Full opinion text
FINDINGS OF FACT AND CONCLUSIONS OF LAW HAMILTON, District Judge. Table of Contents Introduction...................................................................1063 Findings of Fact................................................................1064 I.The Parties.............................................................1064 II.Thrift Plan History and the 1995 and 1997 Amendments......................1066 A. Investor Choices.....................................................1066 B. Investor Education Efforts............................................1067 C. Plan Terms on Investment Choices.....................................1069 III. IPALCO in 1999.........................................................1069 IV. Exploration of a “Transforming Transaction”................................1073 V. Negotiations with AES...................................................1075 VI. After the Announcement..................................................1078 VII. Defendants’ Evaluation of AES and IPALCO................................1080 VIII. Plaintiffs’View of AES...................................................1082 IX. The Individual Defendants’ Interests in the AES Deal........................1085 A. Termination Benefit Agreements.......................................1085 B. Stock Sales by Defendants and Other IPALCO Insiders..................1087 C. Disclosure of IPALCO Insider Transactions.............................1090 X. Disclosures to Thrift Plan Participants......................................1092 XI. Financial and Investment Advice...........................................1092 A. The Country Club Advice Session for Executives.........................1092 B. Merrill Lynch Advisers for Plaintiffs ...................................1093 XII. Pension Committee Considerations.........................................1093 XIII. The Closing and the Individual Defendants’ Terminations.....................1094 Conclusions of Law.............................................................1095 I. Fiduciary Duties Under ERISA...........................................1095 II. Allowing Plaintiffs to Invest in IPALCO and then AES.......................1096 III. Wrongful Promotion and a Duty to Disclose.................................1103 IV. Conversion of the Employer Match.........................................1108 Conclusion.....................................................................1111 Introduction The liability issues were tried to the court in this class action alleging breaches of fiduciary duty under Section 404 of the federal Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1104. The court now states its findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure. Substance rather than the court’s label shall govern whether a matter is treated as a finding of fact or conclusion of law. Defendant IPALCO Enterprises, Inc. is the parent company of the Indianapolis Power and Light Company, a public utility that generates and distributes electricity in the Indianapolis area. The AES Corporation acquired IPALCO in a stock-for-stock transaction that closed on March 27, 2001. IPALCO became a wholly owned subsidiary of AES, and all IPALCO shareholders became shareholders of AES. In the year and a half that followed the March 27, 2001 closing, AES stock lost more than 90 percent of its market value. Ex. 89. Plaintiffs are a class consisting of all plan participants and beneficiaries in a Section 401(k) plan known as the Employees’ Thrift Plan of Indianapolis Power & Light Company who held a beneficial interest in IPALCO stock on or about March 27, 2001 that was exchanged for stock in The AES Corporation. The Thrift Plan itself is also a plaintiff. The Thrift Plan allowed participants to make their own decisions about how to invest their own contributions, though employer matching contributions were always made and held as IPALCO stock. When the IPALCO—AES deal closed on March 27, 2001, the Thrift Plan held total assets of $228 million. Approximately $145 million, or about 64 percent of the Thrift Plan assets, was invested in IPAL-CO stock that was exchanged for AES stock. As AES stock value declined in the months after AES bought IPALCO, plaintiffs’ accounts with the Thrift Plan experienced dramatic drops in value. Plaintiffs allege that the defendants—IPALCO itself and the former IPALCO executives who were responsible for the Thrift Plan before the AES deal closed—violated their fiduciary duties under ERISA by failing to remove IPALCO and then AES as investment options, by promoting continued investment in IPALCO and AES, by failing to disclose to Plan participants (more specifically than public disclosures required under federal securities laws) the individual defendants’ personal sales of IPALCO stock, and by allowing the conversion of Plan assets from IPALCO stock to AES stock. As explained below, the court finds that defendants did not breach their fiduciary duties under ERISA. Without the benefit of hindsight, the AES transaction and investments in AES stock appeared reasonable, prudent, and consistent with the Thrift Plan itself at the time. There is no evidence at all that the individual defendants had any negative inside information about AES or the prospects of its stock. Defendants did not give investment advice themselves. They also made competent and appropriate investment advice readily available to Thrift Plan participants. The individual defendants fully complied with their obligations under federal securities law to disclose their own sales of IPALCO stock and the risks associated with investments in AES. ERISA did not require the defendants to make any additional and special disclosures only to the Thrift Plan participants. Accordingly, the court is entering final judgment in favor of defendants. Findings of Fact I. The Parties In 2000, defendant IPALCO Enterprises, Inc. (“IPALCO”) was a publicly traded holding company whose principal asset was its ownership of Indianapolis Power & Light Company, a public utility that generates and distributes electric power in the Indianapolis area. In 1960, before the establishment of IP-ALCO as a holding company, Indianapolis Power & Light Company established the Employees’ Thrift Plan of Indianapolis Power & Light Company (“the Thrift Plan” or “the Plan”). The Thrift Plan was designed to supplement the traditional defined-benefit retirement plan that the company operated. The Plan enabled employees to make voluntary investments. The employer matched employee contributions up to four percent of salary. The Plan was designed so that employer matches were always made in the form of stock in the company. Employees could choose how to invest their own contributions. The Plan was treated as an Eligible Individual Account Plan (“EIAP”) under ERISA, which allowed it to invest more than 10 percent of its assets in employer stock. See 29 U.S.C. § 1104(a)(2). The Plan fiduciaries and administrators did not make specific decisions about how to invest the employee contributions. The Plan administrator and IPALCO as the Plan sponsor selected the available menu options for employees’ investment choices. The Pension Committee: Indianapolis Power & Light Company has been the sponsor of the Thrift Plan. The named administrator of the Thrift Plan was the Employees’ Pension Committee for Employees’ Thrift Plan of Indianapolis Power & Light Company, known here as “the Pension