-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nm6nrBaOBut+Rz84EEZQbpzIO840RrowOWbDvnvUHQ/qTd4RYgt2yMNiMtAb0/XO 9Ew34D24pZUY5EaHzZnw3g== 0000789943-97-000017.txt : 19971114 0000789943-97-000017.hdr.sgml : 19971114 ACCESSION NUMBER: 0000789943-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES INDUSTRIES INC CENTRAL INDEX KEY: 0000789943 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 421271452 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09187 FILM NUMBER: 97712635 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IE INDUSTRIES INC DATE OF NAME CHANGE: 19910707 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES UTILITIES INC CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04117 FILM NUMBER: 97712636 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE STREET 2: IES TOWER CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-9187 IES INDUSTRIES INC. (an Iowa Corporation) 42-1271452 IES Tower, Cedar Rapids, Iowa 52401 319-398-4411 0-4117-1 IES UTILITIES INC. (an Iowa Corporation) 42-0331370 IES Tower, Cedar Rapids, Iowa 52401 319-398-4411 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the registrants' classes of common stock, as of October 31, 1997. IES Industries Inc. Common Stock, no par value - 30,542,669 shares IES Utilities Inc. Common Stock, $2.50 par value - 13,370,788 shares IES INDUSTRIES INC. AND IES UTILITIES INC. INDEX Page No. Part I. Financial Information. Item 1. Consolidated Financial Statements. IES Industries Inc.: Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 ............. 3 - 4 Consolidated Statements of Income - Three, Nine and Twelve Months Ended September 30, 1997 and 1996 .......................... 5 Consolidated Statements of Cash Flows - Three, Nine and Twelve Months Ended September 30, 1997 and 1996 .......................... 6 Notes to Consolidated Financial Statements ............. 7 - 14 IES Utilities Inc.: Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 ............. 15 - 16 Consolidated Statements of Income - Three, Nine and Twelve Months Ended September 30, 1997 and 1996 .......................... 17 Consolidated Statements of Cash Flows - Three, Nine and Twelve Months Ended September 30, 1997 and 1996 .......................... 18 Notes to Consolidated Financial Statements ............. 19 Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition. ........... 20 - 34 Part II. Other Information. ....................................... 35 - 38 Signatures. ....................................................... 39 - 40 PART I - FINANCIAL INFORMATION ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS IES INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS September 30, 1997 December 31, ASSETS (in thousands) (Unaudited) 1996 Property, plant and equipment: Utility - Plant in service - Electric $ 2,045,422 $ 2,007,839 Gas 181,995 175,472 Other 131,302 126,850 2,358,719 2,310,161 Less - Accumulated depreciation 1,104,678 1,030,390 1,254,041 1,279,771 Leased nuclear fuel, net of amortization 37,968 34,725 Construction work in progress 61,932 43,719 1,353,941 1,358,215 Other, net of accumulated depreciation and amortization of $84,253 and $70,031, respectively 244,964 223,805 1,598,905 1,582,020 Current assets: Cash and temporary cash investments 23,046 8,675 Accounts receivable - Customer, less allowance for doubtful accounts of $909 and $1,087, respectively 26,155 50,821 Other 8,593 12,040 Income tax refunds receivable 11,364 8,890 Production fuel, at average cost 10,801 13,323 Materials and supplies, at average cost 24,181 22,842 Adjustment clause balances 0 10,752 Regulatory assets 36,718 26,539 Prepayments and other 21,148 24,169 162,006 178,051 Investments: Investment in McLeodUSA Inc. 403,027 29,200 Nuclear decommissioning trust funds 74,455 59,325 Investment in foreign entities 47,726 44,946 Cash surrender value of life insurance policies 12,251 11,217 Other 7,037 4,903 544,496 149,591 Other assets: Regulatory assets 191,476 201,129 Deferred charges and other 16,966 14,771 208,442 215,900 $ 2,513,849 $ 2,125,562 IES INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) September 30, CAPITALIZATION AND LIABILITIES 1997 December 31, (in thousands, except share amounts) (Unaudited) 1996 Capitalization: Common stock - no par value - authorized 48,000,000 shares; outstanding 30,467,739 and 30,077,212 shares, respectively $ 419,167 $ 407,635 Retained earnings 223,871 219,246 Unrealized security gains (net of taxes) 218,567 0 Cumulative foreign currency translation adjustments -19 0 Total common equity 861,586 626,881 Cumulative preferred stock of IES Utilities Inc. 18,320 18,320 Long-term debt (excluding current portion) 854,468 701,100 1,734,374 1,346,301 Current liabilities: Short-term borrowings 0 135,000 Capital lease obligations 13,294 15,125 Maturities and sinking funds 493 8,473 Accounts payable 49,442 99,861 Dividends payable 16,619 16,431 Accrued interest 12,206 8,985 Accrued taxes 68,833 43,926 Accumulated refueling outage provision 7,970 1,316 Adjustment clause balances 782 0 Environmental liabilities 5,607 5,679 Other 18,507 22,087 193,753 356,883 Long-term liabilities: Pension and other benefit obligations 47,331 39,643 Capital lease obligations 24,674 19,600 Environmental liabilities 47,402 47,502 Other 23,909 18,488 143,316 125,233 Deferred credits: Accumulated deferred income taxes 409,910 262,675 Accumulated deferred investment tax credits 32,496 34,470 442,406 297,145 Commitments and contingencies (Note 7) $ 2,513,849 $ 2,125,562 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three For the Nine For the Twelve Months Ended Months Ended Months Ended September 30 September 30 September 30 1997 1996 1997 1996 1997 1996 (in thousands, except per share amounts) Operating revenues: Electric $ 184,676 $ 173,626 $ 459,653 $ 436,027 $ 597,899 $ 562,996 Gas 15,507 28,461 125,381 161,112 238,247 224,666 Other 33,639 31,820 101,608 90,617 136,651 116,792 233,822 233,907 686,642 687,756 972,797 904,454 Operating expenses: Fuel for production 27,613 29,148 84,026 72,168 96,437 96,733 Purchased power 18,749 18,655 52,472 55,125 85,697 68,600 Gas purchased for resale 7,795 20,841 88,136 120,091 185,396 166,538 Other operating expenses 59,061 55,554 165,381 160,367 219,772 217,788 Maintenance 13,120 14,091 40,169 40,011 49,159 50,067 Depreciation and amortization 27,664 27,417 84,985 82,025 110,353 105,320 Taxes other than income taxes 12,248 12,500 38,441 38,503 48,109 47,510 166,250 178,206 553,610 568,290 794,923 752,556 Operating income 67,572 55,701 133,032 119,466 177,874 151,898 Interest expense and other: Interest expense 16,339 13,666 46,777 39,506 62,093 52,511 Allowance for funds used during construction -784 -761 -1,551 -2,141 -1,512 -2,904 Preferred dividend requirements of IES Utilities Inc. 229 229 686 686 914 914 Miscellaneous, net -1,929 4,883 -235 2,510 -414 1,132 13,855 18,017 45,677 40,561 61,081 51,653 Income before income taxes 53,717 37,684 87,355 78,905 116,793 100,245 Income taxes: Current 19,913 14,975 40,906 34,551 44,602 45,048 Deferred 2,716 2,481 -3,988 3,298 4,548 1,008 Amortization of investment tax credits -658 -661 -1,974 -1,984 -2,635 -2,658 21,971 16,795 34,944 35,865 46,515 43,398 Net income $ 31,746 $ 20,889 $ 52,411 $ 43,040 $ 70,278 $ 56,847 Average number of common shares outstanding 30,452 29,941 30,321 29,796 30,256 29,716 Earnings per average common share $ 1.04 $ 0.70 $ 1.73 $ 1.44 $ 2.32 $ 1.91 Dividends declared per common share $ 0.525 $ 0.525 $ 1.575 $ 1.575 $ 2.10 $ 2.10 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three For the Nine For the Twelve Months Ended Months Ended Months Ended September 30 September 30 September 30 1997 1996 1997 1996 1997 1996 (in thousands) Cash flows from operating activities: Net income $ 31,746 $ 20,889 $ 52,411 $ 43,040 $ 70,278 $ 56,847 Adjustments to reconcile net income to net cash flows from operating activities - Depreciation and amortization 27,664 27,417 84,985 82,025 110,353 105,320 Amortization of principal under capital lease obligations 3,559 4,945 10,668 14,195 12,964 19,108 Deferred taxes and investment tax credits 2,058 1,820 -5,962 1,314 1,913 -1,650 Refueling outage provision 2,464 1,831 6,654 6,751 -6,471 9,199 Amortization of other assets 4,248 2,041 9,474 7,191 12,071 9,845 Other -274 -751 2,779 542 3,092 262 Other changes in assets and liabilities - Accounts receivable -2,571 9,118 28,113 11,418 -5,459 -246 Sale of utility accounts receivable 0 0 0 7,000 0 0 Production fuel, materials and supplies 2,942 -957 1,882 -473 3,005 3,445 Accounts payable -8,530 -1,840 -47,740 -12,078 -14,728 2,527 Accrued taxes 29,306 21,164 22,433 8,777 -4,309 -10,860 Provision for rate refunds 0 -43 0 -106 0 -12,966 Adjustment clause balances -3,533 -3,559 11,534 -3,898 1,532 -1,220 Gas in storage -5,413 -8,610 3,409 635 1,619 -1,523 Other -1,804 -2,744 3,662 1,980 13,485 3,431 Net cash flows from operating activities 81,862 70,721 184,302 168,313 199,345 181,519 Cash flows from financing activities: Dividends declared on common stock -15,994 -15,725 -47,786 -46,950 -63,574 -62,438 Proceeds from issuance of common stock 3,225 3,381 9,851 10,780 13,235 14,901 Purchase of treasury stock 0 0 -83 -269 -83 -269 Net change in IES Diversified Inc. credit facility 388 -2,954 19,160 8,016 59,004 44,261 Proceeds from issuance of other long-term debt 135,000 60,000 190,000 60,000 190,000 110,003 Reductions in other long-term debt -84 -15,078 -63,358 -15,374 -63,438 -65,447 Net change in short-term borrowings -150,000 -47,000 -135,000 -23,000 -78,000 29,000 Principal payments under capital lease obligations -3,740 -4,626 -9,405 -14,162 -14,351 -19,096 Other -668 -112 -633 -203 -888 -1,817 Net cash flows from financing activities -31,873 -22,114 -37,254 -21,162 41,905 49,098 Cash flows from investing activities: Construction and acquisition expenditures - Utility -26,271 -39,701 -74,502 -97,043 -119,717 -133,483 Other -9,156 -11,859 -44,826 -45,665 -95,281 -79,683 Oil and gas properties held for resale 0 0 0 9,843 0 0 Deferred energy efficiency expenditures -920 -3,887 -8,450 -12,643 -12,664 -17,708 Nuclear decommissioning trust funds -1,502 -1,502 -4,506 -4,506 -6,008 -6,008 Proceeds from disposition of assets 2,107 1,984 3,889 3,840 8,344 8,153 Other -133 204 -4,282 447 -1,244 2,051 Net cash flows from investing activities -35,875 -54,761 -132,677 -145,727 -226,570 -226,678 Net increase (decrease) in cash and temporary cash investments 14,114 -6,154 14,371 1,424 14,680 3,939 Cash and temporary cash investments at beginning of period 8,932 14,520 8,675 6,942 8,366 4,427 Cash and temporary cash investments at end of period $ 23,046 $ 8,366 $ 23,046 $ 8,366 $ 23,046 $ 8,366 Supplemental cash flow information: Cash paid during the period for - Interest $ 12,041 $ 12,899 $ 41,679 $ 36,435 $ 58,290 $ 52,480 Income taxes $ 103 $ 3,568 $ 29,300 $ 36,316 $ 47,864 $ 53,206 Noncash investing and financing activities - Capital lease obligations incurred $ 13,789 $ 939 $ 13,912 $ 13,785 $ 14,408 $ 13,896 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
This document contains the Quarterly Reports on Form 10-Q for the quarter ended September 30, 1997 for each of IES Industries Inc. and IES Utilities Inc. Information contained herein relating to an individual registrant is filed by such registrant on its own behalf. Accordingly, except for its subsidiaries, IES Utilities Inc. makes no representation as to information relating to IES Industries Inc. or to any other companies affiliated with IES Industries Inc. IES Industries Inc. and its consolidated subsidiaries may collectively be referred to as "the Company". From time to time, the Company may make forward-looking statements within the meaning of the federal securities laws that involve judgments, assumptions and other uncertainties beyond the control of the Company. These forward-looking statements may include, among others, statements concerning revenue and cost trends, cost recovery, cost reduction strategies and anticipated outcomes, pricing strategies, changes in the utility industry, planned capital expenditures, financing needs and availability, statements of the Company's expectations, beliefs, future plans and strategies, anticipated events or trends and similar comments concerning matters that are not historical facts. Investors and other users of the forward-looking statements are cautioned that such statements are not a guarantee of future performance of the Company and that such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of the risks and uncertainties include weather effects on sales and revenues, competitive factors, general economic conditions in the Company's service territory, federal and state regulatory or government actions, results of operations from potential domestic and international investments, the operating of a nuclear facility and changes in the rate of inflation. IES INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 1997 (1) GENERAL: The interim Consolidated Financial Statements have been prepared by IES Industries Inc. (Industries) and its consolidated subsidiaries, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Industries' wholly- owned subsidiaries are IES Utilities Inc. (Utilities) and IES Diversified Inc. (Diversified). Industries is an investor-owned holding company whose primary operating company, Utilities, is engaged principally in the generation, transmission, distribution and sale of electric energy and the purchase, distribution, transportation and sale of natural gas. The Company's principal markets are located in the State of Iowa. The Company also has various non-utility subsidiaries which are primarily engaged in the energy-related, transportation and real estate development businesses. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, the Consolidated Financial Statements include all adjustments, which are normal and recurring in nature, necessary for the fair presentation of the results of operations and financial position. Certain prior period amounts have been reclassified on a basis consistent with the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect: 1) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and 2) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is suggested that these Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company's Form 10-K for the year ended December 31, 1996. The accounting and financial policies relative to the following items have been described in those notes and have been omitted herein because they have not changed materially through the date of this report: Summary of significant accounting policies Leases Utility accounts receivable (other than discussed in Note 4) Income taxes Benefit plans Common, preferred and preference stock Debt (other than discussed in Note 6) Estimated fair value of financial instruments (other than discussed in Note 5) Derivative financial instruments Commitments and contingencies (other than discussed in Note 7) Jointly-owned electric utility plant Segments of business (2) PROPOSED MERGER OF THE COMPANY: On November 10, 1995, Industries, WPL Holdings, Inc. (WPLH) and Interstate Power Company (IPC) entered into an Agreement and Plan of Merger, as amended (Merger Agreement). At the 1996 annual meetings, the shareowners of all three companies approved the Merger Agreement. The merger is still subject to approval by the Federal Energy Regulatory Commission (FERC) and the SEC. See Management's Discussion and Analysis of Financial Condition and Results of Operations for a further discussion. (3) RATE MATTERS: (a) Electric and Gas Prices - In September 1997, Utilities agreed with the Iowa Utilities Board (IUB) to allow Iowa customers a four year retail electric and gas price freeze commencing from the effective date of the merger. The agreement excluded price changes due to government-mandated programs, such as energy efficiency cost recovery, or unforeseen dramatic changes in operations. Utilities, Wisconsin Power and Light Company (WP&L) and IPC also proposed to freeze their wholesale electric prices for four years from the effective date of the merger as part of their merger filing with the FERC. The Company does not expect the merger-related electric and gas price freezes to have a material adverse effect on its financial position or results of operations. (b) Energy Efficiency Cost Recovery - Under provisions of the IUB rules, Utilities is currently recovering the costs incurred through 1993 for its energy efficiency programs, including its direct expenditures, carrying costs, a return on its expenditures and a reward. These costs are being recovered over a four-year period and the recovery began on June 1, 1995. In December 1996, under provisions of the IUB rules, the Company filed for recovery of the costs relating to its 1994 and 1995 programs. The Company received the IUB's final order in the proceeding in May 1997 which allowed for recovery of direct expenditures and carrying costs as well as a return on the expenditures over the recovery period. These costs are being recovered over a four-year period that commenced on August 1, 1997. Iowa statutory changes enacted in 1996 have eliminated: 1) specific electric and gas percentage spending requirements in favor of IUB-determined energy savings targets, 2) the delay in recovery of energy efficiency costs by allowing recovery which is concurrent with spending and 3) the recovery of a sharing reward. The IUB commenced a rulemaking in January 1997 to implement the statutory changes and a final order in this proceeding was issued in April 1997. The new rules provide that the Company recover its 1996 expenditures, and the 1997 expenditures incurred prior to August 1, 1997, over a four-year recovery period which began on August 1, 1997. The Company also began concurrent recovery of its prospective expenditures on August 1, 1997. The implementation of these changes will gradually eliminate the regulatory asset which was created under the prior rate making mechanism as these costs are recovered. The Company has the following amounts of energy efficiency costs included in regulatory assets on its Consolidated Balance Sheets (in thousands): September 30, December 31, 1997 1996 Costs incurred through 1993 $ 8,995 $ 12,834 Costs incurred in 1994-1995 33,085 33,161 Costs incurred from 1/1/96 - 7/31/97 21,450 15,087 (Over)/under collection of concurrent recovery 1,544 - $ 65,074 $ 61,082 The above amounts include the direct expenditures and carrying costs incurred by the Company but do not include any amounts for a return on its expenditures over the recovery period. (4) UTILITY ACCOUNTS RECEIVABLE: Utilities has entered into an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of up to $65 million in its pool of utility accounts receivable. At September 30, 1997, $65 million was sold under the agreement. SFAS 125, issued by the FASB in 1996 and effective for 1997, provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. The accounting for Utilities' sale of accounts receivable agreement is impacted by this standard. As a result, the agreement was modified in the first quarter of 1997 to comply with the SFAS 125 requirements and thus the accounting and reporting for the sale of Utilities' receivables remains unchanged. (5) INVESTMENTS: (a) McLeodUSA Inc. (McLeod) - At September 30, 1997, the Company had the following investment in McLeod, a telecommunications company (all figures are in millions): Fair Market Shares Cost Value Class A Common Stock 9.0 $ 29.0 $ 354.0 Unexercised Vested Options 1.3 - 51.3 Cost to Exercise Vested Options N/A N/A (2.3) 10.3 $ 29.0 $ 403.0 During the second quarter of 1997, the Company converted its investment in Class B Common Stock into shares of Class A Common Stock and contributed 300,000 shares of its McLeod Class A shares to the IES Industries Charitable Foundation. The Company has entered into an agreement with McLeod which restricts the sale or disposal of its shares without the consent of the McLeod Board of Directors until September 1998. Pursuant to the provisions of SFAS No. 115, the carrying value of the McLeod investment was adjusted from a cost basis to estimated fair value at September 30, 1997, based on the September 30 closing price, given that such shares have become qualified for sale within a one year period. The adjustment to reflect the estimated fair value of this investment did not impact the Company's current earnings as the resulting unrealized gain, net of taxes, was recorded directly to the common equity section of the balance sheet ("Unrealized security gains"). Under SFAS 115, any such gains are reflected in current earnings only at the time they are realized through a sale by the Company. It is not possible to estimate what the market value of the shares will be at September 1998 when the current restriction on sales expires. (b) Foreign Entities - At September 30, 1997, the Company had $47.7 million of investments in foreign entities on its Consolidated Balance Sheet that included 1) investments in two New Zealand electric distribution entities, 2) a loan to a New Zealand company, 3) an investment in a cogeneration facility in China, and 4) an investment in an international venture capital fund. The Company accounts for the China investment under the equity method and the other investments under the cost method. The geographic concentration of the Company's investments in foreign entities at September 30, 1997, included investments of approximately $32.7 million in New Zealand, $14.5 million in China and $0.5 million in other countries. (6) DEBT: (a) Long-Term Debt - In October 1997, Diversified entered into a 3-Year Credit Agreement with various banking institutions which replaced its variable rate credit facility. The new agreement will provide Diversified the ability to finance additional business development opportunities, as needed. The agreement extends through October 20, 2000, with one-year extensions available upon agreement by the parties. The agreement will terminate on September 1, 1998, however, if the proposed merger discussed in Note 2 is not consummated on or prior to May 10, 1998. The unborrowed portion of this agreement is also used to support Diversified's commercial paper program. A combined maximum of $450 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing for direct borrowings under this agreement and for issuances of commercial paper. The interest rate options are based upon quoted market rates and the maturities are less than one year. At September 30, 1997, there were no borrowings outstanding under the variable rate credit facility. Diversified had $191.3 million of commercial paper outstanding at September 30, 1997, with interest rates ranging from 5.77% to 5.95% and maturity dates in the fourth quarter of 1997. Diversified intends to continue borrowing under the renewal options of this facility and the new agreement and no conditions exist at September 30, 1997, that would prevent such borrowings. Accordingly, this debt is classified as long-term in the Consolidated Balance Sheets. In August 1997, Utilities issued $135 million of 6-5/8% Senior Debentures, due 2009. The proceeds from these debentures were used to reduce Utilities' short-term borrowings. Utilities repaid at maturity $8 million of 6-1/8% First Mortgage Bonds during the second quarter of 1997. Also in the second quarter of 1997, Utilities issued $55 million of Collateral Trust Bonds, 6.875%, due 2007. Holders thereof may elect to have their Collateral Trust Bonds redeemed, in whole but not in part, on May 1, 2002, at 100% of the principal amount thereof, plus accrued interest. The proceeds from the Collateral Trust Bonds were used to refinance $15 million of Series L, 7.875% First Mortgage Bonds, $30 million of Series M, 7.625% First Mortgage Bonds and $10 million of 7.375% First Mortgage Bonds. (b) Short-Term Debt - In October 1997, Diversified also entered into a 364-Day Credit Agreement with various banking institutions. This agreement will also provide Diversified the ability to finance additional business development opportunities, as needed. The agreement extends through October 20, 1998, with 364 day extensions available upon agreement by the parties. The agreement will terminate on September 1, 1998, however, if the proposed merger discussed in Note 2 is not consummated on or prior to May 10, 1998. The unborrowed portion of this agreement is also used to support Diversified's commercial paper program. A combined maximum of $150 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing for direct borrowings under this agreement and for issuances of commercial paper. The interest rate options are based upon quoted market rates and the maturities are less than one year. At September 30, 1997, the Company had bank lines of credit aggregating $45.1 million. Utilities was using $11.1 million to support certain pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. From time to time, the Company may borrow from banks and other financial institutions in lieu of commercial paper. The Company has agreements with several financial institutions for such borrowings. There are no commitments associated with these agreements and there were no borrowings outstanding under these agreements at September 30, 1997. (7) CONTINGENCIES: (a) Environmental Liabilities - The Company has recorded environmental liabilities of approximately $53 million in its Consolidated Balance Sheets at September 30, 1997. The Company's significant environmental liabilities are discussed below. Former Manufactured Gas Plant (FMGP) Sites Utilities has been named as a Potentially Responsible Party (PRP) by various federal and state environmental agencies for 28 FMGP sites, but believes it is not responsible for two of these sites based on extensive reviews of the ownership records and historical information available for the two sites. Utilities has notified the appropriate regulatory agency that it believes it does not have any responsibility as relates to these two sites, but no response has been received from the agency on this issue. Utilities is also aware of six other sites that it may have owned or operated in the past and for which, as a result, it may be designated as a PRP in the future in the event that environmental concerns arise at these sites. Utilities is working pursuant to the requirements of the various agencies to investigate, mitigate, prevent and remediate, where necessary, damage to property, including damage to natural resources, at and around the sites in order to protect public health and the environment. Utilities believes it has completed the remediation of twelve sites although it is in the process of obtaining final approval from the applicable environmental agencies on this issue for each site. Utilities is in various stages of the investigation and/or remediation processes for the remaining fourteen sites and estimates the range of additional costs to be incurred for investigation, remediation and monitoring of the sites to be approximately $21 million to $52 million. Utilities has recorded environmental liabilities related to the FMGP sites of approximately $33 million (including $4.7 million as current liabilities) at September 30, 1997. These amounts are based upon Utilities' best current estimate of the amount to be incurred for investigation, remediation and monitoring costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages. It is possible that future cost estimates will be greater than the current estimates as the investigation process proceeds and as additional facts become known. Regulatory assets of approximately $33 million, which reflect the future recovery that is being provided through Utilities' rates, have been recorded in the Consolidated Balance Sheets. Considering the current rate treatment allowed by the IUB, management believes that the clean-up costs incurred by Utilities for these FMGP sites will not have a material adverse effect on its financial position or results of operations. In April 1996, Utilities filed a lawsuit against certain of its insurance carriers seeking reimbursement for investigation, mitigation, prevention, remediation and monitoring costs associated with the FMGP sites. Settlement discussions are proceeding between Utilities and its insurance carriers regarding the recovery of these FMGP-related costs. Settlement has been reached with ten carriers and an agreement in principle has been reached with four other carriers thus far. Amounts received from insurance carriers are being deferred pending a determination of the regulatory treatment of such recoveries. National Energy Policy Act of 1992 The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases and, for the Duane Arnold Energy Center (DAEC), averages $1.4 million annually through 2007, of which Utilities' 70% share is $1.0 million. Utilities is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. Utilities' 70% share of the future assessment at September 30, 1997, $9.9 million payable through 2007, has been recorded as a liability in the Consolidated Balance Sheets, including $0.9 million included in "Current liabilities - Environmental liabilities," with a related regulatory asset for the unrecovered amount. Oil and Gas Properties Dismantlement and Abandonment Costs Whiting Petroleum Corporation (Whiting), a wholly-owned subsidiary under Diversified, is responsible for certain dismantlement and abandonment costs related to various off-shore oil and gas properties, the most significant of which is located off the coast of California. The Company estimates the total costs for these properties to be approximately $16 million and the expenditures are not expected to be incurred for approximately four years. Whiting accrues these costs as reserves are extracted and such costs are included in "Depreciation and amortization" in the Consolidated Statements of Income, resulting in a liability of $9.4 million at September 30, 1997, in the Consolidated Balance Sheets. (b) Air Quality Issues - The Clean Air Act Amendments of 1990 (Act) requires emission reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve reductions of atmospheric chemicals believed to cause acid rain. The provisions of the Act are being implemented in two phases; the Phase I requirements have been met and the Phase II requirements affect eleven other fossil units beginning in the year 2000. Utilities expects to meet the requirements of Phase II by switching to lower sulfur fuels, capital expenditures primarily related to fuel burning equipment and boiler modifications, the possible purchase of SO2 allowances and a possible NOx averaging plan. Utilities currently estimates capital expenditures at approximately $8.6 million, including $0.9 million in 1997, in order to meet the acid rain requirements of the Act. The acid rain program under the Act also governs SO2 allowances. An allowance is defined as an authorization for an owner to emit one ton of SO2 into the atmosphere. Currently, Utilities receives a sufficient number of allowances annually to offset its emissions of SO2 from its Phase I units. It is anticipated that in the year 2000, Utilities may have an insufficient number of allowances annually to offset its estimated emissions and may have to purchase additional allowances, or make modifications to the plants or limit operations to reduce emissions. Utilities is reviewing its options to ensure that it will have sufficient allowances to offset its emissions in the future. Utilities believes that the potential cost of ensuring sufficient allowances will not have a material adverse effect on its financial position or results of operations. The Act and other federal laws also require the United States Environmental Protection Agency (EPA) to study and regulate, if necessary, additional issues that potentially affect the electric utility industry, including emissions relating to NOx, ozone transport, mercury and particulate control; toxic release inventories and modifications to the PCB rules. In July 1997, the EPA issued final rules that would tighten the National Ambient Air Quality Standards (NAAQS) for ozone and particulate matter emissions. Utilities is currently reviewing the rules to determine what impact they may have on its operations. In the fourth quarter of 1996, the EPA announced that it would issue a notice requiring the 37 states in the Ozone Transport Assessment Group (OTAG), which includes Iowa, to implement further controls on NOx. In June 1997, OTAG made their final recommendations to the EPA. In October 1997, the EPA followed these recommendations and excluded Iowa from the requirement to reduce NOx emissions in the State with the understanding that Iowa will work with Wisconsin in the development of the SE Wisconsin attainment State Implementation Plan (SIP). Utilities believes the potential cost of this effort will not have a material adverse effect on its financial position or results of operations. In 1995, the EPA published the Sulfur Dioxide Network Design Review for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst- case modeling method suggests that the Cedar Rapids area could be classified as "nonattainment" for the NAAQS established for SO2. The worst-case modeling study suggested that two of Utilities' generating facilities contribute to the modeled exceedences and recommended that additional monitors be located near Utilities' sources to assess actual ambient air quality. As a result of exceedences at a relocated monitor, the EPA issued a letter in March 1997 to the Iowa Governor's Office directing the state to develop a plan of action within 120 days. The Governor of Iowa then issued a letter to the EPA stating that a plan of action would be in place with local industry to avoid the area being declared nonattainment. In this regard, Utilities has entered into a consent order with the Iowa Department of Natural Resources (IDNR). The objective of this consent order is to establish the necessary commitments which will maintain the area in attainment for SO2. Two primary commitments were made by Utilities in this consent order: 1) Utilities will limit SO2 emissions from the two noted generating facilities located in Cedar Rapids, and 2) Utilities will install a new stack at one of the facilities at a potential aggregate capital cost of up to $4.5 million over the next two years. In September 1997, the EPA provided comments to the IDNR on the consent order. In October 1997, Utilities proposed certain modifications to the consent order in response to the EPA comments. These proposed modifications include revising the stack option such that the potential aggregate cost would only be approximately $2.5 million over the next two years. The final consent order is expected to be approved by both the IDNR and ultimately by the EPA in either the fourth quarter of 1997 or the first quarter of 1998. Pursuant to a routine internal review of operations, Utilities determined that certain changes undertaken during the previous three years at one of its power plants may have required a federal Prevention of Significant Deterioration (PSD) permit. Utilities initiated discussions with its regulators on the matter, resulting in the submittal of a PSD permit application in February 1997. Utilities expects to receive the PSD permit by the fourth quarter of 1997. Utilities may be required to accept operational limits or to install additional controls and may be subject to a penalty for not having obtained the permit previously; however, Utilities believes that any likely actions resulting from this matter will not have a material adverse effect on its financial position or results of operations. IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS September 30, 1997 December 31, ASSETS (in thousands) (Unaudited) 1996 Property, plant and equipment: Utility - Plant in service - Electric $ 2,045,422 $ 2,007,839 Gas 181,995 175,472 Other 131,302 126,850 2,358,719 2,310,161 Less - Accumulated depreciation 1,104,678 1,030,390 1,254,041 1,279,771 Leased nuclear fuel, net of amortization 37,968 34,725 Construction work in progress 61,932 43,719 1,353,941 1,358,215 Other, net of accumulated depreciation and amortization of $1,615 and $1,438, respectively 5,695 5,872 1,359,636 1,364,087 Current assets: Cash and temporary cash investments 15,951 11,608 Accounts receivable - Customer, less allowance for doubtful accounts of $709 and $546, respectively 14,144 22,461 Other 8,907 11,270 Income tax refunds receivable 2,908 2,664 Production fuel, at average cost 10,801 13,323 Materials and supplies, at average cost 22,759 21,716 Adjustment clause balances 0 10,752 Regulatory assets 36,718 26,539 Prepayments and other 14,712 18,705 126,900 139,038 Investments: Nuclear decommissioning trust funds 74,455 59,325 Cash surrender value of life insurance policies 4,812 4,281 Other 78 313 79,345 63,919 Other assets: Regulatory assets 191,476 201,129 Deferred charges and other 11,168 10,437 202,644 211,566 $ 1,768,525 $ 1,778,610 IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) September 30, CAPITALIZATION AND LIABILITIES 1997 December 31, (in thousands, except share amounts) (Unaudited) 1996 Capitalization: Common stock - par value $2.50 per share - authorized 24,000,000 shares; 13,370,788 shares outstanding $ 33,427 $ 33,427 Paid-in surplus 279,042 279,042 Retained earnings 236,028 231,337 Total common equity 548,497 543,806 Cumulative preferred stock - par value $50 per share - authorized 466,406 shares; 366,406 shares outstanding 18,320 18,320 Long-term debt (excluding current portion) 651,781 517,334 1,218,598 1,079,460 Current liabilities: Short-term borrowings 0 135,000 Capital lease obligations 13,294 15,125 Maturities and sinking funds 140 8,140 Accounts payable 37,269 76,287 Accrued interest 12,193 8,839 Accrued taxes 66,288 40,953 Accumulated refueling outage provision 7,970 1,316 Adjustment clause balances 782 0 Environmental liabilities 5,517 5,517 Other 15,335 17,114 158,788 308,291 Long-term liabilities: Pension and other benefit obligations 31,600 25,826 Capital lease obligations 24,674 19,600 Environmental liabilities 37,844 40,299 Other 19,164 14,030 113,282 99,755 Deferred credits: Accumulated deferred income taxes 245,361 256,634 Accumulated deferred investment tax credits 32,496 34,470 277,857 291,104 Commitments and contingencies (Note 7) $ 1,768,525 $ 1,778,610 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three For the Nine For the Twelve Months Ended Months Ended Months Ended September 30 September 30 September 30 1997 1996 1997 1996 1997 1996 (in thousands) Operating revenues: Electric $ 184,676 $ 173,626 $ 459,653 $ 436,027 $ 597,899 $ 562,996 Gas 15,507 12,169 122,711 103,854 179,720 151,906 Other 5,528 4,375 19,369 13,296 25,915 17,143 205,711 190,170 601,733 553,177 803,534 732,045 Operating expenses: Fuel for production 27,613 29,148 84,026 72,168 96,437 96,733 Purchased power 18,749 18,655 52,472 55,125 85,697 68,600 Gas purchased for resale 7,835 5,034 84,413 64,445 123,846 96,116 Other operating expenses 42,783 37,594 117,242 112,506 154,736 154,902 Maintenance 12,224 13,192 37,675 37,516 46,028 46,901 Depreciation and amortization 21,840 21,908 68,605 65,957 87,623 84,709 Taxes other than income taxes 10,956 11,386 34,563 34,996 43,170 43,054 142,000 136,917 478,996 442,713 637,537 591,015 Operating income 63,711 53,253 122,737 110,464 165,997 141,030 Interest expense and other: Interest expense 13,371 11,466 38,446 33,346 48,813 44,375 Allowance for funds used during construction -784 -761 -1,551 -2,141 -1,512 -2,904 Miscellaneous, net 588 6,230 1,915 5,090 2,117 5,597 13,175 16,935 38,810 36,295 49,418 47,068 Income before income taxes 50,536 36,318 83,927 74,169 116,579 93,962 Federal and state income taxes: Current 21,124 15,132 45,520 33,487 47,362 42,513 Deferred 1,434 1,834 -6,996 1,296 2,116 527 Amortization of investment tax credits -658 -661 -1,974 -1,984 -2,635 -2,658 21,900 16,305 36,550 32,799 46,843 40,382 Net income 28,636 20,013 47,377 41,370 69,736 53,580 Preferred dividend requirements 229 229 686 686 914 914 Net income available for common stock $ 28,407 $ 19,784 $ 46,691 $ 40,684 $ 68,822 $ 52,666 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three For the Nine For the Twelve Months Ended Months Ended Months Ended September 30 September 30 September 30 1997 1996 1997 1996 1997 1996 (in thousands) Cash flows from operating activities: Net income $ 28,636 $ 20,013 $ 47,377 $ 41,370 $ 69,736 $ 53,580 Adjustments to reconcile net income to net cash flows from operating activities - Depreciation and amortization 21,840 21,908 68,605 65,957 87,623 84,709 Amortization of principal under capital lease obligations 3,559 4,945 10,668 14,195 12,964 19,108 Deferred taxes and investment tax credits 776 1,173 -8,970 -688 -519 -2,131 Refueling outage provision 2,464 1,831 6,654 6,751 -6,471 9,199 Amortization of other assets 4,225 2,041 9,406 7,191 11,987 9,845 Other -36 13 192 -24 496 657 Other changes in assets and liabilities - Accounts receivable -1,564 5,466 10,680 6,440 -8,962 -1,146 Sale of utility accounts receivable 0 0 0 7,000 0 0 Production fuel, materials and supplies 2,847 -1,118 2,178 -190 3,019 3,560 Accounts payable -9,447 2,353 -36,339 -11,075 -12,379 3,832 Accrued taxes 30,933 21,259 25,091 8,301 5,556 -12,313 Provision for rate refunds 0 -43 0 -106 0 -12,966 Adjustment clause balances -3,533 -3,559 11,534 -3,898 1,532 -1,220 Gas in storage -5,413 -8,280 2,806 965 1,289 -1,193 Other -326 -2,816 7,399 1,607 13,117 -2,058 Net cash flows from operating activities 74,961 65,186 157,281 143,796 178,988 151,463 Cash flows from financing activities: Dividends declared on common stock -14,000 -12,000 -42,000 -34,000 -52,000 -44,000 Dividends declared on preferred stock -229 -229 -686 -686 -914 -914 Proceeds from issuance of long-term debt 135,000 60,000 190,000 60,000 190,000 110,000 Reductions in long-term debt 0 -15,000 -63,140 -15,140 -63,140 -65,140 Net change in short-term borrowings -150,000 -47,345 -135,000 -27,658 -82,230 23,426 Principal payments under capital lease obligations -3,740 -4,626 -9,405 -14,162 -14,351 -19,096 Other -711 -182 -821 -354 -887 -2,056 Net cash flows from financing activities -33,680 -19,382 -61,052 -32,000 -23,522 2,220 Cash flows from investing activities: Construction and acquisition expenditures - Utility -26,271 -39,701 -74,521 -97,084 -119,819 -133,524 Other 0 -2 -8 -344 -930 -902 Deferred energy efficiency expenditures -920 -3,887 -8,450 -12,643 -12,664 -17,708 Nuclear decommissioning trust funds -1,502 -1,502 -4,506 -4,506 -6,008 -6,008 Other -18 272 -4,401 1,149 -1,196 3,137 Net cash flows from investing activities -28,711 -44,820 -91,886 -113,428 -140,617 -155,005 Net increase (decrease) in cash and temporary cash investments 12,570 984 4,343 -1,632 14,849 -1,322 Cash and temporary cash investments at beginning of period 3,381 118 11,608 2,734 1,102 2,424 Cash and temporary cash investments at end of period $ 15,951 $ 1,102 $ 15,951 $ 1,102 $ 15,951 $ 1,102 Supplemental cash flow information: Cash paid during the period for - Interest $ 9,073 $ 10,866 $ 33,215 $ 30,443 $ 44,842 $ 44,511 Income taxes $ 0 $ 3,921 $ 31,875 $ 35,489 $ 41,770 $ 51,691 Noncash investing and financing activities - Capital lease obligations incurred $ 13,789 $ 939 $ 13,912 $ 13,785 $ 14,408 $ 13,896 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Except as modified below, the IES Industries Inc. (Industries) Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to IES Utilities Inc. (Utilities). Industries' Note 5 does not relate to Utilities and, therefore, is not incorporated by reference. (1) GENERAL: The interim Consolidated Financial Statements have been prepared by IES Utilities Inc. (Utilities) and its consolidated subsidiaries, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Utilities' only wholly- owned subsidiary is IES Ventures Inc. (Ventures), which is a holding company for unregulated investments. