
---------------------------
( Ramon L. Humke)
/s/ Sam H. Jones Director February 25, 1997
---------------------------
(Sam H. Jones)
/s/ Andre B. Lacy Director February 25, 1997
---------------------------
(Andre B. Lacy)
/s/ L. Ben Lytle Director February 25, 1997
---------------------------
(L. Ben Lytle)
/s/ Michael S. Maurer Director February 25, 1997
---------------------------
(Michael S. Maurer)
/s/ Sallie W. Rowland Director February 25, 1997
---------------------------
(Sallie W. Rowland)
/s/ Thomas H. Sams Director February 25, 1997
---------------------------
(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 IPALCO Enterprises, Inc., as
amended. (Form 10-K for year ended 12-31-90.)
3.2* Bylaws of IPALCO Enterprises, Inc. dated April 26, 1994.
(Exhibit 3.2 to the Form 10-Q dated 3-31-96.)
4.1* IPALCO PowerInvest Dividend Reinvestment and Direct Stock
Purchase Plan. (Exhibit 4.1 to the Form 10-Q dated 9-30-96.)
4.2* IPALCO Enterprises, Inc. and First Chicago Trust Company of New
York (Rights Agent) - Rights Agreement. (Exhibit 4.2 to the
Form 10-K dated 12-31-94.)
10.1* IPALCO Enterprises, Inc. Unfunded Deferred Compensation Plan
for Directors dated December 27, 1983, as amended. (Exhibit
10.1 to the Form 10-K dated 12-31-94.) **
10.2 IPALCO Enterprises, Inc. Unfunded Deferred Compensation Plan
for Officers effective January 1, 1994, as amended
December 1, 1996. **
10.3 Directors' and Officers' Liability Insurance Policy No.DO392B1A96
effective June 1, 1996 to June 1, 1997. **
10.4* IPALCO Enterprises, Inc. Benefit Protection Fund and Trust
Agreement effective November 1, 1988. (Form 10-K for year
ended 12-31-88.) **
10.5* Exhibit A to IPALCO Enterprises, Inc. Benefit Protection Fund
and Trust Agreement dated July 1, 1995. (Exhibit 10.5 to the
Form 10-K dated 12-31-95.) **
10.6* IPALCO Enterprises, Inc. Annual Incentive Plan and Administrative
Guidelines effective January 1, 1990. (Form 10-K for year
ended 12-31-89.) **
10.7* IPALCO Enterprises, Inc. Long-Term Performance and Restricted
Stock Incentive Plan (as amended and restated effective
January 1, 1995). (Exhibit 10.7 to the Form 10-K dated
12-31-94.) **
10.8* IPALCO Enterprises, Inc. 1990 Stock Option Plan. (Exhibit 10.8
to the Form 10-K dated 12-31-94.) **
10.9* IPALCO Enterprises, Inc. 1991 Directors' Stock Option Plan.
(Exhibit 10.9 to the Form 10-K dated 12-31-94.) **
10.10 Form of Termination Benefits Agreement together with schedule
of parties to, and dates of, the Termination Benefits
Agreements. **
10.11* Employment Agreement between IPALCO Enterprises, Inc.,
Indianapolis Power & Light Company and John R. Hodowal dated
July 29, 1986. (Exhibit 10.11 to the Form 10-K dated
12-31-94.) **
10.12* Voluntary Employee Beneficiary Association (VEBA) Trust
Agreement. (Exhibit 10.12 to the Form 10-K dated 12-31-94.) **
10.13* Mid-America Capital Resources Long-Term Incentive Plan.
(Exhibit 10.13 to the Form 10-K dated 12-31-95.) **
11.1 Computation of Per Share Earnings.
20.1* Form 10-K of Indianapolis Power & Light Company for the year
ended December 31, 1996, and all exhibits thereto. (SEC File
No. 1-3132-2.)
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
99.1* Agreement dated as of October 27, 1993, by and among IPALCO
Enterprises, Inc., Indianapolis Power & Light Company, PSI
Resources, Inc., PSI Energy, Inc., The Cincinnati Gas &
Electric Company, CINergy Corp., James E. Rogers, John R.
Hodowal and Ramon L. Humke. (Form 10-Q for quarter ended 9-30-93.)