Committee.” During the time leading up to the March 27, 2001 closing of the AES deal, the Pension Committee members were the individual defendants in this case: IPALCO chief executive officer John R. Hodowal, IPALCO chief operating officer Ramon L. Humke, Pension Committee chairman Bryan G. Tabler (also vice president, secretary, and general counsel), Max Califar (vice president of human resources), Stephen J. Plunkett (controller), and Tom A. Steiner (also a vice president). The Plaintiffs: The court certified a plaintiff class in this ease consisting of the Thrift Plan itself and all Thrift Plan participants and beneficiaries who held a beneficial interest in IPALCO stock on or about March 27, 2001 that was exchanged for AES stock. The named class representatives are Joseph J. Nelson and Michael Wycoff. Mr. Nelson worked for Indianapolis Power & Light for 31 years. After the AES purchase, he lost his job in 2002 when he was 57 years old. He worked in the coal and ash department, primarily as a manager, doing and supervising some of the most difficult work at Indianapolis Power & Light. Mr. Nelson joined the Thrift Plan early in his career with Indianapolis Power & Light. He invested over the years, steadily increasing the percentage he invested. By the time he retired, he was investing 13 percent of his pay in the Thrift Plan. He also benefited throughout his career from the employer match of four percent of his pay. In March 27, 2001, his Thrift Plan account was worth approximately $300,000. His account was invested 100 percent in IPAL-CO stock that converted to AES stock. By September 2002, his AES stock in the Thrift Plan had dropped in value to $17,185. At the time of trial, its value had climbed back up to more than $100,000. At the time of trial, his account was still all invested in AES stock. Tr. 293. Mr. Wycoff worked for Indianapolis Power and Light as a computer operator, programmer, and analyst, and then as a payroll team leader for 22 years. He left the company in November 2000 after IP-ALCO shareholders approved the AES deal. His job included responsibility for keeping records for the Thrift Plan and producing the individual account statements for Thrift Plan participants and beneficiaries. He also joined the Thrift Plan as soon as he was eligible and increased his contributions over the years from four percent to ten percent. He originally invested all of his contributions in IPALCO stock but diversified several years before the AES deal. When Mr. Wycoff learned of the proposed sale, he immediately began researching AES and noticed the recent increases in its stock price. Tr. 318. The more he learned about AES, the less he liked the deal. Mr. Wycoff became an outspoken critic of the proposed deal. Before the deal closed, he sold all the IPAL-CO stock that he controlled in his Thrift Plan account. He retained about $5,500 in IPALCO stock, which was the employer match required to be held in the form of employer stock. That remaining IPALCO stock then became AES stock when the deal closed. He could have liquidated even the employer-match stock when he left IPALCO in November 2000, but he did not. Overall, the plaintiff class consists of approximately 1800 individual members. Their Thrift Plan investments in IPALCO were valued at approximately $145 million at the time of the closing on March 27, 2001 when they converted to investments in AES. II. Thrift Plan History and the 1995 and 1997 Amendments A. Investor Choices The Thrift Plan originally offered employees only two choices for investments: IPALCO stock and U.S. government bonds. The employer matching contributions were always made in the form of IPALCO stock. In the mid-1990s, most employee investments were in IPALCO stock. IPALCO encouraged such investments. Plaintiffs offered persuasive evidence that there was an informal culture within IPALCO and among employees to encourage both participation in the Thrift Plan in general and investments in IPAL-CO stock in particular. IPALCO’s separate defined-benefit retirement plan did not invest in IPALCO stock, at least at any time relevant to this case. That practice avoided one of the most dangerous pitfalls for employees— having both their employment and all of their retirement benefits depend on the success of just one company. See Tr. 1000 (Malkiel). IPALCO made the Thrift Plan available to employees on a voluntary basis to supplement their retirement benefits through regular saving and investing, especially in the company. As a matter of plan design, at least prior to Thrift Plan amendments in 1995 and 1997, there was always a significant investment risk for employees in having their Thrift Plan investments concentrated in the stock of their employer. In 1995 and 1997, IPALCO agreed with its principal employee unions to modify the Thrift Plan to expand the investment options available to employees. Through a contract with Merrill Lynch, employees could direct their investments as of 2000 among nine different investment vehicles with a wide range of strategies and risks. The options included, from most conservative to most risky, one cash-equivalent fund, two bond/fixed income funds, one blended or “allocation” fund, and four equity mutual funds. The ninth option, the one with the highest risk, was IPALCO stock. At all times relevant to this case, Thrift Plan participants were entitled to shift their investments among the different funds every business day, without restriction. Ex. 512 at 022384. B. Investor Education Efforts After IPALCO amended the terms of the Thrift Plan in 1995 and 1997 to expand the investment options, the Pension Committee arranged a series of meetings for all Thrift Plan participants. Each meeting was conducted by a member of the Pension Committee. Representatives of Merrill Lynch explained the investment options to the participants. Merrill Lynch provided detailed brochures that explained the basics of investing and investment choices to Plan participants. One of the clearest messages from both the oral presentations at those meetings and the written materials was the need to diversify investments. The program guide book for Thrift Plan participants described IPAL-CO stock as the investment that “generally carries more risk” than the mutual funds offered through the Plan. Ex. 512 at 022376. Exhibit 453 is an enrollment kit for the Thrift Plan in 1995 and is another example of the education efforts. The book included “Five Principles of Investing.” The third was the uncontroversial advice: “Invest wisely.” The brochure explained that investing wisely meant diversifying investments to spread risk, as well as allocating investments among different investment vehicles depending on age and other individual factors. Ex. 453 at 48842, 48846, 48861. The Merrill Lynch materials taught that each individual would need to make individual decisions about how best to allocate investments among the different choices, depending on individual circumstances. The brochure illustrated the need to diversify with examples of three hypothetical investors’ choices at different ages and stages of their careers. The most aggressive suggested profile was for a younger person with a portfolio weighted heavily toward equity funds for long-term growth. That highest-risk profile included only 20 percent of the investments in IPALCO stock. The percentages for the two profiles of older, more conservative investors were 10 and 5 percent for IPALCO stock. Ex. 