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION IES Industries Inc.'s Consolidated Financial Statements include the accounts of IES Industries Inc. (Industries) and its consolidated subsidiaries (collectively the Company). Industries' wholly-owned subsidiaries are IES Utilities Inc. (Utilities) and IES Diversified Inc. (Diversified). The information presented in this management's discussion and analysis addresses the financial statements of Industries and Utilities as presented in this joint filing. Information related to Utilities also relates to Industries' Consolidated Financial Statements. Information related to Diversified does not pertain to the discussion of the financial condition and results of operations of Utilities. The references to various Notes to Consolidated Financial Statements are all to Industries' Notes to Consolidated Financial Statements. COMPETITION Electric energy generation, transmission, and distribution are in a period of fundamental change in the manner in which customers obtain, and energy suppliers provide, energy services. As legislative, regulatory, economic and technological changes occur, electric utilities are faced with increasing pressure to become more competitive. Such competitive pressures could result in loss of customers and an incurrence of stranded costs (i.e., the cost of assets rendered unrecoverable as the result of competitive pricing). To the extent stranded costs cannot be recovered from customers, they would be borne by security holders. The National Energy Policy Act of 1992 addresses several matters designed to promote competition in the electric wholesale power generation market. In 1996, the Federal Energy Regulatory Commission (FERC) issued final rules (FERC Orders 888 and 889) requiring electric utilities to open their transmission lines to other wholesale buyers and sellers of electricity. The rules became effective in July 1996. Utilities filed conforming pro-forma open access transmission tariffs with the FERC which became effective in October 1995. In response to FERC Order 888, Utilities filed its final pro-forma tariffs with FERC in July 1996. The non-rate provisions of the tariffs were approved in November 1996. FERC has not yet ruled on the rate provisions of the tariffs. The geographic position of Utilities' transmission system could provide revenue opportunities in the open access environment. The Company cannot predict the long-term consequences of these rules on its results of operations or financial condition. FERC does not have jurisdiction over retail distribution, and thus the final FERC rules do not provide for the recovery of stranded costs resulting from retail competition. The various states retain jurisdiction over the question of whether to permit retail competition, the terms of such retail competition, and the recovery of any portion of stranded costs that are ultimately determined by FERC and the states to have resulted from retail competition. The Iowa Utilities Board (IUB) initiated a Notice of Inquiry (Docket No. NOI-95-1) in early 1995 on the subject of "Emerging Competition in the Electric Utility Industry" to address all forms of competition in the electric utility industry and to gather information and perspectives on electric competition from all persons or entities with an interest or stake in the issues. Included in the IUB's process was the creation of an advisory panel, of which Utilities is a member. The IUB staff's report in this docket was accepted by the IUB, finding, in part, that there is no compelling reason to move quickly into restructuring the electric utility industry in Iowa, based upon the current level of relative prices. However, they are continuing the analysis and debate on restructuring and retail competition in Iowa. Recently, the IUB has taken several actions. On August 18, 1997, the IUB issued an order that promulgated draft principles for an independent system operator and invited public comment. On September 10, 1997, the IUB issued an order adopting an "Action Plan to Develop a Competitive Model for the Electric Industry in Iowa." The IUB states in this action plan that while "the IUB has not determined retail competition in the electric industry is in the best interests of Iowa's consumers...", the State of Iowa is likely to be affected by federal or neighboring states' actions and so there is a need for the IUB to design a model that suits Iowa's needs. The action plan is to be developed by the IUB's staff, with outside assistance as needed, and with review and comment by the IUB's advisory group. The priority concerns in the plan are public interest issues (an Iowa-specific pilot project, customer information and assessment, environmental impacts, public benefits and transition costs/benefits) and transmission-related issues (transmission and distribution system reliability and transmission system operations). There is no timetable in the action plan. On October 2, 1997, the IUB staff sent to the advisory group for written comment a set of proposed guidelines for an Iowa-specific pilot project that would allow retail access to a "subset of all customer classes." As part of Utilities' strategy for the emerging and competitive power markets, Utilities, Interstate Power Company (IPC) and Wisconsin Power and Light Company (WP&L) (the utility subsidiary of WPL Holdings, Inc. (WPLH)), and a number of other utilities have proposed the creation of an independent system operator (ISO) for the companies' power transmission grid. The companies would retain ownership and control of the facilities, but the ISO would set rates for access and assure fair treatment for all companies seeking access. The proposal requires approval from state regulators and the FERC. Various other proposals for ISO's have been made by other companies, and Utilities is monitoring all such proposals. The Public Service Commission of Wisconsin (PSCW) has conditioned the merger on the filing of a PSCW-approved ISO with FERC. Utilities is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). If a portion of Utilities' operations become no longer subject to the provisions of SFAS 71, as a result of competitive restructurings or otherwise, a write-down of related regulatory assets would be required, unless some form of transition cost recovery is established by the appropriate regulatory body which would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, Utilities would be required to determine any impairment to other assets and write-down such assets to their fair value. Utilities believes that it still meets the requirements of SFAS 71. The Company cannot predict the long-term consequences of these competitive issues on its results of operations or financial condition. The Company's strategy for dealing with these emerging issues includes seeking growth opportunities, continuing to offer quality customer service, ongoing cost reductions and productivity enhancements. The major objective of these is to allow Utilities to better prepare for a competitive, deregulated electric utility industry. PROPOSED MERGER OF THE COMPANY Industries, WPLH and IPC have entered into an Agreement and Plan of Merger, as amended, dated November 10, 1995, which provides for the combination of all three companies. The new company will be named Interstate Energy Corporation (IEC). WPLH is a holding company headquartered in Madison, Wisconsin, and is the parent company of WP&L and Heartland Development Corporation (HDC). WP&L supplies electric and gas service to approximately 385,000 and 150,000 customers, respectively, in south and central Wisconsin. HDC and its principal subsidiaries are engaged in businesses in three major areas: environmental engineering and consulting, affordable housing and energy services. IPC, an operating public utility headquartered in Dubuque, Iowa, supplies electric and gas service to approximately 165,000 and 49,000 customers, respectively, in northeast Iowa, northwest Illinois and southern Minnesota. The proposed merger, which will be accounted for as a pooling of interests, was approved by the respective shareowners on September 5, 1996. The merger is conditioned on the receipt of approvals of several federal and state regulatory agencies. Updates to the status of these approvals are as follows (for additional information regarding the merger please refer to the Company's 1996 Annual Report on Form 10-K): The FERC issued an order on January 15, 1997, finding no substantial market-power concerns with the merger. Some limited issues were set for hearings which began on April 23, 1997 and ended on May 2, 1997. On July 3, 1997, an administrative law judge issued a non-binding recommendation that FERC approve the merger subject to the terms of a stipulation agreement on competition issues entered into between the companies and FERC trial staff. A final decision is expected in the fourth quarter of 1997. On May 7, 1997, the Illinois Commerce Commission (ICC) issued an order approving the proposed merger. On March 24, 1997, the Minnesota Public Utilities Commission (MPUC) issued an order approving the merger without hearings, subject to a number of technical conditions which the parties are willing to meet. Included is a 4-year rate freeze for IPC's Minnesota customers. On September 26, 1997, the IUB issued an order stating that it does not disapprove of the proposed merger. The order included a number of conditions, which the parties are willing to meet, including a 4-year rate freeze. On November 4, 1997, the PSCW issued an order approving the proposed merger. The approval included a number of conditions, which the parties are willing to meet, including a 4-year rate freeze. The SEC comment period ended November 5, 1996. Final review will commence following FERC approval. The merger partners have submitted new information to the U.S. Department of Justice (DOJ) pursuant to the Hart-Scott-Rodino Antitrust Improvements Act. The DOJ completed its impact review of the merger on market power and all requirements of such review were satisfied. The Nuclear Regulatory Commission (NRC) published its order in the Federal Register on August 28, 1997, allowing principal ownership and operations of the Duane Arnold Energy Center (DAEC) to transfer to Interstate Energy Corporation. The companies expect to receive all necessary regulatory approvals relating to the merger by the end of 1997. Refer to Note 3(a) of the Notes to Consolidated Financial Statements for a discussion of merger- related retail and wholesale price freezes at Utilities. RESULTS OF OPERATIONS OF THE COMPANY The following discussion analyzes significant changes in the components of net income and financial condition from the prior periods for the Company. Summary The Company's net income increased $10.9 million, $9.4 million and $13.4 million during the three, nine and twelve month periods, respectively. Earnings per average common share increased $0.34, $0.29 and $0.41 for the respective periods. Utilities' net income available for common stock increased $8.6 million, $6.0 million and $16.2 million during the three, nine and twelve month periods, respectively. Increased electric sales (excluding off-system sales) resulting from continuing growth in Utilities' service territory and more favorable weather conditions contributed to the increase in earnings for all periods. In comparing the three, nine and twelve month periods with the prior periods, the Company estimates that the weather impacted earnings per share by approximately $0.15, $0.10 and $0.12, respectively. The increase in earnings for all periods was also due to the takeover defense costs (approximately $0.15 per share) that the company incurred in the third quarter of 1996 and a lower effective tax rate. Partially offsetting the increase for all periods were increased interest and depreciation expenses. The nine and twelve month increases were also partially offset by the recording of a $2.5 million loss on non-utility investments at Utilities during the second quarter of 1997. The Company's operating income increased $11.9 million, $13.6 million and $26.0 million during the three, nine and twelve month periods, respectively, while Utilities' operating income increased $10.5 million, $12.3 million and $25.0 million during the same periods. Electric Operations Electric margins and Kwh sales for Utilities for the three months ended September 30 were as follows: Revenues and Costs Kwhs Sold (In thousands) (In thousands) 1997 1996 1997 1996 Residential and rural $ 71,252 $ 63,594 734,577 667,458 General service 30,670 28,085 318,645 295,997 Large general service 72,525 68,809 1,490,581 1,432,420 Sales for resale and other 9,384 9,066 148,108 148,369 Total, excluding off- system sales 183,831 169,554 2,691,911 2,544,244 Off-system sales 845 4,072 31,604 288,561 Total 184,676 173,626 2,723,515 2,832,805 Fuel for production (excluding steam) 24,458 27,106 Purchased power 18,749 18,655 Margin $ 141,469 $ 127,865 Electric margins and Kwh sales for Utilities for the nine months ended September 30 were as follows: Revenues and Costs Kwhs Sold (In thousands) (In thousands) 1997 1996 1997 1996 Residential and rural $ 174,245 $ 162,665 2,026,344 1,968,766 General service 77,687 72,622 920,048 886,972 Large general service 179,234 163,341 4,346,519 4,072,837 Sales for resale and other 24,469 23,080 420,995 435,340 Total, excluding off- system sales 455,635 421,708 7,713,906 7,363,915 Off-system sales 4,018 14,319 151,597 929,784 Total 459,653 436,027 7,865,503 8,293,699 Fuel for production (excluding steam) 72,507 65,734 Purchased power 52,472 55,125 Margin $ 334,674 $ 315,168 Electric margins and Kwh sales for Utilities for the twelve months ended September 30 were as follows: Revenues and Costs Kwhs Sold (In thousands) (In thousands) 1997 1996 1997 1996 Residential and rural $ 224,380 $ 208,313 2,691,282 2,582,785 General service 103,261 96,340 1,264,192 1,215,829 Large general service 229,115 208,406 5,774,288 5,419,536 Sales for resale and other 31,954 30,058 573,434 581,446 Total, excluding off- system sales 588,710 543,117 10,303,196 9,799,596 Off-system sales 9,189 19,879 453,110 1,285,161 Total 597,899 562,996 10,756,306 11,084,757 Fuel for production (excluding steam) 81,381 88,728 Purchased power 85,697 68,600 Margin $ 430,821 $ 405,668 The electric margin increased $13.6 million, $19.5 million and $25.2 million during the three, nine and twelve month periods, respectively, primarily due to higher Kwh sales (excluding off-system sales). The sales increases during all periods were due to continuing sales growth in Utilities' service territory and more favorable weather conditions. Revenues also increased significantly due to the recovery of previously deferred expenditures for state mandated energy efficiency programs pursuant to an IUB order (the majority of these recoveries are also amortized to expense in other operating expenses). Lower purchased power capacity costs also contributed to the increase in margin for all periods. Under historically normal weather conditions, total Kwh sales (excluding off-system sales) for the three, nine and twelve month periods would have increased 1.5%, 3.4% and 4.0%, respectively, as compared to actual increases of 5.8%, 4.8% and 5.1%. Refer to Notes 3(a) and 3(b) of the Notes to Consolidated Financial Statements for a discussion of merger-related retail and wholesale electric price freezes at Utilities and the energy efficiency cost recoveries, respectively. Utilities' electric tariffs include energy adjustment clauses (EAC) that are designed to currently recover the costs of fuel and the energy portion of purchased power billings. Gas Operations Gas margins and dekatherm (Dth) sales for Utilities and Industrial Energy Applications, Inc. (IEA), a wholly-owned subsidiary under Diversified, for the three months ended September 30 were as follows: Revenues and Costs Dths Sold (In thousands) (In thousands) 1997 1996 1997 1996 Utilities - Residential $ 8,802 $ 6,968 1,025 1,013 Commercial 4,259 3,031 758 711 Industrial 1,656 1,364 440 472 Transportation and other 790 806 2,287 2,308 Total Utilities 15,507 12,169 4,510 4,504 IEA - 16,292 - 6,777 Total 15,507 28,461 4,510 11,281 Gas purchased for resale 7,795 20,841 Margin $ 7,712 $ 7,620 Gas margins and Dth sales for Utilities and IEA for the nine months ended September 30 were as follows: Revenues and Costs Dths Sold (In thousands) (In thousands) 1997 1996 1997 1996 Utilities - Residential $ 75,037 $ 64,754 11,140 11,894 Commercial 37,078 30,322 6,520 6,838 Industrial 7,926 6,027 1,874 1,885 Transportation and other 2,670 2,751 7,507 7,613 Total Utilities 122,711 103,854 27,041 28,230 IEA 2,670 57,258 978 23,914 Total 125,381 161,112 28,019 52,144 Gas purchased for resale 88,136 120,091 Margin $ 37,245 $ 41,021 Gas margins and Dth sales for Utilities and IEA for the twelve months ended September 30 were as follows: Revenues and Costs Dths Sold (In thousands) (In thousands) 1997 1996 1997 1996 Utilities - Residential $ 107,991 $ 94,586 16,927 17,546 Commercial 53,722 44,061 10,005 10,075 Industrial 14,155 9,583 3,784 3,139 Transportation and other 3,852 3,676 10,235 10,355 Total Utilities 179,720 151,906 40,951 41,115 IEA 58,527 72,760 20,118 32,241 Total 238,247 224,666 61,069 73,356 Gas purchased for resale 185,396 166,538 Margin $ 52,851 $ 58,128 Total gas margin increased or (decreased) $0.1 million, ($3.8) million and ($5.3) million during the three, nine and twelve month periods, respectively. The decreases during the nine and twelve month periods were primarily due to lower gas margins at IEA. IEA's reported Dth gas sales were significantly lower during each period as a result of IEA contributing substantially all of its gas marketing business to a joint venture, effective January 1, 1997, in exchange for a partial interest in the joint venture. The investment in the joint venture is accounted for under the equity accounting method and IEA's allocated portion of gas revenues and gas expenses resulting from the joint venture are recorded in "Miscellaneous, net" on Industries' Consolidated Statements of Income. Utilities' gas margin increased or (decreased) $0.5 million, ($1.1) million and $0.1 million during the three, nine and twelve month periods, respectively. The decrease in Utilities' margin during the nine month period was primarily due to lower Dth sales resulting from less favorable weather conditions in 1997. Under historically normal weather conditions, Utilities' gas sales and transported volumes would have increased or (decreased) 1.2%, (1.2%) and 1.0% during the three, nine and twelve month periods, respectively, as compared to actual increases or (decreases) of 0.1%, (4.2%) and (0.4%). The contrasting relationship between the change in Utilities' gas revenues and Dths sold during the nine and twelve month periods was primarily due to higher per unit gas costs during the 1997 periods. Utilities' gas tariffs include purchased gas adjustment clauses (PGA) that are designed to currently recover the cost of gas sold. Refer to Note 3(a) of the Notes to Consolidated Financial Statements for a discussion of a merger-related gas price freeze at Utilities. Other Revenues The Company's other revenues increased $1.8 million, $11.0 million and $19.9 million during the three, nine and twelve month periods, respectively ($1.2 million, $6.1 million and $8.8 million at Utilities). Steam revenues at Utilities increased during all periods due to an increase in volumes sold resulting from the addition of a new industrial customer and increased demand from existing customers. Increased operating activities at IEA also contributed to the increases during the nine and twelve month periods. Operating Expenses The Company's other operating expenses increased or (decreased) $3.5 million, $5.0 million and $2.0 million during the three, nine and twelve month periods, respectively ($5.2 million, $4.7 and ($0.2) million at Utilities). The increase for all periods was primarily due to increased amortization of previously deferred energy efficiency expenditures at Utilities and increased international and domestic business development activities at Diversified, partially offset by lower operating expenses at Whiting. The nine and twelve month increases were also due to the increased operating activities at IEA, partially offset by decreased operating expenses at the DAEC, Utilities' nuclear generating facility. The Company's and Utilities' maintenance expenses increased or (decreased) ($1.0) million, $0.2 million and ($0.9) million during the three, nine and twelve month periods, respectively. The three month decrease was primarily due to decreased maintenance activities at Utilities' fossil-fueled generating stations. The twelve month decrease was primarily due to lower maintenance expenses at the DAEC, partially offset by increased maintenance activities on Utilities' transmission and distribution facilities. The Company's depreciation and amortization expense increased $0.2 million, $3.0 million and $5.0 million during the three, nine and twelve month periods, respectively (($0.1) million, $2.6 million and $2.9 million at Utilities), primarily because of increases in utility plant in service. The twelve month increase was also due to increases in amortization costs of Whiting's oil and gas properties. Depreciation and amortization expenses for all periods include a provision for decommissioning the DAEC, which is collected through rates. The current annual recovery level is $6.0 million. During the first quarter of 1996, the Financial Accounting Standards Board (FASB) issued an Exposure Draft on Accounting for Liabilities Related to Closure and Removal of Long-Lived Assets which deals with, among other issues, the accounting for decommissioning costs. If current electric utility industry accounting practices for such decommissioning are changed: (1) annual provisions for decommissioning could increase and (2) the estimated cost for decommissioning could be recorded as a liability, rather than as accumulated depreciation, with recognition of an increase in the recorded amount of the related DAEC plant. If such changes are required, Utilities believes that there would not be an adverse effect on its financial position or results of operations based on current rate making practices. Interest Expense and Other The Company's interest expense increased $2.7 million, $7.3 million and $9.6 million during the three, nine and twelve month periods, respectively ($1.9 million, $5.1 million and $4.4 million at Utilities), primarily because of increases in the average amount of borrowings at Diversified and the amount of long-term debt outstanding at Utilities. The three month increase was partially offset by decreases in the average amount of short-term debt outstanding at Utilities. Miscellaneous, net for the Company reflects comparative increases in income of $6.8 million, $2.7 million and $1.5 million during the three, nine and twelve month periods, respectively ($5.6 million, $3.2 million and $3.5 million at Utilities). Approximately $7.5 million of costs were incurred during the three month period ended September 30, 1996 relating to the successful defense of the hostile takeover attempt mounted by MidAmerican Energy Company. The nine and twelve month increases were partially offset by the recording of a $2.5 million loss on non-utility investments at Utilities during the second quarter of 1997 and certain property write-downs. Income Taxes The Company's income tax expense increased or (decreased) $5.2 million, ($0.9) million and $3.1 million during the three, nine and twelve month periods, respectively ($5.6 million, $3.8 million and $6.5 million at Utilities). Higher pre-tax income contributed to the three and twelve month increases and partially offset the nine month decrease. The impact of a tax deduction resulting from the contribution of 300,000 shares of the Company's investment in McLeodUSA Inc. (McLeod) to the IES Charitable Foundation partially offset the three and twelve month increases and contributed to the nine month decrease. Reserves recorded during the first and second quarters of 1996 related to an Internal Revenue Service (IRS) audit for tax years 1991-1993 also contributed to the nine month decrease and partially offset the twelve month increase. CONSOLIDATED BALANCE SHEETS Pursuant to the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the carrying value of the McLeod investment was adjusted from a cost basis to estimated fair value at September 30, 1997, based on the September 30 closing price, given that the McLeod shares have become qualified for sale within a one year period. The adjustment included an increase to "Investment in McLeodUSA Inc." of $374 million, an increase to "Unrealized security gains (net of taxes)" of $219 million and an increase to "Accumulated deferred income taxes" of $155 million. (See note 5(a) for a further discussion of the McLeod investment). The $50 million decrease in "Accounts payable" at September 30, 1997, compared to December 31, 1996, was primarily due to a decrease in natural gas payables caused by the seasonal nature of the natural gas business and the accounting change for IEA's gas business resulting from the formation of the joint venture. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily attributable to Utilities' construction programs, its debt maturities and the level of Diversified's business opportunities. The Company's pretax ratio of times interest earned was 2.90 and 2.93 for the twelve months ended September 30, 1997 and September 30, 1996, respectively. Cash flows from operating activities for the twelve months ended September 30, 1997 and September 30, 1996 were $199 million and $182 million, respectively. The Company anticipates that future capital requirements will be met by cash generated from operations and external financing. The level of cash generated from operations is partially dependent upon economic conditions, legislative activities, environmental matters and timely regulatory recovery of Utilities' costs. See Notes 3 and 7 of the Notes to Consolidated Financial Statements as well as the Company's 1996 Annual Report on Form 10-K. Access to the long-term and short-term capital and credit markets, and costs of external financing, are dependent on the Company's creditworthiness. The Company's debt ratings are as follows: Moody's Standard & Poor's Utilities - Secured long-term debt A2 A+ - Unsecured long-term debt A3 A- - Commercial paper P1 A1 Diversified - Commercial paper P2 A2 The Company's liquidity and capital resources will be affected by environmental, regulatory and competitive issues, including the ultimate disposition of remediation issues surrounding the Company's environmental liabilities and the Clean Air Act as amended, as discussed in Note 7 of the Notes to Consolidated Financial Statements and the Company's 1996 Annual Report on Form 10-K, and emerging competition in the electric utility industry as discussed in the Competition section. Consistent with rate making principles of the IUB, management believes that the costs incurred for the above matters will not have a material adverse effect on the financial position or results of operations of the Company. At September 30, 1997, Utilities had approximately $65 million of energy efficiency program costs recorded as regulatory assets. See Note 3(b) of the Notes to Consolidated Financial Statements for a discussion of the recovery of these costs. At September 30, 1997, the Company had an investment in McLeodUSA Inc., a telecommunications company, valued at $403.0 million based on the September 30 closing price. See Note 5(a) of the Notes to Consolidated Financial Statements for further information concerning the Company's investment in McLeodUSA, including recent accounting changes. The Company has financial guarantees amounting to $18.8 million outstanding at September 30, 1997, which are not reflected in the consolidated financial statements. Such guarantees are generally issued to support third-party borrowing arrangements and similar transactions. The Company believes that any possible cash payments associated with these agreements will not have a material adverse effect on the financial position or results of operations of the Company. The Company continues to explore domestic investment opportunities, including investments in the domestic utility business. Such investments could be significant. At September 30, 1997, the Company had approximately $47.7 million of investments in foreign entities (see Note 5(b) of the Notes to Consolidated Financial Statements for a further discussion). In addition, the Company also continues to explore other international investment opportunities. Such investments may carry a higher level of risk than the Company's traditional domestic utility investments or Diversified's domestic investments. Such risks could include foreign government actions, foreign economic and currency risks and others. The Company may also incur business development expenses for potential projects pursued by the Company that may never materialize. The Board of Directors recently authorized the Company to pursue and propose additional foreign investments, not to exceed $300 million, in Brazil, which is undergoing a privatization of its electric companies. The Company is striving to select international investments where these risks are both understood and manageable. The Resale Power Group of Iowa (RPGI), consisting of virtually all of Utilities' wholesale customers, has notified Utilities that it will not purchase its power supply from Utilities after December 31, 1998. It is possible that certain RPGI customers will drop out of RPGI in order to remain as Utilities' customers; to-date, three of the thirty customers have signed contracts to remain with Utilities. All RPGI customers will continue to purchase transmission services from Utilities after December 31, 1998. While the Company cannot determine the outcome of this issue at this time, the result will not have a material adverse effect on its financial position or results of operations given 1) Utilities' wholesale sales only account for approximately 5% of Utilities' total electric sales, excluding off-system sales; 2) Utilities currently has to supplement its generating capability with purchased power to meet its sales load; 3) Utilities' annual electric sales growth rate continues to be strong; and 4) Utilities will continue to realize transmission revenues from such customers. Under provisions of the Merger Agreement, there are restrictions on the amount of common stock and long-term debt the Company can issue pending the merger. The Company does not expect the restrictions to have a material effect on its ability to meet its future capital requirements. CONSTRUCTION AND ACQUISITION PROGRAM The Company's construction and acquisition program anticipates expenditures of approximately $225 million for 1997, of which approximately $147 million represents expenditures at Utilities and approximately $78 million represents expenditures at Diversified. Of the $147 million of Utilities' expenditures, 39% represents expenditures for electric transmission and distribution facilities, 21% represents electric generation expenditures, 21% represents information technology expenditures and 5% represents gas expenditures. The remaining 14% represents miscellaneous electric, steam and general expenditures. Diversified's anticipated expenditures include approximately $75 million for domestic and international energy-related construction and acquisition expenditures. In addition to these anticipated expenditures, the Board of Directors recently authorized the Company to pursue and propose additional foreign investments, not to exceed $300 million, in Brazil, which is undergoing a privatization of its electric companies. The Company had construction and acquisition expenditures of approximately $119 million for the nine months ended September 30, 1997, including approximately $74 million of utility expenditures and $45 million of non-utility expenditures. The Company's levels of construction and acquisition expenditures are projected to be $208 million in 1998, $212 million in 1999, $182 million in 2000 and $198 million in 2001. It is estimated that virtually all of Utilities' construction and acquisition expenditures will be provided by cash from operating activities (after payment of dividends) for the five-year period 1997-2001. Financing plans for Diversified's construction and acquisition program will vary, depending primarily on the level of energy-related acquisitions. Capital expenditure and investment and financing plans are subject to continual review and change. The capital expenditure and investment programs may be revised significantly as a result of many considerations including changes in economic conditions, variations in actual sales and load growth compared to forecasts, requirements of environmental, nuclear and other regulatory authorities, acquisition and business combination opportunities, the availability of alternate energy and purchased power sources, the ability to obtain adequate and timely rate relief, escalations in construction costs and conservation and energy efficiency programs. Under provisions of the Merger Agreement, there are restrictions on the amount of construction and acquisition expenditures the Company can make pending the merger. The Company does not expect the restrictions to have a material effect on its ability to implement its anticipated construction and acquisition program. LONG-TERM FINANCING Other than Utilities' periodic sinking fund requirements, which Utilities intends to meet by pledging additional property, the following long-term debt will mature prior to December 31, 2001: (in millions) Utilities $ 184.0 Diversified's credit facility 191.3 Other subsidiaries' debt 10.9 $ 386.2 The Company intends to refinance the majority of the debt maturities with long-term securities. In August 1997, Utilities issued $135 million of 6-5/8% Senior Debentures, due 2009. The proceeds from these debentures were used to reduce Utilities' short-term borrowings. Utilities repaid at maturity $8 million of 6-1/8% First Mortgage Bonds during the second quarter of 1997. Also in the second quarter of 1997, Utilities issued $55 million of Collateral Trust Bonds, 6.875%, due 2007. Holders thereof may elect to have their Collateral Trust Bonds redeemed, in whole but not in part, on May 1, 2002, at 100% of the principal amount thereof, plus accrued interest. The proceeds from the Collateral Trust Bonds were used to refinance $15 million of Series L, 7.875% First Mortgage Bonds, $30 million of Series M, 7.625% First Mortgage Bonds and $10 million of 7.375% First Mortgage Bonds. In 1993, Utilities entered into an Indenture of Mortgage and Deed of Trust dated as of September 1, 1993 (New Mortgage). The New Mortgage provides for, among other things, the issuance of Collateral Trust Bonds upon the basis of First Mortgage Bonds being issued by Utilities. The lien of the New Mortgage is subordinate to the lien of Utilities' first mortgages until such time as all bonds issued under the first mortgages have been retired and such mortgages satisfied. Accordingly, to the extent that Utilities issues Collateral Trust Bonds on the basis of First Mortgage Bonds, it must comply with the requirements for the issuance of First Mortgage Bonds under Utilities' first mortgages. Under the terms of the New Mortgage, Utilities has covenanted not to issue any additional First Mortgage Bonds under its first mortgages except to provide the basis for issuance of Collateral Trust Bonds. The indentures pursuant to which Utilities issues First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property and contain covenants which restrict the amount of additional bonds which may be issued. At September 30, 1997, such restrictions would have allowed Utilities to issue at least $229 million of additional First Mortgage Bonds. In order to provide an instrument for the issuance of unsecured subordinated debt securities, Utilities entered into an Indenture dated December 1, 1995 (Subordinated Indenture). The Subordinated Indenture provides for, among other things, the issuance of unsecured subordinated debt securities. Any debt securities issued under the Subordinated Indenture are subordinate to all senior indebtedness of Utilities, including First Mortgage Bonds, Collateral Trust Bonds and Senior Debentures. In order to provide an instrument for the issuance of senior unsecured debt securities, Utilities entered into an Indenture dated as of August 1, 1997 (Senior Unsecured Indenture). The Senior Unsecured Indenture provides for, among other things, the issuance of senior unsecured debt securities. Any debt securities issued under the Senior Unsecured Indenture will rank on parity with other unsecured unsubordinated debt of the Company. Subsequent to the issuance of $135 million of Senior Debentures in August 1997, Utilities does not have any remaining authority to issue additional long-term debt under either the current FERC docket or the current Securities and Exchange Commission shelf registrations. Utilities plans to evaluate future needs for authority to issue additional long-term debt. In October 1997, Diversified entered into a 3-Year Credit Agreement with various banking institutions which replaced its variable rate credit facility. Refer to Note 6(a) of the Notes to Consolidated Financial Statements for a further discussion of this agreement. The Articles of Incorporation of Utilities authorize and limit the aggregate amount of additional shares of Cumulative Preference Stock and Cumulative Preferred Stock that may be issued. At September 30, 1997, Utilities could have issued an additional 700,000 shares of Cumulative Preference Stock and no additional shares of Cumulative Preferred Stock. In addition, Industries had 5,000,000 shares of Cumulative Preferred Stock, no par value, authorized for issuance, none of which were outstanding at September 30, 1997. The Company's capitalization ratios at September 30, 1997 were as follows: Long-term debt 49% Preferred stock 1 Common equity 50 100% The Company's capitalization ratios were significantly impacted during the third quarter of 1997 by: 1) the issuance of $135 million of 6-5/8% Senior Debentures, and 2) the recognition of unrealized security gains relating to the investment in McLeod which was recorded, net of tax, directly in the common equity section on the balance sheet. Under provisions of the Merger Agreement, there are restrictions on the amount of common stock and long-term debt the Company can issue pending the merger. The Company does not expect the restrictions to have a material effect on its ability to meet its future capital requirements. SHORT-TERM FINANCING For interim financing, Utilities is authorized by the FERC to issue, through 1998, up to $200 million of short-term notes. In addition to providing for ongoing working capital needs, this availability of short-term financing provides Utilities flexibility in the issuance of long-term securities. At September 30, 1997, Utilities had no outstanding short-term borrowings. Utilities has an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of up to $65 million in its pool of utility accounts receivable. At September 30, 1997, Utilities had sold $65 million under the agreement. In October 1997, Diversified entered into a 364-Day Credit Agreement with various banking institutions which replaced its variable rate credit facility. Refer to Note 6(b) of the Notes to Consolidated Financial Statements for a further discussion of this agreement. At September 30, 1997, the Company had bank lines of credit aggregating $45.1 million. Utilities was using $11.1 million to support certain pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. From time to time, the Company may borrow from banks and other financial institutions in lieu of commercial paper. The Company has agreements with several financial institutions for such borrowings. There are no commitments associated with these agreements and there were no borrowings outstanding under these agreements at September 30, 1997. ENVIRONMENTAL MATTERS Utilities has been named as a Potentially Responsible Party (PRP) by various federal and state environmental agencies for 28 FMGP sites. Utilities has recorded environmental liabilities related to the FMGP sites of approximately $33 million (including $4.7 million as current liabilities) at September 30, 1997. Regulatory assets of approximately $33 million, which reflect the future recovery that is being provided through Utilities' rates, have been recorded in the Consolidated Balance Sheets. Considering the current rate treatment allowed by the IUB, management believes that the clean-up costs incurred by Utilities for these FMGP sites will not have a material adverse effect on its financial position or results of operations. Refer to Note 7(a) of the Notes to Consolidated Financial Statements for a further discussion, including a discussion of a lawsuit filed by Utilities seeking recovery of FMGP-related costs from its insurance carriers. The Clean Air Act Amendments of 1990 (Act) requires emission reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve reductions of atmospheric chemicals believed to cause acid rain. The acid rain program under the Act also governs SO2 allowances. The Act and other federal laws also require the United States Environmental Protection Agency (EPA) to study and regulate, if necessary, additional issues that potentially affect the electric utility industry, including emissions relating to NOx and mercury, toxic release inventories and modifications to the PCB rules. In July 1997, the EPA issued new rules pertaining to ozone and particulate matter emissions. In 1995, the EPA published the Sulfur Dioxide Network Design Review for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst- case modeling method suggests that the Cedar Rapids area could be classified as "nonattainment" for the National Ambient Air Quality Standards established for SO2. The worst-case modeling study suggested that two of Utilities' generating facilities contribute to the modeled exceedences. Utilities entered into a consent order with the Iowa Department of Natural Resources (IDNR) in the third quarter of 1997 on this issue and has subsequently proposed certain modifications to the consent order in response to comments provided by the EPA to the IDNR. Pursuant to a routine review of operations, Utilities determined that certain changes undertaken during the previous three years at one of its power plants may have required a federal Prevention of Significant Deterioration (PSD) permit. Refer to Note 7(b) of the Notes to Consolidated Financial Statements for a further discussion of the above mentioned air quality issues. The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." Refer to Note 7(a) of the Notes to Consolidated Financial Statements for a further discussion. The Nuclear Waste Policy Act of 1982 (NWPA) assigned responsibility to the U.S. Department of Energy (DOE) to establish a facility for the ultimate disposition of high level waste and spent nuclear fuel and authorized the DOE to enter into contracts with parties for the disposal of such material beginning in January 1998. Utilities entered into such a contract and has made the agreed payments to the Nuclear Waste Fund (NWF) held by the U.S. Treasury, however, Utilities has since been formally notified by the DOE that they anticipate being unable to begin acceptance of spent nuclear fuel by January 31, 1998. Furthermore, the DOE has experienced significant delays in its efforts and material acceptance is now expected to occur no earlier than 2010 with the possibility of further delay being likely. Utilities is evaluating and pursuing multiple options including litigation and legislation to protect its customers and its contractual and statutory rights that are diminished by delays in the DOE program. The NWPA assigns responsibility of interim storage of spent nuclear fuel to generators of such spent nuclear fuel, such as Utilities. In accordance with this responsibility, Utilities has been storing spent nuclear fuel on-site since plant operations began in 1974 and has current on-site capability to store spent fuel until 2001. Utilities is currently reviewing options for expanding on-site storage capability. To provide assurance that both the short and long term storage needs are satisfied, a combination of expanding the capacity of the existing fuel pool and construction of a dry cask modular facility may provide the best solution. Analysis and discussion of this and other options continues. The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated that each state must take responsibility for the storage of low- level radioactive waste produced within its borders. The State of Iowa is a member of the Midwest Interstate Low-Level Radioactive Waste Compact Commission (Compact), which is responsible for any development of new disposal capability within the member states of the Compact. In June 1997, the Compact commissioners voted to discontinue work on a proposed waste disposal facility in the State of Ohio because the expected cost of such a facility was comparably higher than other options currently available. At September 30, 1997, Utilities had prepaid costs of approximately $1.1 million to the Compact. Utilities expects to receive these funds back from the Compact by the end of the year. The Compact is currently evaluating its plans for the future. Utilities continues to ship the waste it produces to a disposal facility located near Barnwell, South Carolina, thereby minimizing the amount of low-level waste stored on-site. Utilities has on-site storage capability that would be available in the event of disruptions of shipments to the Barnwell facility. Whiting is responsible for certain dismantlement and abandonment costs related to various off-shore oil and gas properties. Refer to Note 7(a) of the Notes to Consolidated Financial Statements for a further discussion. OTHER MATTERS Year 2000 The Company utilizes software, embedded systems, and related technologies throughout its businesses that will be affected by the date change in the Year 2000. An internal project is currently under way to determine the full scope, work plan and related costs to insure that its systems continue to meet its customer and internal needs. The Company has begun to incur expenses to resolve this issue. These expenses may continue through the year 1999 and may be significant. Labor Issues Utilities has six collective bargaining agreements, covering approximately 54% of its workforce. None of the agreements expires in 1997. Two of the agreements, covering less than 5% of Utilities' workforce, will expire in 1998. Financial Derivatives The Company has a policy that financial derivatives are to be used only to mitigate business risks and not for speculative purposes. Derivatives have been used by the Company on a very limited basis. At September 30, 1997, the Company did not have any material financial derivatives outstanding. Accounting Pronouncements SFAS 128, Earnings Per Share, was issued by the FASB in the first quarter of 1997. SFAS 128 deals with, among other issues, the computation and disclosure of earnings per share amounts when a company has stock options, warrants and/or convertible securities outstanding. SFAS 128 is effective for periods ending after December 15, 1997, and is not expected to have a material impact upon adoption. SFAS 130, Reporting Comprehensive Income, was issued by the FASB in the second quarter of 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 will require the Company to report a total for comprehensive income which includes, among other items (a) unrealized holding gains / losses on securities classified as available-for-sale under SFAS 115, (b) foreign currency translation adjustments accounted for under SFAS 52, and (c) minimum pension liability adjustments made pursuant to SFAS 87. SFAS 130 is effective for periods beginning after December 15, 1997. SFAS 131, Disclosures About Segments of an Enterprise and Related Information, was issued by the FASB in the second quarter of 1997. SFAS 131 requires disclosures for each business segment that are similar to those required under current standards with the addition of quarterly disclosure requirements and a finer partitioning of geographic disclosures. SFAS 131 is effective for periods beginning after December 15, 1997. Joint Venture On June 11, 1997, WPLH announced the formation of a joint venture with Cargill. The joint venture, to be named Cargill-IEC, will be an energy-commodity trading company that will offer a range of energy trading, marketing and risk management services to wholesale electric customers. Power trading will begin under the joint venture upon receipt of a FERC license which is anticipated during the fourth quarter of 1997. Interstate Energy Corporation will ultimately be the formal partner with Cargill in the new joint venture. Inflation The Company does not expect the effects of inflation at current levels to have a significant effect on its financial position or results of operations. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On April 30, 1996, Utilities filed suit, IES Utilities Inc. v. Home Ins. Co., et al., No. 4-96-CV-10343 (S.D. Iowa filed Apr. 30, 1996), against various insurers who had sold comprehensive general liability policies to Iowa Southern Utilities Company (ISU) and Iowa Electric Light and Power Company (IE) (Utilities was formed as the result of a merger of ISU and IE). The suit seeks judicial determination of the respective rights of the parties, a judgment that each defendant is obligated under its respective insurance policies to pay in full all sums that Utilities has become or may become obligated to pay in connection with its defense against allegations of liability for property damage at and around Former Manufactured Gas Plant (FMGP) sites, and indemnification for all sums that it has or may become obligated to pay for the investigation, mitigation, prevention, remediation and monitoring of damage to property, including damage to natural resources like groundwater, at and around the FMGP sites. Settlement discussions are proceeding between Utilities and its insurance carriers regarding the recovery of these FMGP-related costs. Settlement has been reached with ten carriers and an agreement in principle has been reached with four other carriers thus far. Amounts received from insurance carriers are being deferred pending a determination of the regulatory treatment of such recoveries. Industries, Diversified, IES Energy Inc. (a wholly-owned subsidiary of Diversified), MicroFuel Corporation (the Corporation) now known as Ely, Inc. in which IES Energy has a 69.40% equity ownership, and other parties have been sued in Linn County District Court in Cedar Rapids, Iowa, by Allen C. Wiley. Mr. Wiley claims money damages on various tort and contract theories arising out of the 1992 sale of the assets of the Corporation, of which Mr. Wiley was a director and shareholder. All of the defendants in Mr. Wiley's suit answered the complaint and denied liability. Industries and Diversified were dismissed from the suit in a motion for summary judgment. In addition, a grant of summary judgment has reduced Mr. Wiley's claims against the remaining parties to breach of fiduciary duty. A separate motion for summary judgment, which was filed seeking dismissal of the remaining claims against the remaining parties, was overruled on September 20, 1996, and the trial has been set for May 1998. All of the defendants are vigorously contesting the claims. The Corporation commenced a separate suit to determine the fair value of Mr. Wiley's shares under Iowa Code section 490. A decision was issued on August 31, 1994, by the Linn County District Court ruling that the value of Mr. Wiley's shares was $377,600 based on a 40 cent per share valuation. The Corporation contended that the value of Mr. Wiley's shares was 2.5 cents per share. The Decision was appealed to the Iowa Supreme Court by the Corporation on a number of issues, including the Corporation's position that the trial court erred as a matter of law in discounting the testimony of the Corporation's expert witness. The Iowa Supreme Court assigned the case to the Iowa Court of Appeals. On February 2, 1996, the Iowa Court of Appeals reversed the District Court ruling after determining the District Court erred in discounting the expert testimony. The case was remanded back to the District Court for consideration of the expert testimony, but with no additional evidence taken. The District Court re-affirmed its original decision on August 28, 1996, and the Corporation has again appealed to the Iowa Supreme Court. On October 3, 1996, Lambda Energy Marketing Company, L. C. (Lambda) filed a request with the IUB that the IUB initiate formal complaint proceedings against Utilities. Lambda alleged that Utilities was discriminating against it by refusing to enter into contracts with it for remote displacement service and by favoring IEA, a subsidiary of the Company, in such matters. On October 17, 1996, Utilities filed a Response which denied the allegations, and alleged, inter alia, that Lambda was unlawfully attempting to provide retail electrical services in Utilities' exclusive service territory. On August 25, 1997, the IUB issued its Final Decision and Order rejecting Lambda's complaint. On October 10, 1997, the IUB issued its rehearing order which again rejected Lambda's complaint. On October 9, 1996, the Company filed a civil suit in the Iowa District Court in and for Linn County against Lambda, Robert Latham, Louie Ervin, and David Charles (three former employees of the Company and/or its subsidiaries), collectively the "Defendants", alleging, inter alia, violations of Iowa's trade secret act and interference with existing and prospective business advantage. On November 1, 1996, the Defendants filed their Answer and Counterclaims alleging, inter alia, violation of Iowa competition law, tortious interference and commercial disparagement. The Defendants therewith also filed a Third-Party Petition against Utilities, IEA and Lee Liu, Chairman of the Board & Chief Executive Officer of Industries and Utilities, alleging, inter alia, tortious interference and commercial disparagement. On April 9, 1997, Utilities amended its suit to include Central Iowa Power Cooperative (CIPCO) alleging that it, too, inter alia had violated Iowa's trade secret act, and had tortiously interfered with existing and prospective business advantage. Utilities is in the process of dismissing CIPCO from the suit. Reference is made to Notes 3 and 7 of Industries' Notes to Consolidated Financial Statements for a discussion of Utilities' rate proceedings and the Company's environmental matters, respectively, and Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition - Environmental Matters. Item 2. Changes in the Rights of the Company's Security Holders. Under provisions of the 3-Year and 364-Day Credit Agreements recently entered into by Diversified, declaration of common dividends by Industries could be restricted prior to its pending merger if certain provisions are not met. The Company does not anticipate such provisions will restrict any future dividend payments. Item 3. Default Upon Senior Securities. None. Item 4. Results of Votes of Security Holders. None. Item 5. Other Information. (a) IES Utilities Inc. has calculated their ratio of earnings to fixed charges pursuant to Item 503 of Regulation S-K of the Securities and Exchange Commission as follows: For the twelve months ended: September 30, 1997 3.19 December 31, 1996 3.23 December 31, 1995 3.04 December 31, 1994 3.18 December 31, 1993 3.41 December 31, 1992 2.49 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - 4(a) Fifth Supplemental Indenture, dated as of April 1, 1997, supplementing Utilities' Indenture of Mortgage and Deed of Trust, dated September 1, 1993. (Filed as Exhibit 4(a) to Industries' Form 10-Q for the quarter ended March 31, 1997 (File No. 1-9187)). 4(b) Sixty-third Supplemental Indenture, dated as of April 1, 1997, supplementing Utilities' Indenture of Mortgage and Deed of Trust, dated August 1, 1940. (Filed as Exhibit 4(b) to Industries' Form 10-Q for the quarter ended March 31, 1997 (File No. 1-9187)). 4(c) Commercial Paper Dealer Agreement, dated as of November 9, 1994, between IES Diversified Inc. and Citicorp Securities, Inc. (Filed as Exhibit 4(c) to Industries' Form 10- Q for the quarter ended March 31, 1997 (File No. 1-9187)). 4(d) First Amendment, dated as of March 24, 1997, to the Commercial Paper Dealer Agreement, dated as of November 9, 1994, between IES Diversified Inc. and Citicorp Securities, Inc. (Filed as Exhibit 4(d) to Industries' Form 10-Q for the quarter ended March 31, 1997 (File No. 1-9187)). 4(e) Indenture (For Senior Unsecured Debt Securities), dated as of August 1, 1997, between Utilities and The First National Bank of Chicago, as Trustee. (Filed as Exhibit 4(j) to Utilities' Registration Statement, File No. 333-32097). *4(f) 3-Year Credit Agreement dated as of October 20, 1997 among IES Diversified Inc. as Borrower, certain banks, First Chicago Capital Markets, Inc. as Syndication Agent and Citibank, N.A. as Agent. *4(g) 364-Day Credit Agreement dated as of October 20, 1997 among IES Diversified Inc. as Borrower, certain banks, First Chicago Capital Markets, Inc. as Syndication Agent and Citibank, N.A. as Agent. 