99.2* Amendment to Agreement, dated October 27, 1994, by and among
IPALCO Enterprises, Inc., Indianapolis Power & Light Company,
PSI Resources, Inc., PSI Energy, Inc., The Cincinnati Gas &
Electric Company, CINergy Corp., James E. Rogers, John R.
Hodowal and Ramon L. Humke. (Exhibit 99.2 to the Form 10-K
dated 12-31-94.)
EXHIBIT 10.2
IPALCO Enterprises, Inc.
UNFUNDED DEFERRED
COMPENSATION PLAN
FOR
OFFICERS
Adopted November 30, 1993
Effective as of January 1, 1994
Amended December 1, 1996
Effective as of January 1, 1997
<PAGE>
UNFUNDED DEFERRED COMPENSATION PLAN
FOR OFFICERS
RESOLVED, that effective January 1, 1994, there be and hereby is,
established and adopted, an unfunded deferred compensation plan (the
"Plan") for Officers of IPALCO Enterprises, Inc. ("IPALCO") with respect
to all or a part of their base salary earned on or after January 1, 1994,
the terms and conditions of which are as follows:
(1) The Plan shall be unfunded so that IPALCO 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 IPALCO or of
the Officer to continue or to terminate the employment relationship
at any time.
(2) On or before December 31, 1993, or December 31 of any year
thereafter, an Officer may elect annually to defer receipt of all
or a specified part of his or her base salary by submitting to the
Secretary of IPALCO a written election for a specified period of
years that is not less than one calendar year and does not extend
beyond the year the Officer reaches his or her 70th birthday, the
form for which election is attached hereto, made a part hereof and
marked Exhibit A. A person elected as an Officer who was not an
Officer 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
for the balance of the calendar year.
(3) The amount deferred shall be withheld in twenty-six (26)
substantially equal bi-weekly installments. No amount
deferred
hereunder shall be paid to an Officer until after the end of the
period elected.
(4) IPALCO shall maintain a deferred compensation account for each
Officer participating in the Plan with respect to deferred base
salary and credit the account with interest on December 31 of each
year at the Current Interest Rate, as later defined. Interest
credited to the account will bear interest (compounded annually) at
the same rate.
(5) Any amount deferred under paragraph (2) above, together with
accumulated interest, shall, at the Officer's election, be
distributed either in a one lump sum payment or in substantially
equal annual installments over any period of from two to ten years,
with the lump sum or first installment being payable as soon as
practicable after the first day of the calendar year immediately
following the period elected and with any additional installments
being payable as soon as practicable after the first day of each
succeeding year thereafter. Amounts held pending distribution
pursuant to this item shall continue to accrue interest on December
31 of each year at the Current Interest Rate, as later defined.
(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 at the time the Officer first elects
to defer receipt of all or a part of his or her base salary. A new
election may be made each year; however, no change may be made in
an election after the December 31 preceding the year in which the
base salary is to be deferred, except that beneficiaries may be
changed at any time prior to the payment of any deferred amount.
Any change in an election made by an Officer after any such
December 31, will not be given effect by IPALCO.
(7) (a) Upon the death of an Officer or a person who has ceased to be
an Officer, prior to the receipt by such Officer of any deferred
amounts and interest from his or her account, all such deferred
amounts and interest in such account shall be payable to his or her
estate in one lump sum within ninety (90) days following his or her
death, unless an Officer elects pursuant to this paragraph (7) to
have such account balance paid to a beneficiary designated in
writing by such Officer; in which event, such account balance shall
be payable to such beneficiary, at the Officer's election, either
in one lump sum within ninety (90) days following the date of
death, or in substantially equal annual installments over a ten
year period beginning as soon as practicable after the first day of
the calendar year immediately following the year of death.
(b) In the event of the death of an Officer or a person who has
ceased to be an Officer after he or she begins receiving
installments from the deferred compensation account under paragraph
(5) above, the remaining installments shall be paid, when due, to
his or her designated beneficiary, if living; otherwise, the
balance in the deferred compensation account shall be paid in one
lump sum to his or her estate within ninety (90) days following his
or her death.
(c) If a designated beneficiary has begun receiving installments
under this paragraph (7), but dies before receiving the last
installment, the balance in the deferred compensation account shall
be paid in one lump sum to such beneficiary's estate within ninety
(90) days following his or her death.