453 at 48846. The Merrill Lynch materials put IPALCO stock in the highest risk category of all the available choices. Ex. 453 at 48844. For the many Thrift Plan participants who chose to invest heavily in IPALCO stock, those risks produced high rewards in the latter half of the 1990s. The annual total returns for Thrift Plan investments in IPALCO stock were as follows: +35.28 percent in 1995, +13.30 percent in 1996, + 58.49 percent in 1997, +35.27 percent in 1998 and -36.55 percent in 1999. Ex. 162. Even after taking into account the sharp drop in 1999, the five years still produced an average annual return of + 15.81 percent. Id. Investor education continued after the 1995 and 1997 Thrift Plan amendments. Merrill Lynch representatives were available to provide advice at no charge to Thrift Plan participants. (Plaintiff Wycoff met with a Merrill Lynch adviser at the IPL headquarters at no charge.) The Merrill Lynch advisers’ telephone number was even listed in the IPL internal phone book. Merrill Lynch representatives continued to provide educational materials for Thrift Plan participants on a periodic basis. Exhibit 158 is a 1999 set of slides for Thrift Plan participants about their investment choices. The slides also emphasized the need to diversify risk and allocate investments among different choices. IP-ALCO stock was identified as the highest risk among the investment choices available through the Plan. Ex. 158 at 57426. Exhibit 558 is a similar example from some time after March 31, 2000. This exhibit included the same information about the importance of diversifying investments and the risk of a heavy investment in IPALCO stock. See Ex. 558 at 40406 (putting IPALCO stock in the riskiest category of available investments). The message on the need to diversify had some effect, but it was limited. Some Plan participants obviously heard the message. By way of example, plaintiff Wycoff remembered attending the Merrill Lynch meetings about the changes to the Thrift Plan. He remembered that the speaker said: “you need to diversify, diversify, diversify. That’s one of his big war whoops.” Tr. 315. Mr. Wycoff met with the Merrill Lynch adviser and discussed both his Thrift Plan account and other assets that he and his wife owned. He transferred all IPALCO shares in his account (other than employer matching contributions) to other types of investments. He recalled that he lost money on the diversified investments, Tr. 317, which was during years that IPALCO stock was appreciating substantially in value. See Ex. 162. Plaintiff Nelson was aware that he could shift his Thrift Plan investments to other options in 1995. He recalled attending one of the original Merrill Lynch meetings and being told about investments with different degrees of risk and the need to diversify. Tr. 287. Mr. Nelson never changed his investments in IPALCO stock. His account remained 100 percent IPALCO and then AES stock, even up through the trial. Looking beyond the two named plaintiffs, the record shows a modest degree of diversification by plan participants away from IPALCO stock, but far less diversification than any competent adviser was recommending or would recommend. At the end of 1999, the total value of the Thrift Plan assets was $205.9 million, of which $158 million or 77 percent was invested in IPALCO stock. Ex. 71 at 215. At the end of 2000, the total value of Thrift Plan assets was $262.3 million, of which $199.3 million or 76 percent was invested in IPALCO stock. Id. By March 2001, the total value of the Thrift Plan was $228.1 million. The total value of AES common stock in the Thrift Plan at the same time was $145.4 million, or 64 percent. Ex. 1012. Plaintiffs have argued that inertia and corporate culture play significant roles in individual investment decisions, both in general and in the Thrift Plan. The basis for the opinion of plaintiffs’ expert witness on this subject, Mr. John Guy, was quite thin, but the results of the Merrill Lynch educational efforts are consistent with the plaintiffs’ view. The employees in this case developed a degree of loyalty to their employer that was expressed in their investment choices. Management encouraged that loyalty and the investments in the company. Over the years, IPALCO stock was generally very profitable for the employees. Employees did not shift away from established habits. At the same time, it is beyond dispute that Plan participants had the power to make their own decisions about their investments and accounts. The court finds that IPALCO and the Pension Committee made reasonable investment choices available to participants and made reasonable efforts to inform participants of their rights and to provide prudent advice about how to use that power. The choices, apart from the new employer match, belonged to the participants. C. Plan Terms on Investment Choices One central issue here is whether the Pension Committee could have and should have acted in 2000 or early 2001 to remove IPALCO stock as an investment option for Thrift Plan participants. As a matter of plan design, the Thrift Plan established as “available investment options” Funds A through H. Exhibit 94 (the Plan) § 305.10. The Thrift Plan expressly provided: “Employer Allocations for Participants shall be Designated Fund B Contributions and, thus, invested entirely in Fund B.” Plan § 305.30. Fund B consisted of “Common Stock,” which was defined as the stock of IPALCO or any successor. Plan § 301.170 & § 101.190. The Plan further provided that “Designated Fund B Contributions”—ie., the “new employer match”—were “required to be held in Fund B at all times until distribution.” Plan § 301.320. The Thrift Plan also provided: “Without the need of formal amendment and subject to any rules and conditions set forth in the Thrift Plan, the Committee may modify the available investment Funds.” Plan § 305.10. The very next sentence provided: “Notwithstanding anything contained in this Subsection to the contrary, the Funds shall be subject to the other special rules provided in Subsections 305.30 and 305.40.” In turn, Section 305.30 contained the directive: “Employer Allocations for Participants shall be Designated Fund B Contributions and, thus, invested entirely in Fund B.” Section 305.40(a)(i) provided: “Designated Fund B Contributions may not be shifted from Fund B.” The Thrift Plan could not reasonably have been clearer in requiring originally that the employer’s matching contributions be invested in IPALCO common stock, and in requiring that those investments be held in the employer’s stock until distribution. Those original requirements in the Plan itself did not violate ERISA. Plaintiffs contend that Section 305.10 of the Plan still would have allowed the Pension Committee to remove “Fund B” as an option for the employees’ own contributions. The court is not persuaded that plaintiffs are correct on this issue. The Plan expressly required that employer contributions be kept in the form of “Fund B” as IPALCO stock. The Pension Committee would have violated the Plan terms if it had tried to eliminate or redefine Fund B. Although the Plan language did not expressly require that Fund B remain available for employee contributions, the Plan clearly assumed that it would. If the Pension Committee had acted on its own to eliminate Fund B as an available choice for employee contributions, and if the stock had then increased significantly in price, the Pension Committee