(d) Amounts held by IPALCO pending distribution pursuant to this
paragraph (7) shall continue to accrue interest at the Current
Interest Rate, as later defined.
(8) The Officer and his or her beneficiary, as determined pursuant to
paragraph (7) 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 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 permitted by law.
(9) The chief executive officer of IPALCO 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 that allows an Officer of IPALCO 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.
(10) The term "Current Interest Rate" shall mean the rate in effect on
December 31 of each calendar year 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 this
Board of Directors.
(11) 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 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 (11) 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 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 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 (11).
<PAGE>
To: The Corporate Secretary
IPALCO Enterprises, Inc.
Officer Election to Defer 199__ Compensation
The undersigned Officer of IPALCO Enterprises, Inc. ("IPALCO"), under
the Unfunded Deferred Compensation Plan for Officers adopted November 30,
1993 by a resolution of the Board of Directors of IPALCO, which became
effective as of January 1, 1994, and amended December 1, 1996, such
amendments to be effective as of January 1, 1997, hereby elects under
Paragraph 2 of the Plan to defer $ of such Officer's 199__ base
salary for year(s) (not less than one year) beginning January 1, 199__
and ending December 31, _____ (not beyond the year Officer reaches his or
her 70th birthday).
The undersigned Officer understands that this annual election to defer
his or her base salary, including the method for distributing deferred
amounts, is irrevocable as to the amount and period selected and will not
continue from year to year.
Additional Elections permitted under Paragraphs (5) and (7) of the Plan:
(Select A or B)
____ A. Distribution to be made to me in one lump sum in accordance
with the Plan following the deferral period selected.
____ B. Distribution to be made to me in equal annual installments over
a period of _____ years (not less than two (2) years or more
than ten (10) years) in accordance with the Plan following the
deferral period selected.
(Select C, D or E)
____ C. Deferred amounts to be payable to my estate in one lump sum
within ninety (90) days following my death.
____ D. Deferred amounts to be payable to the beneficiary designated
below in one lump sum within ninety (90) days following my
death.
____ E. Deferred amounts to be payable to the beneficiary designated
below in equal annual installments over a ten (10) year period
beginning the first day of the calendar year following my
death.
Beneficiary: ___________________________________________________________
Name Address
Dated this _______ day of _____________, 199__
Check one:
This is ____ a new election. _________________________
____ a change of beneficiary. Officer,
IPALCO Enterprises, Inc.
Exhibit A
EXHIBIT 10.3
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. D0392B1A96
DECLARATIONS NO. 1
Item 1: This POLICY provides indemnification with respect to the
DIRECTORS and OFFICERS of:
IPALCO Enterprises, Inc.
25 Monument Circle
Indianapolis, IN 46204
Item 2: POLICY PERIOD: from the 1st day of June, 1996, to the 1st
day of June, 1997 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: $200,160.
B. MINIMUM PREMIUM: $ 80,064.
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
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
DECLARATIONS
continued
POLICY NO. D0392B1A96
DECLARATIONS NO. 1
(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 Administrator, Risk Management
ENTITY Indianapolis Power & Light Company
ADDRESS 25 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: 1-2
Countersigned at Jersey City, New Jersey
On July 12, 1996
Aegis Insurance Services, Inc.
By /s/ Sandra A. Johnson
Authorized Representative
<PAGE>
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 indemnify the COMPANY for any and all
sums required to reimburse it for ULTIMATE NET LOSS 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, 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
expenses 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) based upon, arising out of or attributable to the violation
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 the 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.
(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 shall 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 (200) percent 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 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.
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/ J.E. Bachman
Bernard J. Kennedy, Chairman J.E. Bachman, President
and Chief Executive Officer
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 2 Effective Date of Endorsement June 1, 1996
Attached to and forming part of POLICY No. D0392B1A96
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
I. Definition (E) DIRECTOR and OFFICER is amended to include the
following:
(4) (a) any director, officer or trustee of the COMPANY who is
named in attachment OPC-FP1 and who is serving at the
specific written request of the COMPANY in the position
of a director, officer or trustee of the outside FOR-
PROFIT ORGANIZATION, which position and FOR-PROFIT
ORGANIZATION are named in attachment OPC-FP1, while
such director, officer or trustee is acting in such
capacity; and
(b) any present or former director, officer or trustee of
the COMPANY who has served at the specific written
request of the COMPANY in the position of a director,
officer or trustee of an outside FOR-PROFIT
ORGANIZATION in respect to WRONGFUL ACTS committed
while such director, officer or trustee was acting in
such capacity; provided, however, that such director,
officer or trustee, 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 or trustee
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/ Sandra A. Johnson
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Attachment OPC-FPM1 to Endorsement No. 2 Effective Date of Endorsement
June 1, 1996
Attached to and forming part of POLICY No. D0392B1A96
COMPANY IPALCO Enterprises, Inc.