members no doubt would have been accused of having violated their fiduciary duties by violating the terms of the Plan that assumed Fund B would be available for employee contributions. The discretion given to the Pension Committee certainly included choices from among different mutual funds and other investment vehicles, but it did not include the ability to prohibit employee investments in employer stock. III. IPALCO in 1999 The AES transaction and the disputes in this case must be understood in light of the strengths, weaknesses, prospects, and risks of IPALCO before the discussions that led toward the transaction. The evidence about IPALCO echoes Dickens: It was the best of times (in plaintiffs’ view), it was the worst of times (in defendants’ view). The court will try to present an objective view. IPALCO and its corporate predecessors had been independent throughout their history. The principal asset had always been the electric public utility in Indianapolis. Its service area was already fairly densely developed with industrial, commercial, and residential customers for IPALCO, with limited opportunity for significant growth at the retail level for supplying electricity. Demand for its retail electricity was growing approximately three percent per year. The small service area was also surrounded completely by another public utility, one that IPAL-CO had tried unsuccessfully to acquire in a hostile takeover bid in the early 1990s. See Tr. 703-04 (Holstein), 805 (Humke). IPALCO generated the vast majority of its power by burning high-sulfur coal, which was a cheap source of energy. IP-ALCO also had not made any disastrous investments in nuclear power generation in the 1970s and 1980s. As a result of all those factors, IPALCO could generate and distribute electric power at low cost. Within its industry, IPALCO was relatively small, well-managed, and profitable. See Tr. 377-79 (plaintiffs expert Guy, also referring to “this jewel of a small company”). Its market capitalization for its common stock was in the neighborhood of $2 billion. In 1998, the company was recognized as the “Number One” electric utility in the United States in terms of total shareholder return from each utility’s date of founding. Tr. 125. At the same time, IPALCO had limited opportunities for growth, whether measured in terms of gross revenues or earnings. See Tr. 799 (Humke), 617-18 (Tabler). The IPALCO board of directors had fifteen members. Thirteen were independent outside directors with broad experience and success in a variety of industries. Only two directors were inside officers, defendants CEO Hodowal and COO Humke. The evidence showed that the directors had a distinct preference for keeping IPALCO independent. In early 2000, the directors were skeptical, and even resistant, toward the idea of a transaction that would lead to the company’s acquisition. See Tr. 137 (Hodowal), 624-25 (Tabler), 839^2 (Humke). The CEO of IPALCO was defendant John Hodowal. He had worked for IPAL-CO since 1968 and had been CEO since 1989. In late 1998, Hodowal told the board that he was thinking of taking early retirement in 2000, when he would turn 55 years old. He also advised the board that COO Ray Humke, who was considerably older than Hodowal, was also thinking of retiring. Humke had joined IPALCO in 1990 after a long career in the telephone industry, one that straddled the transition from the old days of the regulated “Ma Bell” monopoly through the court-ordered break-up of AT & T and into the restructured world of competitive telephone services. Hodowal and the board began considering possible plans for new leadership of the company. Historically, IPALCO stock had been a “widows and orphans” stock, one that paid regular dividends and maintained a stable value with relatively steady and modest growth over time. That changed in 1997. In that year, IPALCO cut its dividend by one-third and borrowed money for a stock repurchase program. Investors who preferred a steadier and higher dividend could sell if they wished to do so. Both those who held their stock and those who sold profited, at least through the end of 1998. Tr. 123-25. The year of 1999 was very different. The value of IPALCO stock fell nearly 40 percent in that one year. See Ex. 90. That dramatic decline, before what became a much wider stock market drop in 2000 and 2001, is difficult to reconcile with plaintiffs’ description of IPALCO as a low risk “widows and orphans” stock as of 2000, when the decisions at issue here were made. During late 1999, Hodowal put his retirement plans on hold, at least temporarily. He and the board began efforts to consider strategic options for the company to preserve and restore stock value. Those deliberations eventually led to the AES purchase of IPALCO (and to Hodowal’s retirement). In the course of those deliberations, the IPALCO board of directors and officers heard presentations from experts both inside and outside the company on changes in the electric industry and the challenges the company faced. The two principal developments in the industry were consolidation and the prospect of deregulation, with concerns about environmental regulatory changes placing a close third. All three posed significant threats to the relatively stable and profitable status quo at IPAL-CO. Indush'y Consolidation: The electric industry was consolidating at an increasing pace in 1999. The IPALCO board heard that message from outside investment bankers and from inside executives. That continued consolidation meant that if IP-ALCO remained independent and did not grow by acquisition or other new investment, its relative size would shrink. Ex. 160 at 057721; Tr. 732 (Holstein). IPAL-CO’s options for major acquisitions were quite limited. Deregulation: The term “deregulation” can mean a number of different things. In 1999 and 2000 in the electric industry, it meant legislation that would expand competition at both the wholesale and retail levels of the business. At the retail level, the prospect was that state regulatory agencies would no longer directly control retail prices, and retail customers would choose from among competing electricity providers. One key dimension of a deregulated retail system is the price that an incumbent local electric company charges competitors for using its distribution network to reach their retail customers. No realistic plans for competition in retail electricity included plans to duplicate the local “last mile” of distribution networks that connect nearly every home and business in the United States to one integrated “grid.” Instead, plans to deregulate retail electricity service generally require the existing retail provider to allow other companies to sell electricity to the existing provider’s customers using the existing provider’s wires. One critical feature of those arrangements is whether the existing provider is allowed to charge rates that allow it to recover its so-called “stranded” costs—investments it has already made in its distribution network and generating capacity. More than half a decade later, after the California deregulation debacle and the collapse of the Enron Corporation, hindsight makes it easy to minimize both the prospect of deregulation as it appeared in 1999 and 2000 and the risks it posed then for IPALCO. The board heard predictions that deregulation could produce a reduction of 25 to 30 percent in prices for electricity. These predictions were based on evidence that included experience in the United Kingdom and Australia. IPAL-CO’s chief financial officer John Brehm told the board that a decline of half that amount, 15 percent, would eliminate half of IPALCO’s net income, which would have devastating and long-term effects on the stock price. Tr. 696-97. Surrounding states had adopted some form of deregulation legislation, and Indiana had considered it. IPALCO was also concerned that it would face competitors who would receive unfair regulatory advantages under deregulation legislation. This case is not the occasion for a detailed review of the conflicts within the electric utility industry over stranded cost recovery, but a few basics are important. What was billed as “deregulation” in the energy industry in 1999 and 2000 often seemed quite profitable for many electric companies, provided the legislation allowed them to recover their stranded costs—i.e., their investments in less productive or non-productive assets. From IPALCO’s perspective, those features of deregulation schemes had the perverse effect of rewarding companies that had made poor investments in expensive generating plants and distribution networks, while punishing more prudent companies like IPALCO that had not. Plaintiffs have argued that deregulation was (a) not imminent and (b) not a genuine threat to IPALCO. That argument benefits from hindsight, especially after the California debacle and the collapse of Enron. Plaintiffs’ argument does not accurately reflect either the issues the IP-ALCO board faced or the threat as it appeared in 1999-2000. The IPALCO board was not trying to predict whether deregulation was likely to occur within the next one to two years. It was trying to decide whether to adhere to the company’s established strategy of remaining independent in the face of revolutionary changes in the industry. Based on the information available to it at the time, the board reasonably perceived a significant risk that IPALCO would be marginalized in the industry as a small company that no one wanted, so that shareholder value could decline sharply and permanently. Also, while many electric companies had managed to influence state deregulation legislation in ways that were profitable, see Ex. 154 at 001831, that pattern did not appear likely to help IPALCO, which did not need any large-scale recovery of stranded costs. Plaintiffs also pointed out correctly that IPALCO was trying to support deregulation legislation. Those efforts are best understood as defensive efforts to minimize the potential harm and not to be limited to a passive role on the sidelines as deregulation proceeded. Environmental Concerns: IPALCO produced virtually all the power it generated by burning high-sulfur coal. Most of that high-sulfur coal was from Indiana or other nearby locations, and it had been a relatively low cost source of fuel. What is meant by environmental concerns here is the prospect that enhanced restrictions on air pollution resulting from high-sulfur coal would cause increases in IPALCO’s costs that it could not expect to recover entirely from its customers, especially if deregulation and competition forced electricity prices lower. For the board considering the company’s long-term strategies, there was a clear risk that the company’s nearly total dependence on high-sulfur coal would expose it to risks that other companies in the industry would not face, at least to the same degree. From all of this evidence, the court finds that in 1999 and 2000, the IPALCO board could not simply assume that the company’s future would resemble its past. Nor could its shareholders, including the plaintiffs. What had seemed for many years like a fairly safe and profitable “widows and orphans” stock had become riskier in the face of these changes and potential changes in the electric industry. In fact, the court finds that the IPALCO directors reasonably feared that if they did nothing, changes in the industry could cause a sudden and irreversible loss of shareholder value, dropping from a range near $20 per share to as low as $4 to $6 per share. See Tr. 157 (Hodowal) (describing board discussion). IV. Exploration of a ‘‘Transforming Transaction” In the autumn of 1999, IPALCO management presented the IPALCO board with information about the company’s recent stock performance, which had been painful, and these changes and potential changes in the industry and the strategic alternatives open to the company. See Ex. 159 (board minutes from Oct. 26, 1999); Ex. 160 (board minutes from Nov. 30,1999). By the time of the February 29, 2000 board meeting, Hodowal and IPALCO management had set the table for the board to consider the possibility of seeking a buyer for the company. The board heard additional presentations on IPAL-CO’s poor stock performance and the poor performance of electric company stocks generally. CFO Brehm evaluated the prospects that IPALCO’s stock price might return to its record high of about $28, which had been reached at the end of 1998. He advised that it was possible, but only if everything went perfectly and if the company were not hurt by risks beyond its control. Ex. 164 at 016636-37; Tr. 617 (Tabler), 133 (Hodowal). The factors that could prevent the stock price from returning to the $28 high included declining international power prices (especially after deregulation), improved technology allowing energy consumers to receive real-time price signals to manage their demand better, but with the effect of reduced value of electrical generating assets, and tighter environmental regulations. At the same meeting, the board heard from an investment banking firm then known as Warburg Dillon Reed (“War-burg”). The Warburg bankers generally agreed with earlier reports by Michael Holstein (IPALCO vice president for strategic business initiatives) and CFO Brehm about the consolidation in the industry. Most important, Warburg warned that small to medium-size companies such as IPALCO “with regional or niche strategies are being bought out or marginalized into distressed merchandise.” Ex. 164 at 016639. This prospect of “marginalization” and becoming “distressed merchandise” played a decisive role in the IPALCO board’s decisions in 2000. Board members Ben Lytle and Joseph Barnette had both been CEOs in Indiana in industries that had recently undergone their own processes of consolidation—Lytle in health insurance and Barnette in banking. Lytle advised the board that marginalization could involve “a huge loss of value very quickly.” Ex. 164 at 016638. Barnette commented on the fate of regional bankers: “early in the process, bankers’ worst fear was that they would be acquired; it soon changed to the fear that no one would want them.” Id. Translated to IPALCO’s situation in early 2000, the board faced the prospect that changes in the consolidating electrical industry would produce a sudden and irreversible loss of shareholder value. The board could not close its eyes to that risk. The IPALCO board’s strategic discussions covered several possibilities, including entering into non-regulated businesses with greater profit potential, adding generating power, buying other businesses, and combining with a larger and more diverse company. Tr. 127-28 (Hodowal), 804-06 (Humke). None of these options appeared better than the prospect of what was euphemistically described as a “transforming transaction” with a buyer. At the February 29, 2000 meeting, the board agreed to