Name, FOR-PROFIT ORGANIZATION and position of each director, officer,
trustee or employee of the COMPANY covered under Endorsement No.
NAME FOR-PROFIT ORGANIZATION POSITION
J.R. Hodowal Tecumseh Coal Corporation Director
R.L. Humke Tecumseh Coal Corporation Director
EXHIBIT 10.10
FORM OF
TERMINATION BENEFITS AGREEMENT
AS AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 1993
[See Schedule A attached hereto for a list of parties to,
and dates of, the Termination Benefits Agreements]
This Agreement, dated as of January 1, 1993, by and among IPALCO
ENTERPRISES, INC., an Indiana corporation having its principal
executive offices at 25 Monument Circle, Indianapolis, Indiana 46204
("IPALCO"), INDIANAPOLIS POWER & LIGHT COMPANY, an Indiana corporation
having its principal executive offices at 25 Monument Circle,
Indianapolis, Indiana 46204 ("IPL") (both IPALCO and IPL being
collectively referred to herein as the "Company"), and , an Indiana
resident whose mailing address is (the "Executive").
R E C I T A L S
The following facts are true:
A. The Executive is serving the Company as a key executive
officer, and is expected to continue to make a major contribution to
the profitability, growth, and financial strength of the Company.
B. The Company considers the continued services of the Executive
to be in the best interests of the Company and its shareholders, and
desires to assure itself of the availability of such continued services
in the future on an objective and impartial basis and without
distraction or conflict of interest in the event of an attempt to
obtain control of the Company.
C. The Executive is willing to remain in the employ of the
Company upon the understanding that the Company will provide him with
income security upon the terms and subject to the conditions contained
herein if his employment is terminated by the Company without cause or
if he voluntarily terminates his employment for good reason.
D. If the Company and Executive entered into one or more
Termination Benefits Agreements prior to this Agreement (the "Prior
Termination Benefits Agreements"), this Agreement is intended to
supersede and replace the Prior Termination Benefits Agreements.
A G R E E M E N T
In consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the Company and the Executive agree
as follows:
1. Undertaking. The Company agrees to pay to the Executive the
termination benefits specified in paragraph 2 hereof if (a) control of
IPALCO is acquired (as defined in paragraph 3(a) hereof) during the
term of this Agreement (as described in paragraph 5 hereof) and (b)
within three (3) years after the acquisition of control occurs (i) the
Company terminates the employment of the Executive for any reason other
than Cause (as defined in paragraph 3(b) hereof), death, the
Executive's attainment of age sixty-five (65) or total and permanent
disability, or (ii) the Executive voluntarily terminates his employment
for Good Reason (as defined in paragraph 3(c) hereof).
2. Termination Benefits. If the Executive is entitled to
termination benefits pursuant to paragraph 1 hereof, the Company agrees
to pay to the Executive as termination benefits in a lump-sum payment
within five (5) calendar days of the termination of the Executive's
employment an amount to be computed by multiplying (i) the Executive's
average annual compensation (as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code")) payable by the Company
which was includable in the gross income of the Executive for the most
recent five (5) calendar years ending coincident with or immediately
before the date on which control of the Company is acquired (or such
portion of such period during which the Executive was an employee of
the Company), by (ii) two hundred ninety-nine and ninety-nine one
hundredths percent (299.99%). For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid
by the Company.