hire Warburg to advise on a potential transaction. Plaintiffs pointed out that Warburg’s views, despite its expertise, should be viewed skeptically because of the fee Warburg stood to earn through its work on the transaction. At the suggestion of IPALCO board member Mitchell Daniels, in March the board directed management to engage another investment bank with expertise in the electric industry to provide a second opinion that could not be influenced by any financial incentive that depended on the board’s ultimate choice about strategy. Several directors suggested engaging Goldman Sachs for this purpose, and the company did so. See Ex. 165 at 16646. In late April, Goldman Sachs essentially agreed with Warburg about the challenges IPAL-CO faced and supported the basic strategy of looking for a buyer. See Ex. 167. Otherwise, shareholders faced high risks of an irretrievable decline in shareholder value. See Tr. 73 (Hodowal), 623 (Tabler), 811-13 (Humke), Ex. 951 at 74 (Daniels). The board met again on March 28, 2000 and addressed the strategic issues. Ex. 165. Warburg bankers reported on their contacts with potential buyers. At that meeting, Hodowal stated that he would not be interested in leading a leveraged buyout of the company. Also, in response to a concern raised by at least one director in light of the cash benefits to Hodowal and Humke from a change in control, Hodowal and Humke reported that they had given signed and undated letters of resignation to the chairman of the board’s compensation committee and the company’s general counsel. Ex. 165 at 16644; Tr. 596-97 (Tabler), 755-56 (Humke). Hodowal also told the board that he was willing to stay at the company and to put aside his plans for retirement if the board wanted him to do so. See Tr. 145-46 (Hodowal). At its April 19th meeting, the IPALCO board heard a presentation by Goldman Sachs with its overview of the electric industry. See Ex. 167. That overview reflected the key risks that IPALCO was facing, consistent with what the board had heard from Warburg, including deregulation, environmental risks, and outside economic factors that seemed to make it difficult to increase shareholder value. Goldman Sachs identified as a positive for IPALCO its “generally supportive regulatory environment” with only “modest” fears of punitive deregulation legislation. Id. at 8635. Goldman Sachs identified as negatives for IPALCO its small size in a consolidating industry, no growth to low earnings growth in its core regulated electric utility business, and the difficulty of “redeploying” capital to businesses with higher earnings growth. Id. By the April 19th meeting, the Warburg efforts to identify a buyer focused on two firms known as Laurel Hill and Madison Dearborn. Both were what Hodowal described as “financial” buyers, as opposed to “strategic” buyers. Hodowal had concerns about what a financial buyer might do to the company, its employees, and the community in order to turn a profit on its investment. He generally preferred a strategic buyer, another company in the business that would be able to find synergies and make a profit without inflicting a great deal of pain on employees and the community. See Tr. 147-49. As of the April 19th meeting, Warburg had not found any interest among strategic buyers. The IPALCO board met again just six days later, on April 25, 2000. The principal new development was that AES had contacted Hodowal and had expressed interest in a possible acquisition of IPALCO. AES would be a strategic buyer. Hodowal reported to the board on the three prospective buyers, Laurel Hill, Madison Dearborn, and AES. See Ex. 51 at 014795-96 (proxy statement report on consideration of transaction). The board minutes for the meeting reflect that there was “considerable discussion” and that “each Board member who was not an employee of the Corporation spoke in favor of pursuing a satisfactory agreement on a transforming transaction.” Ex. 168 at 8660A. This meeting was the watershed moment for IPALCO and its board. The board members had been reluctant to take the step of selling the company. The directors concluded, nevertheless, that their duties to shareholders required them to try to avoid significant losses in shareholder value. The comments of directors Bar-nette and Lytle, based on observations in their own industries, reflected the perception that doing nothing carried with it high risks for IPALCO shareholders. The court is persuaded that IPALCO’s board came only reluctantly to the conclusion that it was prudent to explore the possible sale of the company. The views of management, including defendants, are discussed in more detail below. V. Negotiations with AES On May 19, 2000, AES proposed an all-cash transaction for $25.00 per share of IPALCO stock. IPALCO stock was then trading for $19.50. Ex. 90. Laurel Hill and another potential buyer withdrew from the negotiations around that time. Ex. 51 at 014796. Negotiations continued through May and June. On June 20th, Madison Dearborn proposed an all-cash transaction for $23.50 per share. On June 22nd, AES told IPALCO that it was no longer willing to pay $25.00 cash per share but that it would offer $25.00 in AES stock for each share of IPALCO stock. This shift from a cash deal to a stock swap was a major focus of the trial. The shift happened quickly and with very little documentation. Plaintiffs contended the speed and the lack of questioning by IPALCO management show that IPALCO management was trying to complete the deal at all costs, even if that meant high risks for shareholders, including Thrift Plan members. The explanation provided by witnesses was that AES decided it did not want to commit the needed proportion of its available debt limits to the IPALCO transaction because such a large commitment would limit AES’s ability to do other transactions it wanted to pursue. E.g., Tr. 677-79 (Brehm). The court is not persuaded that there was anything suspicious about the change. As a matter of negotiation, perhaps, it raised questions about the prospect of “bait-and-switch” negotiation tactics, but AES made its intentions clear to IPALCO at a time when IPALCO could have backed away from a transaction if it had wished to do so. IPALCO had not yet agreed to negotiate exclusively with AES when IPALCO’s officers and directors learned of the change. AES had a complex and large array of debt in its capital structure. The court finds credible the explanation that AES preferred to do the IPALCO deal through a stock swap so as to preserve its ability to borrow to help finance other transactions around the world. From the perspective of IPALCO, the change from cash to AES stock as the “currency” of the transaction added an extra layer of complexity to the deal. IP-ALCO needed to hedge against future fluctuations in the value of AES stock to ensure that an exchange of stock at the future closing date would provide fair compensation to IPALCO shareholders. The result was an agreement to determine the all-important exchange ratio based on the price of AES stock shortly before the closing, and to provide certain “collar” mechanisms that would modify the deal or even allow IPALCO to walk away from it if the price of AES stock dropped too low. When AES changed its offer from cash to stock, IPALCO’s board and management already had some information about AES from presentations by the investment bankers advising them about a possible deal. The change in the terms