3. Definitions.
(a) As used in this Agreement, the "acquisition of
control" means:
(i) 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 (A) the then outstanding shares
of common stock of IPALCO (the "Outstanding IPALCO
Common Stock") or (B) the combined voting power of the
then outstanding voting securities of IPALCO 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 (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (B) any acquisition by IPALCO, (C) any
acquisition by any employee benefit plan (or related
trust) sponsored or maintained by IPALCO, IPL or any
corporation controlled by IPALCO or (D) any acquisition
by any corporation pursuant to a reorganization, merger
or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in
clauses (A), (B) and (C) of subsection (iii) of this
paragraph 3(a) are satisfied;
(ii) Individuals who, as of the date hereof,
constitute the Board of Directors of IPALCO (the
"Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors of IPALCO
(the "Board"); provided, however, that any individual
becoming a director subsequent to the date hereof whose
election, or nomination for election by IPALCO'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; or
(iii) Approval by the shareholders of IPALCO of a
reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or
consolidation, (A) 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 Stock and
Outstanding IPALCO Voting Securities, as the case may
be, (B) no Person (excluding IPALCO, any employee
benefit plan or related trust of IPALCO, IPL or such
corporation resulting from such reorganization, merger
or consolidation and any Person beneficially owning,
immediately prior to 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 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 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 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;
(iv) Approval by the shareholders of IPALCO of (A)
a complete liquidation or dissolution of IPALCO or (B)
the sale or other disposition of all or substantially
all of the assets of IPALCO, other than to a
corporation, with respect to which following such sale
or other disposition (1) 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, (2) no
Person (excluding IPALCO and any employee benefit plan
or related trust of IPALCO, IPL 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 (3) 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 providing for such sale or other disposition of
assets of IPALCO; or
(v) 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 would constitute an "acquisition
of control" under subsection (iii) or (iv) of this
section 3(a) of this Agreement.
Notwithstanding anything contained in this Agreement to
the contrary, if the Executive's employment is terminated
before an "acquisition of control" as defined in this section
3(a) and the Executive reasonably demonstrates that such
termination (i) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated
to effect an "acquisition of control" and who effectuates an
"acquisition of control" (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, an
"acquisition of control" which actually occurs, then for all
purposes of this Agreement, the date of an "acquisition of
control" with respect to the Executive shall mean the date
immediately prior to the date of such termination of the
Executive's employment.
(b) As used in this Agreement, the term "Cause" means
fraud, dishonesty, theft of corporate assets, or other gross
misconduct by the Executive. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated for
cause unless and until there shall have been delivered to him
a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the entire membership of the
Board at a meeting of the Board called and held for the
purpose (after reasonable notice to him and an opportunity
for him, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board
the Executive was guilty of conduct set forth above in the
first sentence of the subsection and specifying the
particulars thereof in detail.
(c) As used in this Agreement, the term "Good Reason"
means, without the Executive's written consent, (i) a
demotion in the Executive's status, position or
responsibilities which, in his reasonable judgment, does not
represent a promotion from his status, position or
responsibilities as in effect immediately prior to the change
in control; (ii) the assignment to the Executive of any
duties or responsibilities which, in his reasonable judgment,
are inconsistent with such status, position or
responsibilities; or any removal of the Executive from or
failure to reappoint or reelect him to any of such positions,
except in connection with the termination of his employment
for total and permanent disability, death or Cause or by him
other than for Good Reason; (iii) a reduction by the Company
in the Executive's base salary as in effect on the date
hereof or as the same may be increased from time to time
during the term of this Agreement or the Company's failure to
increase (within twelve (12) months of the Executive's last
increase in base salary) the Executive's base salary after a
change in control in an amount which at least equals, on a
percentage basis, the average percentage increase in base
salary for all executive and senior officers of the Company
effected in the preceding twelve (12) months; (iv) the
relocation of the principal executive offices of IPALCO or
IPL, whichever entity on behalf of which the Executive
performs a principal function of that entity as part of his
employment services, to a location outside the Indianapolis,
Indiana metropolitan area or the Company's requiring him to
be based at any place other than the location at which he
performed his duties prior to a change in control, except for
required travel on the Company's business to an extent
substantially consistent with his business travel obligations
at the time of a change in control; (v) the failure by the
Company to continue in effect any incentive, bonus or other
compensation plan in which the Executive participates,
including but not limited to the Company's stock option and
restricted stock plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), with
which he has consented, has been made with respect to such
plan in connection with the change in control, or the failure
by the Company to continue his participation therein, or any
action by the Company which would directly or indirectly
materially reduce his participation therein; (vi) the failure
by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed by him or to
which he was entitled under any of the Company's pension,
profit sharing, life insurance, medical, dental, health and
accident, or disability plans in which he was participating
at the time of a change in control, the taking of any action
by the Company which would directly or indirectly materially
reduce any of such benefits or deprive him of any material
fringe benefit enjoyed by him or to which he was entitled at
the time of the change in control, or the failure by the
Company to provide him with the number of paid vacation and
sick leave days to which he is entitled on the basis of years
of service with the Company in accordance with the Company's
normal vacation policy in effect on the date hereof; (vii)
the failure of the Company to obtain a satisfactory agreement
from any successor or assign of the Company to assume and
agree to perform this Agreement; (viii) any purported
termination of the Executive's employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of paragraph 4(c) hereof (and, if applicable,
paragraph 3(b) hereof); and for purposes of this Agreement,
no such purported termination shall be effective; or (ix) any
request by the Company that the Executive participate in an
unlawful act or take any action constituting a breach of the
Executive's professional standard of conduct.