of the offer required a closer look at AES. The specific issue was whether AES stock would hold up as a solid currency for the IPALCO acquisition between the time of an initial deal and a final closing, and perhaps at least long enough after closing to give IPALCO shareholders who wanted to sell their stock in the company enough time to do so. Tr. 708 (Holstein). When IPALCO learned of the change in the proposed structure, Hodowal organized a team under the leadership of CFO Brehm to address those concerns by doing appropriate due diligence on AES. The record is a little confusing on the details, but it appears that at least Brehm and perhaps others began looking closely at AES in the five days between June 22nd and the June 27th IPALCO board meeting. After the IPALCO board agreed on June 27th to negotiate exclusively with AES, a larger due diligence team continued the effort for another week to ten days, up until shortly before the July 14th IPALCO board meeting when the board voted to accept the AES offer. The IPAL-CO due diligence group reviewed public documents (especially SEC filings) for AES and prepared a list of questions for a meeting with AES management in Virginia. In an attempt to pin defendants on at least one horn of a dilemma, plaintiffs have criticized the IPALCO effort as too meager, yet they have also argued that they received so much non-public information that the IPALCO insiders (officers, directors, and members of the due diligence team) should be treated as if they were AES insiders. The evidence showed that AES shared some of its internal financial projections with the IPALCO team. Those internal projections were at least consistent with the contemporaneous Wall Street analysts’ projections for AES earnings. Brehm testified that the internal numbers from AES showed that it was beating analysts’ projections in 2000. The internal data from AES certainly did not provide any inside information of financial weakness at AES or a risk of a sharp decline in its stock a year in the future. There is no evidence that the IPALCO due diligence team or any other IPALCO officers or directors obtained any other material non-public information about AES. Even at that point in late June 2000, the IPALCO board had heard a good deal of information about AES as a potential buyer. IPALCO was still negotiating with Madison Dearborn, though its ability to finance the deal was still uncertain. Madison Dearborn was proposing a cash purchase for $23.50 per share, as compared to AES’s offer of stock worth $25.00 at closing (subject to the rather complex valuation method, which turned out to provide stock worth a little less than $23.00 upon closing). The IPALCO board met on June 27, 2000 to consider the two offers, and it decided to pursue only the AES offer at that point. The board’s discussion that day was not well-documented. Based on the testimony of witnesses and the nature of the offers, the court finds that one principal advantage of the AES offer was that it appeared, at least, to offer higher value to the shareholders. (The Madison Dearborn offer also could have dropped in value in further negotiations, as the AES offer did, but the AES offer appeared then to be higher.) Another major advantage of the AES offer was that it would be a “strategic” buyer, one already in the business. IPALCO reasonably thought the AES deal offered better long term prospects for IPALCO employees, shareholders, and the community. The difference between cash and stock currency did not appear to be a disadvantage at that time. IPALCO shareholders who preferred cash to AES stock could easily sell their stock at any time, apart from the new employer match in the Thrift Plan. On July 14, 2000, the IPALCO board met and gave its approval to the terms of the transaction with AES. According to the terms of the agreement, on the closing date, each share of IPALCO stock would be exchanged for a fraction of a share of AES. As explained in the proxy statement, the exchange ratio was to be based on the price of AES shares shortly before the closing date. IPALCO’s board and management believed they had negotiated a substantial premium over IPALCO’s earlier share price. The proxy statement said that the purchase price of $25.00 per share represented a premium of 16.3 percent over the closing price of IPALCO stock the last day before the deal was announced. Ex. 51 at 14798. The proxy statement identified the risk posed by volatility of AES stock before closing. Id. at 14798-99. After the IPALCO board vote on July 14th to be purchased by AES, the written agreement was signed on July 15, 2000. The deal was announced publicly on Monday morning, July 17, 2000. IPALCO and AES expected they would be able to gain needed governmental approvals for the transaction and that the deal would close in early 2001. Delaying the closing until early 2001 allowed a reasonable time for the parties to go through the needed governmental processes. Delaying the closing past December 31, 2000 also allowed IPALCO executives who had Termination Benefit Agreements (“TBAs,” a/k/a “golden parachutes”) to increase the value of those TBAs by millions of dollars. Those with TBAs included all the individual defendants. The TBAs called for a payment of 2.9999 times each executive’s average W-2 income over the past five calendar years before closing. Closing after the end of 2000, the IPALCO executives had the opportunity to exercise various stock options before the end of the year, and most did so. The exercise of those options generated taxable income that increased the W-2 reported income. The value of each TBA increased by approximately 60 cents for every dollar in additional income realized through the exercise of the stock options in 2000. Additional details on the TBAs are set forth below in Part IX-A. VI. After the Announcement The AES purchase required approval by IPALCO shareholders. IPALCO scheduled a special shareholders meeting for October 20, 2000. A proxy statement was prepared as of September 8, 2000 and was mailed to shareholders, including plaintiffs, approximately a week later. The proxy statement provided a detailed description of the transaction with information about AES and the risks the transaction posed for shareholders, as well as the reasons for the IPALCO board’s approval and recommendation. See Ex. 51. Plaintiffs have not argued that the proxy statement failed to comply with applicable securities laws governing such disclosures to shareholders. At the special shareholders meeting, CEO Hodowal spoke in favor of the transaction. (Exhibit 193 is a video and audio recording of the meeting, and Exhibit 79 sets forth the text of his prepared remarks.) He said in part: I’m also pleased to report that based on the proxies received, our shareholders are very excited about the prospect of IPALCO joining the AES Corporation so that we can leverage the talents of both organizations and meet the energy challenges of the future. He then introduced the board and other officers, including defendants Humke and Tabler. The other members of the Pension Committee also attended the meeting. Hodowal then described AES, noting that its returns for shareholders had totaled more than 1000 percent over the last five years. He continued: “In short, AES is a great company. And as all of you know, IPALCO is a great company. And together we will be even greater.” Hodowal then described how IPALCO had come to the transaction. He