Notwithstanding anything in this paragraph 3(c) to the
contrary, the Executive's right to terminate his employment
pursuant to this paragraph 3(c) shall not be affected by his
incapacity due to physical or mental illness.
4. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware
that upon the occurrence of a change in control the Board of
Directors or a shareholder of the Company may then cause or
attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to
cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may
take or attempt to take other action to deny the Executive
the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be
frustrated. It is the intent of the Company that the
Executive not be required to incur the expenses associated
with the enforcement of his rights under this Agreement by
litigation or other legal action, nor be bound to negotiate
any settlement of his rights hereunder, because the cost and
expense of such legal action or settlement would
substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if
following a change in control it should appear to the
Executive that the Company has failed to comply with any of
its obligations under this Agreement or in the event that the
Company or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any litigation
or other legal action designed to deny, diminish or to
recover from the Executive the benefits entitled to be
provided to the Executive hereunder and that the Executive
has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes the Executive
from time to time to retain counsel of his choice, at the
expense of the Company as provided in this paragraph 4(a), to
represent the Executive in connection with the initiation or
defense of any litigation or other legal action, whether such
action is by or against the Company or any director, officer,
shareholder, or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to the Executive
entering into an attorney-client relationship with such
counsel, and in that connection the Company and the Executive
agree that a confidential relationship shall exist between
the Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by the
Executive as hereinabove provided shall be paid or reimbursed
to the Executive by the Company on a regular, periodic basis
upon presentation by the Executive of a statement or
statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of
$500,000. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to
enforceability of or the terms contained in this Agreement,
notwithstanding the outcome of any such dispute, shall be the
sole responsibility of the Company, and the Company shall not
take any action to seek reimbursement from the Executive for
such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts
payable to the Executive under this Agreement shall not be
treated as damages but as severance compensation to which the
Executive is entitled by reason of termination of his
employment in the circumstances contemplated by this
Agreement. The Company shall not be entitled to set off
against the amounts payable to the Executive any amounts
earned by the Executive in other employment after termination
of his employment with the Company, or any amounts which
might have been earned by the Executive in other employment
had he sought such other employment.
(c) Notice of Termination. Any purported termination
by the Company or by the Executive shall be communicated by
written Notice of Termination to the other party hereto in
accordance with paragraph 4(k) hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis
for termination of his employment under the provision so
indicated. For purposes of this Agreement, no such purported
termination shall be effective without such Notice of
Termination.
(d) Internal Revenue Code. Anything in this Agreement
to the contrary notwithstanding, in the event that Deloitte
& Touche determines that any payment by the Company to or for
the benefit of the Executive pursuant to the terms of this
Agreement would be nondeductible by the Company for federal
income tax purposes because of Section 280G of the Code, then
the amount payable to or for the benefit of the Executive
pursuant to this Agreement shall be reduced (but not below
zero) to the maximum amount payable without causing the
payment to be nondeductible by the Company because of Section
280G of the Code. Such determination by Deloitte & Touche
shall be conclusive and binding upon the parties.
(e) Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective executors, administrators, heirs, personal
representatives, successors, and assigns, but neither this
Agreement nor any right hereunder may be assigned or
transferred by either party hereto, any beneficiary, or any
other person, nor be subject to alienation, anticipation,
sale, pledge, encumbrance, execution, levy, or other legal
process of any kind against the Executive, his beneficiary or
any other person. Notwithstanding the foregoing, the Company
will assign this Agreement to any corporation or other
business entity succeeding to substantially all of the
business and assets of the Company by merger, consolidation,
sale of assets, or otherwise and shall obtain the assumption
of this Agreement by such successor.