described IPALCO’s record of success and its recognition as the “Number One” electric company in terms of creating shareholder value from its founding through 1998. He described then the “huge disappointment” of 1999, in which the company actually increased its revenues and its income, yet its stock still “plummeted 40 percent.” That experience obviously had shaken Hodowal, other managers, and the IPALCO board. He told the shareholders that the Board had begun to consider the possibility of taking the company private. Ex. 79 at 27131. He pointed out that “the Board serves as a fiduciary for all our constituencies, including our shareholders and employees.” Id. He summarized the proxy statement’s account of IPALCO’s search for buyers. Prospective buyers who looked saw constraints on the company’s growth, “by macroeconomic forces that did not favor small, coal-fired utilities with limited geographic reach and problematic non-regulated investments. In the end, our Board came to the conclusion that all constituencies would be better served by becoming part of a larger energy company with a proven growth strategy.” Id. at 27132. Hodowal continued: We needed more muscle, and AES had that muscle. AES also had the strategy, had the interest, and most important offered the best package for IP-ALCO shareholders and employees, as well as the communities served by IP-ALCO. From a very personal point of view, I had hoped this day would never come. I had hoped, as many of you, that IPAL-CO could forever remain a stand-alone company. And I believe that the IPAL-CO family worked as hard as we could to remain independent and to sustain the stellar pattern of growth. Our board knew, however, that worse than losing independence is losing independence while at the same time losing shareholder value. This transaction represents a premium of 16 percent over the closing price of IPALCO common stock on the last trading date prior to the announcement of the share exchange agreement. It also represents a 22 percent premium over the average closing price of IPAL-CO common stock for the one month prior to the announcement, a 30 percent premium over the average closing price of IPALCO common stock for the one year prior to the announcement and a 52 percent premium on a year-to-date comparison basis. Apart from the stock price premium, AES has agreed to allow IPALCO and IPL to retain its local identity. It has provided job security and fair severance commitments to employees. And it has agreed to allow IPALCO and IPL employees to determine the ongoing level of community contributions. Id. He opened the floor for debate. Several shareholders spoke in opposition to the transaction, including plaintiff Wycoff. The opponents argued that the AES stock price was inflated and was risky, that shareholders would be hurt by the lack of a dividend, and that IPALCO would be better off remaining independent. Ex. 193. Two of the opponents who spoke referred specifically to the fact that senior IPALCO executives were already selling large blocks of their stock. The vast majority of shares had been voted by proxy before the meeting. General Counsel Tabler announced the vote. The vote showed that 65.5 percent of outstanding shares were voted in favor and 11.6 percent were voted against. Ex. 79 at 27133. After the vote was taken and the deal was approved, Hodowal concluded: Ladies and gentlemen, I am coming to the end of a 33-year career with Indianapolis Power & Light Company and IPALCO Enterprises. One-third of those years were spent as your chairman and chief executive officer. It has been a privilege for me to serve with the IPALCO women and men who have worked so nobly and so caringly for the benefit of this company, our customers, and our communities. I thank each and every one of them from the bottom of my heart. And I thank each and every one of you for your interest and concern for this remarkable company. I truly believe the best is yet to come, and that our association with AES will help make that so. Thank you. See Tr. 9-10. One point of dispute has been the capacity in which Hodowal spoke at the shareholder meeting, with a special focus on the final comment that “the best is yet to come.” Plaintiffs view that comment with understandable bitterness now that they know that Hodowal was selling his personal stake in IPALCO and that AES stock later lost 90 percent of its value. Plaintiffs argued that Hodowal spoke in his capacity as a fiduciary of the Thrift Plan, as well as in his capacity as CEO. Defendants have argued that he spoke only in his capacity as CEO. Cf. Varity Corp. v. Howe, 516 U.S. 489, 503, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) (affirming conclusion that employer acted in dual capacity as employer and plan fiduciary in communicating to workers about the effect that transfer of employment from one affiliate to another would have on their benefits). CEO Ho-dowal testified that he never distinguished in his mind between the interests of IPAL-CO shareholders and Thrift Plan participants. Tr. 52. Neither did the other members of the Pension Committee. They testified that in their roles on the Pension Committee, they saw no difference between the interests of Thrift Plan members and other shareholders, and that they relied on the information they learned through the IPALCO board processes and other, less formal channels. See Tr. 777 (Humke), 933 (Califar), 589 (Tabler). The reference to acting as a fiduciary for employees lends some support to plaintiffs, though Indiana corporation law allows a corporation’s board to consider the interests of employees and other constituencies (beyond shareholders) in evaluating a transaction that will change control of the company. See Ind.Code § 23-l-35-l(d). The combination of all this evidence, and especially the defendants’ reliance on their care for all shareholders’ interests to show that they protected the interests of Thrift Plan participants, leads the court to find that Hodowal was speaking both as CEO and as a fiduciary of the Thrift Plan when he spoke at the shareholder meeting. VII. Defendants’ Evaluation of AES and IPALCO A principal focus of evidence was whether the defendants acted prudently in evaluating the AES acquisition. More specifically under ERISA, the focus was whether IPALCO stock that would become AES stock was an appropriate investment option for the Thrift Plan participants and an appropriate form of investment for the employer match in the Thrift Plan. Plaintiffs contended that defendants did not take prudent steps to evaluate AES, and that if they had done so, they would not and should not have allowed continued investment in IPALCO, and thus in AES, through the Thrift Plan. Plaintiffs also contended that defendants at a minimum should have warned Thrift Plan participants and beneficiaries of what plaintiffs called a “sea change” in the investment risk resulting from conversion of IPALCO stock to AES stock. What did the defendants know about AES? Before AES surfaced as a potential buyer, the April 19th presentation by Goldman Sachs to the IPALCO board showed that AES had produced a total return for shareholders in 16 months of 62.5 percent, with an estimated price/earnings ration of 25.8. Ex. 167 at 8621. Earnings per share growth rate was 27 percent. Id. at 8626. AES had a market capitalization of equity about 10 times that of IPALCO, and it had more generating capacity than other unregulated gene