(f) Entire Agreement. This Agreement contains the
entire agreement between the parties with respect to the
subject matter hereof. All representations, promises, and
prior or contemporaneous understandings among the parties
with respect to the subject matter hereof, including any
Prior Termination Benefits Agreements, are merged into and
expressed in this Agreement, and any and all prior agreements
between the parties with respect to the subject matter hereof
are hereby cancelled.
(g) Amendment. This Agreement shall not be amended,
modified, or supplemented without the written agreement of
the parties at the time of such amendment, modification, or
supplement.
(h) Governing Law. This Agreement shall be governed
by and subject to the laws of the State of Indiana.
(i) Severability. The invalidity or unenforceability
of any particular provision of this Agreement shall not
affect the other provisions, and this Agreement shall be
construed in all respects as if such invalid or unenforceable
provision had not been contained herein.
(j) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an
integral part of this Agreement, and are not to be considered
in the interpretation of any part hereof.
(k) Notices. Except as otherwise specifically
provided in this Agreement, all notices and other
communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered in person or sent
by registered or certified mail, postage prepaid, addressed
as set forth above, or to such other address as shall be
furnished in writing by any party to the others.
(l) Waivers. Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto
of any breach by the other party hereto of any condition or
provision of this Agreement to be performed by such other
party shall be deemed to be a valid waiver unless such waiver
is in writing or, even if in writing, shall be deemed to be
a waiver of a subsequent breach of such condition or
provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
(m) Gender. The use of the masculine gender
throughout this Agreement is solely for convenience; thus, in
cases where the Executive is female, the feminine gender
shall be deemed to be used in place of the masculine gender.
5. Term of this Agreement. This Agreement shall remain in effect
until January 1, 1998 or until the expiration of any extension thereof.
The term of this Agreement shall be automatically extended for one (1)
year periods without further action of the parties as of January 1,
1994 and each succeeding January 1 thereafter, unless IPALCO shall have
served written notice to the Executive prior to January 1, 1994 or
prior to January 1 of each succeeding year, as the case may be, of its
intention that the Agreement shall terminate at the end of the five (5)
year period that begins with the January 1 following the date of such
written notice.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
IPALCO ENTERPRISES, INC.
By:
Attest:
INDIANAPOLIS POWER & LIGHT COMPANY
By:
Attest:
<PAGE>
SCHEDULE A
TO
TERMINATION BENEFITS AGREEMENT
As Amended and Restated, Effective January 1, 1993
By and among IPALCO Enterprises, Inc., Mid-America Capital Resources,
Inc. and the following individuals:
Joseph A. Gustin
David C. Kiesel
Daniel L. Short
Clark L. Snyder (effective January 1, 1995)
William A. Tracy
Kevin P. Greisl (effective December 25, 1995)
Edward J. Ryan (effective May 1, 1995)
By and among IPALCO Enterprises, Inc., Indianapolis Power & Light
Company and the following individuals:
Michael G. Banta (effective July 1, 1995)
John C. Berlier, Jr.
John R. Brehm
Max Califar
Ralph E. Canter (effective May 1, 1995)
John R. Hodowal
Ramon L. Humke
Donald W. Knight
David J. McCarthy (effective January 1, 1996)
Paul S. Mannweiler (effective January 1, 1997)
Steven L. Meyer
Stephen J. Plunkett
Robert W. Rawlings
Joseph A. Slash
Bryan G. Tabler (effective as of October 1, 1994)
Gerald D. Waltz
John D. Wilson
Wendy V. Yerkes (effective May 1, 1995)
By and between IPALCO Enterprises, Inc. and the following individuals:
N. Stuart Grauel
Susan Hanafee (effective May 1, 1995)
Michael P. Holstein (effective May 1, 1996)
Thomas A. Steiner (effective May 1, 1996)
By and among IPALCO Enterprises, Inc. and Store Heat and Produce
Energy, Inc. and the following individual:
Michael J. Farmer (effective as of February 6, 1995)
<TABLE>
IPALCO ENTERPRISES, INC. EXHIBIT 11.1
Computation of Per Share Earnings
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/96 56,924,411 56,924,411
Dilutive (Anti-Dilutive) Effect for Stock Options at 12/31/96 87,881 117,754
----------- -----------
Weighted Average Shares at 12/31/96 57,012,292 57,042,165
=========== ===========
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $114,275 $114,275
=========== ===========
Earnings Per Average Common Share $2.00 (a) $2.00 (a)
=========== ===========
YEAR ENDED DECEMBER 31, 1995: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/95 56,744,699 56,744,699
Dilutive (Anti-Dilutive) Effect for Stock Options at 12/31/96 (12,762) 127,151
----------- -----------
Weighted Average Shares at 12/31/95 56,731,937 56,871,850
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $98,778 $98,778
=========== ===========
Earnings Per Average Common Share $1.74 (a) $1.74 (a)
=========== ===========
YEAR ENDED DECEMBER 31, 1994: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/94 56,610,877 56,610,877
Anti-Dilutive Effect for Stock Options at 12/31/94 (13,206) (13,206)
----------- -----------
Weighted Average Shares at 12/31/94 56,597,671 56,597,671
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $92,994 $92,994
=========== ===========
Earnings Per Average Common Share $1.64 (a) $1.64 (a)
=========== ===========
Note:
(a) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required
by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
Exhibit 21.1 List of Subsidiaries
--------------------
State in
Which
Subsidiaries of IPALCO Enterprises, Inc. Organized
Indianapolis Power & Light Company (IPL) Indiana
Subsidiaries of IPL
Property and Land Company, Inc. Indiana
Fort Ben Energy Management Corp. Indiana
IPL Funding Corporation Indiana
Mid-America Capital Resources, Inc. Indiana
(Mid-America)
Subsidiaries of Mid-America
Indianaplis Campus Energy, Inc. (ICE) Indiana
Store Heat and Produce Energy, Inc. (SHAPE) Indiana
Mid-America Energy Resources, Inc.
(Energy Resources) Indiana
Subsidiaries of Energy Resources
Cleveland Thermal Energy Corporation Ohio
Cleveland District Cooling Corporation Ohio
Both IPL and Mid-America are wholly owned by IPALCO Enterprises, Inc.
Each of the subsidiaries listed for IPL, Mid-America and Energy
Resources is wholly owned except for SHAPE, which is 80% owned by Mid-
America. Both Cleveland Thermal Energy Corporation and Cleveland
District Cooling Corporation conduct business under the name Cleveland
Energy Resources.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-08527 on Form S-3, and in Registration Statement Nos. 33-40316, 33-45615,
33-53260, 33-50815, 33-52039, 33-60915 and 33-60921 on Form S-8 of
IPALCO Enterprises, Inc. of our report dated January 24, 1997, (February 25,
1997 as to Note 14), appearing in this Annual Report on Form 10-K of IPALCO
Enterprises, Inc. for the year ended December 31, 1996.
Deloitte & Touche LLP
Indianapolis, Indiana
February 25, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000728391
<NAME> IPALCO ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,787,969
<OTHER-PROPERTY-AND-INVEST> 113,661
<TOTAL-CURRENT-ASSETS> 123,699
<TOTAL-DEFERRED-CHARGES> 157,740
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,183,069
<COMMON> 389,966
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 466,397
<TOTAL-COMMON-STOCKHOLDERS-EQ> 857,726
0
51,898
<LONG-TERM-DEBT-NET> 662,591
<SHORT-TERM-NOTES> 46,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 11,250
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 553,604
<TOT-CAPITALIZATION-AND-LIAB> 2,183,069
<GROSS-OPERATING-REVENUE> 762,503
<INCOME-TAX-EXPENSE> 68,248
<OTHER-OPERATING-EXPENSES> 531,036
<TOTAL-OPERATING-EXPENSES> 599,284
<OPERATING-INCOME-LOSS> 163,219
<OTHER-INCOME-NET> 1,556
<INCOME-BEFORE-INTEREST-EXPEN> 164,775
<TOTAL-INTEREST-EXPENSE> 50,500
<NET-INCOME> 114,275
3,182
<EARNINGS-AVAILABLE-FOR-COMM> 114,275
<COMMON-STOCK-DIVIDENDS> 83,630
<TOTAL-INTEREST-ON-BONDS> 45,110
<CASH-FLOW-OPERATIONS> 251,124
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
</TABLE>