10(a) Receivables Purchase and Sale Agreement dated as of June 30, 1989, as Amended and Restated as of February 28, 1997, among IES Utilities Inc. (as Seller) and CIESCO L.P. (as the Investor) and Citicorp North America, Inc. (as Agent). (Filed as Exhibit 10(a) to Industries' Form 10-Q for the quarter ended March 31, 1997 (File No. 1-9187)). 10(b) Director Retirement Plan. (Filed as Exhibit 10(b) to Industries' Form 10-Q for the quarter ended June 30, 1997 (File No. 1-9187)). *10(c) IES Industries Inc. Grantor Trust for Director Retirement Plan. *10(d) IES Industries Inc. Grantor Trust for Deferred Compensation Agreements. *10(e) IES Industries Inc. Grantor Trust for Supplemental Retirement Agreements. *10(f) IES Utilities Inc. Grantor Trust for Deferred Compensation Agreements. *10(g) IES Utilities Inc. Grantor Trust for Supplemental Retirement Agreements. *12 Ratio of Earnings to Fixed Charges (IES Utilities Inc.) *27(a) Financial Data Schedule (IES Industries Inc.) *27(b) Financial Data Schedule (IES Utilities Inc.) * Exhibits designated by an asterisk are filed herewith. (b) Reports on Form 8-K - IES Industries Inc. Items Reported Financial Statements Date of Report 5 None October 30, 1997 IES Utilities Inc. Items Reported Financial Statements Date of Report 5 None July 29, 1997 SIGNATURES Pursuant to the requirements 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. IES INDUSTRIES INC. (Registrant) Date: November 12, 1997 By /s/ Stephen W. Southwick (Signature) Stephen W. Southwick Vice President, General Counsel & Secretary By /s/ John E. Ebright (Signature) John E. Ebright Controller & Chief Accounting Officer SIGNATURES Pursuant to the requirements 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. IES UTILITIES INC. (Registrant) Date: November 12, 1997 By /s/ Stephen W. Southwick (Signature) Stephen W. Southwick Vice President, General Counsel & Secretary By /s/ John E. Ebright (Signature) John E. Ebright Controller & Chief Accounting Officer EX-4 2 EXHIBIT 4(f) [Conformed Copy] $450,000,000 3-YEAR CREDIT AGREEMENT Dated as of October 20, 1997 Among IES DIVERSIFIED INC. as Borrower and THE BANKS NAMED HEREIN as Banks FIRST CHICAGO CAPITAL MARKETS, INC. as Syndication Agent and CITIBANK, N.A. as Agent TABLE OF CONTENTS Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS ....................................................................... 2 SECTION 1.01. Certain Defined Terms. ................................ 2 SECTION 1.02. Computation of Time Periods ........................... 21 SECTION 1.03. Computations of Outstandings .......................... 21 SECTION 1.04. Accounting Terms ...................................... 21 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES ....................................................................... 22 SECTION 2.01. The A Advances ........................................ 22 SECTION 2.02. Making the A Advances. ................................ 22 SECTION 2.03. The B Advances ........................................ 24 SECTION 2.04. Fees .................................................. 28 SECTION 2.05. Reduction of the Commitments .......................... 28 SECTION 2.06. Repayment of A Advances ............................... 28 SECTION 2.07. Interest on A Advances ................................ 28 SECTION 2.08. Additional Interest on Eurodollar Rate Advances ....... 29 SECTION 2.09. Interest Rate Determination ........................... 30 SECTION 2.10. Voluntary Conversion of A Advances .................... 33 SECTION 2.11. Optional Prepayments of Advances ...................... 33 SECTION 2.12. Mandatory Prepayments ................................. 33 SECTION 2.13. Increased Costs ....................................... 34 SECTION 2.14. Illegality ............................................ 35 SECTION 2.15. Payments and Computations ............................. 36 SECTION 2.16. Taxes ................................................. 38 SECTION 2.17. Sharing of Payments, Etc. ............................. 40 SECTION 2.18. Extension of Termination Date ......................... 40 ARTICLE III CONDITIONS OF LENDING ....................................................................... 41 SECTION 3.01. Conditions Precedent to Closing ....................... 41 SECTION 3.02. Conditions Precedent to Each A Borrowing .............. 44 SECTION 3.03. Conditions Precedent to Each B Borrowing .............. 45 SECTION 3.04. Reliance on Certificates .............................. 46 ARTICLE IV REPRESENTATIONS AND WARRANTIES ....................................... 46 SECTION 4.01. Representations and Warranties of the Borrower ........ 46 ARTICLE V COVENANTS OF THE BORROWER ............................................ 49 SECTION 5.01. Affirmative Covenants ................................. 49 SECTION 5.02. Negative Covenants .................................... 54 ARTICLE VI EVENTS OF DEFAULT .................................................... 60 SECTION 6.01. Events of Default ..................................... 60 ARTICLE VII THE AGENT ............................................................ 63 SECTION 7.01. Authorization and Action .............................. 63 SECTION 7.02. Agent's Reliance, Etc ................................. 64 SECTION 7.03. Citibank, N.A. and Affiliates ......................... 64 SECTION 7.04. Lender Credit Decision ................................ 65 SECTION 7.05. Indemnification ....................................... 65 SECTION 7.06. Successor Agent ....................................... 65 ARTICLE VIII MISCELLANEOUS ........................................................ 66 SECTION 8.01. Amendments, Etc ....................................... 66 SECTION 8.02. Notices, Etc .......................................... 67 SECTION 8.03. No Waiver; Remedies ................................... 67 SECTION 8.04. Costs, Expenses, Taxes and Indemnification ............ 67 SECTION 8.05. Right of Set-off ...................................... 69 SECTION 8.06. Binding Effect ........................................ 70 SECTION 8.07. Assignments and Participations ........................ 70 SECTION 8.08. Confidentiality ....................................... 74 SECTION 8.09. WAIVER OF JURY TRIAL .................................. 75 SECTION 8.10. Consent ............................................... 75 SECTION 8.11. Governing Law ......................................... 75 SECTION 8.12. Relation of the Parties; No Beneficiary ............... 76 SECTION 8.13. Execution in Counterparts ............................. 76 3-YEAR CREDIT AGREEMENT Dated as of October 20, 1997 THIS 3-YEAR CREDIT AGREEMENT (this "Agreement") is made by and among: (i) IES DIVERSIFIED INC., an Iowa corporation (the "Borrower", which term shall include, following consummation of the Merger referred to herein, Heartland Development Corporation as successor by merger), all of whose common stock is owned on the date hereof by the Parent (as hereinafter defined), (ii) the banks (the "Banks") listed on the signature pages hereof and the other Lenders (as hereinafter defined) from time to time party hereto, and (iii) CITIBANK, N.A., as agent (the "Agent") for the Lenders hereunder. PRELIMINARY STATEMENTS (1) The Borrower, certain banks (the "Existing Banks") and Citibank, N.A., as agent for the Existing Banks, are parties to that certain Third Amended and Restated Credit Agreement, dated as of November 20, 1996 (the "Existing Facility"). (2) The Borrower desires to replace the Existing Facility with the revolving credit facilities created under this Agreement and the Other Credit Agreement referred to herein. (3) The Banks and the Agent are prepared to provide such facilities on the terms and conditions set forth herein, including but not limited to the condition that the Parent provide the Support Agreement described herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A Advance" means an advance by a Lender to the Borrower as part of an A Borrowing and refers to an Adjusted CD Rate Advance, a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of A Advance. "A Borrowing" means a borrowing consisting of simultaneous A Advances of the same Type, having the same Interest Period and ratably made or Converted on the same day by each of the Lenders pursuant to Section 2.02 or 2.10, as the case may be. All Advances of the same Type, having the same Interest Period and made or Converted on the same day shall be deemed a single Borrowing hereunder until repaid or next Converted. "A Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the A Advances made by such Lender. "Adjusted CD Rate" means, for any Interest Period for each Adjusted CD Rate Advance made as part of the same A Borrowing, an interest rate per annum equal to the sum of: (a) the rate per annum obtained by dividing (i) the rate of interest determined by the Agent to be the average (rounded upward to the nearest whole multiple of 1/100 of 1% per annum, if such average is not such a multiple) of the consensus bid rate determined by each of the Reference Banks for the bid rates per annum at 9:00 a.m. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period of New York certificate of deposit dealers of recognized standing selected by such Reference Bank for the purchase at face value of certificates of deposit of such Reference Bank in an amount substantially equal to such Reference Bank's Adjusted CD Rate Advance made as part of such A Borrowing and maturing on the last day of such Interest Period, by (ii) a percentage equal to 100% minus the Adjusted CD Rate Reserve Percentage (as defined below) for such Interest Period, plus (b) the Assessment Rate (as defined below) for such Interest Period. The "Adjusted CD Rate Reserve Percentage" for the Interest Period for each Adjusted CD Rate Advance comprising part of the same A Borrowing means the reserve percentage applicable on the first day of such Interest Period, as determined by the Agent, under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars with respect to liabilities consisting of or including (among other liabilities) U.S. dollar nonpersonal time deposits in the United States with a maturity equal to such Interest Period. The "Assessment Rate" for the Interest Period for each Adjusted CD Rate Advance comprising part of the same A Borrowing means the annual assessment rate estimated by the Agent on the first day of such Interest Period for determining the then current annual assessment payable by the Agent to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of the Agent in the United States. The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate Advance comprising part of the same A Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks on the first day of such Interest Period, subject, however, to the provisions of Section 2.09. "Adjusted CD Rate Advance" means an A Advance which bears interest as provided in Section 2.07(b). "Advance" means an A Advance or a B Advance. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; and (b) 1/2 of one percent per annum above the Federal Funds Rate. Each change in the Alternate Base Rate shall take effect concurrently with any change in such base rate or the Federal Funds Rate. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance, such Lender's CD Lending Office in the case of an Adjusted CD Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a B Advance, the office of such Lender notified by such Lender to the Agent as its Applicable Lending Office with respect to such B Advance. "Applicable Margin" means, for a Eurodollar Rate Advance, an Adjusted CD Rate Advance or Base Rate Advance, the number of basis points set forth below in the columns identified as Level 1, Level 2, Level 3 or Level 4 below, opposite the rate applicable to such Advance. Level 1 Level 2 Level 3 Level 4 S&P A- or better BBB+ BBB below BBB* and and and or Moody's A3 or better Baa1 Baa2 below Baa2* Basis Points Per Annum Eurodollar Rate 25.0 25.0 30.0 70.0 Adjusted CD Rate 37.5 37.5 42.5 82.5 Base Rate Advance 0 0 0 50.0 * or unrated The Applicable Margin will be based upon the Level corresponding to the Reference Ratings at the time of determination. Any change in the Applicable Margin resulting from a change in the Reference Ratings shall be effective as of the Borrowing date following the date on which the applicable rating agency announces the applicable change in ratings. If the Merger shall not have been consummated on or before December 31, 1997, the Applicable Margins shown for Level 2 shall apply to Level 1; those shown for Level 3 shall apply to Level 2 and those shown for Level 4 shall apply to Level 3. If the Merger is thereafter consummated, the Applicable Margins for the various Levels shall revert to those shown above, effective from the date of such consummation. Any change in the Applicable Margin resulting from the application of either or both of the two preceding sentences shall be effective immediately. "Applicable Rate" means: (i) in the case of each Base Rate Advance, a rate per annum equal at all times to the sum of the Alternate Base Rate in effect from time to time plus the Applicable Margin in effect from time to time; (ii) in the case of each Adjusted CD Rate Advance comprising part of the same A Borrowing, a rate per annum during each Interest Period equal at all times to the sum of the Adjusted CD Rate for such Interest Period plus the Applicable Margin in effect from time to time during such Interest Period; and (iii) in the case of each Eurodollar Rate Advance comprising part of the same A Borrowing, a rate per annum during each Interest Period equal at all times to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time during such Interest Period. "Available Commitment" means, for each Lender at any time on any day, the unused portion of such Lender's Commitment, computed after giving effect to all Extensions of Credit made or to be made on such day, the application of proceeds therefrom and all prepayments and repayments of Advances made on such day. "Available Commitments" means the aggregate of the Lenders' Available Commitments hereunder. "B Advance" means an advance by a Lender to the Borrower as part of a B Borrowing resulting from the auction bidding procedure described in Section 2.03. "B Borrowing" means a borrowing consisting of simultaneous B Advances from each of the Lenders whose offer to make one or more B Advances as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 2.03. "B Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-2 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from a B Advance(s) made by such Lender. "B Reduction" has the meaning assigned to that term in Section 2.01. "Base Rate Advance" means an A Advance that bears interest as provided in Section 2.07(a). "Borrowing" means an A Borrowing or a B Borrowing. Any A Borrowing consisting of A Advances of a particular Type may be referred to as being an A Borrowing of such "Type". "Business Day" means a day of the year on which banks are not required or authorized to close in New York City, Chicago, Illinois or Cedar Rapids, Iowa, and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings are carried on in the London interbank market. "CD Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "CD Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office or affiliate of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "Capitalized Lease Obligations" means obligations to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property which obligation is required to be classified and accounted for as a capital lease on a balance sheet prepared in accordance with generally accepted accounting principles, and for purposes hereof the amount of such obligations shall be the capitalized amount determined in accordance with such principles. "Cash and Cash Equivalents" means, with respect to any Person, the aggregate amount of the following, to the extent owned by such Person free and clear of all Liens, encumbrances and rights of others and not subject to any judicial, regulatory or other legal constraint: (i) cash on hand; (ii) Dollar demand deposits maintained in the United States with any commercial bank and Dollar time deposits maintained in the United States with, or certificates of deposit having a maturity of one year or less issued by, any commercial bank which has its head office in the United States and which has a combined capital and surplus of at least $100,000,000; (iii) eurodollar time deposits maintained in the United States with, or eurodollar certificates of deposit having a maturity of one year or less issued by, any commercial bank having outstanding unsecured indebtedness that is rated (on the date of acquisition thereof) A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured bank indebtedness); (iv) direct obligations of, or unconditionally guaranteed by, the United States and having a maturity of one year or less; (v) commercial paper rated (on the date of acquisition thereof) A-1 or P-1 or better by S&P or Moody's, respectively (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating commercial paper), and having a maturity of one year or less; (vi) obligations with any Lender or any other commercial bank in respect of the repurchase of obligations of the type described in clause (iv), above, provided that such repurchase obligations shall be fully secured by obligations of the type described in said clause (iv) and the possession of such obligations shall be transferred to, and segregated from other obligations owned by, such Lender or such other commercial bank; and (vii) preferred stock of any Person that is rated A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating preferred stock of entities engaged in such businesses). "Closing" means the day upon which each of the applicable conditions precedent enumerated in Section 3.01 shall be fulfilled to the satisfaction of, or waived with the consent of, the Lenders, the Agent and the Borrower. All transactions contemplated by the Closing shall take place on a Business Day on or prior to October 20, 1997, at the offices of King & Spalding, 1185 Avenue of the Americas, New York, New York 10036, at 10:00 a.m., or such later Business Day as the parties hereto may mutually agree. "Commitment" means, for each Lender, the obligation of such Lender to make Advances to the Borrower in an amount no greater than the amount set forth on Schedule I hereto or, if such Lender has entered into one or more Lender Assignments, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(c), in each such case as such amount may be reduced from time to time pursuant to Section 2.05. "Commitments" means the total of the Lenders' Commitments hereunder. The Commitments shall in no event exceed $450,000,000. "Consolidated Capital" means, with respect to any Person, at any date of determination, the sum of (c) Consolidated Debt of such Person, (d) consolidated equity of the common stockholders of such Person and its Consolidated Subsidiaries, (e) consolidated equity of the preference stockholders of such Person and its Consolidated Subsidiaries and (f) consolidated equity of the preferred stockholders of such Person and its Consolidated Subsidiaries, in each case determined at such date in accordance with generally accepted accounting principles. "Consolidated Debt" means, with respect to any Person, at any date of determination, the aggregate Debt of such Person and its Consolidated Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles, but shall not include Nonrecourse Debt of any Subsidiary of the Borrower. "Consolidated Subsidiary" means, with respect to any Person, any Subsidiary of such Person whose accounts are or are required to be consolidated with the accounts of such Person in accordance with generally accepted accounting principles. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type, or to the selection of a new, or the renewal of the same, Interest Period for Advances, as the case may be, pursuant to Section 2.09 or 2.10. "Debt" means, for any Person, any and all indebtedness, liabilities and other monetary obligations of such Person (i) for borrowed money or evidenced by bonds, debentures, notes or other similar instruments, (ii) to pay the deferred purchase price of property or services (except trade accounts payable arising and repaid in the ordinary course of business), (iii) Capitalized Lease Obligations, (iv) under reimbursement or similar agreements with respect to letters of credit (other than trade letters of credit) issued to support indebtedness or obligations of such Person or of others of the kinds referred to in clauses (i) through (iii), above, and clause (v), below, (v) reasonably quantifiable obligations under direct guaranties or indemnities, or under support agreements, in respect of, and reasonably quantifiable obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, or to assure an obligee against failure to make payment in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv), above, and (vi) in respect of unfunded vested benefits under Plans. In determining Debt for any Person, there shall be included accrued interest on the principal amount thereof to the extent such interest has accrued for more than six months. "Default Rate" means (i) with respect to the unpaid principal of or interest on any Advance, the greater of (A) 2% per annum above the Applicable Rate in effect from time to time for such Advance and (B) 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances and (ii) with respect to any other unpaid amount hereunder, 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances. "Direct Subsidiary" means, with respect to any Person, any Subsidiary directly owned by such Person. "Dollars" and the sign "$" each means lawful money of the United States. "Domestic Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender, or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent. "Eligible Assignee" means (a) a commercial bank or trust company organized under the laws of the United States, or any State thereof; (b) a commercial bank organized under the laws of any other country that is a member of the OECD, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States; (c) the central bank of any country that is a member of the OECD; and (d) any other commercial bank or other financial institution engaged generally in the business of extending credit or purchasing debt instruments; provided, however, that (A) any such Person shall also (i) have outstanding unsecured indebtedness that is rated A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured indebtedness of entities engaged in such businesses) or (ii) have combined capital and surplus (as established in its most recent report of condition to its primary regulator) of not less than $250,000,000 (or its equivalent in foreign currency), (B) any Person described in clause (b), (c), or (d), above, shall, on the date on which it is to become a Lender hereunder, (i) be entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes (as contemplated by Section 2.16) and (ii) not be incurring any losses, costs or expenses of the type for which such Person could demand payment under Section 2.13, and (C) any Person described in clauses (b), (c) and (d), above, shall, in addition, be reasonably acceptable to the Agent and the Borrower. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which is under common control within the meaning of the regulations under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended from time to time. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate of the Borrower from a Multiple Employer Plan during a plan year for which it was a "substantial employer", as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or an ERISA Affiliate of the Borrower to make a payment to a Plan required under Section 302(f)(1) of ERISA, which failure results in the imposition of a lien for failure to make required payments; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent. "Eurodollar Rate" means, for each Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance made as part of such A Borrowing and for a period equal to such Interest Period. The Eurodollar Rate for the Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.09. "Eurodollar Rate Advance" means an A Advance that bears interest as provided in Section 2.07(c). "Eurodollar Reserve Percentage" of any Lender for each Interest Period for each Eurodollar Rate Advance means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under Regulation D or other regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Events of Default" has the meaning assigned to that term in Section 6.01. "Existing Banks" has the meaning assigned to that term in Preliminary Statement (1) to this Agreement. "Existing Facility" has the meaning assigned to that term in Preliminary Statement (1) to this Agreement. "Extension of Credit" means the making of a Borrowing. For purposes of this Agreement, a Conversion shall not constitute an Extension of Credit. "Facility Fee" means a fee which shall be payable on the aggregate amount of the Commitments, irrespective of usage, to each Lender pro rata on the amount of their respective Commitments at the rate (expressed in basis points per annum) set forth below in the columns identified as Level 1, Level 2, Level 3 or Level 4, based on the Reference Ratings. Level 1 Level 2 Level 3 Level 4 S&P A- or better BBB+ BBB below BBB* and and and or Moody's A3 or better Baa1 Baa2 below Baa2* Basis Points 15.0 20.0 25.0 30.0 * or unrated The Facility Fee will be based upon the Level corresponding to the Reference Ratings at the time of determination. Any change in the Facility Fee resulting from a change in the Reference Ratings shall be effective as of the date on which the applicable rating agency announces the applicable change in ratings. If the Merger shall not have been consummated on or before December 31, 1997, the Facility Fee rate shown for Level 2 shall apply to Level 1; that shown for Level 3 shall apply to Level 2 and that shown for Level 4 shall apply to Level 3. If the Merger is thereafter consummated, the Facility Fee rates for the various Levels shall revert to those shown above, effective from the date of such consummation. Any change in the Applicable Margin resulting from the application of either or both of the two preceding sentences shall be effective immediately. "FDIC Assessment Rate" mean, during an Interest Period for CD Rate Advances comprising a single Borrowing, the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Agent as the then current annual assessment rate payable by the Agent to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in U.S. dollars at the Agent's domestic offices. The FDIC Assessment Rate shall be the same for all CD Rate Advances comprising the same Borrowing and shall be adjusted automatically on and as of he effective date of each change in any such rate. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain letter agreement, dated October 17, 1997, among the Borrower, the Agent and Citicorp Securities, Inc. "Governmental Approval" means any authorization, consent, approval, license, franchise, lease, ruling, tariff, rate, permit, certificate, exemption of, or filing or registration with, any governmental authority or other legal or regulatory body. "Hazardous Substance" means any waste, substance, or material identified as hazardous, dangerous or toxic by any office, agency, department, commission, board, bureau, or instrumentality of the United States or of the State or locality in which the same is located having or exercising jurisdiction over such waste, substance or material. "IES Utilities" means IES Utilities Inc., an Iowa corporation, all of whose common stock is owned on the date hereof by the Parent. "Information Memorandum" means the Confidential Information Memorandum relating to this Agreement and the Other Credit Agreement delivered (or to be delivered) by Citicorp Securities, Inc. and First Chicago Capital Markets, Inc. at the direction of the Borrower and the Parent to the Lenders. "Interest Period" means, for each A Advance made as part of the same A Borrowing, the period commencing on the date of such A Advance or the date of the Conversion of any A Advance into such an A Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be 30, 60, 90 or 180 days in the case of an Adjusted CD Rate Advance, and 1, 2, 3 or 6 months in the case of a Eurodollar Rate Advance, in each case as the Borrower may, upon notice received by the Agent not later than 12:00 noon (New York City time) (a) on the third Business Day prior to the first day of such Interest Period in the case of a Eurodollar Rate Advance and (b) on the second Business Day prior to the first day of such Interest Period in the case of an Adjusted CD Rate Advance, select; provided, however, that: (i) the Borrower may not select any Interest Period that ends after the Termination Date; (ii) Interest Periods commencing on the same date for A Advances comprising part of the same A Borrowing shall be of the same duration; and (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, in the case of any Interest Period for a Eurodollar Rate Advance, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "IPC" means Interstate Power Company, a Delaware corporation. "Lenders" means the Banks listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Lender Assignment" means an assignment and acceptance agreement entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit 8.07. "Lien" has the meaning assigned to that term in Section 5.02(a). "Loan Documents" means this Agreement, the Notes, the Support Agreement, the Fee Letter and all other agreements, instruments and documents now or hereafter executed and/or delivered pursuant hereto or thereto. "Majority Lenders" means, on any date of determination, Lenders that, collectively, on such date (i) hold at least 66- 2/3% of the then aggregate unpaid principal amount of the A Advances owing to Lenders and (ii) if no A Advances are then outstanding, have Percentages in the aggregate of at least 66- 2/3%. Any determination of those Lenders constituting the Majority Lenders shall be made by the Agent and shall be conclusive and binding on all parties absent manifest error. "McLeodUSA Stock" means the 8,977,600 shares of common stock of McLeodUSA Incorporated, a Delaware corporation, held by the Borrower as of the date of this Agreement. "Merger" means the merger of the Parent with and into WPL and the merger of the Borrower with and into Heartland Development Corporation, pursuant to an Agreement and Plan of Merger, dated as of November 10, 1995, as amended (the "Merger Agreement"), with the result that the Borrower, IES Utilities, Wisconsin Power and IPC will be wholly-owned Subsidiaries of WPL, which will be renamed Interstate Energy Corporation. "Moody's" means Moody's Investors Service, Inc. or any successor thereto. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the Borrower or any ERISA Affiliate of the Borrower is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Nonrecourse Debt" means any Debt that finances the acquisition, development, ownership or operation of an asset in respect of which the Person to which such Debt is owed has no recourse whatsoever to the Borrower or any of its Affiliates other than: (i) recourse to the named obligor with respect to such Debt (the "Debtor") for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic cash flow) from the asset; and (ii) recourse to the Debtor for the purpose only of enabling amounts to be claimed in respect of such Debt in an enforcement of any security interest or lien given by the Debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the Debtor over its shares or like interest in the capital of the Debtor) to secure the Debt, but only if: (A) the extent of the recourse to the Debtor is limited solely to the amount of any recoveries made on any such enforcement; and (B) the Person to which such Debt is owed is not entitled, by virtue of any right or claim arising out of or in connection with such Debt, to commence proceedings for the winding up or dissolution of the Debtor or to appoint or procure the appointment of any receiver, trustee, or similar Person or officer in respect of the Debtor or any of its assets (other than the assets subject to the security interest or lien referred to above); and (iii) recourse to the Debtor generally or indirectly to any Affiliate of the Debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for a breach of an obligation (other than a payment obligation or an obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by the Person against which such recourse is available. "Note" means an A Note or a B Note. "Notice of A Borrowing" has the meaning assigned to that term in Section 2.02(a). "Notice of B Borrowing" has the meaning assigned to that term in Section 2.03(a). "Notice of Conversion" has the meaning assigned to that term in Section 2.10. "OECD" means the Organization for Economic Cooperation and Development. "Other Credit Agreement" means the 364-Day Credit Agreement, dated as of October 20, 1997, among the Borrower, the lenders from time to time parties thereto and Citibank, N.A., as agent for such lenders. "Parent" means IES Industries Inc., an Iowa corporation, or any successor by merger thereto (including, upon consummation of the Merger, WPL) that succeeds to the obligations of IES Industries Inc. under, and in accordance with Section 2(e) of, the Support Agreement. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor entity) established under ERISA. "Percentage" means, for any Lender on any date of determination, the percentage obtained by dividing such Lender's Commitment on such day by the total of the Commitments on such date, and multiplying the quotient so obtained by 100%. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time. "Reference Banks" means Citibank, N.A. and The First National Bank of Chicago, and any additional or substitute Lenders as may be selected from time to time to act as Reference Banks hereunder by the Agent, the Majority Lenders and the Borrower. "Reference Ratings" means the ratings assigned by S&P and Moody's to: (i) prior to the consummation of the Merger, the Reference Securities of IES Utilities and (ii) following the consummation of the Merger, the lower of the two most highly rated Reference Securities. For purposes of the foregoing clause (i) and clause (ii), if the ratings assigned to such Reference Security by S&P and Moody's, respectively are not comparable (i.e. a "split rating"), the lower of such two ratings shall control. "Reference Securities" means, for each of IES Utilities, Wisconsin Power and IPC, such Utility's first mortgage bonds or other most senior secured non-credit enhanced long-term debt. "Register" has the meaning assigned to that term in Section 8.07(c). "S&P" means Standard & Poor's Corporation or any successor thereto. "Senior Financial Officer" means the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of the Borrower. "Significant Subsidiary" means any Subsidiary of the Borrower that, on a consolidated basis with any of its Subsidiaries as of any date of determination, accounts for more than 20% of the consolidated assets (valued at book value) of the Borrower and its Subsidiaries. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and no Person other than the Borrower and its ERISA Affiliates, or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subsidiary" means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one of more other Subsidiaries). In the case of an unincorporated entity, a Person shall be deemed to have more than 50% of interests having ordinary voting power only if such Person's vote in respect of such interests comprises more than 50% of the total voting power of all such interests in the unincorporated entity. "Support Agreement" means the 3-Year Support Agreement, dated as of the date hereof, between the Parent and the Borrower, substantially in the form of Exhibit 1.01B. "Termination Date" means the earliest to occur of (i) October 20, 2000 or such later date to which the Termination Date is extended in accordance with Section 2.18, (ii) September 1, 1998, if the Merger shall not have been consummated on or prior to May 10, 1998 and (iii) the date of termination or reduction in whole of the Commitments pursuant to Section 2.05 or 6.01. "Type" has the meaning assigned to that term (i) in the definition of "A Advance" when used in such context and (ii) in the definition of "Borrowing" when used in such context. "Unmatured Default" means an event that, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Utilities" means, collectively, IES Utilities, Wisconsin Power and IPC. "Wisconsin Power" means Wisconsin Power & Light Company, a Wisconsin corporation. "WPL" means WPL Holdings, Inc., a Wisconsin Corporation. SECTION 1.02. Computation of Time Periods. Unless otherwise indicated, each reference in this Agreement to a specific time of day is a reference to New York City time. In the computation of periods of time under this Agreement, any period of a specified number of days or months shall be computed by including the first day or month occurring during such period and excluding the last such day or month. In the case of a period of time "from" a specified date "to" or "until" a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.03. Computations of Outstandings. Whenever reference is made in this Agreement to the "principal amount outstanding" on any date under this Agreement, such reference shall refer to the aggregate principal amount of all Advances outstanding on such date after giving effect to all Extensions of Credit to be made on such date and the application of the proceeds thereof. SECTION 1.04. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles ("GAAP") consistent with those applied in the preparation of the financial statements referred to in Section 5(d) of the Support Agreement. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The A Advances. (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make A Advances to the Borrower from time to time on any Business Day during the period from the Closing until the Termination Date in an aggregate outstanding amount not to exceed at any time such Lender's Available Commitment, provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the B Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be applied to the Lenders ratably according to their respective Percentages (such deemed use of the aggregate amount of the Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate amount not less than $5,000,000 (or, if lower, the amount of the Available Commitments) or an integral multiple of $1,000,000 in excess thereof and shall consist of A Advances of the same Type made on the same day by the Lenders ratably according to their respective Percentages. Within the limits of each Lender's Commitment and as hereinabove and hereinafter provided, the Borrower may request Extensions of Credit hereunder, and repay or prepay Advances pursuant to Section 2.11 and utilize the resulting increase in the Available Commitments for further Extensions of Credit in accordance with the terms hereof. (b) In no event shall the Borrower be entitled to request or receive any Extensions of Credit that would cause the principal amount outstanding hereunder to exceed the Commitments. SECTION 2.02. Making the A Advances. (a) Each A Borrowing shall be made on notice, given not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances, (ii) on the second Business Day prior to the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Adjusted CD Rate Advances, and (iii) on the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, in each case by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of an A Borrowing (a "Notice of A Borrowing") shall be by telecopier, telex or cable, in substantially the form of Exhibit 2.02(a) hereto, specifying therein the requested (A) date of such A Borrowing, (B) Type of A Advances comprising such A Borrowing, (C) aggregate amount of such A Borrowing and (D) in the case of an A Borrowing comprised of Adjusted CD Rate Advances or Eurodollar Rate Advances, initial Interest Period for each such A Advance. Each Lender shall, before (x) 12:00 noon on the date of such A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances or Adjusted CD Rate Advances, and (y) 1:00 p.m. on the date of such A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such A Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will promptly make such funds available to the Borrower at the Agent's aforesaid address. (b) Each Notice of A Borrowing shall be irrevocable and binding on the Borrower. In the case of any A Borrowing which the related Notice of A Borrowing specifies is to be comprised of Adjusted CD Rate Advances or Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of A Borrowing for such A Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the A Advance to be made by such Lender as part of such A Borrowing when such A Advance, as a result of such failure, is not made on such date. (c) Unless the Agent shall have received notice from a Lender prior to the date of any A Borrowing that such Lender will not make available to the Agent such Lender's A Advance as part of such A Borrowing, the Agent may assume that such Lender has made such A Advance available to the Agent on the date of such A Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such A Advance available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to A Advances comprising such A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's A Advance as part of such A Borrowing for purposes of this Agreement. (d) The failure of any Lender to make the A Advance to be made by it as part of any A Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its A Advance on the date of such A Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the A Advance to be made by such other Lender on the date of any A Borrowing. SECTION 2.03. The B Advances. (a) Each Lender severally agrees that the Borrower may request B Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 30 days prior to the Termination Date in the manner, and subject to the terms and conditions, set forth below. The rates of interest offered by the Lenders and accepted by the Borrower for each B Borrowing shall be fixed rates per annum. (i) The Borrower may request a B Borrowing under this Section 2.03 by delivering to the Agent, by telecopier, telex or cable, a notice of a B Borrowing (a "Notice of B Borrowing"), in substantially the form of Exhibit 2.03(a)(i) hereto, specifying the date and aggregate amount of the proposed B Borrowing, the maturity date for repayment of each B Advance to be made as part of such B Borrowing (which maturity date may not be earlier than the date occurring 30 days after the date of such B Borrowing nor later than the earlier to occur of the then scheduled Termination Date and the date occurring 180 days following the date of such B Borrowing), the interest payment date or dates relating thereto, and any other terms to be applicable to such B Borrowing, not later than 3:00 p.m. at least one Business Day prior to the date of the proposed B Borrowing. The Agent shall in turn promptly notify each Lender of each request for a B Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of B Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more B Advances to the Borrower as part of such proposed B Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Agent (which shall give prompt notice thereof to the Borrower), before 11:00 a.m., on the date of such proposed B Borrowing, of the minimum amount and maximum amount of each B Advance which such Lender would be willing to make as part of such proposed B Borrowing (which amounts may, subject to the limitation contained in subsection (d), below, exceed such Lender's Commitment), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such B Advance; provided that if the Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 10:30 a.m. on the date on which notice of such election is to be given to the Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Agent before 11:00 a.m. on the date on which notice of such election is to be given to the Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any B Advance as part of such B Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any B Advance as part of such proposed B Borrowing. (iii) The Borrower shall, in turn, before 12:00 noon on the date of such proposed B Borrowing either (x) cancel such B Borrowing by either giving the Agent notice to that effect or failing to accept one or more offers as provided in clause (y), below, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii), above, in its sole discretion, by giving written notice to the Agent of the amount of each B Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Agent on behalf of such Lender for such B Advance pursuant to paragraph (ii), above) to be made by each Lender as part of such B Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii), above, by giving the Agent written notice to that effect. (iv) If the Borrower cancels such B Borrowing pursuant to paragraph (iii)(x), above, the Agent shall give prompt notice thereof to the Lenders and such B Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y), above, such acceptance shall be irrevocable and binding on the Borrower and, subject to the satisfaction of the applicable conditions set forth in Article III, on such Lender or Lenders. The Borrower shall indemnify each such Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill, on or before the date specified in the notice provided pursuant to paragraph (vii)(A), below, the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the B Advance to be made by such Lender as part of such B Borrowing when such B Advance, as a result of such failure, is not made on such date. (vi) Unless the Agent shall have received notice from a Lender prior to the date of any B Borrowing in which such Lender is required to participate that such Lender will not make available to the Agent such Lender's B Advance as part of such B Borrowing, the Agent may assume that such Lender has made such B Advance available to the Agent on the date of such B Borrowing in accordance with paragraph (vii), below, and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such B Advance available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable to such B Advance and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's B Advance as part of such B Borrowing for purposes of this Agreement. (vii) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y), above, the Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii), above, of the date and aggregate amount of such B Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii), above, have been accepted by the Borrower, (B) each Lender that is to make a B Advance as part of such B Borrowing of the amount of the B Advance to be made by such Lender as part of such B Borrowing and (C) each Lender that is to make a B Advance as part of such B Borrowing, upon receipt, that the Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a B Advance as part of such B Borrowing shall, before 1:00 p.m. on the date of such B Borrowing specified in the notice received from the Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 8.02 such Lender's B Advance, in same day funds. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Agent of such funds, the Agent will promptly make such funds available to the Borrower at the Agent's aforesaid address. Promptly after each B Borrowing the Agent will notify each Lender of the amount of the B Borrowing, the consequent B Reduction and the dates upon which such B Reduction commenced and will terminate. (b) Each B Borrowing shall be in an aggregate amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (c) Within the limits and on the conditions set forth in this Section 2.03, the Borrower may from time to time borrow under this Section 2.03, repay pursuant to subsection (e), below, prepay pursuant to Section 2.11 and reborrow under this Section 2.03, provided that a B Borrowing shall not be made within three Business Days of the date of any other B Borrowing. (d) In no event shall the Borrower be entitled to request or receive any B Advances that would cause the principal amount outstanding hereunder to exceed the Commitments. (e) The Borrower shall repay to the Agent for the account of each Lender which has made a B Advance, or each other holder of a B Note, on the maturity date of each B Advance (such maturity date being that specified by the Borrower for repayment of such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i), above, and provided in the B Note evidencing such B Advance), the then unpaid principal amount of such B Advance. (f) The Borrower shall pay interest on the unpaid principal amount of each B Advance from the date of such B Advance to the date the principal amount of such B Advance is repaid in full, at the rate of interest for such B Advance specified by the Lender making such B Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii), above, payable on the interest payment date or dates specified by the Borrower for such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i), above, as provided in the B Note evidencing such B Advance, provided, however, that upon the occurrence and during the continuance of any Event of Default, each B Advance shall bear interest at the Default Rate. (g) The indebtedness of the Borrower resulting from each B Advance made to the Borrower as part of a B Borrowing shall be evidenced by a separate B Note of the Borrower payable to the order of the Lender making such B Advance. SECTION 2.04. Fees. (a) The Borrower agrees to pay to the Agent for the account of each Lender the Facility Fee from the date hereof, in the case of each Bank, and from the effective date specified in the Lender Assignment pursuant to which it became a Lender, in the case of each other Lender, until the Termination Date, payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender's Commitment, commencing December 31, 1997, and on the Termination Date. (b) In addition to the fee provided for in subsection (a), above, the Borrower shall pay to the Agent, for the account of the Agent, such fees as are provided for in the Fee Letter. SECTION 2.05. Reduction of the Commitments. (a) The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount which is less than the aggregate principal amount of the A and B Advances then outstanding; and provided, further, that each partial reduction shall be in a minimum amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. Any termination or reduction of the Commitments shall be irrevocable, and the Commitments shall not thereafter be reinstated. (b) On the Termination Date, the Commitments of the Lenders shall be reduced to zero. SECTION 2.06. Repayment of A Advances. The Borrower shall repay the principal amount of each A Advance made by each Lender in accordance with the A Note to the order of such Lender. SECTION 2.07. Interest on A Advances. The Borrower shall pay interest on the unpaid principal amount of each A Advance owing to each Lender from the date of such A Advance until such principal amount shall be paid in full, at the Applicable Rate for such A Advance (except as otherwise provided in this Section 2.07), payable as follows: (a) Base Rate Advances. If such A Advance is a Base Rate Advance, interest thereon shall be payable quarterly in arrears on the last day of each March, June, September and December, on the date of any Conversion of such Base Rate Advance and on the date such Base Rate Advance shall become due and payable or shall otherwise be paid in full; provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Base Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. (b) Adjusted CD Rate Advances. If such A Advance is an Adjusted CD Rate Advance, interest thereon shall be payable on the last day of such Interest Period and, if the Interest Period for such A Advance has a duration of more than 90 days, on each day that occurs during such Interest Period every 90 days from the first day of such Interest Period; provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Adjusted CD Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. (c) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate Advance, interest thereon shall be payable on the last day of such Interest Period and, if the Interest Period for such A Advance has a duration of more than three months, on that day of each third month during such Interest Period that corresponds to the first day of such Interest Period (or, if any such month does not have a corresponding day, then on the last day of such month); provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Eurodollar Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. SECTION 2.08. Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to Agent for the account of each Lender any costs actually incurred by such Lender with respect to Eurodollar Rate Advances which are attributable to such Lender's compliance with regulations of the Board of Governors of the Federal Reserve System requiring the maintenance of reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities. Such costs shall be paid to the Agent for the account of such Lender in the form of additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such A Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such A Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such A Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Agent. A certificate as to the amount of such additional interest, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Adjusted CD Rate or Eurodollar Rate, as applicable. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.07(a), (b) or (c), and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.07(b) or (c). (c) If fewer than two Reference Banks furnish timely information to the Agent for determining the Adjusted CD Rate for any Adjusted CD Rate Advances, or the Eurodollar Rate for any Eurodollar Rate Advances, due to the unavailability of funds to such Reference Banks in the relevant financial markets: (i) the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may be; (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance); and (iii) the obligation of the Lenders to make, or to Convert A Advances into, Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may be, shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon: (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance or, if requested by the Borrower in accordance with Section 2.10, an Adjusted CD Rate Advance; and (ii) the obligation of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (e) If the Borrower shall fail to (i) select the duration of any Interest Period for any Adjusted CD Rate Advances or any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, (ii) provide a Notice of Conversion with respect to any Eurodollar Rate Advances or Adjusted CD Rate Advances on or prior to 12:00 noon (A) on the third Business Day prior to the last day of the Interest Period applicable thereto, in the case of a Conversion to or in respect of Eurodollar Rate Advances, or (B) on the second Business Day prior to the last day of the Interest Period applicable thereto, in the case of a Conversion to or in respect of Adjusted CD Rate Advances, or (iii) satisfy the applicable conditions precedent set forth in Section 3.02 with respect to the Conversion to or in respect of any Eurodollar Rate Advances or Adjusted CD Rate Advances, the Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances; provided, however, that if, in the case of any failure by the Borrower pursuant to clause (iii), above, the Majority Lenders do not notify the Borrower within 30 days after such Conversion into Base Rate Advances that they have agreed to waive, or have decided not to waive, the applicable conditions precedent set forth in Section 3.02 that the Borrower failed to satisfy, the Majority Lenders shall be deemed to have waived such conditions precedent solely with respect to the Advances so Converted, and the Borrower shall, at any time after such 30-day period, be permitted to Convert such Advances into Eurodollar Rate Advances or Adjusted CD Rate Advances; and provided further, however, that such deemed waiver shall be of no further force or effect if, at any time after such 30-day period, the Majority Lenders notify the Borrower that they no longer agree to waive such conditions precedent, in which case any such Advances so Converted into Eurodollar Rate Advances or Adjusted CD Rate Advances shall automatically Convert into Base Rate Advances on the last day of the then existing Interest Period therefor. (f) On the date on which the aggregate unpaid principal amount of A Advances comprising any A Borrowing shall be reduced, by payment or prepayment or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of Lenders on such date, such A Advances shall, if they are Advances of a Type other than Base Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such A Advances into Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such A Advance shall be of the same Type and have the same Interest Period as A Advances comprising another A Borrowing or other A Borrowings, and the aggregate unpaid principal amount of all such A Advances shall equal or exceed the product of (i) $1,000,000 and (ii) the number of Lenders on such date, the Borrower shall have the right to continue all such A Advances as, or to Convert all such A Advances into, Advances of such Type having such Interest Period. (g) Upon the occurrence and during the continuance of any Event of Default, each outstanding Eurodollar Rate Advance and each outstanding Adjusted CD Rate Advance shall automatically Convert to a Base Rate Advance at the end of the Interest Period then in effect for such Eurodollar Rate Advance or Adjusted CD Rate Advance. SECTION 2.10. Voluntary Conversion of A Advances. Subject to the applicable conditions set forth in Section 3.02, the Borrower may on any Business Day, by delivering a notice of Conversion (a "Notice of Conversion") to the Agent not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed Conversion, in the case of a Conversion to or in respect of Eurodollar Rate Advances, (ii) on the second Business Day prior to the date of the proposed Conversion, in the case of a Conversion to or in respect of Adjusted CD Rate Advances and (iii) on the date of the proposed Conversion, in the case of a Conversion to or in respect of Base Rate Advances, and subject to the provisions of Sections 2.09 and 2.13, Convert all A Advances of one Type comprising the same A Borrowing into Advances of another Type; provided, however, that, in the case of any Conversion of any Adjusted CD Rate Advances or Eurodollar Rate Advances into Advances of another Type on a day other than the last day of an Interest Period for such Adjusted CD Rate Advances or Eurodollar Rate Advances, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b). Each such Notice of Conversion shall be in substantially the form of Exhibit 2.10 and shall, within the restrictions specified above, specify (A) the date of such Conversion, (B) the A Advances to be Converted, (C) if such Conversion is into Adjusted CD Rate Advances or Eurodollar Rate Advances, the duration of the Interest Period for each such A Advance, and (D) the aggregate amount of A Advances proposed to be Converted. SECTION 2.11. Optional Prepayments of Advances. The Borrower may, upon at least three Business Day's notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $1,000,000 (or, if lower, the principal amount outstanding hereunder on the date of such prepayment) or an integral multiple of $1,000,000 in excess thereof. In the case of any such prepayment of an Adjusted CD Rate Advance, Eurodollar Rate Advance or a B Advance, the Borrower shall be obligated to reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except as provided in this Section 2.11 and in Section 2.12, the Borrower shall have no right to prepay any principal amount of any Advances. SECTION 2.12. Mandatory Prepayments. (a) On the date of any termination or reduction of the Commitments pursuant to Section 2.05, the Borrower shall pay or prepay for the ratable accounts of the Lenders so much of the principal amount outstanding under this Agreement as shall be necessary in order that the principal amount outstanding (after giving effect to such prepayment) will not exceed the amount of Commitments following such termination or reduction, together with (A) accrued interest to the date of such prepayment on the principal amount repaid or prepaid and (B) in the case of prepayments of Eurodollar Rate Advances, Adjusted CD Rate Advances or B Advances, any amount payable to the Lenders pursuant to Section 8.04(b). (b) All prepayments required to be made pursuant to this Section 2.12 shall be applied by the Agent as follows: (i) first, to the prepayment of the A Advances (without reference to minimum dollar requirements), applied to outstanding Base Rate Advances up to the full amount thereof before they are applied to the ratable prepayment of Eurodollar Rate and Adjusted CD Rate Advances; and (ii) second, to the prepayment of the B Advances (without reference to minimum dollar requirements), applied ratably among all the Lenders holding B Advances. (c) In lieu of prepaying any Eurodollar Rate Advances, Adjusted CD Rate Advances or B Advances under any provision (other than Sections 2.14 and 6.01) of this Agreement, the Borrower may, upon notice to the Agent, deliver such funds to the Agent, to be held as additional cash collateral securing the obligations hereunder and under the Notes. The Agent shall deposit all amounts delivered to it in a non-interest-bearing special purpose cash collateral account, to be governed by a cash collateral agreement in form and substance satisfactory to the Borrower and the Agent, and shall apply all such amounts in such account against such Advances on the last day of the Interest Period therefor. The Agent shall promptly notify the Lenders of any election by the Borrower to deliver funds to the Agent under this subsection (c). SECTION 2.13. Increased Costs. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Adjusted CD Rate Advances, included in the definition of Adjusted CD Rate or, in the case of Eurodollar Rate Advances, included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Adjusted CD Rate Advances or Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall immediately pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Commitment. A certificate as to such amounts submitted to the Borrower and the Agent by such Lender, describing in reasonable detail the manner in which such amounts have been calculated, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination and allocation thereof shall have been made by such Lender in good faith. (c) Notwithstanding the provisions of subsections (a) or (b), above, to the contrary, no Lender shall be entitled to demand compensation or be compensated thereunder to the extent that such compensation relates to any period of time more than 60 days prior to the date upon which such Lender first notified the Borrower of the occurrence of the event entitling such Lender to such compensation (unless, and to the extent, that any such compensation so demanded shall relate to the retroactive application of any event so notified to the Borrower). SECTION 2.14. Illegality. Notwithstanding any other provision of this Agreement to the contrary, if any Lender (the "Affected Lender") shall notify the Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Affected Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) all Eurodollar Rate Advances of the Affected Lender shall, on the fifth Business Day following such notice from the Affected Lender, automatically be Converted into a like number of Base Rate Advances, each in the amount of the corresponding Eurodollar Rate Advance of the Affected Lender being so Converted (each such Advance, as so Converted, being an "Affected Lender Advance"), and the obligation of the Affected Lender to make, maintain, or Convert A Advances into Eurodollar Rate Advances shall thereupon be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, or the Affected Lender has been replaced pursuant to Section 8.07(g), and (ii) in the event that, on the last day of each of the then-current Interest Periods for each Eurodollar Rate Advance (each such Advance being an "Unaffected Lender Advance") of each of the other Lenders (each such Lender being an "Unaffected Lender"), the Agent shall have yet to notify the Borrower and the Lenders that the circumstances causing such suspension of the Affected Lender's obligations as aforesaid no longer exist, or the Affected Lender has not yet been replaced pursuant to Section 8.07(g), such Unaffected Lender Advance shall be Converted by the Borrower in accordance with Section 2.10 into an Advance of another Type (or, in the event that the Borrower shall fail to duly deliver a Notice of Conversion with respect thereto, into a Base Rate Advance), and the obligation of such Unaffected Lender to make, maintain, or Convert A Advances into Eurodollar Rate Advances shall be suspended until the Agent shall so notify the Borrower and the Lenders, or the Affected Lender shall be so replaced. For purposes of any prepayment under this Agreement, each Affected Lender Advance shall be deemed to continue to be part of the same Borrowing as the Unaffected Lender Advance to which it corresponded at the time of the Conversion of such Affected Lender Advance pursuant to clause (i), above. SECTION 2.15. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes not later than 1:00 p.m. on the day when due in Dollars to the Agent at its address referred to in Section 8.02 in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.03, 2.08, 2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of a Lender Assignment and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Lender Assignment, the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Lender Assignment shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on the Alternate Base Rate and the Federal Funds Rate and of fees shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Adjusted CD Rate and the Eurodollar Rate shall be made by the Agent, and all computations of interest pursuant to Section 2.09 shall be made by a Lender, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent (or, in the case of Section 2.09, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error, provided that such determination shall have been made by the Agent or such Lender, as the case may be, in good faith. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.16. Taxes. (a) Any and all payments by the Borrower hereunder and under the other Loan Documents shall be made, in accordance with Section 2.15, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"); provided, however, that, notwithstanding the foregoing, Taxes shall not include any taxes otherwise required to be deducted by the Borrower pursuant to this subsection (a) as a result of activities of any Lender or the Agent in the State of Iowa (other than as a result, or in respect, of this Agreement). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor. Nothing herein shall preclude the right of the Borrower to contest any such Taxes or Other Taxes so paid, and the Lenders in question or the Agent (as the case may be) will, following notice from, and at the expense of, the Borrower, reasonably cooperate with the Borrower to preserve the Borrower's rights to contest such Taxes or Other Taxes. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender agrees that, on or prior to the date upon which it shall become a party hereto, and upon the reasonable request from time to time of the Borrower or the Agent, such Lender will deliver to the Borrower and the Agent either (i) a statement that it is organized under the laws of a jurisdiction within the United States or (ii) duly completed copies of such form or forms as may from time to time be prescribed by the United States Internal Revenue Service indicating that such Lender is entitled to receive payments without deduction or withholding of any United States federal income taxes, as permitted by the Internal Revenue Code of 1986, as amended from time to time. Each Lender that delivers to the Borrower and the Agent the form or forms referred to in the preceding sentence further undertakes to deliver to the Borrower and the Agent further copies of such form or forms, or successor applicable form or forms, as the case may be, as and when any previous form filed by it hereunder shall expire or shall become incomplete or inaccurate in any respect. Each Lender represents and warrants that each such form supplied by it to the Agent and the Borrower pursuant to this subsection (e), and not superseded by another form supplied by it, is or will be, as the case may be, complete and accurate. (f) Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.16 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 2.17. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the A Advances made by it (other than pursuant to Section 2.08, 2.13, 2.16 or 8.04(b)) in excess of its ratable share of payments on account of the A Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.17 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.18. Extension of Termination Date. (a) At least 30 but not more than 60 days before each anniversary of the date of this Agreement, the Borrower may, by delivering a written request to the Agent (each such request being irrevocable), request that each Lender extend for one year the Termination Date with respect to such Lender's Commitment. The Agent shall, upon its receipt of such a request, promptly notify each Lender thereof, and request that each Lender promptly advise the Agent of its approval or rejection of such request. (b) Upon receipt of such notification from the Agent, each Lender may (but shall not be required to), in its sole and absolute discretion, agree to extend the Termination Date with respect to its Commitment for a period of one year, and shall (should it determine to do so), no later than 20 days prior to such anniversary, notify the Agent of its approval concerning such request. If any Lender shall not so notify the Agent, such Lender shall be deemed not to have consented to such request. The Agent shall thereupon notify the Borrower as to the Lenders, if any, that have consented to such request (c) If one or more Lenders (the "Nonextending Lenders") elects not to extend (or fails to notify the Agent of its consent to extend) its Commitment, the Borrower shall have the right to arrange with an Eligible Assignee acceptable to the Borrower and the Agent to assume all or a part of such Nonextending Lender's obligations under this Agreement. If there shall be no substituted Lender or Lenders to assume the obligations of a Nonextending Lender, then (i) the Commitment of such Nonextending Lender shall terminate on the Termination Date in effect immediately before such extension, (ii) the Borrower shall repay in full on such Termination Date all Advances by such Nonextending Lender and all other amounts payable to such Nonextending Lender under this Agreement, and (iii) such Nonextending Lender shall not be obligated to make any Advances the maturity date of which would be later than such Termination Date. In such case each remaining Lender's Percentage for the period of such extension shall be changed so as to equal that percentage which such remaining Lender's Commitment hereunder represents of the total Commitments of all remaining Lenders who have agreed to such extension. If the Agent shall arrange with one or more Eligible Assignees to assume all or part of the obligations of any Nonextending Lender, then such Nonextending Lender and such Eligible Assignee or Eligible Assignees shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Lender Assignment, together with any Notes subject to such assignment. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Closing. The Commitments of the Lenders shall not become effective unless the following conditions precedent shall have been fulfilled on or prior to October 20, 1997 (or such later Business Day as the parties hereto may mutually agree): (a) The Agent shall have received the following, each dated the date of the Closing, in form and substance satisfactory to the Lenders and (except for the Notes) in sufficient copies for each Lender: (i) this Agreement, duly executed by the Borrower, each Bank and the Agent; (ii) the A Notes payable to the order of the Lenders, respectively, duly completed and executed by the Borrower; (iii) certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party, and of all documents evidencing other necessary corporate action with respect to this Agreement, the Notes and such Loan Documents; (iv) certified copies of the resolutions of the Board of Directors of the Parent approving the Support Agreement and the other Loan Documents to which it is, or is to be, a party, together with a certificate of the Secretary or an Assistant Secretary of the Parent certifying that attached thereto is a listing of all credit facilities of the Borrower having the benefit of a guaranty or other support arrangement from the Parent; and copies of all documents evidencing other necessary corporate action with respect to the Support Agreement and such Loan Documents; (v) a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names, true signatures and incumbency of the officers of the Borrower authorized to sign this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party; (vi) a certificate of the Secretary or an Assistant Secretary of the Parent certifying the names, true signatures and incumbency of the officers of the Parent authorized to sign the Support Agreement and the other Loan Documents to which it is, or is to be, a party; (vii) copies of the Certificate of Incorporation (or comparable charter document) and by-laws of the Borrower, together with all amendments thereto, certified by the Secretary or an Assistant Secretary of the Borrower; (viii) copies of the Certificate of Incorporation (or comparable charter document) and by-laws of the Parent, together with all amendments thereto, certified by the Secretary or an Assistant Secretary of the Parent; (ix) certified copies of all Governmental Approvals, if any, required in connection with the execution, delivery and performance of this Agreement and the other Loan Documents; (x) certified copies of the financial statements referred to in Section 5(d) of the Support Agreement; (xi) the Support Agreement duly executed by the Parent and the Borrower, together with (A) a letter from the Parent to the Agent affirming that the Lenders are "Lenders" under the Support Agreement and (B) proper Financing Statements (Form UCC-1 or UCC-3) to be filed under the Uniform Commercial Code in all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect the security interests created by the Support Agreement; (xii) favorable opinions of: (A) Winthrop, Stimson, Putnam & Roberts, special New York counsel for the Borrower and the Parent, in substantially the form of Exhibit 3.01(a)(xii)-1 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; (B) Stephen W. Southwick, Counsel for the Borrower & Vice President, General Counsel and Secretary of the Parent, in substantially the form of Exhibit 3.01(a)(xii)-2 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; (C) King & Spalding, special New York counsel to the Agent, in substantially the form of Exhibit 3.01(a)(xii)-3 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; and (xiii) such other approvals, opinions and documents as any Lender, through the Agent, may reasonably request. (b) The following statements shall be true and correct and the Agent shall have received a certificate of a duly authorized officer of the Borrower, dated the date of the Closing and in sufficient copies for each Lender, stating that: (i) the representations and warranties set forth in Section 4.01 of this Agreement are true and correct on and as of the date of the Closing as though made on and as of such date, and (ii) no event has occurred and is continuing that constitutes an Unmatured Default or an Event of Default. (c) The Agent shall have received a certificate (the statements in which shall be true) of a duly authorized officer of the Parent, dated the date of the Closing and in sufficient copies for each Lender, stating that the representations and warranties set forth in Section 5 of the Support Agreement are true and correct on and as of the date of the Closing as though made on and as of such date. (d) The Borrower shall have paid (i) all fees under or referenced in Section 2.04 hereof, to the extent then due and payable, and (ii) all costs and expenses of the Agent (including counsel fees and disbursements) incurred through (and for which statements have been provided prior to) the Closing. (e) The Borrower shall have executed and delivered the Other Credit Agreement and the "Loan Documents" referred to therein, and all conditions precedent set forth in Section 3.01 thereof shall have been satisfied. (f) The Borrower shall have terminated the commitments under the Existing Facility, and all amounts accrued and outstanding thereunder (whether for principal, interest, fees or other amounts) shall have been paid in full. SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation of each Lender to make an A Advance on the occasion of each A Borrowing (including the initial A Borrowing) shall be subject to the conditions precedent that, on the date of such A Borrowing, (a) the following statements shall be true and correct (and each of the giving of the applicable Notice of A Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such A Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 and in Section 5 of the Support Agreement are true and correct on and as of the date of such A Borrowing, before and after giving effect to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such A Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (b) the Agent shall have received such other approvals, opinions, or documents as the Agent, or the Majority Lenders through the Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Agent. SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of each Lender to make a B Advance on the occasion of a B Borrowing (including the initial B Borrowing) shall be subject to the conditions precedent that (a) the Agent shall have received the written confirmatory Notice of B Borrowing with respect thereto; (b) on or before the date of such B Borrowing, but prior to such B Borrowing, the Agent shall have received a B Note payable to the order of such Lender for each of the one or more B Advances to be made by such Lender as part of such B Borrowing, in a principal amount equal to the principal amount of the B Advance to be evidenced thereby and otherwise on such terms as were agreed to for such B Advance in accordance with Section 2.03; (c) on the date of such B Borrowing the following statements shall be true and correct (and each of the giving of the applicable Notice of B Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such B Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 and in Section 5 of the Support Agreement are true and correct on and as of the date of such B Borrowing, before and after giving effect to such B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such B Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (d) the Agent shall have received such other approvals, opinions, or documents as the Agent, or the Majority Lenders through the Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Agent. SECTION 3.04. Reliance on Certificates. The Lenders and the Agent shall be entitled to rely conclusively upon the certificates delivered from time to time by officers of the Borrower and the Parent as to the names, incumbency, authority and signatures of the respective Persons named therein until such time as the Agent may receive a replacement certificate, in form acceptable to the Agent, from an officer of such Person identified to the Agent as having authority to deliver such certificate, setting forth the names and true signatures of the officers and other representatives of such Person thereafter authorized to act on behalf of such Person. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business in, and is in good standing in, all other jurisdictions where the nature of its business or the nature of property owned or used by it makes such qualification necessary (except where the failure to so qualify would not have a material adverse affect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole). (b) The execution, delivery and performance by the Borrower of this Agreement, the Notes and the other Loan Documents to which it is or will be a party are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not and will not contravene (i) the Borrower's charter or by-laws, (ii) law, or (iii) any legal or contractual restriction binding on or affecting the Borrower; and such execution, delivery and performance do not and will not result in or require the creation of any Lien (other than pursuant to the Loan Documents) upon or with respect to any of its properties. (c) No Governmental Approval is required in connection with the execution, delivery or performance of any Loan Document. (d) This Agreement is, and each other Loan Document to which the Borrower will be a party when executed and delivered hereunder will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to the qualifications, however, that the enforcement of the rights and remedies herein and therein is subject to bankruptcy and other similar laws of general application affecting rights and remedies of creditors and that the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceedings therefor may be brought. (e) Since December 31, 1996, there has been no material adverse change in the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or in the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (f) The unaudited consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at December 31, 1996, and the related unaudited consolidated and consolidating statements of income of the Borrower and its Subsidiaries for the fiscal year then ended, and the unaudited consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at June 30, 1997 and the related unaudited consolidated and consolidating statements of income for the six-month period then ended, copies of each of which have been furnished to each Bank, fairly present (subject, in the case of such balance sheets and statements of income for the six months ended June 30, 1997, to year-end adjustments) the consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the consolidated results of operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance, in all material respects, with generally accepted accounting principles consistently applied. (g) Except as disclosed in the Parent's Report on Form 10-K for the year ended December 31, 1996 and Report on Form 10-Q for the period ended June 30, 1997, there is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries or properties before any court, governmental agency or arbitrator, that might reasonably be expected to materially adversely affect (i) the business, financial condition, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or (ii) the ability of the Borrower to perform its obligations under this Agreement or any other Loan Document to which the Borrower or the Parent is or is to be a party; and since June 30, 1997 there have been no material adverse developments in any action or proceeding so disclosed. (h) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of the Borrower or any of its ERISA Affiliates which would result in a material liability to the Borrower. Since the date of the most recent Schedule B (Actuarial Information) to the annual report of Plans maintained by the Borrower (Form 5500 Series), if any, there has been no material adverse change in the funding status of the Plans referred to therein and no "prohibited transaction" has occurred with respect thereto which is reasonably expected to result in a material liability to the Borrower. Neither the Borrower nor any of its ERISA Affiliates has incurred nor reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan. (i) Each of the Support Agreement and the Merger Agreement is in full force and effect without having been amended, modified, waived or terminated in any manner, except in each case in accordance with the terms thereof. (j) The Borrower has filed all tax returns (Federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or, to the extent the Borrower is contesting in good faith an assertion of liability based on such returns, has provided adequate reserves for payment thereof in accordance with generally accepted accounting principles. (k) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets of the Borrower and its Subsidiaries on a consolidated basis will be margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). (l) The Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (m) As of the date hereof, the Borrower is not a "holding company" within the meaning of PUHCA. (n) From and after the date upon which, and at all times during which, any Subsidiary of the Borrower shall be a "public-utility company" within the meaning of PUHCA, the Borrower will be a "holding company" within the meaning of PUHCA, but the Borrower and its Subsidiaries will be exempt from the provisions of that Act, except Section 9(a)(2) thereof, by virtue of having filed with the Securities and Exchange Commission a Statement by Holding Company Claiming Exemption Under Rule U-2 from the Provisions of the Public Utility Holding Company Act of 1935 on Form U-3A-2. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all taxes, assessments and governmental charges, royalties or levies imposed upon it or upon its property except, in the case of taxes, to the extent the Borrower or such Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles. (b) Maintenance of Insurance. Maintain, or cause to be maintained, insurance covering the Borrower and each of its Subsidiaries and their respective properties in effect at all times in such amounts and covering such risks as is usually carried by companies of a similar size (based on the aggregate book value of the Parent's assets, as determined on a consolidated basis in accordance with generally accepted accounting principles consistently applied), engaged in similar businesses and owning similar properties in the same general geographical area in which the Borrower and each such Subsidiary operates, either with reputable insurance companies or, in whole or in part, by establishing reserves of one or more insurance funds, either alone or with other corporations or associations. (c) Preservation of Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, material rights (statutory and otherwise) and franchises; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to preserve and maintain any such right or franchise, and no such Subsidiary shall be required to preserve and maintain its corporate existence, unless the failure to do so would have a material adverse effect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (d) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including without limitation any such laws, rules, regulations and orders relating to zoning, environmental protection, use and disposal of Hazardous Substances, land use, ERISA, construction and building restrictions, and employee safety and health matters relating to business operations, the non-compliance with which would have a material adverse effect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (e) Inspection Rights. At any time and from time to time upon reasonable notice, permit or arrange for the Agent, the Lenders and their respective agents and representatives to examine and make copies of and abstracts from the records and books of account of, and the properties of, the Borrower and each of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with the Borrower and its Subsidiaries and their respective officers, directors and accountants. (f) Keeping of Books. Keep, and cause its Subsidiaries to keep, proper records and books of account, in which full and correct entries shall be made of all financial transactions of the Borrower and its Subsidiaries and the assets and business of the Borrower and its Subsidiaries, in accordance with generally accepted accounting principles consistently applied. (g) Maintenance of Properties, Etc. Maintain, and cause each of its Subsidiaries to maintain, good and marketable title to, and preserve, maintain, develop, and operate in substantial conformity with all laws and material contractual obligations, all of its properties which are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not have a material adverse effect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (h) Reporting Requirements. Furnish to each Lender: (i) as soon as possible and in any event within five Business Days after the occurrence of each Unmatured Default or Event of Default continuing on the date of such statement, a statement of a Senior Financial Officer setting forth details of such Unmatured Default or Event of Default and the action that the Borrower proposes to take with respect thereto; (ii) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter and consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 5(d) of the Support Agreement, together with a certificate of said officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; (iii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case (x) accompanied by the audit report of Arthur Andersen & Co. or another nationally-recognized independent public accounting firm acceptable to the Majority Lenders if at any time during such fiscal year the Reference Ratings were Baa2 or lower (in the case of Moody's) or BBB or lower (in the case of S&P) or (y) in reasonable detail and duly certified by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 5(d) of the Support Agreement, together with a certificate of a Senior Financial Officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; (iv) as soon as possible and in any event (A) within 30 days after any ERISA Event described in clause (i) of the definition of ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred and (B) within 10 days after any other ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred, a statement of a Senior Financial Officer describing such ERISA Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto; (v) promptly after receipt thereof by the Borrower or any of its ERISA Affiliates from the PBGC copies of each notice received by the Borrower or such ERISA Affiliate of the PBGC's intention to terminate any Plan of the Borrower or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (vi) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan (if any) to which the Borrower or any ERISA Affiliate of the Borrower is a contributing employer; (vii) promptly after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or such ERISA Affiliate concerning the imposition or amount of withdrawal liability in an aggregate principal amount of at least $250,000 pursuant to Section 4202 of ERISA in respect of which the Borrower or such ERISA Affiliate is reasonably expected to be liable; (viii) promptly after the Borrower becomes aware of the occurrence thereof, notice of all actions, suits, proceedings or other events of (A) of the type described in Section 4.01(g) or (B) for which the Agent, the Lenders will be entitled to indemnity under Section 8.04(c); (ix) promptly after the sending or filing thereof, copies of all such proxy statements, financial statements, and reports which the Borrower sends to its public security holders (if any), and copies of all regular, periodic and special reports, and all registration statements and periodic or special reports, if any, which the Borrower or the Parent files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; and (x) promptly after requested, such other information respecting the business, properties, results of operations, prospects, revenues, condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as the Agent or any Lender through the Agent may from time to time reasonably request. (i) Use of Proceeds. Use the proceeds of the Advances hereunder solely for the Borrower's general corporate purposes, and not to finance any "hostile" or "unfriendly" acquisition. (j) Merger Agreement; Support Agreement. Comply in all material respects with its obligations under the Merger Agreement and the Support Agreement. (k) Further Assurances. At the expense of the Borrower, promptly execute and deliver, or cause to be promptly executed and delivered, all further instruments and documents, and take and cause to be taken all further actions, that may be necessary or that the Majority Lenders through the Agent may reasonably request to enable the Lenders and the Agent to enforce the terms and provisions of this Agreement and to exercise their rights and remedies hereunder or under any other Loan Document. In addition, the Borrower will use all reasonable efforts to duly obtain Governmental Approvals required in connection with the Loan Documents from time to time on or prior to such date as the same may become legally required, and thereafter to maintain all such Governmental Approvals in full force and effect. SECTION 5.02. Negative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will not, without the written consent of the Majority Lenders: (a) Liens, Etc. Create, incur, assume, or suffer to exist, or permit any of its Subsidiaries to create, incur, assume, or suffer to exist, any lien, security interest, or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any kind, or any other type of arrangement intended or having the effect of conferring upon a creditor a preferential interest upon or with respect to any of its properties of any character (including, without limitation, accounts) (any of the foregoing being referred to herein as a "Lien"), excluding, however, from the operation of the foregoing restrictions the Liens created under the Loan Documents and the following: (i) Liens for taxes, assessments or governmental charges or levies to the extent not past due; (ii) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith, provided that any such contested Lien securing an amount claimed in excess of $1,000,000 shall be fully bonded within 90 days after the imposition of such Lien; (iii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, to secure public or statutory obligations of the Borrower or such Subsidiary, or to secure the utility obligations of any such Subsidiary incurred in the ordinary course of business; (iv) (A) purchase money Liens upon or in property now owned or hereafter acquired by the Borrower or any of its Subsidiaries in the ordinary course of business (consistent with present practices) to secure (1) the purchase price of such property or (2) Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject to such Liens, or (B) Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved and replacements, modifications and proceeds of such property, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (v) Liens on the capital stock of any of the Borrower's single-purpose Subsidiaries or any such Subsidiary's assets to secure the repayment of project financing or Nonrecourse Debt for such Subsidiary; (vi) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings or the payment of which is covered in full (subject to customary deductible amounts) by insurance maintained with responsible insurance companies and the applicable insurance company has acknowledged its liability therefor in writing; (vii) Liens securing obligations under agreements entered into pursuant to the Iowa Industrial New Jobs Training Act or any similar or successor legislation, provided that such obligations do not exceed $1,000,000 in the aggregate at any one time outstanding; and (viii) other Liens set forth in Schedule II hereto, and any extensions or renewals of any such Liens upon or in the same property theretofore subject thereto. (b) Debt. (i) Create, incur, assume, or suffer to exist any Debt other than: (A) Debt hereunder and under the other Loan Documents; and (B) other Debt of the Borrower; provided, however, that both immediately before and after the incurrence of any such other Debt, the Parent shall be in compliance with the covenant set forth in Section 2(a) of the Support Agreement. (ii) Permit any of its Subsidiaries to create, incur, assume, or suffer to exist any Debt other than: (A) Debt of any Person acquired by the Borrower or any such Subsidiary (whether by merger, stock or asset purchase, or otherwise) that was in effect and outstanding at the time of acquisition; (B) Debt owing by any such Subsidiary to the Borrower or to any other such Subsidiary; (C) Debt of such Subsidiaries under working capital lines and with respect to Capitalized Lease Obligations not to exceed $5,000,000 in the aggregate at any one time outstanding (such dollar limitation to apply to the Debt of any Persons acquired by and merged into any such Subsidiary to the extent of any surviving working capital lines and Capitalized Lease Obligations of any such Person which shall survive such acquisition and merger); (D) Debt secured by Liens permitted by Section 5.02(a)(iv) and (v), including Nonrecourse Debt; (E) Debt under agreements entered into pursuant to the Iowa Industrial New Jobs Training Act or any similar or successor legislation, provided that such Debt does not exceed $1,000,000 in the aggregate at any one time outstanding; and (F) other Debt set forth in Schedule III hereto; provided, however, that both immediately before and after the incurrence of any Debt described in clauses (A), (B), (C), (D) and (E), above, or any Debt listed in Schedule III as proposed to be incurred following the consummation of the Merger, the Parent shall be in compliance with the covenant set forth in Section 2(a) of the Support Agreement. (c) Compliance with ERISA. (i) Permit to exist any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended from time to time) (unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and the Borrower has no control over the reduction or elimination of such deficiency), (ii) terminate, or permit any ERISA Affiliate of the Borrower to terminate, any Plan of the Borrower or such ERISA Affiliate so as to result in any material (in the opinion of the Majority Lenders) liability of the Borrower to the PBGC, or (iii) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any other event or condition, which presents a material (in the opinion of the Majority Lenders) risk of such a termination by the PBGC of any Plan of the Borrower or such ERISA Affiliate and such a material liability to the Borrower. (d) Transactions with Affiliates. Enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Borrower, unless such transaction is on terms no less favorable to the Borrower or such Subsidiary, as the case may be, than if the transaction had been negotiated in good faith on an arm's length basis with a Person which was not an Affiliate of the Borrower. (e) Mergers, Etc. (i) Merge with or into or consolidate with or into any other Person, except pursuant to and in accordance with the provisions of the Merger Agreement and then only if, contemporaneously with the consummation of the Merger, the surviving corporation: (A) expressly assumes in a writing delivered to the Agent (with sufficient copies for each Lender) the due and punctual performance and observance of all of the obligations of the Borrower under or in respect of the Loan Documents and the Other Credit Agreement and (B) delivers to the Agent (with sufficient copies for each Lender) an opinion of counsel, in form and substance satisfactory to the Agent, as to the enforceability of the obligations set forth in such writing and the obtaining of all Governmental Approvals necessary for the performance of such obligations by such surviving corporation and such other matters as the Agent may reasonably request. Notwithstanding the foregoing, the Borrower may also merge with or into or consolidate with or into any of the Parent's Subsidiaries or the Parent, provided that immediately after giving effect thereto, (W) no event shall occur and be continuing which constitutes an Unmatured Default or an Event of Default, (X) the Borrower is the surviving corporation or, with respect to any merger or consolidation of the Borrower with or into the Parent, the surviving (if not the Borrower) or resulting corporation shall have expressly assumed the obligations of the Borrower under this Agreement, the Notes and the other Loan Documents to which the Borrower is a party, (Y) the Parent (unless it shall be the surviving corporation) shall reaffirm its obligations to the surviving or resulting corporation under the Support Agreement and (Z) the Borrower shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement or any other Loan Document on the date of such transaction; and (ii) permit any of its Subsidiaries to merge with or into or consolidate with or into any other Person, except that any such Subsidiary may merge with or into any other Person, provided that immediately after giving effect thereto, (A) the surviving corporation is a Subsidiary of the Borrower, (B) no event shall occur and be continuing which constitutes an Unmatured Default or an Event of Default and (C) the Borrower or any of its Subsidiaries shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement or any other Loan Document on the date of such transaction. (f) Sales, Etc., of Assets. Sell, lease, transfer, assign or otherwise dispose of all or any substantial part of its assets, or permit any of its Subsidiaries to sell, lease, transfer, assign or otherwise dispose of all or any substantial part of its assets, except (i) sales, leases, transfers and assignments from one Subsidiary of the Borrower to another such Subsidiary, (ii) prior to the consummation of the Merger, sales, leases, transfers and assignments of assets having a book value not in excess of $10,000,000 in the aggregate and sales, leases, transfers and assignments of worn out or obsolete equipment no longer used and useful in the business of the Borrower and its Subsidiaries, (iii) following the consummation of the Merger, in any transaction in which the proceeds from such sale, lease, transfer, assignment or disposition are solely in Cash and Cash Equivalents and such proceeds are (A) reinvested, or held for no more than 180 days in Cash and Cash Equivalents pending reinvestment, in lines of business (other than real estate) in which the Borrower or any of its Subsidiaries is engaged in at the time of the Closing, (B) applied as a reduction of the Commitments and prepayment of Advances pursuant to Sections 2.05, 2.11 and 2.12, or (C) applied to pay or prepay Debt incurred by the Borrower or any such Subsidiary in connection with the project comprising such assets, or (iv) in connection with a sale and leaseback transaction entered into by any Subsidiary of the Borrower and (v) following the consummation of the Merger, sales, leases, transfers and assignments of other assets having a book value not in excess of $20,000,000 in the aggregate during any 12-calendar-month period in any single or series of transactions, whether or not related and sales, leases, transfers and assignments of worn out or obsolete equipment no longer used and useful in the business of the Borrower and its Subsidiaries; provided in each case that no Unmatured Default or Event of Default shall have occurred and be continuing after giving effect thereto; and provided further however, that prior to the consummation of the Merger, the Borrower shall in no event sell, lease, transfer, or assign any of the McLeodUSA Stock or grant any interest therein to any other person. (g) Modification of Support Agreement. Agree to amend, modify, terminate, or waive any provision of the Support Agreement. (h) Letter of Credit Obligations. Incur, or permit any of its Subsidiaries to incur, any indebtedness, liabilities or obligations (whether contingent or otherwise) under reimbursement or similar agreements with respect to letters of credit issued to support obligations that do not constitute Debt, except (i) indebtedness, liabilities or obligations not in excess of $1,000,000 in the aggregate at any one time outstanding, and (ii) in respect of bid bonds but only if the Borrower's or such Subsidiary's obligations in respect of all such bid bonds do not at any time exceed the sum of (A) the Available Commitments at such time plus (B) the "Available Commitments" under (and as defined in) the Other Credit Agreement at such time plus (C) the aggregate face amount of the Borrower's commercial paper notes outstanding at such time. (i) Maintenance of Ownership of Significant Subsidiaries. Sell, assign, transfer, pledge or otherwise dispose of any shares of capital stock of any of its Significant Subsidiaries or any warrants, rights or options to acquire such capital stock, or permit any of its Significant Subsidiaries to issue, sell or otherwise dispose of any shares of its capital stock or the capital stock of any other of its Subsidiaries or any warrants, rights or options to acquire such capital stock, except (and only to the extent) as may be necessary to give effect to a transaction permitted by subsection (e), above. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing after the applicable grace period and notice requirement (if any): (a) The Borrower shall fail to pay any principal of any Note when the same becomes due and payable; or (b) The Borrower shall fail to pay any interest on any Note or any other amount due under this Agreement for two days after the same becomes due; or (c) Any representation or warranty made by or on behalf of the Borrower in any Loan Document or in any certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (d) Any representation or warranty made by or on behalf of the Parent in the Support Agreement or in any certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (e) The Borrower shall fail to perform or observe any term or covenant on its part to be performed or observed contained in Section 5.02 (other than subsections (c), (d), (g), (i) or (j) thereof), or the Parent shall fail to perform or observe any term or covenant on its part to be performed or observed contained in Section 1, 2 or 4 of the Support Agreement; or (f) The Borrower shall fail to perform or observe any other term or covenant on its part to be performed or observed contained in Section 5.01, Section 5.02 or in any other Loan Document, or the Parent shall fail to perform or observe any other term or covenant on its part to be performed or observed contained in the Support Agreement, and any such failure shall remain unremedied, after written notice thereof shall have been given to the Borrower by the Agent, for a period of 30 days; or (g) The Parent or any of its Subsidiaries (including the Borrower but excluding the Utilities) shall fail to pay any of its Debt (including any interest or premium thereon but excluding Debt evidenced by the Notes) aggregating $5,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof as a result of a default or other similar adverse event; or (h) Any of the Utilities shall fail to pay any of its Debt (including any interest or premium thereon) aggregating $5,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof as a result of a default or other similar adverse event; or (i) The Borrower, the Parent or any of the Utilities shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make an assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, the Parent or any of the Utilities seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of a proceeding instituted against the Borrower, the Parent or any of the Utilities, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including without limitation the entry of an order for relief against the Borrower, the Parent or such Utility or the appointment of a receiver, trustee, custodian or other similar official for the Borrower, the Parent or such Utility or any of its property) shall occur; or the Borrower, the Parent or any of the Utilities shall take any corporate or other action to authorize any of the actions set forth above in this subsection (i); or (j) Any judgment or order for the payment of money equal to or in excess of $5,000,000 shall be rendered against the Parent or any of its Direct Subsidiaries (including, without limitation, the Borrower and the Utilities) or their respective properties and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) The Support Agreement, after delivery thereof under Article III, shall for any reason, except to the extent permitted by the terms thereof, cease to be valid and binding on the Parent or the Borrower; or (l) Any Governmental Approval required in connection with the execution, delivery and performance of the Loan Documents shall be rescinded, revoked, otherwise terminated, or amended or modified in any manner which is materially adverse to the interests of the Lenders and the Agent; or (m) Any ERISA Event shall have occurred with respect to a Plan which could reasonably be expected to result in a material liability to the Borrower, and, 30 days after notice thereof shall have been given to the Borrower by the Agent or any Lender, such ERISA Event shall still exist; or (n) An "event of default" (as defined therein) shall occur and be continuing under the Other Credit Agreement; or (o) Except as contemplated by the Merger Agreement: (A) any Person or "group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) shall either (1) acquire beneficial ownership of more than 50% of any outstanding class of common stock of the Parent having ordinary voting power in the election of directors of the Parent or (2) obtain the power (whether or not exercised) to elect a majority of the Parent's directors or (B) the Board of Directors of the Parent shall not consist of a majority of Continuing Directors. "Continuing Directors" shall mean the directors of the Parent on the effective date of the Facility and each other director of the Parent, if such other director's nomination for election to the Board of Directors of the Parent is recommended by a majority of the then Continuing Directors. then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the holders of at least 66-2/3% in principal amount of the A Advances then outstanding or, if no A Advances are then outstanding, Banks having at least 66-2/3% of the Commitments (without giving effect to any B Reduction), by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the holders of at least 66-2/3% in principal amount of the Advances then outstanding or, if no Advances are then outstanding, Lenders having at least 66-2/3% of the Commitments, by notice to the Borrower, declare the Notes (if any), all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII THE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. The Agent shall be deemed to have exercised reasonable care in the administration and enforcement of this Agreement and the other Loan Documents if it undertakes such administration and enforcement in a manner substantially equal to that which Citibank, N.A. accords credit facilities similar to the credit facility hereunder for which it is the sole lender. SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of any Note as the holder thereof until the Agent receives and accepts a Lender Assignment entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Loan Document; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or the Parent or to inspect the property (including the books and records) of the Borrower or the Parent; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Citibank, N.A. and Affiliates. With respect to its Commitment, the Advances made by it and the Notes issued to it, Citibank, N.A. shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" and "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank, N.A. in its individual capacity. Citibank, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, the Parent any of its Subsidiaries and any Person who may do business with or own securities of the Borrower, the Parent or any such Subsidiary, all as if Citibank, N.A. were not the Agent and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 5(d) of the Support Agreement and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to (a) on or before the Termination Date, the respective principal amounts of the A Notes then held by each of them (or if no A Notes are at the time outstanding or if any A Notes are held by Persons which are not Lenders, ratably according to the respective Percentages of the Lenders), or (b) after the Termination Date, the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons which are not Lenders, ratably according to the respective unpaid principal amounts of the Advances made by each Lender), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders, with any such resignation or removal to become effective only upon the appointment of a successor Agent pursuant to this Section 7.06. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent, which shall be a Lender or shall be another commercial bank or trust company reasonably acceptable to the Borrower organized under the laws of the United States or of any State thereof. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a Lender or shall be another commercial bank or trust company organized under the laws of the United States of any State thereof reasonably acceptable to the Borrower. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders and, in the case of any amendment, the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive, modify or eliminate any of the conditions specified in Section 3.01 or 3.02, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the A Notes, any Applicable Margin or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the A Notes or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the A Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (f) amend this Section 8.01; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Lenders making or maintaining such B Advances, do any of the following: (a) waive, modify or eliminate any of the conditions to any B Advance specified in Section 3.03, (b) reduce the principal of, or interest on, any B Note or other amounts payable in respect thereof, (c) postpone any date fixed for any payment of principal of, or interest on, any B Note or any other amounts payable in respect thereof; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder and under the other Loan Documents shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at 200 First Street, Cedar Rapids, Iowa 52401, Attention: Treasurer; if to the Parent, at its address at 200 First Street, Cedar Rapids, Iowa 52401, Attention: Treasurer; if to any Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Lender Assignment pursuant to which it became a Lender; and if to the Agent, at its address at Two Pennsway, Ste. 200, New Castle, Delaware 19720, Attention: Bank Loan Syndications; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective five days after being deposited in the mails, or when delivered to the telegraph company, telecopied, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Agent pursuant to Article II or VII shall not be effective until received by the Agent. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs, Expenses, Taxes and Indemnification. (a) The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation (including, without limitation, printing costs), negotiation, execution, delivery, modification and amendment of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to the administration of, and advising the Agent as to its rights and responsibilities under, this Agreement and the other Loan Documents. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Loan Documents and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a). In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, and agrees to save the Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. (b) If any payment of principal of, or Conversion of, any Adjusted CD Rate Advance, Eurodollar Rate Advance or B Advance is made other than on the last day of the Interest Period for such A Advance or other than on the maturity date of such B Advance, as a result of a payment or Conversion pursuant to Section 2.09(f), 2.10, 2.11, 2.12 or 2.14 or acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (c) The Borrower hereby agrees to indemnify and hold each Lender, the Agent and their respective officers, directors, employees, professional advisors and affiliates (each, an "Indemnified Person") harmless from and against any and all claims, damages, losses, liabilities, costs or expenses (including reasonable attorney's fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding) which any of them may incur or which may be claimed against any of them by any Person (except for such claims, damages, losses, liabilities, costs and expenses resulting from such Indemnified Person's gross negligence or willful misconduct): (i) by reason of or in connection with the execution, delivery or performance of any of the Loan Documents or any transaction contemplated thereby, or the use by the Borrower of the proceeds of any Extension of Credit; (ii) in connection with any documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of any of the Loan Documents; (iii) in connection with or resulting from the utilization, storage, disposal, treatment, generation, transportation, release or ownership of any Hazardous Substance (i) at, upon, or under any property of the Borrower or any of its Affiliates or (ii) by or on behalf of the Borrower or any of its Affiliates at any time and in any place; or (iv) by reason of or in connection with the Merger or any of the transactions contemplated by the Merger Agreement. (d) The Borrower's obligations under this Section 8.04 shall survive the repayment of all amounts owing to the Lenders under the Notes and the termination of the Commitments. If and to the extent that the obligations of the Borrower under this Section 8.04 are unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law. SECTION 8.05. Right of Set-off. (a) Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent by the Majority Lenders specified by Section 6.01 to authorize the Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document and any Note held by such Lender, irrespective of whether or not such Lender shall have made any demand under such Loan Document or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. (b) The Borrower agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Lenders hereunder are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Borrower's rights to any independent claim that the Borrower may have against the Agent or any Lender for the Agent's or such Lender's, as the case may be, gross negligence or wilful misconduct, but no Lender shall be liable for the conduct of the Agent or any other Lender, and the Agent shall not be liable for the conduct of any Lender. SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified in writing by each Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07. Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Lender Assignment with respect to such assignment) shall in no event be less than the lesser of the amount of such Lender's then remaining Commitment and $5,000,000 (except in the case of assignments between Lenders at the time already parties hereto), and (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Lender Assignment, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,000. Promptly following its receipt of such Lender Assignment, Note or Notes and fee, the Agent shall accept and record such Lender Assignment in the Register. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Lender Assignment, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Lender Assignment, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Lender Assignment, relinquish its rights and be released from its obligations under this Agreement (and, in the case of a Lender Assignment covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything to the contrary contained in this Agreement, any Lender may at any time assign all or any portion of the Advances owing to it to any Affiliate of such Lender. No such assignment, other than to an Eligible Assignee, shall release the assigning Lender from its obligations hereunder. (b) By executing and delivering a Lender Assignment, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Lender Assignment, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the Parent or the performance or observance by the Borrower or the Parent of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of each Loan Document, together with copies of the financial statements referred to in Section 5(d) of the Support Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Lender Assignment; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Lender Assignment delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Parent, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a Lender Assignment executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Agent shall, if such Lender Assignment has been completed and is in substantially the form of Exhibit 8.07 hereto, (i) accept such Lender Assignment, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within 10 Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Lender Assignment and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Lender Assignment and shall otherwise be in substantially the form of Exhibit 1.01A-1 hereto. (e) Each Lender may sell participations to one or more banks, financial institutions or other entities in all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, and (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower or the Parent furnished to such Lender by or on behalf of the Borrower or the Parent; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree, in accordance with the terms of Section 8.08, to preserve the confidentiality of any Confidential Information relating to the Borrower or the Parent received by it from such Lender. (g) If any Lender (or any bank, financial institution, or other entity to which such Lender has sold a participation) shall (i) make any demand for payment under Section 2.08 or 2.13, (ii) give notice to the Agent pursuant to Section 2.14 or (iii) determine not to extend the Termination Date in response to any request by the Borrower pursuant to Section 2.18, then (A) in the case of any demand made under clause (i), above, or the occurrence of the event described in clause (ii), above, within 30 days after any such demand or occurrence (if, but only if, in the case of any demanded payment described in clause (i), such demanded payment has been made by the Borrower), and (B) in the case of the occurrence of the event described in clause (iii), above, at any time prior to the then-scheduled Termination Date, the Borrower may, with the approval of the Agent (which approval shall not be unreasonably withheld), and provided that no Event of Default or Unmatured Default shall then have occurred and be continuing, demand that such Lender assign in accordance with this Section 8.07 to one or more Eligible Assignees designated by the Borrower all (but not less than all) of such Lender's Commitment and the Advances owing to it within the period ending on the latest to occur of (x) the last day in the period described in clause (A) or (B), above, as applicable, (y) the last day of the longest of the then current Interest Periods for such Advances, and (z) the latest maturity date of any B Advances owing to such Lender. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender's Commitment or Advances, then such demand by the Borrower shall become ineffective; it being understood for purposes of this subsection (g) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (1) shall agree to such assignment by entering into a Lender Assignment with such Lender and (2) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder and under the Note made by the Borrower to such Lender, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above and payable by the Borrower as a condition to the Borrower's right to demand such assignment), or otherwise. (h) Anything in this Section 8.07 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of its Commitment and the Advances owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. SECTION 8.08. Confidentiality. In connection with the negotiation and administration of this Agreement and the other Loan Documents, the Borrower and the Parent have furnished and will from time to time furnish to the Agent and the Lenders (each, a "Recipient") written information which is identified to the Recipient in writing when delivered as confidential (such information, other than any such information which (i) as publicly available, or otherwise known to the Recipient, at the time of disclosure, (ii) subsequently becomes publicly available other than through any act or omission by the Recipient or (iii) otherwise subsequently becomes known to the Recipient other than through a Person whom the Recipient knows to be acting in violation of his or its obligations to the Borrower or the Parent, being hereinafter referred to as "Confidential Information"). The Recipient will maintain the confidentiality of any Confidential Information in accordance with such procedures as the Recipient applies generally to information of that nature. It is understood, however, that the foregoing will not restrict the Recipient's ability to freely exchange such Confidential Information with current or prospective participants in or assignees of the Recipient's position herein, but the Recipient's ability to so exchange Confidential Information shall be conditioned upon any such prospective participant's or assignee's entering into an understanding as to confidentiality similar to this provision. It is further understood that the foregoing will not prohibit the disclosure of any or all Confidential Information if and to the extent that such disclosure may be required (i) by a regulatory agency or otherwise in connection with an examination of the Recipient's records by appropriate authorities, (ii) pursuant to court order, subpoena or other legal process or in connection with any pending or threatened litigation, (iii) otherwise as required by law, or (iv) in order to protect its interests or its rights or remedies hereunder or under the other Loan Documents; in the event of any required disclosure under clause (ii) or (iii), above, the Recipient agrees to use reasonable efforts to inform the Borrower and the Parent as promptly as practicable. SECTION 8.09. WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS, THE BORROWER AND THE PARENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE AGENT, SUCH LENDERS, THE BORROWER OR THE PARENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT. SECTION 8.10. Consent. Unless otherwise specified as being within the sole discretion of the Agent, the Lenders the Majority Lenders or the Borrower, whenever the consent or approval of the Agent, the Lenders, the Majority Lenders or the Borrower, respectively, is required herein, such consent or approval shall not be unreasonably withheld or delayed. SECTION 8.11. Governing Law. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York. The Borrower, the Parent, each Lender, and the Agent (i) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of any Loan Document, (ii) agrees that all claims in such action may be decided in such court, (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (iv) consents to the service of process by mail. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court. SECTION 8.12. Relation of the Parties; No Beneficiary. No term, provision or requirement, whether express or implied, of any Loan Document, or actions taken or to be taken by any party thereunder, shall be construed to create a partnership, association, or joint venture between such parties or any of them. No term or provision of the Loan Documents shall be construed to confer a benefit upon, or grant a right or privilege to, any Person other than the parties thereto. SECTION 8.13. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. IES DIVERSIFIED INC. By /s/ Dennis B. Vass Title: Treasurer CITIBANK, N.A., as Agent By /s/ Anita J. Brickell Title: Attorney-In-Fact Bank CITIBANK, N.A. By /s/ Anita J. Brickell Title: Attorney-In-Fact Bank THE FIRST NATIONAL BANK OF CHICAGO By /s/ Madeleine N. Pember Title: Corporate Banking Officer SCHEDULE I IES DIVERSIFIED INC. 3-Year Credit Agreement, dated as of October 20, 1997, among IES Diversified Inc., the Banks named therein and Citibank, N.A., as Agent Name of Bank Commitment Domestic Lending Office CD Lending Eurodollar Office Lending Office Citibank, N.A. $225,000,000 Two Pennsway, Ste. 200, Same as Same as New Castle, Domestic Domestic Delware 19720 Lending Lending Attention: Bank Office Office Office Loan Syndications The First $225,000,000 One First National Same as Same as National Bank Plaza, Suite 0363 Domestic Domestic of Chicago Chicago, Illinois Lending Lending 60670-0363 Office Office Telephone: 312.732.9780 Telecopy: 312.732.3055 / 312.732.6485 Attention: Robert G. Bussa SCHEDULE II SCHEDULE III EX-4 3 EXHIBIT 4(g) [Conformed Copy] $150,000,000 364-DAY CREDIT AGREEMENT Dated as of October 20, 1997 Among IES DIVERSIFIED INC. as Borrower and THE BANKS NAMED HEREIN as Banks FIRST CHICAGO CAPITAL MARKETS, INC. as Syndication Agent and CITIBANK, N.A. as Agent TABLE OF CONTENTS Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS ....................................................................... 2 SECTION 1.01. Certain Defined Terms. ................................ 2 SECTION 1.02. Computation of Time Periods ........................... 21 SECTION 1.03. Computations of Outstandings .......................... 21 SECTION 1.04. Accounting Terms ...................................... 22 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES ....................................................................... 22 SECTION 2.01. The A Advances ........................................ 22 SECTION 2.02. Making the A Advances. ................................ 22 SECTION 2.03. The B Advances ........................................ 24 SECTION 2.04. Fees .................................................. 28 SECTION 2.05. Reduction of the Commitments .......................... 28 SECTION 2.06. Repayment of A Advances ............................... 29 SECTION 2.07. Interest on A Advances ................................ 29 SECTION 2.08. Additional Interest on Eurodollar Rate Advances ....... 30 SECTION 2.09. Interest Rate Determination ........................... 30 SECTION 2.10. Voluntary Conversion of A Advances .................... 33 SECTION 2.11. Optional Prepayments of Advances ...................... 34 SECTION 2.12. Mandatory Prepayments ................................. 34 SECTION 2.13. Increased Costs ....................................... 35 SECTION 2.14. Illegality ............................................ 36 SECTION 2.15. Payments and Computations ............................. 37 SECTION 2.16. Taxes ................................................. 38 SECTION 2.17. Sharing of Payments, Etc. ............................. 40 SECTION 2.18. Extension of Revolving Period; Term Election .......... 41 ARTICLE III CONDITIONS OF LENDING ....................................................................... 42 SECTION 3.01. Conditions Precedent to Closing ....................... 42 SECTION 3.02. Conditions Precedent to Each A Borrowing .............. 45 SECTION 3.03. Conditions Precedent to Each B Borrowing .............. 46 SECTION 3.04. Reliance on Certificates .............................. 47 ARTICLE IV REPRESENTATIONS AND WARRANTIES ....................................... 47 SECTION 4.01. Representations and Warranties of the Borrower ........ 47 ARTICLE V COVENANTS OF THE BORROWER ............................................ 50 SECTION 5.01. Affirmative Covenants ................................. 50 SECTION 5.02. Negative Covenants .................................... 55 ARTICLE VI EVENTS OF DEFAULT .................................................... 60 SECTION 6.01. Events of Default ..................................... 60 ARTICLE VII THE AGENT ............................................................ 64 SECTION 7.01. Authorization and Action .............................. 64 SECTION 7.02. Agent's Reliance, Etc ................................. 64 SECTION 7.03. Citibank, N.A. and Affiliates ......................... 65 SECTION 7.04. Lender Credit Decision ................................ 65 SECTION 7.05. Indemnification ....................................... 66 SECTION 7.06. Successor Agent ....................................... 66 ARTICLE VIII MISCELLANEOUS ........................................................ 67 SECTION 8.01. Amendments, Etc ....................................... 67 SECTION 8.02. Notices, Etc .......................................... 68 SECTION 8.03. No Waiver; Remedies ................................... 68 SECTION 8.04. Costs, Expenses, Taxes and Indemnification ............ 68 SECTION 8.05. Right of Set-off ...................................... 70 SECTION 8.06. Binding Effect ........................................ 71 SECTION 8.07. Assignments and Participations ........................ 71 SECTION 8.08. Confidentiality ....................................... 75 SECTION 8.09. WAIVER OF JURY TRIAL .................................. 76 SECTION 8.10. Consent ............................................... 76 SECTION 8.11. Governing Law ......................................... 76 SECTION 8.12. Relation of the Parties; No Beneficiary ............... 76 SECTION 8.13. Execution in Counterparts ............................. 77 364-DAY CREDIT AGREEMENT Dated as of October 20, 1997 THIS 364-DAY CREDIT AGREEMENT (this "Agreement") is made by and among: (i) IES DIVERSIFIED INC., an Iowa corporation (the "Borrower", which term shall include, following consummation of the Merger referred to herein, Heartland Development Corporation as successor by merger), all of whose common stock is owned on the date hereof by the Parent (as hereinafter defined), (ii) the banks (the "Banks") listed on the signature pages hereof and the other Lenders (as hereinafter defined) from time to time party hereto, and (iii) CITIBANK, N.A., as agent (the "Agent") for the Lenders hereunder. PRELIMINARY STATEMENTS (1) The Borrower, certain banks (the "Existing Banks") and Citibank, N.A., as agent for the Existing Banks, are parties to that certain Third Amended and Restated Credit Agreement, dated as of November 20, 1996 (the "Existing Facility"). (2) The Borrower desires to replace the Existing Facility with the revolving credit facilities created under this Agreement and the Other Credit Agreement referred to herein. (3) The Banks and the Agent are prepared to provide such facilities on the terms and conditions set forth herein, including but not limited to the condition that the Parent provide the Support Agreement described herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A Advance" means an advance by a Lender to the Borrower as part of an A Borrowing and refers to an Adjusted CD Rate Advance, a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of A Advance. "A Borrowing" means a borrowing consisting of simultaneous A Advances of the same Type, having the same Interest Period and ratably made or Converted on the same day by each of the Lenders pursuant to Section 2.02 or 2.10, as the case may be. All Advances of the same Type, having the same Interest Period and made or Converted on the same day shall be deemed a single Borrowing hereunder until repaid or next Converted. "A Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the A Advances made by such Lender. "Adjusted CD Rate" means, for any Interest Period for each Adjusted CD Rate Advance made as part of the same A Borrowing, an interest rate per annum equal to the sum of: (a) the rate per annum obtained by dividing (i) the rate of interest determined by the Agent to be the average (rounded upward to the nearest whole multiple of 1/100 of 1% per annum, if such average is not such a multiple) of the consensus bid rate determined by each of the Reference Banks for the bid rates per annum at 9:00 a.m. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period of New York certificate of deposit dealers of recognized standing selected by such Reference Bank for the purchase at face value of certificates of deposit of such Reference Bank in an amount substantially equal to such Reference Bank's Adjusted CD Rate Advance made as part of such A Borrowing and maturing on the last day of such Interest Period, by (ii) a percentage equal to 100% minus the Adjusted CD Rate Reserve Percentage (as defined below) for such Interest Period, plus (b) the Assessment Rate (as defined below) for such Interest Period. The "Adjusted CD Rate Reserve Percentage" for the Interest Period for each Adjusted CD Rate Advance comprising part of the same A Borrowing means the reserve percentage applicable on the first day of such Interest Period, as determined by the Agent, under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars with respect to liabilities consisting of or including (among other liabilities) U.S. dollar nonpersonal time deposits in the United States with a maturity equal to such Interest Period. The "Assessment Rate" for the Interest Period for each Adjusted CD Rate Advance comprising part of the same A Borrowing means the annual assessment rate estimated by the Agent on the first day of such Interest Period for determining the then current annual assessment payable by the Agent to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of the Agent in the United States. The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate Advance comprising part of the same A Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks on the first day of such Interest Period, subject, however, to the provisions of Section 2.09. "Adjusted CD Rate Advance" means an A Advance which bears interest as provided in Section 2.07(b). "Advance" means an A Advance or a B Advance. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; and (b) 1/2 of one percent per annum above the Federal Funds Rate. Each change in the Alternate Base Rate shall take effect concurrently with any change in such base rate or the Federal Funds Rate. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance, such Lender's CD Lending Office in the case of an Adjusted CD Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a B Advance, the office of such Lender notified by such Lender to the Agent as its Applicable Lending Office with respect to such B Advance. "Applicable Margin" means, for a Eurodollar Rate Advance, an Adjusted CD Rate Advance or Base Rate Advance, the number of basis points set forth below in the columns identified as Level 1, Level 2, Level 3 or Level 4 below, opposite the rate applicable to such Advance. Level 1 Level 2 Level 3 Level 4 S&P A- or better BBB+ BBB below BBB* and and and or Moody's A3 or better Baa1 Baa2 below Baa2* Basis Points Per Annum Eurodollar Rate 27.5 30.0 35.0 75.0 Adjusted CD Rate 40.0 42.5 47.5 82.5 Base Rate Advance 0 0 0 50.0 * or unrated The Applicable Margin will be based upon the Level corresponding to the Reference Ratings at the time of determination. Any change in the Applicable Margin resulting from a change in the Reference Ratings shall be effective as of the Borrowing date following the date on which the applicable rating agency announces the applicable change in ratings. If the Merger shall not have been consummated on or before December 31, 1997, the Applicable Margins shown for Level 2 shall apply to Level 1; those shown for Level 3 shall apply to Level 2 and those shown for Level 4 shall apply to Level 3. If the Merger is thereafter consummated, the Applicable Margins for the various Levels shall revert to those shown above, effective from the date of such consummation. Any change in the Applicable Margin resulting from the application of either or both of the two preceding sentences shall be effective immediately. "Applicable Rate" means: (i) in the case of each Base Rate Advance, a rate per annum equal at all times to the sum of the Alternate Base Rate in effect from time to time plus the Applicable Margin in effect from time to time; (ii) in the case of each Adjusted CD Rate Advance comprising part of the same A Borrowing, a rate per annum during each Interest Period equal at all times to the sum of the Adjusted CD Rate for such Interest Period plus the Applicable Margin in effect from time to time during such Interest Period; and (iii) in the case of each Eurodollar Rate Advance comprising part of the same A Borrowing, a rate per annum during each Interest Period equal at all times to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time during such Interest Period. "Available Commitment" means, for each Lender at any time on any day, the unused portion of such Lender's Commitment, computed after giving effect to all Extensions of Credit made or to be made on such day, the application of proceeds therefrom and all prepayments and repayments of Advances made on such day. "Available Commitments" means the aggregate of the Lenders' Available Commitments hereunder. "B Advance" means an advance by a Lender to the Borrower as part of a B Borrowing resulting from the auction bidding procedure described in Section 2.03. "B Borrowing" means a borrowing consisting of simultaneous B Advances from each of the Lenders whose offer to make one or more B Advances as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 2.03. "B Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-2 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from a B Advance(s) made by such Lender. "B Reduction" has the meaning assigned to that term in Section 2.01. "Base Rate Advance" means an A Advance that bears interest as provided in Section 2.07(a). "Borrowing" means an A Borrowing or a B Borrowing. Any A Borrowing consisting of A Advances of a particular Type may be referred to as being an A Borrowing of such "Type". "Business Day" means a day of the year on which banks are not required or authorized to close in New York City, Chicago, Illinois or Cedar Rapids, Iowa, and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings are carried on in the London interbank market. "CD Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "CD Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office or affiliate of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "Capitalized Lease Obligations" means obligations to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property which obligation is required to be classified and accounted for as a capital lease on a balance sheet prepared in accordance with generally accepted accounting principles, and for purposes hereof the amount of such obligations shall be the capitalized amount determined in accordance with such principles. "Cash and Cash Equivalents" means, with respect to any Person, the aggregate amount of the following, to the extent owned by such Person free and clear of all Liens, encumbrances and rights of others and not subject to any judicial, regulatory or other legal constraint: (i) cash on hand; (ii) Dollar demand deposits maintained in the United States with any commercial bank and Dollar time deposits maintained in the United States with, or certificates of deposit having a maturity of one year or less issued by, any commercial bank which has its head office in the United States and which has a combined capital and surplus of at least $100,000,000; (iii) eurodollar time deposits maintained in the United States with, or eurodollar certificates of deposit having a maturity of one year or less issued by, any commercial bank having outstanding unsecured indebtedness that is rated (on the date of acquisition thereof) A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured bank indebtedness); (iv) direct obligations of, or unconditionally guaranteed by, the United States and having a maturity of one year or less; (v) commercial paper rated (on the date of acquisition thereof) A-1 or P-1 or better by S&P or Moody's, respectively (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating commercial paper), and having a maturity of one year or less; (vi) obligations with any Lender or any other commercial bank in respect of the repurchase of obligations of the type described in clause (iv), above, provided that such repurchase obligations shall be fully secured by obligations of the type described in said clause (iv) and the possession of such obligations shall be transferred to, and segregated from other obligations owned by, such Lender or such other commercial bank; and (vii) preferred stock of any Person that is rated A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating preferred stock of entities engaged in such businesses). "Closing" means the day upon which each of the applicable conditions precedent enumerated in Section 3.01 shall be fulfilled to the satisfaction of, or waived with the consent of, the Lenders, the Agent and the Borrower. All transactions contemplated by the Closing shall take place on a Business Day on or prior to October 20, 1997, at the offices of King & Spalding, 1185 Avenue of the Americas, New York, New York 10036, at 10:00 a.m., or such later Business Day as the parties hereto may mutually agree. "Commitment" means, for each Lender, the obligation of such Lender to make Advances to the Borrower in an amount no greater than the amount set forth on Schedule I hereto or, if such Lender has entered into one or more Lender Assignments, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(c), in each such case as such amount may be reduced from time to time pursuant to Section 2.05. "Commitments" means the total of the Lenders' Commitments hereunder. The Commitments shall in no event exceed $150,000,000. "Consolidated Capital" means, with respect to any Person, at any date of determination, the sum of (c) Consolidated Debt of such Person, (d) consolidated equity of the common stockholders of such Person and its Consolidated Subsidiaries, (e) consolidated equity of the preference stockholders of such Person and its Consolidated Subsidiaries and (f) consolidated equity of the preferred stockholders of such Person and its Consolidated Subsidiaries, in each case determined at such date in accordance with generally accepted accounting principles. "Consolidated Debt" means, with respect to any Person, at any date of determination, the aggregate Debt of such Person and its Consolidated Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles, but shall not include Nonrecourse Debt of any Subsidiary of the Borrower. "Consolidated Subsidiary" means, with respect to any Person, any Subsidiary of such Person whose accounts are or are required to be consolidated with the accounts of such Person in accordance with generally accepted accounting principles. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type, or to the selection of a new, or the renewal of the same, Interest Period for Advances, as the case may be, pursuant to Section 2.09 or 2.10. "Debt" means, for any Person, any and all indebtedness, liabilities and other monetary obligations of such Person (i) for borrowed money or evidenced by bonds, debentures, notes or other similar instruments, (ii) to pay the deferred purchase price of property or services (except trade accounts payable arising and repaid in the ordinary course of business), (iii) Capitalized Lease Obligations, (iv) under reimbursement or similar agreements with respect to letters of credit (other than trade letters of credit) issued to support indebtedness or obligations of such Person or of others of the kinds referred to in clauses (i) through (iii), above, and clause (v), below, (v) reasonably quantifiable obligations under direct guaranties or indemnities, or under support agreements, in respect of, and reasonably quantifiable obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, or to assure an obligee against failure to make payment in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv), above, and (vi) in respect of unfunded vested benefits under Plans. In determining Debt for any Person, there shall be included accrued interest on the principal amount thereof to the extent such interest has accrued for more than six months. "Default Rate" means (i) with respect to the unpaid principal of or interest on any Advance, the greater of (A) 2% per annum above the Applicable Rate in effect from time to time for such Advance and (B) 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances and (ii) with respect to any other unpaid amount hereunder, 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances. "Direct Subsidiary" means, with respect to any Person, any Subsidiary directly owned by such Person. "Dollars" and the sign "$" each means lawful money of the United States. "Domestic Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender, or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent. "Eligible Assignee" means (a) a commercial bank or trust company organized under the laws of the United States, or any State thereof; (b) a commercial bank organized under the laws of any other country that is a member of the OECD, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States; (c) the central bank of any country that is a member of the OECD; and (d) any other commercial bank or other financial institution engaged generally in the business of extending credit or purchasing debt instruments; provided, however, that (A) any such Person shall also (i) have outstanding unsecured indebtedness that is rated A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured indebtedness of entities engaged in such businesses) or (ii) have combined capital and surplus (as established in its most recent report of condition to its primary regulator) of not less than $250,000,000 (or its equivalent in foreign currency), (B) any Person described in clause (b), (c), or (d), above, shall, on the date on which it is to become a Lender hereunder, (i) be entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes (as contemplated by Section 2.16) and (ii) not be incurring any losses, costs or expenses of the type for which such Person could demand payment under Section 2.13, and (C) any Person described in clauses (b), (c) and (d), above, shall, in addition, be reasonably acceptable to the Agent and the Borrower. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which is under common control within the meaning of the regulations under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended from time to time. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate of the Borrower from a Multiple Employer Plan during a plan year for which it was a "substantial employer", as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or an ERISA Affiliate of the Borrower to make a payment to a Plan required under Section 302(f)(1) of ERISA, which failure results in the imposition of a lien for failure to make required payments; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent. "Eurodollar Rate" means, for each Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance made as part of such A Borrowing and for a period equal to such Interest Period. The Eurodollar Rate for the Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.09. "Eurodollar Rate Advance" means an A Advance that bears interest as provided in Section 2.07(c). "Eurodollar Reserve Percentage" of any Lender for each Interest Period for each Eurodollar Rate Advance means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under Regulation D or other regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Events of Default" has the meaning assigned to that term in Section 6.01. "Existing Banks" has the meaning assigned to that term in Preliminary Statement (1) to this Agreement. "Existing Facility" has the meaning assigned to that term in Preliminary Statement (1) to this Agreement. "Extension of Credit" means the making of a Borrowing. For purposes of this Agreement, a Conversion shall not constitute an Extension of Credit. "Facility Fee" means a fee which shall be payable on the aggregate amount of the Commitments, irrespective of usage, to each Lender pro rata on the amount of their respective Commitments at the rate (expressed in basis points per annum) set forth below in the columns identified as Level 1, Level 2, Level 3 or Level 4, based on the Reference Ratings. Level 1 Level 2 Level 3 Level 4 S&P A- or better BBB+ BBB below BBB* Moody's and and and or A3 or better Baa1 Baa2 below Baa2* Basis Points 12.5 15.0 20.0 25.0 * or unrated The Facility Fee will be based upon the Level corresponding to the Reference Ratings at the time of determination. Any change in the Facility Fee resulting from a change in the Reference Ratings shall be effective as of the date on which the applicable rating agency announces the applicable change in ratings. If the Merger shall not have been consummated on or before December 31, 1997, the Facility Fee rate shown for Level 2 shall apply to Level 1; that shown for Level 3 shall apply to Level 2 and that shown for Level 4 shall apply to Level 3. If the Merger is thereafter consummated, the Facility Fee rates for the various Levels shall revert to those shown above, effective from the date of such consummation. Any change in the Applicable Margin resulting from the application of either or both of the two preceding sentences shall be effective immediately. "FDIC Assessment Rate" mean, during an Interest Period for CD Rate Advances comprising a single Borrowing, the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Agent as the then current annual assessment rate payable by the Agent to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in U.S. dollars at the Agent's domestic offices. The FDIC Assessment Rate shall be the same for all CD Rate Advances comprising the same Borrowing and shall be adjusted automatically on and as of he effective date of each change in any such rate. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain letter agreement, dated October 17, 1997, among the Borrower, the Agent and Citicorp Securities, Inc. "Governmental Approval" means any authorization, consent, approval, license, franchise, lease, ruling, tariff, rate, permit, certificate, exemption of, or filing or registration with, any governmental authority or other legal or regulatory body. "Hazardous Substance" means any waste, substance, or material identified as hazardous, dangerous or toxic by any office, agency, department, commission, board, bureau, or instrumentality of the United States or of the State or locality in which the same is located having or exercising jurisdiction over such waste, substance or material. "IES Utilities" means IES Utilities Inc., an Iowa corporation, all of whose common stock is owned on the date hereof by the Parent. "Information Memorandum" means the Confidential Information Memorandum relating to this Agreement and the Other Credit Agreement delivered (or to be delivered) by Citicorp Securities, Inc. and First Chicago Capital Markets, Inc. at the direction of the Borrower and the Parent to the Lenders. "Interest Period" means, for each A Advance made as part of the same A Borrowing, the period commencing on the date of such A Advance or the date of the Conversion of any A Advance into such an A Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be 30, 60, 90 or 180 days in the case of an Adjusted CD Rate Advance, and 1, 2, 3 or 6 months in the case of a Eurodollar Rate Advance, in each case as the Borrower may, upon notice received by the Agent not later than 12:00 noon (New York City time) (a) on the third Business Day prior to the first day of such Interest Period in the case of a Eurodollar Rate Advance and (b) on the second Business Day prior to the first day of such Interest Period in the case of an Adjusted CD Rate Advance, select; provided, however, that: (i) the Borrower may not select any Interest Period that ends after the Termination Date (or, if the Borrower shall make the Term Election, the Termination Date as extended pursuant to Section 2.18); (ii) Interest Periods commencing on the same date for A Advances comprising part of the same A Borrowing shall be of the same duration; and (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, in the case of any Interest Period for a Eurodollar Rate Advance, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "IPC" means Interstate Power Company, a Delaware corporation. "Lenders" means the Banks listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Lender Assignment" means an assignment and acceptance agreement entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit 8.07. "Lien" has the meaning assigned to that term in Section 5.02(a). "Loan Documents" means this Agreement, the Notes, the Support Agreement, the Fee Letter and all other agreements, instruments and documents now or hereafter executed and/or delivered pursuant hereto or thereto. "Majority Lenders" means, on any date of determination, Lenders that, collectively, on such date (i) hold at least 66- 2/3% of the then aggregate unpaid principal amount of the A Advances owing to Lenders and (ii) if no A Advances are then outstanding, have Percentages in the aggregate of at least 66- 2/3%. Any determination of those Lenders constituting the Majority Lenders shall be made by the Agent and shall be conclusive and binding on all parties absent manifest error. "McLeodUSA Stock" means the 8,977,600 shares of common stock of McLeodUSA Incorporated, a Delaware corporation, held by the Borrower as of the date of this Agreement. "Merger" means the merger of the Parent with and into WPL and the merger of the Borrower with and into Heartland Development Corporation, pursuant to an Agreement and Plan of Merger, dated as of November 10, 1995, as amended (the "Merger Agreement"), with the result that the Borrower, IES Utilities, Wisconsin Power and IPC will be wholly-owned Subsidiaries of WPL, which will be renamed Interstate Energy Corporation. "Moody's" means Moody's Investors Service, Inc. or any successor thereto. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the Borrower or any ERISA Affiliate of the Borrower is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Nonrecourse Debt" means any Debt that finances the acquisition, development, ownership or operation of an asset in respect of which the Person to which such Debt is owed has no recourse whatsoever to the Borrower or any of its Affiliates other than: (i) recourse to the named obligor with respect to such Debt (the "Debtor") for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic cash flow) from the asset; and (ii) recourse to the Debtor for the purpose only of enabling amounts to be claimed in respect of such Debt in an enforcement of any security interest or lien given by the Debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the Debtor over its shares or like interest in the capital of the Debtor) to secure the Debt, but only if: (A) the extent of the recourse to the Debtor is limited solely to the amount of any recoveries made on any such enforcement; and (B) the Person to which such Debt is owed is not entitled, by virtue of any right or claim arising out of or in connection with such Debt, to commence proceedings for the winding up or dissolution of the Debtor or to appoint or procure the appointment of any receiver, trustee, or similar Person or officer in respect of the Debtor or any of its assets (other than the assets subject to the security interest or lien referred to above); and (iii) recourse to the Debtor generally or indirectly to any Affiliate of the Debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for a breach of an obligation (other than a payment obligation or an obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by the Person against which such recourse is available. "Note" means an A Note or a B Note. "Notice of A Borrowing" has the meaning assigned to that term in Section 2.02(a). "Notice of B Borrowing" has the meaning assigned to that term in Section 2.03(a). "Notice of Conversion" has the meaning assigned to that term in Section 2.10. "OECD" means the Organization for Economic Cooperation and Development. "Other Credit Agreement" means the 3-Year Credit Agreement, dated as of October 20, 1997, among the Borrower, the lenders from time to time parties thereto and Citibank, N.A., as agent for such lenders. "Parent" means IES Industries Inc., an Iowa corporation, or any successor by merger thereto (including, upon consummation of the Merger, WPL) that succeeds to the obligations of IES Industries Inc. under, and in accordance with Section 2(e) of, the Support Agreement. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor entity) established under ERISA. "Percentage" means, for any Lender on any date of determination, the percentage obtained by dividing such Lender's Commitment on such day by the total of the Commitments on such date, and multiplying the quotient so obtained by 100%. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time. "Reference Banks" means Citibank, N.A. and The First National Bank of Chicago, and any additional or substitute Lenders as may be selected from time to time to act as Reference Banks hereunder by the Agent, the Majority Lenders and the Borrower. "Reference Ratings" means the ratings assigned by S&P and Moody's to: (i) prior to the consummation of the Merger, the Reference Securities of IES Utilities and (ii) following the consummation of the Merger, the lower of the two most highly rated Reference Securities. For purposes of the foregoing clause (i) and clause (ii), if the ratings assigned to such Reference Security by S&P and Moody's, respectively are not comparable (i.e. a "split rating"), the lower of such two ratings shall control. "Reference Securities" means, for each of IES Utilities, Wisconsin Power and IPC, such Utility's first mortgage bonds or other most senior secured non-credit enhanced long-term debt. "Register" has the meaning assigned to that term in Section 8.07(c). "Revolving Period" means the period beginning on October 20, 1997 and ending on the 364th calendar day following such date, or such later date as the Lenders may from time to time agree pursuant to Section 2.18(a). "S&P" means Standard & Poor's Corporation or any successor thereto. "Senior Financial Officer" means the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of the Borrower. "Significant Subsidiary" means any Subsidiary of the Borrower that, on a consolidated basis with any of its Subsidiaries as of any date of determination, accounts for more than 20% of the consolidated assets (valued at book value) of the Borrower and its Subsidiaries. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and no Person other than the Borrower and its ERISA Affiliates, or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subsidiary" means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one of more other Subsidiaries). In the case of an unincorporated entity, a Person shall be deemed to have more than 50% of interests having ordinary voting power only if such Person's vote in respect of such interests comprises more than 50% of the total voting power of all such interests in the unincorporated entity. "Support Agreement" means the 364-Day Support Agreement, dated as of the date hereof, between the Parent and the Borrower, substantially in the form of Exhibit 1.01B. "Term Election" has the meaning assigned to that term in Section 2.18(a). "Termination Date" means the earliest to occur of (i) the last day of the Revolving Period, or, if the Borrower shall have made the Term Election, the first anniversary of the last day of the Revolving Period, (ii) September 1, 1998, if the Merger shall not have been consummated on or prior to May 10, 1998 and (iii) the date of termination or reduction in whole of the Commitments pursuant to Section 2.05 or 6.01. "Type" has the meaning assigned to that term (i) in the definition of "A Advance" when used in such context and (ii) in the definition of "Borrowing" when used in such context. "Unmatured Default" means an event that, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Utilities" means, collectively, IES Utilities, Wisconsin Power and IPC. "Wisconsin Power" means Wisconsin Power & Light Company, a Wisconsin corporation. "WPL" means WPL Holdings, Inc., a Wisconsin Corporation. SECTION 1.02. Computation of Time Periods. Unless otherwise indicated, each reference in this Agreement to a specific time of day is a reference to New York City time. In the computation of periods of time under this Agreement, any period of a specified number of days or months shall be computed by including the first day or month occurring during such period and excluding the last such day or month. In the case of a period of time "from" a specified date "to" or "until" a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.03. Computations of Outstandings. Whenever reference is made in this Agreement to the "principal amount outstanding" on any date under this Agreement, such reference shall refer to the aggregate principal amount of all Advances outstanding on such date after giving effect to all Extensions of Credit to be made on such date and the application of the proceeds thereof. SECTION 1.04. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles ("GAAP") consistent with those applied in the preparation of the financial statements referred to in Section 5(d) of the Support Agreement. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The A Advances. (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make A Advances to the Borrower from time to time on any Business Day during the period from the Closing until the Termination Date in an aggregate outstanding amount not to exceed at any time such Lender's Available Commitment, provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the B Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be applied to the Lenders ratably according to their respective Percentages (such deemed use of the aggregate amount of the Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate amount not less than $5,000,000 (or, if lower, the amount of the Available Commitments) or an integral multiple of $1,000,000 in excess thereof and shall consist of A Advances of the same Type made on the same day by the Lenders ratably according to their respective Percentages. Within the limits of each Lender's Commitment and as hereinabove and hereinafter provided, the Borrower may request Extensions of Credit hereunder, and repay or prepay Advances pursuant to Section 2.11 and utilize the resulting increase in the Available Commitments for further Extensions of Credit in accordance with the terms hereof. (b) In no event shall the Borrower be entitled to request or receive any Extensions of Credit that would cause the principal amount outstanding hereunder to exceed the Commitments. SECTION 2.02. Making the A Advances. (a) Each A Borrowing shall be made on notice, given not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances, (ii) on the second Business Day prior to the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Adjusted CD Rate Advances, and (iii) on the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, in each case by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of an A Borrowing (a "Notice of A Borrowing") shall be by telecopier, telex or cable, in substantially the form of Exhibit 2.02(a) hereto, specifying therein the requested (A) date of such A Borrowing, (B) Type of A Advances comprising such A Borrowing, (C) aggregate amount of such A Borrowing and (D) in the case of an A Borrowing comprised of Adjusted CD Rate Advances or Eurodollar Rate Advances, initial Interest Period for each such A Advance. Each Lender shall, before (x) 12:00 noon on the date of such A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances or Adjusted CD Rate Advances, and (y) 1:00 p.m. on the date of such A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such A Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will promptly make such funds available to the Borrower at the Agent's aforesaid address. (b) Each Notice of A Borrowing shall be irrevocable and binding on the Borrower. In the case of any A Borrowing which the related Notice of A Borrowing specifies is to be comprised of Adjusted CD Rate Advances or Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of A Borrowing for such A Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the A Advance to be made by such Lender as part of such A Borrowing when such A Advance, as a result of such failure, is not made on such date. (c) Unless the Agent shall have received notice from a Lender prior to the date of any A Borrowing that such Lender will not make available to the Agent such Lender's A Advance as part of such A Borrowing, the Agent may assume that such Lender has made such A Advance available to the Agent on the date of such A Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such A Advance available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to A Advances comprising such A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's A Advance as part of such A Borrowing for purposes of this Agreement. (d) The failure of any Lender to make the A Advance to be made by it as part of any A Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its A Advance on the date of such A Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the A Advance to be made by such other Lender on the date of any A Borrowing. SECTION 2.03. The B Advances. (a) Each Lender severally agrees that the Borrower may request B Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 30 days prior to the Termination Date in the manner, and subject to the terms and conditions, set forth below. The rates of interest offered by the Lenders and accepted by the Borrower for each B Borrowing shall be fixed rates per annum. (i) The Borrower may request a B Borrowing under this Section 2.03 by delivering to the Agent, by telecopier, telex or cable, a notice of a B Borrowing (a "Notice of B Borrowing"), in substantially the form of Exhibit 2.03(a)(i) hereto, specifying the date and aggregate amount of the proposed B Borrowing, the maturity date for repayment of each B Advance to be made as part of such B Borrowing (which maturity date may not be earlier than the date occurring 30 days after the date of such B Borrowing nor later than the earliest to occur of the last day of the then-current Revolving Period, the then-scheduled Termination Date and the date occurring 180 days following the date of such B Borrowing), the interest payment date or dates relating thereto, and any other terms to be applicable to such B Borrowing, not later than 3:00 p.m. at least one Business Day prior to the date of the proposed B Borrowing. The Agent shall in turn promptly notify each Lender of each request for a B Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of B Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more B Advances to the Borrower as part of such proposed B Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Agent (which shall give prompt notice thereof to the Borrower), before 11:00 a.m., on the date of such proposed B Borrowing, of the minimum amount and maximum amount of each B Advance which such Lender would be willing to make as part of such proposed B Borrowing (which amounts may, subject to the limitation contained in subsection (d), below, exceed such Lender's Commitment), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such B Advance; provided that if the Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 10:30 a.m. on the date on which notice of such election is to be given to the Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Agent before 11:00 a.m. on the date on which notice of such election is to be given to the Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any B Advance as part of such B Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any B Advance as part of such proposed B Borrowing. (iii) The Borrower shall, in turn, before 12:00 noon on the date of such proposed B Borrowing either (x) cancel such B Borrowing by either giving the Agent notice to that effect or failing to accept one or more offers as provided in clause (y), below, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii), above, in its sole discretion, by giving written notice to the Agent of the amount of each B Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Agent on behalf of such Lender for such B Advance pursuant to paragraph (ii), above) to be made by each Lender as part of such B Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii), above, by giving the Agent written notice to that effect. (iv) If the Borrower cancels such B Borrowing pursuant to paragraph (iii)(x), above, the Agent shall give prompt notice thereof to the Lenders and such B Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y), above, such acceptance shall be irrevocable and binding on the Borrower and, subject to the satisfaction of the applicable conditions set forth in Article III, on such Lender or Lenders. The Borrower shall indemnify each such Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill, on or before the date specified in the notice provided pursuant to paragraph (vii)(A), below, the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the B Advance to be made by such Lender as part of such B Borrowing when such B Advance, as a result of such failure, is not made on such date. (vi) Unless the Agent shall have received notice from a Lender prior to the date of any B Borrowing in which such Lender is required to participate that such Lender will not make available to the Agent such Lender's B Advance as part of such B Borrowing, the Agent may assume that such Lender has made such B Advance available to the Agent on the date of such B Borrowing in accordance with paragraph (vii), below, and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such B Advance available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable to such B Advance and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's B Advance as part of such B Borrowing for purposes of this Agreement. (vii) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y), above, the Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii), above, of the date and aggregate amount of such B Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii), above, have been accepted by the Borrower, (B) each Lender that is to make a B Advance as part of such B Borrowing of the amount of the B Advance to be made by such Lender as part of such B Borrowing and (C) each Lender that is to make a B Advance as part of such B Borrowing, upon receipt, that the Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a B Advance as part of such B Borrowing shall, before 1:00 p.m. on the date of such B Borrowing specified in the notice received from the Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 8.02 such Lender's B Advance, in same day funds. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Agent of such funds, the Agent will promptly make such funds available to the Borrower at the Agent's aforesaid address. Promptly after each B Borrowing the Agent will notify each Lender of the amount of the B Borrowing, the consequent B Reduction and the dates upon which such B Reduction commenced and will terminate. (b) Each B Borrowing shall be in an aggregate amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (c) Within the limits and on the conditions set forth in this Section 2.03, the Borrower may from time to time borrow under this Section 2.03, repay pursuant to subsection (e), below, prepay pursuant to Section 2.11 and reborrow under this Section 2.03, provided that a B Borrowing shall not be made within three Business Days of the date of any other B Borrowing. (d) In no event shall the Borrower be entitled to request or receive any B Advances that would cause the principal amount outstanding hereunder to exceed the Commitments. (e) The Borrower shall repay to the Agent for the account of each Lender which has made a B Advance, or each other holder of a B Note, on the maturity date of each B Advance (such maturity date being that specified by the Borrower for repayment of such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i), above, and provided in the B Note evidencing such B Advance), the then unpaid principal amount of such B Advance. (f) The Borrower shall pay interest on the unpaid principal amount of each B Advance from the date of such B Advance to the date the principal amount of such B Advance is repaid in full, at the rate of interest for such B Advance specified by the Lender making such B Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii), above, payable on the interest payment date or dates specified by the Borrower for such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i), above, as provided in the B Note evidencing such B Advance, provided, however, that upon the occurrence and during the continuance of any Event of Default, each B Advance shall bear interest at the Default Rate. (g) The indebtedness of the Borrower resulting from each B Advance made to the Borrower as part of a B Borrowing shall be evidenced by a separate B Note of the Borrower payable to the order of the Lender making such B Advance. SECTION 2.04. Fees. (a) The Borrower agrees to pay to the Agent for the account of each Lender the Facility Fee from the date hereof, in the case of each Bank, and from the effective date specified in the Lender Assignment pursuant to which it became a Lender, in the case of each other Lender, until the Termination Date, payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender's Commitment, commencing December 31, 1997, and on the Termination Date. (b) In addition to the fee provided for in subsection (a), above, the Borrower shall pay to the Agent, for the account of the Agent, such fees as are provided for in the Fee Letter. SECTION 2.05. Reduction of the Commitments. (a) The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount which is less than the aggregate principal amount of the A and B Advances then outstanding; and provided, further, that each partial reduction shall be in a minimum amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. Any termination or reduction of the Commitments shall be irrevocable, and the Commitments shall not thereafter be reinstated. (b) If the Borrower shall make the Term Election: (i) on the last day of the Revolving Period, the Commitments shall be reduced to an amount equal to the aggregate principal amount of Advances then outstanding, and (ii) thereafter, if at any time the Borrower shall fail to either (A) Convert the full principal amount of any A Borrowing on the last day of any Interest Period therefor or reborrow such full principal amount as a B Borrowing on such date, or (B) reborrow the full amount of any B Borrowing on the maturity date therefor as either an A Borrowing or a B Borrowing, or any combination thereof, the resulting Available Commitments of the Lenders shall automatically be terminated. (c) On the Termination Date, the Commitments of the Lenders shall be reduced to zero. SECTION 2.06. Repayment of A Advances. The Borrower shall repay the principal amount of each A Advance made by each Lender in accordance with the A Note to the order of such Lender. SECTION 2.07. Interest on A Advances. The Borrower shall pay interest on the unpaid principal amount of each A Advance owing to each Lender from the date of such A Advance until such principal amount shall be paid in full, at the Applicable Rate for such A Advance (except as otherwise provided in this Section 2.07), payable as follows: (a) Base Rate Advances. If such A Advance is a Base Rate Advance, interest thereon shall be payable quarterly in arrears on the last day of each March, June, September and December, on the date of any Conversion of such Base Rate Advance and on the date such Base Rate Advance shall become due and payable or shall otherwise be paid in full; provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Base Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. (b) Adjusted CD Rate Advances. If such A Advance is an Adjusted CD Rate Advance, interest thereon shall be payable on the last day of such Interest Period and, if the Interest Period for such A Advance has a duration of more than 90 days, on each day that occurs during such Interest Period every 90 days from the first day of such Interest Period; provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Adjusted CD Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. (c) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate Advance, interest thereon shall be payable on the last day of such Interest Period and, if the Interest Period for such A Advance has a duration of more than three months, on that day of each third month during such Interest Period that corresponds to the first day of such Interest Period (or, if any such month does not have a corresponding day, then on the last day of such month); provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Eurodollar Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. SECTION 2.08. Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to Agent for the account of each Lender any costs actually incurred by such Lender with respect to Eurodollar Rate Advances which are attributable to such Lender's compliance with regulations of the Board of Governors of the Federal Reserve System requiring the maintenance of reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities. Such costs shall be paid to the Agent for the account of such Lender in the form of additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such A Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such A Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such A Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Agent. A certificate as to the amount of such additional interest, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Adjusted CD Rate or Eurodollar Rate, as applicable. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.07(a), (b) or (c), and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.07(b) or (c). (c) If fewer than two Reference Banks furnish timely information to the Agent for determining the Adjusted CD Rate for any Adjusted CD Rate Advances, or the Eurodollar Rate for any Eurodollar Rate Advances, due to the unavailability of funds to such Reference Banks in the relevant financial markets: (i) the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may be; (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance); and (iii) the obligation of the Lenders to make, or to Convert A Advances into, Adjusted CD Rate Advances or Eurodollar Rate Advances, as the case may be, shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon: (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance or, if requested by the Borrower in accordance with Section 2.10, an Adjusted CD Rate Advance; and (ii) the obligation of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (e) If the Borrower shall fail to (i) select the duration of any Interest Period for any Adjusted CD Rate Advances or any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, (ii) provide a Notice of Conversion with respect to any Eurodollar Rate Advances or Adjusted CD Rate Advances on or prior to 12:00 noon (A) on the third Business Day prior to the last day of the Interest Period applicable thereto, in the case of a Conversion to or in respect of Eurodollar Rate Advances, or (B) on the second Business Day prior to the last day of the Interest Period applicable thereto, in the case of a Conversion to or in respect of Adjusted CD Rate Advances, or (iii) satisfy the applicable conditions precedent set forth in Section 3.02 with respect to the Conversion to or in respect of any Eurodollar Rate Advances or Adjusted CD Rate Advances, the Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances; provided, however, that if, in the case of any failure by the Borrower pursuant to clause (iii), above, the Majority Lenders do not notify the Borrower within 30 days after such Conversion into Base Rate Advances that they have agreed to waive, or have decided not to waive, the applicable conditions precedent set forth in Section 3.02 that the Borrower failed to satisfy, the Majority Lenders shall be deemed to have waived such conditions precedent solely with respect to the Advances so Converted, and the Borrower shall, at any time after such 30-day period, be permitted to Convert such Advances into Eurodollar Rate Advances or Adjusted CD Rate Advances; and provided further, however, that such deemed waiver shall be of no further force or effect if, at any time after such 30-day period, the Majority Lenders notify the Borrower that they no longer agree to waive such conditions precedent, in which case any such Advances so Converted into Eurodollar Rate Advances or Adjusted CD Rate Advances shall automatically Convert into Base Rate Advances on the last day of the then existing Interest Period therefor. (f) On the date on which the aggregate unpaid principal amount of A Advances comprising any A Borrowing shall be reduced, by payment or prepayment or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of Lenders on such date, such A Advances shall, if they are Advances of a Type other than Base Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such A Advances into Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such A Advance shall be of the same Type and have the same Interest Period as A Advances comprising another A Borrowing or other A Borrowings, and the aggregate unpaid principal amount of all such A Advances shall equal or exceed the product of (i) $1,000,000 and (ii) the number of Lenders on such date, the Borrower shall have the right to continue all such A Advances as, or to Convert all such A Advances into, Advances of such Type having such Interest Period. (g) Upon the occurrence and during the continuance of any Event of Default, each outstanding Eurodollar Rate Advance and each outstanding Adjusted CD Rate Advance shall automatically Convert to a Base Rate Advance at the end of the Interest Period then in effect for such Eurodollar Rate Advance or Adjusted CD Rate Advance. SECTION 2.10. Voluntary Conversion of A Advances. Subject to the applicable conditions set forth in Section 3.02, the Borrower may on any Business Day, by delivering a notice of Conversion (a "Notice of Conversion") to the Agent not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed Conversion, in the case of a Conversion to or in respect of Eurodollar Rate Advances, (ii) on the second Business Day prior to the date of the proposed Conversion, in the case of a Conversion to or in respect of Adjusted CD Rate Advances and (iii) on the date of the proposed Conversion, in the case of a Conversion to or in respect of Base Rate Advances, and subject to the provisions of Sections 2.09 and 2.13, Convert all A Advances of one Type comprising the same A Borrowing into Advances of another Type; provided, however, that, in the case of any Conversion of any Adjusted CD Rate Advances or Eurodollar Rate Advances into Advances of another Type on a day other than the last day of an Interest Period for such Adjusted CD Rate Advances or Eurodollar Rate Advances, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b). Each such Notice of Conversion shall be in substantially the form of Exhibit 2.10 and shall, within the restrictions specified above, specify (A) the date of such Conversion, (B) the A Advances to be Converted, (C) if such Conversion is into Adjusted CD Rate Advances or Eurodollar Rate Advances, the duration of the Interest Period for each such A Advance, and (D) the aggregate amount of A Advances proposed to be Converted. SECTION 2.11. Optional Prepayments of Advances. The Borrower may, upon at least three Business Day's notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $1,000,000 (or, if lower, the principal amount outstanding hereunder on the date of such prepayment) or an integral multiple of $1,000,000 in excess thereof. In the case of any such prepayment of an Adjusted CD Rate Advance, Eurodollar Rate Advance or a B Advance, the Borrower shall be obligated to reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except as provided in this Section 2.11 and in Section 2.12, the Borrower shall have no right to prepay any principal amount of any Advances. SECTION 2.12. Mandatory Prepayments. (a) On the date of any termination or reduction of the Commitments pursuant to Section 2.05, the Borrower shall pay or prepay for the ratable accounts of the Lenders so much of the principal amount outstanding under this Agreement as shall be necessary in order that the principal amount outstanding (after giving effect to such prepayment) will not exceed the amount of Commitments following such termination or reduction, together with (A) accrued interest to the date of such prepayment on the principal amount repaid or prepaid and (B) in the case of prepayments of Eurodollar Rate Advances, Adjusted CD Rate Advances or B Advances, any amount payable to the Lenders pursuant to Section 8.04(b). (b) All prepayments required to be made pursuant to this Section 2.12 shall be applied by the Agent as follows: (i) first, to the prepayment of the A Advances (without reference to minimum dollar requirements), applied to outstanding Base Rate Advances up to the full amount thereof before they are applied to the ratable prepayment of Eurodollar Rate and Adjusted CD Rate Advances; and (ii) second, to the prepayment of the B Advances (without reference to minimum dollar requirements), applied ratably among all the Lenders holding B Advances. (c) In lieu of prepaying any Eurodollar Rate Advances, Adjusted CD Rate Advances or B Advances under any provision (other than Sections 2.14 and 6.01) of this Agreement, the Borrower may, upon notice to the Agent, deliver such funds to the Agent, to be held as additional cash collateral securing the obligations hereunder and under the Notes. The Agent shall deposit all amounts delivered to it in a non-interest-bearing special purpose cash collateral account, to be governed by a cash collateral agreement in form and substance satisfactory to the Borrower and the Agent, and shall apply all such amounts in such account against such Advances on the last day of the Interest Period therefor. The Agent shall promptly notify the Lenders of any election by the Borrower to deliver funds to the Agent under this subsection (c). SECTION 2.13. Increased Costs. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Adjusted CD Rate Advances, included in the definition of Adjusted CD Rate or, in the case of Eurodollar Rate Advances, included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Adjusted CD Rate Advances or Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall immediately pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Commitment. A certificate as to such amounts submitted to the Borrower and the Agent by such Lender, describing in reasonable detail the manner in which such amounts have been calculated, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination and allocation thereof shall have been made by such Lender in good faith. (c) Notwithstanding the provisions of subsections (a) or (b), above, to the contrary, no Lender shall be entitled to demand compensation or be compensated thereunder to the extent that such compensation relates to any period of time more than 60 days prior to the date upon which such Lender first notified the Borrower of the occurrence of the event entitling such Lender to such compensation (unless, and to the extent, that any such compensation so demanded shall relate to the retroactive application of any event so notified to the Borrower). SECTION 2.14. Illegality. Notwithstanding any other provision of this Agreement to the contrary, if any Lender (the "Affected Lender") shall notify the Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Affected Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) all Eurodollar Rate Advances of the Affected Lender shall, on the fifth Business Day following such notice from the Affected Lender, automatically be Converted into a like number of Base Rate Advances, each in the amount of the corresponding Eurodollar Rate Advance of the Affected Lender being so Converted (each such Advance, as so Converted, being an "Affected Lender Advance"), and the obligation of the Affected Lender to make, maintain, or Convert A Advances into Eurodollar Rate Advances shall thereupon be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, or the Affected Lender has been replaced pursuant to Section 8.07(g), and (ii) in the event that, on the last day of each of the then-current Interest Periods for each Eurodollar Rate Advance (each such Advance being an "Unaffected Lender Advance") of each of the other Lenders (each such Lender being an "Unaffected Lender"), the Agent shall have yet to notify the Borrower and the Lenders that the circumstances causing such suspension of the Affected Lender's obligations as aforesaid no longer exist, or the Affected Lender has not yet been replaced pursuant to Section 8.07(g), such Unaffected Lender Advance shall be Converted by the Borrower in accordance with Section 2.10 into an Advance of another Type (or, in the event that the Borrower shall fail to duly deliver a Notice of Conversion with respect thereto, into a Base Rate Advance), and the obligation of such Unaffected Lender to make, maintain, or Convert A Advances into Eurodollar Rate Advances shall be suspended until the Agent shall so notify the Borrower and the Lenders, or the Affected Lender shall be so replaced. For purposes of any prepayment under this Agreement, each Affected Lender Advance shall be deemed to continue to be part of the same Borrowing as the Unaffected Lender Advance to which it corresponded at the time of the Conversion of such Affected Lender Advance pursuant to clause (i), above. SECTION 2.15. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes not later than 1:00 p.m. on the day when due in Dollars to the Agent at its address referred to in Section 8.02 in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.03, 2.08, 2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of a Lender Assignment and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Lender Assignment, the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Lender Assignment shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on the Alternate Base Rate and the Federal Funds Rate and of fees shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Adjusted CD Rate and the Eurodollar Rate shall be made by the Agent, and all computations of interest pursuant to Section 2.09 shall be made by a Lender, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent (or, in the case of Section 2.09, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error, provided that such determination shall have been made by the Agent or such Lender, as the case may be, in good faith. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.16. Taxes. (a) Any and all payments by the Borrower hereunder and under the other Loan Documents shall be made, in accordance with Section 2.15, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"); provided, however, that, notwithstanding the foregoing, Taxes shall not include any taxes otherwise required to be deducted by the Borrower pursuant to this subsection (a) as a result of activities of any Lender or the Agent in the State of Iowa (other than as a result, or in respect, of this Agreement). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor. Nothing herein shall preclude the right of the Borrower to contest any such Taxes or Other Taxes so paid, and the Lenders in question or the Agent (as the case may be) will, following notice from, and at the expense of, the Borrower, reasonably cooperate with the Borrower to preserve the Borrower's rights to contest such Taxes or Other Taxes. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender agrees that, on or prior to the date upon which it shall become a party hereto, and upon the reasonable request from time to time of the Borrower or the Agent, such Lender will deliver to the Borrower and the Agent either (i) a statement that it is organized under the laws of a jurisdiction within the United States or (ii) duly completed copies of such form or forms as may from time to time be prescribed by the United States Internal Revenue Service indicating that such Lender is entitled to receive payments without deduction or withholding of any United States federal income taxes, as permitted by the Internal Revenue Code of 1986, as amended from time to time. Each Lender that delivers to the Borrower and the Agent the form or forms referred to in the preceding sentence further undertakes to deliver to the Borrower and the Agent further copies of such form or forms, or successor applicable form or forms, as the case may be, as and when any previous form filed by it hereunder shall expire or shall become incomplete or inaccurate in any respect. Each Lender represents and warrants that each such form supplied by it to the Agent and the Borrower pursuant to this subsection (e), and not superseded by another form supplied by it, is or will be, as the case may be, complete and accurate. (f) Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.16 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 2.17. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the A Advances made by it (other than pursuant to Section 2.08, 2.13, 2.16 or 8.04(b)) in excess of its ratable share of payments on account of the A Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.17 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.18. Extension of Revolving Period; Term Election. (a) At least 30 but not more than 60 days prior to the end of the then-current Revolving Period, the Borrower may, by delivering a written request to the Agent (each such request being irrevocable), request that the Revolving Period be extended for an additional period of 364 days, commencing on the last day of the then-current Revolving Period. Any such notice shall also indicate whether the Borrower elects, in the event that the Lenders determine not to extend the Revolving Period as requested by the Borrower, to extend the then-stated Termination Date from the last day of the then-current Revolving Period to the first anniversary of the last day of the then-current Revolving Period (any such election to so extend the Termination Date being the "Term Election"). Upon receipt of any such notice, the Agent shall promptly communicate such request to the Lenders. (b) No earlier than 30 days prior, and no later than 20 days prior, to the end of the then-current Revolving Period, the Lenders shall indicate to the Borrower whether the Borrower's request to so extend the then-current Revolving Period is acceptable to the Lenders (and, if so, the conditions, if any, relating to such acceptance), it being understood that the unanimous written consent of the Lenders shall be required to effect any such request, that the determination by each Lender will be in its sole and absolute discretion and that the failure of any Lender to so respond within such period shall be deemed to constitute a refusal by such Lender to consent to such request (with the result being that such request is denied). (c) In the event that any request by the Borrower pursuant to subsection (a), above, shall be denied and the Borrower shall have indicated in such request that, in the event of such denial, it has determined to effect the Term Election, then, effective as of the last day of the then-current Revolving Period, the Termination Date shall automatically be extended to the first anniversary of such day. In addition, in the event that the Borrower shall determine not to request an extension of the then-current Revolving Period pursuant to subsection (a), above, it may nonetheless make the Term Election by giving written notice to such effect to the Agent at least ten Business Days prior to the last day of the then-current Revolving Period (which shall promptly give notice thereof to the Lenders), whereupon, effective as of such last day, the Termination Date shall automatically be extended to the first anniversary of such last day. (d) Notwithstanding anything contained herein to the contrary, the Borrower's right to effect the Term Election as provided in either subsection (a) or (b), above, shall not affect any rights or remedies which the Lenders or the Agent may have at such time under Section 6.01 as a result of any Event of Default or Unmatured Default which may have occurred and then be continuing, either at the time of the giving of such notice or on the last day of the then-current Revolving Period. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Closing. The Commitments of the Lenders shall not become effective unless the following conditions precedent shall have been fulfilled on or prior to October 20, 1997 (or such later Business Day as the parties hereto may mutually agree): (a) The Agent shall have received the following, each dated the date of the Closing, in form and substance satisfactory to the Lenders and (except for the Notes) in sufficient copies for each Lender: (i) this Agreement, duly executed by the Borrower, each Bank and the Agent; (ii) the A Notes payable to the order of the Lenders, respectively, duly completed and executed by the Borrower; (iii) certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party, and of all documents evidencing other necessary corporate action with respect to this Agreement, the Notes and such Loan Documents; (iv) certified copies of the resolutions of the Board of Directors of the Parent approving the Support Agreement and the other Loan Documents to which it is, or is to be, a party, together with a certificate of the Secretary or an Assistant Secretary of the Parent certifying that attached thereo is a listing of all credit facilities of the Borrower having the benefit of a guaranty or other support arrangement from the Parent; and copies of all documents evidencing other necessary corporate action with respect to the Support Agreement and such Loan Documents; (v) a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names, true signatures and incumbency of the officers of the Borrower authorized to sign this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party; (vi) a certificate of the Secretary or an Assistant Secretary of the Parent certifying the names, true signatures and incumbency of the officers of the Parent authorized to sign the Support Agreement and the other Loan Documents to which it is, or is to be, a party; (vii) copies of the Certificate of Incorporation (or comparable charter document) and by-laws of the Borrower, together with all amendments thereto, certified by the Secretary or an Assistant Secretary of the Borrower; (viii) copies of the Certificate of Incorporation (or comparable charter document) and by-laws of the Parent, together with all amendments thereto, certified by the Secretary or an Assistant Secretary of the Parent; (ix) certified copies of all Governmental Approvals, if any, required in connection with the execution, delivery and performance of this Agreement and the other Loan Documents; (x) certified copies of the financial statements referred to in Section 5(d) of the Support Agreement; (xi) the Support Agreement duly executed by the Parent and the Borrower, together with (A) a letter from the Parent to the Agent affirming that the Lenders are "Lenders" under the Support Agreement and (B) proper Financing Statements (Form UCC-1 or UCC-3) to be filed under the Uniform Commercial Code in all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect the security interests created by the Support Agreement; (xii) favorable opinions of: (A) Winthrop, Stimson, Putnam & Roberts, special New York counsel for the Borrower and the Parent, in substantially the form of Exhibit 3.01(a)(xii)-1 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; (B) Stephen W. Southwick, Counsel for the Borrower & Vice President, General Counsel and Secretary of the Parent, in substantially the form of Exhibit 3.01(a)(xii)-2 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; (C) King & Spalding, special New York counsel to the Agent, in substantially the form of Exhibit 3.01(a)(xii)-3 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; and (xiii) such other approvals, opinions and documents as any Lender, through the Agent, may reasonably request. (b) The following statements shall be true and correct and the Agent shall have received a certificate of a duly authorized officer of the Borrower, dated the date of the Closing and in sufficient copies for each Lender, stating that: (i) the representations and warranties set forth in Section 4.01 of this Agreement are true and correct on and as of the date of the Closing as though made on and as of such date, and (ii) no event has occurred and is continuing that constitutes an Unmatured Default or an Event of Default. (c) The Agent shall have received a certificate (the statements in which shall be true) of a duly authorized officer of the Parent, dated the date of the Closing and in sufficient copies for each Lender, stating that the representations and warranties set forth in Section 5 of the Support Agreement are true and correct on and as of the date of the Closing as though made on and as of such date. (d) The Borrower shall have paid (i) all fees under or referenced in Section 2.04 hereof, to the extent then due and payable, and (ii) all costs and expenses of the Agent (including counsel fees and disbursements) incurred through (and for which statements have been provided prior to) the Closing. (e) The Borrower shall have executed and delivered the Other Credit Agreement and the "Loan Documents" referred to therein, and all conditions precedent set forth in Section 3.01 thereof shall have been satisfied. (f) The Borrower shall have terminated the commitments under the Existing Facility, and all amounts accrued and outstanding thereunder (whether for principal, interest, fees or other amounts) shall have been paid in full. SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation of each Lender to make an A Advance on the occasion of each A Borrowing (including the initial A Borrowing) shall be subject to the conditions precedent that, on the date of such A Borrowing, (a) the following statements shall be true and correct (and each of the giving of the applicable Notice of A Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such A Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 and in Section 5 of the Support Agreement are true and correct on and as of the date of such A Borrowing, before and after giving effect to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such A Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (b) the Agent shall have received such other approvals, opinions, or documents as the Agent, or the Majority Lenders through the Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Agent. SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of each Lender to make a B Advance on the occasion of a B Borrowing (including the initial B Borrowing) shall be subject to the conditions precedent that (a) the Agent shall have received the written confirmatory Notice of B Borrowing with respect thereto; (b) on or before the date of such B Borrowing, but prior to such B Borrowing, the Agent shall have received a B Note payable to the order of such Lender for each of the one or more B Advances to be made by such Lender as part of such B Borrowing, in a principal amount equal to the principal amount of the B Advance to be evidenced thereby and otherwise on such terms as were agreed to for such B Advance in accordance with Section 2.03; (c) on the date of such B Borrowing the following statements shall be true and correct (and each of the giving of the applicable Notice of B Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such B Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 and in Section 5 of the Support Agreement are true and correct on and as of the date of such B Borrowing, before and after giving effect to such B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such B Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (d) the Agent shall have received such other approvals, opinions, or documents as the Agent, or the Majority Lenders through the Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Agent. SECTION 3.04. Reliance on Certificates. The Lenders and the Agent shall be entitled to rely conclusively upon the certificates delivered from time to time by officers of the Borrower and the Parent as to the names, incumbency, authority and signatures of the respective Persons named therein until such time as the Agent may receive a replacement certificate, in form acceptable to the Agent, from an officer of such Person identified to the Agent as having authority to deliver such certificate, setting forth the names and true signatures of the officers and other representatives of such Person thereafter authorized to act on behalf of such Person. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business in, and is in good standing in, all other jurisdictions where the nature of its business or the nature of property owned or used by it makes such qualification necessary (except where the failure to so qualify would not have a material adverse affect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole). (b) The execution, delivery and performance by the Borrower of this Agreement, the Notes and the other Loan Documents to which it is or will be a party are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not and will not contravene (i) the Borrower's charter or by-laws, (ii) law, or (iii) any legal or contractual restriction binding on or affecting the Borrower; and such execution, delivery and performance do not and will not result in or require the creation of any Lien (other than pursuant to the Loan Documents) upon or with respect to any of its properties. (c) No Governmental Approval is required in connection with the execution, delivery or performance of any Loan Document. (d) This Agreement is, and each other Loan Document to which the Borrower will be a party when executed and delivered hereunder will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to the qualifications, however, that the enforcement of the rights and remedies herein and therein is subject to bankruptcy and other similar laws of general application affecting rights and remedies of creditors and that the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceedings therefor may be brought. (e) Since December 31, 1996, there has been no material adverse change in the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or in the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (f) The unaudited consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at December 31, 1996, and the related unaudited consolidated and consolidating statements of income of the Borrower and its Subsidiaries for the fiscal year then ended, and the unaudited consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at June 30, 1997 and the related unaudited consolidated and consolidating statements of income for the six-month period then ended, copies of each of which have been furnished to each Bank, fairly present (subject, in the case of such balance sheets and statements of income for the six months ended June 30, 1997, to year-end adjustments) the consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the consolidated results of operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance, in all material respects, with generally accepted accounting principles consistently applied. (g) Except as disclosed in the Parent's Report on Form 10-K for the year ended December 31, 1996 and Report on Form 10-Q for the period ended June 30, 1997, there is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries or properties before any court, governmental agency or arbitrator, that might reasonably be expected to materially adversely affect (i) the business, financial condition, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or (ii) the ability of the Borrower to perform its obligations under this Agreement or any other Loan Document to which the Borrower or the Parent is or is to be a party; and since June 30, 1997 there have been no material adverse developments in any action or proceeding so disclosed. (h) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of the Borrower or any of its ERISA Affiliates which would result in a material liability to the Borrower. Since the date of the most recent Schedule B (Actuarial Information) to the annual report of Plans maintained by the Borrower (Form 5500 Series), if any, there has been no material adverse change in the funding status of the Plans referred to therein and no "prohibited transaction" has occurred with respect thereto which is reasonably expected to result in a material liability to the Borrower. Neither the Borrower nor any of its ERISA Affiliates has incurred nor reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan. (i) Each of the Support Agreement and the Merger Agreement is in full force and effect without having been amended, modified, waived or terminated in any manner, except in each case in accordance with the terms thereof. (j) The Borrower has filed all tax returns (Federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or, to the extent the Borrower is contesting in good faith an assertion of liability based on such returns, has provided adequate reserves for payment thereof in accordance with generally accepted accounting principles. (k) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets of the Borrower and its Subsidiaries on a consolidated basis will be margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). (l) The Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (m) As of the date hereof, the Borrower is not a "holding company" within the meaning of PUHCA. (n) From and after the date upon which, and at all times during which, any Subsidiary of the Borrower shall be a "public-utility company" within the meaning of PUHCA, the Borrower will be a "holding company" within the meaning of PUHCA, but the Borrower and its Subsidiaries will be exempt from the provisions of that Act, except Section 9(a)(2) thereof, by virtue of having filed with the Securities and Exchange Commission a Statement by Holding Company Claiming Exemption Under Rule U-2 from the Provisions of the Public Utility Holding Company Act of 1935 on Form U-3A-2. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all taxes, assessments and governmental charges, royalties or levies imposed upon it or upon its property except, in the case of taxes, to the extent the Borrower or such Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles. (b) Maintenance of Insurance. Maintain, or cause to be maintained, insurance covering the Borrower and each of its Subsidiaries and their respective properties in effect at all times in such amounts and covering such risks as is usually carried by companies of a similar size (based on the aggregate book value of the Parent's assets, as determined on a consolidated basis in accordance with generally accepted accounting principles consistently applied), engaged in similar businesses and owning similar properties in the same general geographical area in which the Borrower and each such Subsidiary operates, either with reputable insurance companies or, in whole or in part, by establishing reserves of one or more insurance funds, either alone or with other corporations or associations. (c) Preservation of Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, material rights (statutory and otherwise) and franchises; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to preserve and maintain any such right or franchise, and no such Subsidiary shall be required to preserve and maintain its corporate existence, unless the failure to do so would have a material adverse effect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (d) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including without limitation any such laws, rules, regulations and orders relating to zoning, environmental protection, use and disposal of Hazardous Substances, land use, ERISA, construction and building restrictions, and employee safety and health matters relating to business operations, the non-compliance with which would have a material adverse effect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (e) Inspection Rights. At any time and from time to time upon reasonable notice, permit or arrange for the Agent, the Lenders and their respective agents and representatives to examine and make copies of and abstracts from the records and books of account of, and the properties of, the Borrower and each of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with the Borrower and its Subsidiaries and their respective officers, directors and accountants. (f) Keeping of Books. Keep, and cause its Subsidiaries to keep, proper records and books of account, in which full and correct entries shall be made of all financial transactions of the Borrower and its Subsidiaries and the assets and business of the Borrower and its Subsidiaries, in accordance with generally accepted accounting principles consistently applied. (g) Maintenance of Properties, Etc. Maintain, and cause each of its Subsidiaries to maintain, good and marketable title to, and preserve, maintain, develop, and operate in substantial conformity with all laws and material contractual obligations, all of its properties which are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not have a material adverse effect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (h) Reporting Requirements. Furnish to each Lender: (i) as soon as possible and in any event within five Business Days after the occurrence of each Unmatured Default or Event of Default continuing on the date of such statement, a statement of a Senior Financial Officer setting forth details of such Unmatured Default or Event of Default and the action that the Borrower proposes to take with respect thereto; (ii) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter and consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 5(d) of the Support Agreement, together with a certificate of said officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; (iii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case (x) accompanied by the audit report of Arthur Andersen & Co. or another nationally-recognized independent public accounting firm acceptable to the Majority Lenders if at any time during such fiscal year the Reference Ratings were Baa2 or lower (in the case of Moody's) or BBB or lower (in the case of S&P) or (y) in reasonable detail and duly certified by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 5(d) of the Support Agreement, together with a certificate of a Senior Financial Officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; (iv) as soon as possible and in any event (A) within 30 days after any ERISA Event described in clause (i) of the definition of ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred and (B) within 10 days after any other ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred, a statement of a Senior Financial Officer describing such ERISA Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto; (v) promptly after receipt thereof by the Borrower or any of its ERISA Affiliates from the PBGC copies of each notice received by the Borrower or such ERISA Affiliate of the PBGC's intention to terminate any Plan of the Borrower or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (vi) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan (if any) to which the Borrower or any ERISA Affiliate of the Borrower is a contributing employer; (vii) promptly after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or such ERISA Affiliate concerning the imposition or amount of withdrawal liability in an aggregate principal amount of at least $250,000 pursuant to Section 4202 of ERISA in respect of which the Borrower or such ERISA Affiliate is reasonably expected to be liable; (viii) promptly after the Borrower becomes aware of the occurrence thereof, notice of all actions, suits, proceedings or other events of (A) of the type described in Section 4.01(g) or (B) for which the Agent, the Lenders will be entitled to indemnity under Section 8.04(c); (ix) promptly after the sending or filing thereof, copies of all such proxy statements, financial statements, and reports which the Borrower sends to its public security holders (if any), and copies of all regular, periodic and special reports, and all registration statements and periodic or special reports, if any, which the Borrower or the Parent files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; and (x) promptly after requested, such other information respecting the business, properties, results of operations, prospects, revenues, condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as the Agent or any Lender through the Agent may from time to time reasonably request. (i) Use of Proceeds. Use the proceeds of the Advances hereunder solely for the Borrower's general corporate purposes, and not to finance any "hostile" or "unfriendly" acquisition. (j) Merger Agreement; Support Agreement. Comply in all material respects with its obligations under the Merger Agreement and the Support Agreement. (k) Further Assurances. At the expense of the Borrower, promptly execute and deliver, or cause to be promptly executed and delivered, all further instruments and documents, and take and cause to be taken all further actions, that may be necessary or that the Majority Lenders through the Agent may reasonably request to enable the Lenders and the Agent to enforce the terms and provisions of this Agreement and to exercise their rights and remedies hereunder or under any other Loan Document. In addition, the Borrower will use all reasonable efforts to duly obtain Governmental Approvals required in connection with the Loan Documents from time to time on or prior to such date as the same may become legally required, and thereafter to maintain all such Governmental Approvals in full force and effect. SECTION 5.02. Negative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will not, without the written consent of the Majority Lenders: (a) Liens, Etc. Create, incur, assume, or suffer to exist, or permit any of its Subsidiaries to create, incur, assume, or suffer to exist, any lien, security interest, or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any kind, or any other type of arrangement intended or having the effect of conferring upon a creditor a preferential interest upon or with respect to any of its properties of any character (including, without limitation, accounts) (any of the foregoing being referred to herein as a "Lien"), excluding, however, from the operation of the foregoing restrictions the Liens created under the Loan Documents and the following: (i) Liens for taxes, assessments or governmental charges or levies to the extent not past due; (ii) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith, provided that any such contested Lien securing an amount claimed in excess of $1,000,000 shall be fully bonded within 90 days after the imposition of such Lien; (iii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, to secure public or statutory obligations of the Borrower or such Subsidiary, or to secure the utility obligations of any such Subsidiary incurred in the ordinary course of business; (iv) (A) purchase money Liens upon or in property now owned or hereafter acquired by the Borrower or any of its Subsidiaries in the ordinary course of business (consistent with present practices) to secure (1) the purchase price of such property or (2) Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject to such Liens, or (B) Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved and replacements, modifications and proceeds of such property, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (v) Liens on the capital stock of any of the Borrower's single-purpose Subsidiaries or any such Subsidiary's assets to secure the repayment of project financing or Nonrecourse Debt for such Subsidiary; (vi) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings or the payment of which is covered in full (subject to customary deductible amounts) by insurance maintained with responsible insurance companies and the applicable insurance company has acknowledged its liability therefor in writing; (vii) Liens securing obligations under agreements entered into pursuant to the Iowa Industrial New Jobs Training Act or any similar or successor legislation, provided that such obligations do not exceed $1,000,000 in the aggregate at any one time outstanding; and (viii) other Liens set forth in Schedule II hereto, and any extensions or renewals of any such Liens upon or in the same property theretofore subject thereto. (b) Debt. (i) Create, incur, assume, or suffer to exist any Debt other than: (A) Debt hereunder and under the other Loan Documents; and (B) other Debt of the Borrower; provided, however, that both immediately before and after the incurrence of any such other Debt, the Parent shall be in compliance with the covenant set forth in Section 2(a) of the Support Agreement. (ii) Permit any of its Subsidiaries to create, incur, assume, or suffer to exist any Debt other than: (A) Debt of any Person acquired by the Borrower or any such Subsidiary (whether by merger, stock or asset purchase, or otherwise) that was in effect and outstanding at the time of acquisition; (B) Debt owing by any such Subsidiary to the Borrower or to any other such Subsidiary; (C) Debt of such Subsidiaries under working capital lines and with respect to Capitalized Lease Obligations not to exceed $5,000,000 in the aggregate at any one time outstanding (such dollar limitation to apply to the Debt of any Persons acquired by and merged into any such Subsidiary to the extent of any surviving working capital lines and Capitalized Lease Obligations of any such Person which shall survive such acquisition and merger); (D) Debt secured by Liens permitted by Section 5.02(a)(iv) and (v), including Nonrecourse Debt; (E) Debt under agreements entered into pursuant to the Iowa Industrial New Jobs Training Act or any similar or successor legislation, provided that such Debt does not exceed $1,000,000 in the aggregate at any one time outstanding; and (F) other Debt set forth in Schedule III hereto; provided, however, that both immediately before and after the incurrence of any Debt described in clauses (A), (B), (C), (D) and (E), above, or any Debt listed in Schedule III as proposed to be incurred following the consummation of the Merger, the Parent shall be in compliance with the covenant set forth in Section 2(a) of the Support Agreement. (c) Compliance with ERISA. (i) Permit to exist any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended from time to time) (unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and the Borrower has no control over the reduction or elimination of such deficiency), (ii) terminate, or permit any ERISA Affiliate of the Borrower to terminate, any Plan of the Borrower or such ERISA Affiliate so as to result in any material (in the opinion of the Majority Lenders) liability of the Borrower to the PBGC, or (iii) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any other event or condition, which presents a material (in the opinion of the Majority Lenders) risk of such a termination by the PBGC of any Plan of the Borrower or such ERISA Affiliate and such a material liability to the Borrower. (d) Transactions with Affiliates. Enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Borrower, unless such transaction is on terms no less favorable to the Borrower or such Subsidiary, as the case may be, than if the transaction had been negotiated in good faith on an arm's length basis with a Person which was not an Affiliate of the Borrower. (e) Mergers, Etc. (i) Merge with or into or consolidate with or into any other Person, except pursuant to and in accordance with the provisions of the Merger Agreement and then only if, contemporaneously with the consummation of the Merger, the surviving corporation: (A) expressly assumes in a writing delivered to the Agent (with sufficient copies for each Lender) the due and punctual performance and observance of all of the obligations of the Borrower under or in respect of the Loan Documents and the Other Credit Agreement and (B) delivers to the Agent (with sufficient copies for each Lender) an opinion of counsel, in form and substance satisfactory to the Agent, as to the enforceability of the obligations set forth in such writing and the obtaining of all Governmental Approvals necessary for the performance of such obligations by such surviving corporation and such other matters as the Agent may reasonably request. Notwithstanding the foregoing, the Borrower may also merge with or into or consolidate with or into any of the Parent's Subsidiaries or the Parent, provided that immediately after giving effect thereto, (W) no event shall occur and be continuing which constitutes an Unmatured Default or an Event of Default, (X) the Borrower is the surviving corporation or, with respect to any merger or consolidation of the Borrower with or into the Parent, the surviving (if not the Borrower) or resulting corporation shall have expressly assumed the obligations of the Borrower under this Agreement, the Notes and the other Loan Documents to which the Borrower is a party, (Y) the Parent (unless it shall be the surviving corporation) shall reaffirm its obligations to the surviving or resulting corporation under the Support Agreement and (Z) the Borrower shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement or any other Loan Document on the date of such transaction; and (ii) permit any of its Subsidiaries to merge with or into or consolidate with or into any other Person, except that any such Subsidiary may merge with or into any other Person, provided that immediately after giving effect thereto, (A) the surviving corporation is a Subsidiary of the Borrower, (B) no event shall occur and be continuing which constitutes an Unmatured Default or an Event of Default and (C) the Borrower or any of its Subsidiaries shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement or any other Loan Document on the date of such transaction. (f) Sales, Etc., of Assets. Sell, lease, transfer, assign or otherwise dispose of all or any substantial part of its assets, or permit any of its Subsidiaries to sell, lease, transfer, assign or otherwise dispose of all or any substantial part of its assets, except (i) sales, leases, transfers and assignments from one Subsidiary of the Borrower to another such Subsidiary, (ii) prior to the consummation of the Merger, sales, leases, transfers and assignments of assets having a book value not in excess of $10,000,000 in the aggregate and sales, leases, transfers and assignments of worn out or obsolete equipment no longer used and useful in the business of the Borrower and its Subsidiaries, (iii) following the consummation of the Merger, in any transaction in which the proceeds from such sale, lease, transfer, assignment or disposition are solely in Cash and Cash Equivalents and such proceeds are (A) reinvested, or held for no more than 180 days in Cash and Cash Equivalents pending reinvestment, in lines of business (other than real estate) in which the Borrower or any of its Subsidiaries is engaged in at the time of the Closing, (B) applied as a reduction of the Commitments and prepayment of Advances pursuant to Sections 2.05, 2.11 and 2.12, or (C) applied to pay or prepay Debt incurred by the Borrower or any such Subsidiary in connection with the project comprising such assets, or (iv) in connection with a sale and leaseback transaction entered into by any Subsidiary of the Borrower and (v) following the consummation of the Merger, sales, leases, transfers and assignments of other assets having a book value not in excess of $20,000,000 in the aggregate during any 12-calendar-month period in any single or series of transactions, whether or not related and sales, leases, transfers and assignments of worn out or obsolete equipment no longer used and useful in the business of the Borrower and its Subsidiaries; provided in each case that no Unmatured Default or Event of Default shall have occurred and be continuing after giving effect thereto; and provided further however, that prior to the consummation of the Merger, the Borrower shall in no event sell, lease, transfer, or assign any of the McLeodUSA Stock or grant any interest therein to any other person. (g) Modification of Support Agreement. Agree to amend, modify, terminate, or waive any provision of the Support Agreement. (h) Letter of Credit Obligations. Incur, or permit any of its Subsidiaries to incur, any indebtedness, liabilities or obligations (whether contingent or otherwise) under reimbursement or similar agreements with respect to letters of credit issued to support obligations that do not constitute Debt, except (i) indebtedness, liabilities or obligations not in excess of $1,000,000 in the aggregate at any one time outstanding, and (ii) in respect of bid bonds but only if the Borrower's or such Subsidiary's obligations in respect of all such bid bonds do not at any time exceed the sum of (A) the Available Commitments at such time plus (B) the "Available Commitments" under (and as defined in) the Other Credit Agreement at such time plus (C) the aggregate face amount of the Borrower's commercial paper notes outstanding at such time. (i) Maintenance of Ownership of Significant Subsidiaries. Sell, assign, transfer, pledge or otherwise dispose of any shares of capital stock of any of its Significant Subsidiaries or any warrants, rights or options to acquire such capital stock, or permit any of its Significant Subsidiaries to issue, sell or otherwise dispose of any shares of its capital stock or the capital stock of any other of its Subsidiaries or any warrants, rights or options to acquire such capital stock, except (and only to the extent) as may be necessary to give effect to a transaction permitted by subsection (e), above. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing after the applicable grace period and notice requirement (if any): (a) The Borrower shall fail to pay any principal of any Note when the same becomes due and payable; or (b) The Borrower shall fail to pay any interest on any Note or any other amount due under this Agreement for two days after the same becomes due; or (c) Any representation or warranty made by or on behalf of the Borrower in any Loan Document or in any certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (d) Any representation or warranty made by or on behalf of the Parent in the Support Agreement or in any certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (e) The Borrower shall fail to perform or observe any term or covenant on its part to be performed or observed contained in Section 5.02 (other than subsections (c), (d), (g), (i) or (j) thereof), or the Parent shall fail to perform or observe any term or covenant on its part to be performed or observed contained in Section 1, 2 or 4 of the Support Agreement; or (f) The Borrower shall fail to perform or observe any other term or covenant on its part to be performed or observed contained in Section 5.01, Section 5.02 or in any other Loan Document, or the Parent shall fail to perform or observe any other term or covenant on its part to be performed or observed contained in the Support Agreement, and any such failure shall remain unremedied, after written notice thereof shall have been given to the Borrower by the Agent, for a period of 30 days; or (g) The Parent or any of its Subsidiaries (including the Borrower but excluding the Utilities) shall fail to pay any of its Debt (including any interest or premium thereon but excluding Debt evidenced by the Notes) aggregating $5,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof as a result of a default or other similar adverse event; or (h) Any of the Utilities shall fail to pay any of its Debt (including any interest or premium thereon) aggregating $5,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof as a result of a default or other similar adverse event; or (i) The Borrower, the Parent or any of the Utilities shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make an assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, the Parent or any of the Utilities seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of a proceeding instituted against the Borrower, the Parent or any of the Utilities, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including without limitation the entry of an order for relief against the Borrower, the Parent or such Utility or the appointment of a receiver, trustee, custodian or other similar official for the Borrower, the Parent or such Utility or any of its property) shall occur; or the Borrower, the Parent or any of the Utilities shall take any corporate or other action to authorize any of the actions set forth above in this subsection (i); or (j) Any judgment or order for the payment of money equal to or in excess of $5,000,000 shall be rendered against the Parent or any of its Direct Subsidiaries (including, without limitation, the Borrower and the Utilities) or their respective properties and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) The Support Agreement, after delivery thereof under Article III, shall for any reason, except to the extent permitted by the terms thereof, cease to be valid and binding on the Parent or the Borrower; or (l) Any Governmental Approval required in connection with the execution, delivery and performance of the Loan Documents shall be rescinded, revoked, otherwise terminated, or amended or modified in any manner which is materially adverse to the interests of the Lenders and the Agent; or (m) Any ERISA Event shall have occurred with respect to a Plan which could reasonably be expected to result in a material liability to the Borrower, and, 30 days after notice thereof shall have been given to the Borrower by the Agent or any Lender, such ERISA Event shall still exist; or (n) An "event of default" (as defined therein) shall occur and be continuing under the Other Credit Agreement; or (o) Except as contemplated by the Merger Agreement: (A) any Person or "group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) shall either (1) acquire beneficial ownership of more than 50% of any outstanding class of common stock of the Parent having ordinary voting power in the election of directors of the Parent or (2) obtain the power (whether or not exercised) to elect a majority of the Parent's directors or (B) the Board of Directors of the Parent shall not consist of a majority of Continuing Directors. "Continuing Directors" shall mean the directors of the Parent on the effective date of the Facility and each other director of the Parent, if such other director's nomination for election to the Board of Directors of the Parent is recommended by a majority of the then Continuing Directors. then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the holders of at least 66-2/3% in principal amount of the A Advances then outstanding or, if no A Advances are then outstanding, Banks having at least 66-2/3% of the Commitments (without giving effect to any B Reduction), by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the holders of at least 66-2/3% in principal amount of the Advances then outstanding or, if no Advances are then outstanding, Lenders having at least 66-2/3% of the Commitments, by notice to the Borrower, declare the Notes (if any), all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII THE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. The Agent shall be deemed to have exercised reasonable care in the administration and enforcement of this Agreement and the other Loan Documents if it undertakes such administration and enforcement in a manner substantially equal to that which Citibank, N.A. accords credit facilities similar to the credit facility hereunder for which it is the sole lender. SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of any Note as the holder thereof until the Agent receives and accepts a Lender Assignment entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Loan Document; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or the Parent or to inspect the property (including the books and records) of the Borrower or the Parent; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Citibank, N.A. and Affiliates. With respect to its Commitment, the Advances made by it and the Notes issued to it, Citibank, N.A. shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" and "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank, N.A. in its individual capacity. Citibank, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, the Parent any of its Subsidiaries and any Person who may do business with or own securities of the Borrower, the Parent or any such Subsidiary, all as if Citibank, N.A. were not the Agent and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 5(d) of the Support Agreement and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to (a) on or before the Termination Date, the respective principal amounts of the A Notes then held by each of them (or if no A Notes are at the time outstanding or if any A Notes are held by Persons which are not Lenders, ratably according to the respective Percentages of the Lenders), or (b) after the Termination Date, the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons which are not Lenders, ratably according to the respective unpaid principal amounts of the Advances made by each Lender), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders, with any such resignation or removal to become effective only upon the appointment of a successor Agent pursuant to this Section 7.06. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent, which shall be a Lender or shall be another commercial bank or trust company reasonably acceptable to the Borrower organized under the laws of the United States or of any State thereof. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a Lender or shall be another commercial bank or trust company organized under the laws of the United States of any State thereof reasonably acceptable to the Borrower. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders and, in the case of any amendment, the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive, modify or eliminate any of the conditions specified in Section 3.01 or 3.02, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the A Notes, any Applicable Margin or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the A Notes or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the A Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (f) amend this Section 8.01; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Lenders making or maintaining such B Advances, do any of the following: (a) waive, modify or eliminate any of the conditions to any B Advance specified in Section 3.03, (b) reduce the principal of, or interest on, any B Note or other amounts payable in respect thereof, (c) postpone any date fixed for any payment of principal of, or interest on, any B Note or any other amounts payable in respect thereof; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder and under the other Loan Documents shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at 200 First Street, Cedar Rapids, Iowa 52401, Attention: Treasurer; if to the Parent, at its address at 200 First Street, Cedar Rapids, Iowa 52401, Attention: Treasurer; if to any Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Lender Assignment pursuant to which it became a Lender; and if to the Agent, at its address at Two Pennsway, Ste. 200, New Castle, Delaware 19720, Attention: Bank Loan Syndications; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective five days after being deposited in the mails, or when delivered to the telegraph company, telecopied, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Agent pursuant to Article II or VII shall not be effective until received by the Agent. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs, Expenses, Taxes and Indemnification. (a) The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation (including, without limitation, printing costs), negotiation, execution, delivery, modification and amendment of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to the administration of, and advising the Agent as to its rights and responsibilities under, this Agreement and the other Loan Documents. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Loan Documents and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a). In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, and agrees to save the Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. (b) If any payment of principal of, or Conversion of, any Adjusted CD Rate Advance, Eurodollar Rate Advance or B Advance is made other than on the last day of the Interest Period for such A Advance or other than on the maturity date of such B Advance, as a result of a payment or Conversion pursuant to Section 2.09(f), 2.10, 2.11, 2.12 or 2.14 or acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (c) The Borrower hereby agrees to indemnify and hold each Lender, the Agent and their respective officers, directors, employees, professional advisors and affiliates (each, an "Indemnified Person") harmless from and against any and all claims, damages, losses, liabilities, costs or expenses (including reasonable attorney's fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding) which any of them may incur or which may be claimed against any of them by any Person (except for such claims, damages, losses, liabilities, costs and expenses resulting from such Indemnified Person's gross negligence or willful misconduct): (i) by reason of or in connection with the execution, delivery or performance of any of the Loan Documents or any transaction contemplated thereby, or the use by the Borrower of the proceeds of any Extension of Credit; (ii) in connection with any documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of any of the Loan Documents; (iii) in connection with or resulting from the utilization, storage, disposal, treatment, generation, transportation, release or ownership of any Hazardous Substance (i) at, upon, or under any property of the Borrower or any of its Affiliates or (ii) by or on behalf of the Borrower or any of its Affiliates at any time and in any place; or (iv) by reason of or in connection with the Merger or any of the transactions contemplated by the Merger Agreement. (d) The Borrower's obligations under this Section 8.04 shall survive the repayment of all amounts owing to the Lenders under the Notes and the termination of the Commitments. If and to the extent that the obligations of the Borrower under this Section 8.04 are unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law. SECTION 8.05. Right of Set-off. (a) Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent by the Majority Lenders specified by Section 6.01 to authorize the Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document and any Note held by such Lender, irrespective of whether or not such Lender shall have made any demand under such Loan Document or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. (b) The Borrower agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Lenders hereunder are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Borrower's rights to any independent claim that the Borrower may have against the Agent or any Lender for the Agent's or such Lender's, as the case may be, gross negligence or wilful misconduct, but no Lender shall be liable for the conduct of the Agent or any other Lender, and the Agent shall not be liable for the conduct of any Lender. SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified in writing by each Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07. Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Lender Assignment with respect to such assignment) shall in no event be less than the lesser of the amount of such Lender's then remaining Commitment and $5,000,000 (except in the case of assignments between Lenders at the time already parties hereto), and (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Lender Assignment, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,000. Promptly following its receipt of such Lender Assignment, Note or Notes and fee, the Agent shall accept and record such Lender Assignment in the Register. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Lender Assignment, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Lender Assignment, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Lender Assignment, relinquish its rights and be released from its obligations under this Agreement (and, in the case of a Lender Assignment covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything to the contrary contained in this Agreement, any Lender may at any time assign all or any portion of the Advances owing to it to any Affiliate of such Lender. No such assignment, other than to an Eligible Assignee, shall release the assigning Lender from its obligations hereunder. (b) By executing and delivering a Lender Assignment, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Lender Assignment, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the Parent or the performance or observance by the Borrower or the Parent of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of each Loan Document, together with copies of the financial statements referred to in Section 5(d) of the Support Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Lender Assignment; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Lender Assignment delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Parent, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a Lender Assignment executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Agent shall, if such Lender Assignment has been completed and is in substantially the form of Exhibit 8.07 hereto, (i) accept such Lender Assignment, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within 10 Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Lender Assignment and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Lender Assignment and shall otherwise be in substantially the form of Exhibit 1.01A-1 hereto. (e) Each Lender may sell participations to one or more banks, financial institutions or other entities in all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, and (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower or the Parent furnished to such Lender by or on behalf of the Borrower or the Parent; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree, in accordance with the terms of Section 8.08, to preserve the confidentiality of any Confidential Information relating to the Borrower or the Parent received by it from such Lender. (g) If any Lender (or any bank, financial institution, or other entity to which such Lender has sold a participation) shall (i) make any demand for payment under Section 2.08 or 2.13, (ii) give notice to the Agent pursuant to Section 2.14 or (iii) determine not to extend the Termination Date in response to any request by the Borrower pursuant to Section 2.18, then (A) in the case of any demand made under clause (i), above, or the occurrence of the event described in clause (ii), above, within 30 days after any such demand or occurrence (if, but only if, in the case of any demanded payment described in clause (i), such demanded payment has been made by the Borrower), and (B) in the case of the occurrence of the event described in clause (iii), above, at any time prior to the then-scheduled Termination Date, the Borrower may, with the approval of the Agent (which approval shall not be unreasonably withheld), and provided that no Event of Default or Unmatured Default shall then have occurred and be continuing, demand that such Lender assign in accordance with this Section 8.07 to one or more Eligible Assignees designated by the Borrower all (but not less than all) of such Lender's Commitment and the Advances owing to it within the period ending on the latest to occur of (x) the last day in the period described in clause (A) or (B), above, as applicable, (y) the last day of the longest of the then current Interest Periods for such Advances, and (z) the latest maturity date of any B Advances owing to such Lender. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender's Commitment or Advances, then such demand by the Borrower shall become ineffective; it being understood for purposes of this subsection (g) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (1) shall agree to such assignment by entering into a Lender Assignment with such Lender and (2) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder and under the Note made by the Borrower to such Lender, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above and payable by the Borrower as a condition to the Borrower's right to demand such assignment), or otherwise. (h) Anything in this Section 8.07 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of its Commitment and the Advances owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. SECTION 8.08. Confidentiality. In connection with the negotiation and administration of this Agreement and the other Loan Documents, the Borrower and the Parent have furnished and will from time to time furnish to the Agent and the Lenders (each, a "Recipient") written information which is identified to the Recipient in writing when delivered as confidential (such information, other than any such information which (i) as publicly available, or otherwise known to the Recipient, at the time of disclosure, (ii) subsequently becomes publicly available other than through any act or omission by the Recipient or (iii) otherwise subsequently becomes known to the Recipient other than through a Person whom the Recipient knows to be acting in violation of his or its obligations to the Borrower or the Parent, being hereinafter referred to as "Confidential Information"). The Recipient will maintain the confidentiality of any Confidential Information in accordance with such procedures as the Recipient applies generally to information of that nature. It is understood, however, that the foregoing will not restrict the Recipient's ability to freely exchange such Confidential Information with current or prospective participants in or assignees of the Recipient's position herein, but the Recipient's ability to so exchange Confidential Information shall be conditioned upon any such prospective participant's or assignee's entering into an understanding as to confidentiality similar to this provision. It is further understood that the foregoing will not prohibit the disclosure of any or all Confidential Information if and to the extent that such disclosure may be required (i) by a regulatory agency or otherwise in connection with an examination of the Recipient's records by appropriate authorities, (ii) pursuant to court order, subpoena or other legal process or in connection with any pending or threatened litigation, (iii) otherwise as required by law, or (iv) in order to protect its interests or its rights or remedies hereunder or under the other Loan Documents; in the event of any required disclosure under clause (ii) or (iii), above, the Recipient agrees to use reasonable efforts to inform the Borrower and the Parent as promptly as practicable. SECTION 8.09. WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS, THE BORROWER AND THE PARENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE AGENT, SUCH LENDERS, THE BORROWER OR THE PARENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT. SECTION 8.10. Consent. Unless otherwise specified as being within the sole discretion of the Agent, the Lenders the Majority Lenders or the Borrower, whenever the consent or approval of the Agent, the Lenders, the Majority Lenders or the Borrower, respectively, is required herein, such consent or approval shall not be unreasonably withheld or delayed. SECTION 8.11. Governing Law. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York. The Borrower, the Parent, each Lender, and the Agent (i) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of any Loan Document, (ii) agrees that all claims in such action may be decided in such court, (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (iv) consents to the service of process by mail. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court. SECTION 8.12. Relation of the Parties; No Beneficiary. No term, provision or requirement, whether express or implied, of any Loan Document, or actions taken or to be taken by any party thereunder, shall be construed to create a partnership, association, or joint venture between such parties or any of them. No term or provision of the Loan Documents shall be construed to confer a benefit upon, or grant a right or privilege to, any Person other than the parties thereto. SECTION 8.13. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. IES DIVERSIFIED INC. By /s/ Dennis B. Vass Title: Treasurer CITIBANK, N.A., as Agent By /s/ Anita J. Brickell Title: Attorney-In-Fact Bank CITIBANK, N.A. By /s/ Anita J. Brickell Title: Attorney-In-Fact Bank THE FIRST NATIONAL BANK OF CHICAGO By /s/ Madeleine N. Pember Title: Corporate Banking Officer SCHEDULE I IES DIVERSIFIED INC. 364-Day Credit Agreement, dated as of October 20, 1997, among IES Diversified Inc., the Banks named therein and Citibank, N.A., as Agent Name of Bank Commitment Domestic CD Lending Eurodollar Lending Office Office Lending Office Citibank, N.A. $75,000,000 Two Pennsway, Ste. 200, Same as Same as New Castle, Domestic Domestic Delaware 19720 Lending Lending Attention: Bank Loan Office Office Syndications The First $75,000,000 One First National Same as Same as National Bank Plaza, Suite 0363 Domestic Domestic of Chicago Chicago, Illinois Lending Lending 60670-0363 Office Office Telephone: 312.732.9780 Telecopy: 312.732.3055 / 312.732.6485 Attention: Robert G. Bussa SCHEDULE II SCHEDULE III EX-10 4 EXHIBIT 10(c) IES INDUSTRIES INC. GRANTOR TRUST FOR DIRECTOR RETIREMENT PLAN THIS AGREEMENT, made this 15th day of August, 1997, by and between IES INDUSTRIES INC. ("the Company") and NORWEST BANK IOWA, N.A. (the "Trustee"); W I T N E S S E T H: WHEREAS, the Company has adopted the Director Retirement Plan (the "Plan"); WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plan with respect to the individuals participating in such Plan; WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for directors of the Company; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1 ESTABLISHMENT OF TRUST 1.1 The Company hereby deposits with the Trustee, in trust, the sum of $1,000, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. 1.2 The Trust hereby established shall be irrevocable. 1.3 The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.4 The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 herein. 1.5 Within ten business days following a Change in Control, the Company shall make an irrevocable contribution to the Trust in an amount that is not less than the sum of the payments, determined on an undiscounted basis, which are then due or which may thereafter become due to participants or beneficiaries pursuant to the terms of the Plan. 1.6 As of each December 31 following a Change in Control ("Valuation Date"), the Company shall determine the amount of the contribution which would have been required pursuant to Section 1.5 if the Change in Control had occurred on such Valuation Date. If the amount so determined exceeds the fair market value of the Trust assets on such Valuation Date, the Company shall, within ten business days following such Valuation Date, make an irrevocable contribution to the Trust in an amount which is not less than such excess. 1.7 The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES 2.1 The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), or that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with the most recent Payment Schedule received by the Trustee. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. 2.2 The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by the Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. 2.3 The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT 3.1 The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if it is unable to pay its debts as they become due, or if it is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 3.2 At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. a. The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. b. Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. c. If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise. d. The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). 3.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4 PAYMENTS TO COMPANY Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan. SECTION 5 INVESTMENT AUTHORITY 5.1 Except as otherwise specifically provided herein, and subject to such investment guidelines as may be adopted by the Company and delivered to the Trustee, the Trustee may invest, reinvest, and hold the assets of the Trust in whatever form of investment the Trustee may see fit (including, but not limited to, contracts or policies of insurance), and in making or holding such investments, the Trustee shall not be restricted to those investments which are authorized by the laws of any state for the investment of trust funds. 5.2 The Company may at any time, and from time to time, appoint one or more investment managers to manage and control all or any part of the Trust's assets. Any such investment manager shall be a registered investment adviser under the Investment Advisers Act of 1940; a bank, as defined in that Act; or an insurance company that is qualified to manage, acquire or dispose of the Plan's assets under the laws of more than one state. Upon receipt of written notice of the appointment of an investment manager, the Trustee shall segregate the portion of the assets of the Trust to be managed by the investment manager into a separate "Investment Manager Account." An investment manager shall have full discretion and authority to invest, reinvest or dispose of the Trust assets in its Investment Manager Account, and the Trustee shall follow the directions of an investment manager with respect to the investment of Trust assets allocated to such Investment Manager's Account; provided, however, that if the Trustee shall not have received contrary instructions from an investment manager, the Trustee may invest for short term purposes any cash in its custody in short term, cash equivalent investments or in common or collective funds composed thereof. To the extent necessary to comply with the directions of an investment manager, the Trustee may enter into a subtrust agreement with the investment manager. The Company may terminate the appointment of an investment manager at any time, in which event the Company shall either appoint a successor to such investment manager or direct the Trustee to return the assets in the Investment Manager's Account to the unsegregated portion of the Trust. SECTION 6 DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7 ACCOUNTING BY TRUSTEE The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year, and within 60 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. SECTION 8 RESPONSIBILITY OF TRUSTEE 8.1 The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company or an investment manager which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Company or such investment manager. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. 8.2 If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. 8.3 The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. 8.4 The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder, and may reasonably compensate them out of the Trust assets. 8.5 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. 8.6 Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7700-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. SECTION 9 COMPENSATION AND EXPENSES OF TRUSTEE The Company shall pay all administrative and the Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. SECTION 10 RESIGNATION OR REMOVAL OF TRUSTEE 10.1 The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. 10.2 Prior to a Change in Control, the Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee. Following a Change in Control, the Trustee may not be removed by the Company unless 65% of all directors or former directors of the Company who are or may become entitled to the payment of benefits pursuant to the Plan consent in writing to such removal. 10.3 Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. 10.4 If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Section 10.1 or 10.2 of this section. If no such appointment has been made, the Trustee may appoint a successor Trustee or it may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11 APPOINTMENT OF SUCCESSOR 11.1 If the Trustee resigns or is removed in accordance with Section 10.1 or 10.2 hereof, the Company, or if a Change in Control shall previously have occurred the Company and at least 65% of all directors or former directors of the Company who are or may become entitled to the payment of benefits pursuant to the Plan, may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. 11.2 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event or any condition existing at the time it becomes a successor Trustee. SECTION 12 AMENDMENT OR TERMINATION 12.1 This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable after it has become irrevocable in accordance with Section 1.2 hereof. 12.2 The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. 12.3 Notwithstanding the foregoing: a. This Trust Agreement may not be amended by the Company prior to a Change in Control without the written approval of any Plan participant or beneficiary whose rights or protections under a Plan or this Agreement may be reduced, impaired, or otherwise adversely affected by the amendment. b. This Trust Agreement may not be amended by the Company following a Change in Control without the written approval of all directors or former directors of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plan. c. The Company may terminate this Trust prior to the date specified in Section 12.2 upon the written approval of all directors or former directors of the Company who are or may become entitled to the payment of benefits pursuant to the Plan. SECTION 13 MISCELLANEOUS 13.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.2 Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of Iowa, except to the extent the same are preempted by federal law. 13.4 This Trust Agreement shall be binding upon, and shall inure to the benefit of, any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company. The Company (and any successor to the Company) may not otherwise assign its obligations under this Trust Agreement without the prior written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans; provided, however, that, subsequent to the merger of the Company with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, and prior to a Change in Control, the Company (or its successor) may assign its obligations under this agreement to any corporation, 100% of the stock of which is owned (either directly or through one or more subsidiaries) by the entity resulting from such merger. 13.5 For the purposes of this Trust Agreement, Change in Control shall mean: a. the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934, or any comparable successor provisions, of ownership (within the meaning of Rule 13d-3 promulgated under that Act) of 20% or more of the combined voting power of the Company's outstanding voting securities entitled to vote generally in the election of directors; b. the approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated entity's then outstanding securities entitled to vote generally in the election of directors; c. the approval by the stockholders of the Company of a liquidation or dissolution of the Company or of the sale of all or substantially all of the Company's assets; or d. the failure of individuals who were Directors of the Company at the beginning of any two consecutive year period (including, for this purpose, any new Director whose election or nomination for election was approved by a vote of at least two- thirds of the Directors then still in office who were Directors at the beginning of such period) to constitute a majority of the Company's Board of Directors; provided, however, that the merger of the Company with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, shall not constitute a Change in Control unless and until the resulting corporation fails to make any payment due pursuant to the Plan at the time such payment is due. SECTION 14 EFFECTIVE DATE The effective date of this Trust Agreement shall be August 1, 1997. * * * * * IN WITNESS WHEREOF, this instrument has been executed as of the day and year last above written. IES INDUSTRIES INC. By: Larry D. Root President & Chief Operating Officer NORWEST BANK IOWA, N.A. By: Charles W. Hippee Employee Benefits Manager EX-10 5 EXHIBIT 10(d) IES INDUSTRIES INC. GRANTOR TRUST FOR DEFERRED COMPENSATION AGREEMENTS THIS AGREEMENT, made this 15th day of August, 1997, by and between IES INDUSTRIES INC. ("the Company") and NORWEST BANK IOWA, N.A. (the "Trustee"); W I T N E S S E T H: WHEREAS, the Company has adopted or entered into the nonqualified deferred compensation plans and agreements (the "Plans") listed in Appendix A; WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1 ESTABLISHMENT OF TRUST 1.1 The Company hereby deposits with the Trustee, in trust, the sum of $1,000, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. 1.2 The Trust hereby established shall be irrevocable. 1.3 The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.4 The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 herein. 1.5 Within ten business days following a Change in Control, the Company shall make an irrevocable contribution to the Trust in an amount that is equal to the sum of the participants' and beneficiaries' account balances established pursuant to the terms of the Plans as of the date of the Change in Control. 1.6 As of each December 31 following a Change in Control ("Valuation Date"), the Company shall determine the amount of the contribution which would have been required pursuant to Section 1.5 if the Change in Control had occurred on such Valuation Date. If the amount so determined exceeds the fair market value of the Trust assets on such Valuation Date, the Company shall, within ten business days following such Valuation Date, make an irrevocable contribution to the Trust in an amount which is not less than such excess. 1.7 The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES 2.1 The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), or that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with the most recent Payment Schedule received by the Trustee. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. 2.2 The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plans shall be determined by the Company or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. 2.3 The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plans. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT 3.1 The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if it is unable to pay its debts as they become due, or if it is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 3.2 At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. a. The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. b. Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. c. If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plans or otherwise. d. The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). 3.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4 PAYMENTS TO COMPANY Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plans. SECTION 5 INVESTMENT AUTHORITY 5.1 Except as otherwise specifically provided herein, and subject to such investment guidelines as may be adopted by the Company and delivered to the Trustee, the Trustee may invest, reinvest, and hold the assets of the Trust in whatever form of investment the Trustee may see fit (including, but not limited to, contracts or policies of insurance), and in making or holding such investments, the Trustee shall not be restricted to those investments which are authorized by the laws of any state for the investment of trust funds. 5.2 The Company may at any time, and from time to time, appoint one or more investment managers to manage and control all or any part of the Trust's assets. Any such investment manager shall be a registered investment adviser under the Investment Advisers Act of 1940; a bank, as defined in that Act; or an insurance company that is qualified to manage, acquire or dispose of the Plans' assets under the laws of more than one state. Upon receipt of written notice of the appointment of an investment manager, the Trustee shall segregate the portion of the assets of the Trust to be managed by the investment manager into a separate "Investment Manager Account." An investment manager shall have full discretion and authority to invest, reinvest or dispose of the Trust assets in its Investment Manager Account, and the Trustee shall follow the directions of an investment manager with respect to the investment of Trust assets allocated to such Investment Manager's Account; provided, however, that if the Trustee shall not have received contrary instructions from an investment manager, the Trustee may invest for short term purposes any cash in its custody in short term, cash equivalent investments or in common or collective funds composed thereof. To the extent necessary to comply with the directions of an investment manager, the Trustee may enter into a subtrust agreement with the investment manager. The Company may terminate the appointment of an investment manager at any time, in which event the Company shall either appoint a successor to such investment manager or direct the Trustee to return the assets in the Investment Manager's Account to the unsegregated portion of the Trust. SECTION 6 DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7 ACCOUNTING BY TRUSTEE The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year, and within 60 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. SECTION 8 RESPONSIBILITY OF TRUSTEE 8.1 The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company or an investment manager which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by the Company or such investment manager. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. 8.2 If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. 8.3 The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. 8.4 The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder, and may reasonably compensate them out of the Trust assets. 8.5 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. 8.6 Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7700-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. SECTION 9 COMPENSATION AND EXPENSES OF TRUSTEE The Company shall pay all administrative and the Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. SECTION 10 RESIGNATION OR REMOVAL OF TRUSTEE 10.1 The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. 10.2 Prior to a Change in Control, the Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee. Following a Change in Control, the Trustee may not be removed by the Company unless 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans consent in writing to such removal. 10.3 Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. 10.4 If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Section 10.1 or 10.2 of this section. If no such appointment has been made, the Trustee may appoint a successor Trustee or it may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11 APPOINTMENT OF SUCCESSOR 11.1 If the Trustee resigns or is removed in accordance with Section 10.1 or 10.2 hereof, the Company, or if a Change in Control shall previously have occurred the Company and at least 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans, may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. 11.2 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event or any condition existing at the time it becomes a successor Trustee. SECTION 12 AMENDMENT OR TERMINATION 12.1 This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable after it has become irrevocable in accordance with Section 1.2 hereof. 12.2 The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. 12.3 Notwithstanding the foregoing: a. This Trust Agreement may not be amended by the Company prior to a Change in Control without the written approval of any Plan participant or beneficiary whose rights or protections under a Plan or this Agreement may be reduced, impaired, or otherwise adversely affected by the amendment. b. This Trust Agreement may not be amended by the Company following a Change in Control without the written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans. c. The Company may terminate this Trust prior to the date specified in Section 12.2 upon the written approval of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans. SECTION 13 MISCELLANEOUS 13.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.2 Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of Iowa, except to the extent the same are preempted by federal law. 13.4 This Trust Agreement shall be binding upon, and shall inure to the benefit of, any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company. The Company (and any successor to the Company) may not otherwise assign its obligations under this Trust Agreement without the prior written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans; provided, however, that, subsequent to the merger of the Company with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, and prior to a Change in Control, the Company (or its successor) may assign its obligations under this agreement to any corporation, 100% of the stock of which is owned (either directly or through one or more subsidiaries) by the entity resulting from such merger. 13.5 For the purposes of this Trust Agreement, Change in Control shall mean: a. the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934, or any comparable successor provisions, of ownership (within the meaning of Rule 13d-3 promulgated under that Act) of 20% or more of the combined voting power of the Company's outstanding voting securities entitled to vote generally in the election of directors; b. the approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated entity's then outstanding securities entitled to vote generally in the election of directors; c. the approval by the stockholders of the Company of a liquidation or dissolution of the Company or of the sale of all or substantially all of the Company's assets; or d. the failure of individuals who were Directors of the Company at the beginning of any two consecutive year period (including, for this purpose, any new Director whose election or nomination for election was approved by a vote of at least two- thirds of the Directors then still in office who were Directors at the beginning of such period) to constitute a majority of the Company's Board of Directors; provided, however, that the merger of the Company with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, shall not constitute a Change in Control unless and until the resulting corporation fails to make any payment due pursuant to a Plan at the time such payment is due. SECTION 14 EFFECTIVE DATE The effective date of this Trust Agreement shall be August 1, 1997. * * * * * IN WITNESS WHEREOF, this instrument has been executed as of the day and year last above written. IES INDUSTRIES INC. By: Larry D. Root President & Chief Operating Officer NORWEST BANK IOWA, N.A. By: Charles W. Hippee Employee Benefits Manager APPENDIX A PLANS The following plans and agreements shall be funded through the Trust: Burton, Clarence L., Retired Duncan, Larry J. Eibes, Tim J. Ekstrom, Dean E. Helbling, John K. Heyer, Patricia R., Term. Kratchmer, John E. Kucharski, Robert J., Retired Lindell, Christopher J. Liu, Lee Rivinius-Portz, Wendy A. Rogoff, Jonathan M. Root, Larry D., Retired Schmidt, Joel J. Seldon, Thomas R., Retired Thompson, Joan M. Treangen, Paul H. Vogt, James, Retired Bevis, Wayne J., Director Newman, Jack R., Director Ray, Robert D., Director Royer, Henry, Director Schultz, Robert W., Director Weiler, Anthony R., Director Scherling, Richard, Director Nussbaum, Leo, Director Levy, Solomon, Director EX-10 6 EXHIBIT 10(e) IES INDUSTRIES INC. GRANTOR TRUST FOR SUPPLEMENTAL RETIREMENT AGREEMENTS THIS AGREEMENT, made this 15th day of August, 1997, by and between IES INDUSTRIES INC. ("the Company") and NORWEST BANK IOWA, N.A. (the "Trustee"); W I T N E S S E T H: WHEREAS, the Company has adopted or entered into the nonqualified supplemental retirement plans and agreements (the "Plans") listed in Appendix A; WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1 ESTABLISHMENT OF TRUST 1.1 The Company hereby deposits with the Trustee, in trust, the sum of $1,000, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. 1.2 The Trust hereby established shall be irrevocable. 1.3 The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.4 The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 herein. 1.5 Within ten business days following a Change in Control, the Company shall make an irrevocable contribution to the Trust in an amount that is not less than the sum of the payments, determined on an undiscounted basis, which are then due or which may thereafter become due to participants or beneficiaries pursuant to the terms of the Plans. 1.6 As of each December 31 following a Change in Control ("Valuation Date"), the Company shall determine the amount of the contribution which would have been required pursuant to Section 1.5 if the Change in Control had occurred on such Valuation Date. If the amount so determined exceeds the fair market value of the Trust assets on such Valuation Date, the Company shall, within ten business days following such Valuation Date, make an irrevocable contribution to the Trust in an amount which is not less than such excess. 1.7 The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES 2.1 The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), or that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with the most recent Payment Schedule received by the Trustee. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. 2.2 The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plans shall be determined by the Company or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. 2.3 The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plans. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT 3.1 The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if it is unable to pay its debts as they become due, or if it is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 3.2 At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. a. The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. b. Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. c. If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plans or otherwise. d. The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). 3.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4 PAYMENTS TO COMPANY Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plans. SECTION 5 INVESTMENT AUTHORITY 5.1 Except as otherwise specifically provided herein, and subject to such investment guidelines as may be adopted by the Company and delivered to the Trustee, the Trustee may invest, reinvest, and hold the assets of the Trust in whatever form of investment the Trustee may see fit (including, but not limited to, contracts or policies of insurance), and in making or holding such investments, the Trustee shall not be restricted to those investments which are authorized by the laws of any state for the investment of trust funds. 5.2 The Company may at any time, and from time to time, appoint one or more investment managers to manage and control all or any part of the Trust's assets. Any such investment manager shall be a registered investment adviser under the Investment Advisers Act of 1940; a bank, as defined in that Act; or an insurance company that is qualified to manage, acquire or dispose of the Plans' assets under the laws of more than one state. Upon receipt of written notice of the appointment of an investment manager, the Trustee shall segregate the portion of the assets of the Trust to be managed by the investment manager into a separate "Investment Manager Account." An investment manager shall have full discretion and authority to invest, reinvest or dispose of the Trust assets in its Investment Manager Account, and the Trustee shall follow the directions of an investment manager with respect to the investment of Trust assets allocated to such Investment Manager's Account; provided, however, that if the Trustee shall not have received contrary instructions from an investment manager, the Trustee may invest for short term purposes any cash in its custody in short term, cash equivalent investments or in common or collective funds composed thereof. To the extent necessary to comply with the directions of an investment manager, the Trustee may enter into a subtrust agreement with the investment manager. The Company may terminate the appointment of an investment manager at any time, in which event the Company shall either appoint a successor to such investment manager or direct the Trustee to return the assets in the Investment Manager's Account to the unsegregated portion of the Trust. SECTION 6 DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7 ACCOUNTING BY TRUSTEE The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year, and within 60 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. SECTION 8 RESPONSIBILITY OF TRUSTEE 8.1 The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company or an investment manager which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by the Company or such investment manager. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. 8.2 If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. 8.3 The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. 8.4 The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder, and may reasonably compensate them out of the Trust assets. 8.5 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. 8.6 Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7700-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. SECTION 9 COMPENSATION AND EXPENSES OF TRUSTEE The Company shall pay all administrative and the Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. SECTION 10 RESIGNATION OR REMOVAL OF TRUSTEE 10.1 The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. 10.2 Prior to a Change in Control, the Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee. Following a Change in Control, the Trustee may not be removed by the Company unless 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans consent in writing to such removal. 10.3 Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. 10.4 If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Section 10.1 or 10.2 of this section. If no such appointment has been made, the Trustee may appoint a successor Trustee or it may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11 APPOINTMENT OF SUCCESSOR 11.1 If the Trustee resigns or is removed in accordance with Section 10.1 or 10.2 hereof, the Company, or if a Change in Control shall previously have occurred the Company and at least 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans, may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. 11.2 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event or any condition existing at the time it becomes a successor Trustee. SECTION 12 AMENDMENT OR TERMINATION 12.1 This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable after it has become irrevocable in accordance with Section 1.2 hereof. 12.2 The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. 12.3 Notwithstanding the foregoing: a. This Trust Agreement may not be amended by the Company prior to a Change in Control without the written approval of any Plan participant or beneficiary whose rights or protections under a Plan or this Agreement may be reduced, impaired, or otherwise adversely affected by the amendment. b. This Trust Agreement may not be amended by the Company in any respect following a Change in Control without the written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans. c. The Company may terminate this Trust prior to the date specified in Section 12.2 upon the written approval of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans. SECTION 13 MISCELLANEOUS 13.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.2 Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of Iowa, except to the extent the same are preempted by federal law. 13.4 This Trust Agreement shall be binding upon, and shall inure to the benefit of, any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company. The Company (and any successor to the Company) may not otherwise assign its obligations under this Trust Agreement without the prior written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans; provided, however, that, subsequent to the merger of the Company with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, and prior to a Change in Control, the Company (or its successor) may assign its obligations under this agreement to any corporation, 100% of the stock of which is owned (either directly or through one or more subsidiaries) by the entity resulting from such merger. 13.5 For the purposes of this Trust Agreement, Change in Control shall mean: a. the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934, or any comparable successor provisions, of ownership (within the meaning of Rule 13d-3 promulgated under that Act) of 20% or more of the combined voting power of the Company's outstanding voting securities entitled to vote generally in the election of directors; b. the approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated entity's then outstanding securities entitled to vote generally in the election of directors; c. the approval by the stockholders of the Company of a liquidation or dissolution of the Company or of the sale of all or substantially all of the Company's assets; or d. the failure of individuals who were Directors of the Company at the beginning of any two consecutive year period (including, for this purpose, any new Director whose election or nomination for election was approved by a vote of at least two-thirds of the Directors then still in office who were Directors at the beginning of such period) to constitute a majority of the Company's Board of Directors; provided, however, that the merger of the Company with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, shall not constitute a Change in Control unless and until the resulting corporation fails to make any payment due pursuant to a Plan at the time such payment is due. SECTION 14 EFFECTIVE DATE The effective date of this Trust Agreement shall be August 1, 1997. * * * * * IN WITNESS WHEREOF, this instrument has been executed as of the day and year last above written. IES INDUSTRIES INC. By: Larry D. Root President & Chief Operating Officer NORWEST BANK IOWA, N.A. By: Charles W. Hippee Employee Benefits Manager APPENDIX A PLANS The following plans and agreements shall be funded through the Trust: Peter W. Dietrich John F. Franz, Jr. Lee Liu Harold W. Rehrauer Philip D. Ward Steven W. Southwick Dean E. Ekstrom James E. Hoffman Rene Males James N. Davidson Robert F. Lafontaine Georgia F. Marlowe Marjorie E. McDonald Richard W. McGaughy J. Bernard Rehnstrom Virgil J. Schmidt Samuel J. Tuthill James A. Wallace Odie R. Woods Benjamin R. Rosencrants Robert J. Kucharski Larry D. Root Thomas R. Seldon EX-10 7 EXHIBIT 10(f) IES UTILITIES INC. GRANTOR TRUST FOR DEFERRED COMPENSATION AGREEMENTS THIS AGREEMENT, made this 15th day of August, 1997, by and between IES UTILITIES INC. ("the Company") and NORWEST BANK IOWA, N.A. (the "Trustee"); W I T N E S S E T H: WHEREAS, the Company has adopted or entered into the nonqualified deferred compensation plans and agreements (the "Plans") listed in Appendix A; WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1 ESTABLISHMENT OF TRUST 1.1 The Company hereby deposits with the Trustee, in trust, the sum of $1,000, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. 1.2 The Trust hereby established shall be irrevocable. 1.3 The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.4 The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 herein. 1.5 Within ten business days following a Change in Control, the Company shall make an irrevocable contribution to the Trust in an amount that is equal to the sum of the participants' and beneficiaries' account balances established pursuant to the terms of the Plans as of the date of the Change in Control. 1.6 As of each December 31 following a Change in Control ("Valuation Date"), the Company shall determine the amount of the contribution which would have been required pursuant to Section 1.5 if the Change in Control had occurred on such Valuation Date. If the amount so determined exceeds the fair market value of the Trust assets on such Valuation Date, the Company shall, within ten business days following such Valuation Date, make an irrevocable contribution to the Trust in an amount which is not less than such excess. 1.7 The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES 2.1 The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), or that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with the most recent Payment Schedule received by the Trustee. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. 2.2 The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plans shall be determined by the Company or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. 2.3 The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plans. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT 3.1 The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if it is unable to pay its debts as they become due, or if it is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 3.2 At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. a. The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. b. Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. c. If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plans or otherwise. d. The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). 3.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4 PAYMENTS TO COMPANY Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plans. SECTION 5 INVESTMENT AUTHORITY 5.1 Except as otherwise specifically provided herein, and subject to such investment guidelines as may be adopted by the Company and delivered to the Trustee, the Trustee may invest, reinvest, and hold the assets of the Trust in whatever form of investment the Trustee may see fit (including, but not limited to, contracts or policies of insurance), and in making or holding such investments, the Trustee shall not be restricted to those investments which are authorized by the laws of any state for the investment of trust funds. 5.2 The Company may at any time, and from time to time, appoint one or more investment managers to manage and control all or any part of the Trust's assets. Any such investment manager shall be a registered investment adviser under the Investment Advisers Act of 1940; a bank, as defined in that Act; or an insurance company that is qualified to manage, acquire or dispose of the Plans' assets under the laws of more than one state. Upon receipt of written notice of the appointment of an investment manager, the Trustee shall segregate the portion of the assets of the Trust to be managed by the investment manager into a separate "Investment Manager Account." An investment manager shall have full discretion and authority to invest, reinvest or dispose of the Trust assets in its Investment Manager Account, and the Trustee shall follow the directions of an investment manager with respect to the investment of Trust assets allocated to such Investment Manager's Account; provided, however, that if the Trustee shall not have received contrary instructions from an investment manager, the Trustee may invest for short term purposes any cash in its custody in short term, cash equivalent investments or in common or collective funds composed thereof. To the extent necessary to comply with the directions of an investment manager. The Company may terminate the appointment of an investment manager at any time, in which event the Company shall either appoint a successor to such investment manager or direct the Trustee to return the assets in the Investment Manager's Account to the unsegregated portion of the Trust. SECTION 6 DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7 ACCOUNTING BY TRUSTEE The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year, and within 60 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. SECTION 8 RESPONSIBILITY OF TRUSTEE 8.1 The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company or an investment manager which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by the Company or such investment manager. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. 8.2 If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. 8.3 The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. 8.4 The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder, and may reasonably compensate them out of the Trust assets. 8.5 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. 8.6 Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7700-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. SECTION 9 COMPENSATION AND EXPENSES OF TRUSTEE The Company shall pay all administrative and the Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. SECTION 10 RESIGNATION OR REMOVAL OF TRUSTEE 10.1 The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. 10.2 Prior to a Change in Control, the Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee. Following a Change in Control, the Trustee may not be removed by the Company unless 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans consent in writing to such removal. 10.3 Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. 10.4 If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Section 10.1 or 10.2 of this section. If no such appointment has been made, the Trustee may appoint a successor Trustee or it may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11 APPOINTMENT OF SUCCESSOR 11.1 If the Trustee resigns or is removed in accordance with Section 10.1 or 10.2 hereof, the Company, or if a Change in Control shall previously have occurred the Company and at least 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans, may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. 11.2 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event or any condition existing at the time it becomes a successor Trustee. SECTION 12 AMENDMENT OR TERMINATION 12.1 This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable after it has become irrevocable in accordance with Section 1.2 hereof. 12.2 The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. 12.3 Notwithstanding the foregoing: a. This Trust Agreement may not be amended by the Company prior to a Change in Control without the written approval of any Plan participant or beneficiary whose rights or protections under a Plan or this Agreement may be reduced, impaired, or otherwise adversely affected by the amendment. b. This Trust Agreement may not be amended by the Company following a Change in Control without the written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans. c. The Company may terminate this Trust prior to the date specified in Section 12.2 upon the written approval of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans. SECTION 13 MISCELLANEOUS 13.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.2 Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of Iowa, except to the extent the same are preempted by federal law. 13.4 This Trust Agreement shall be binding upon, and shall inure to the benefit of, any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company. The Company (and any successor to the Company) may not otherwise assign its obligations under this Trust Agreement without the prior written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans; provided, however, that, subsequent to the merger of IES Industries Inc. with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, and prior to a Change in Control, the Company (or its successor) may assign its obligations under this agreement to any corporation, 100% of the stock of which is owned (either directly or through one or more subsidiaries) by the entity resulting from such merger. 13.5 For the purposes of this Trust Agreement, Change in Control shall mean: a. the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934, or any comparable successor provisions, of ownership (within the meaning of Rule 13d-3 promulgated under that Act) of 20% or more of the combined voting power of IES Industries Inc.'s outstanding voting securities entitled to vote generally in the election of directors; b. the approval by the stockholders of IES Industries Inc. of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of IES Industries Inc. immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated entity's then outstanding securities entitled to vote generally in the election of directors; c. the approval by the stockholders of IES Industries Inc. of a liquidation or dissolution of IES Industries Inc. or of the sale of all or substantially all of IES Industries Inc.'s assets; or d. the failure of individuals who were Directors of IES Industries Inc. at the beginning of any two consecutive year period (including, for this purpose, any new Director whose election or nomination for election was approved by a vote of at least two- thirds of the Directors then still in office who were Directors at the beginning of such period) to constitute a majority of IES Industries Inc.'s Board of Directors; provided, however, that the merger of IES Industries Inc. with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, shall not constitute a Change in Control unless and until the resulting corporation fails to make any payment due pursuant to a Plan at the time such payment is due. SECTION 14 EFFECTIVE DATE The effective date of this Trust Agreement shall be August 1, 1997. * * * * * IN WITNESS WHEREOF, this instrument has been executed as of the day and year last above written. IES UTILITIES INC. By: Larry D. Root President & Chief Operating Officer NORWEST BANK IOWA, N.A. By: Charles W. Hippee Employee Benefits Manager APPENDIX A PLANS The following plans and agreements shall be funded through the Trust: Arnold, Alan J. Bair, Gerald K., Retired Baker, Steven C. Bassett, Thomas W., Retired Cox, Leland Derby, Gerrald C., Retired Douglass, William W. Jr., Retired Feld, John, Retired Franz, John F. Jr. Gladson, Steven, P. Greenlee, David L., Retired Gucciardo, Terry A. Hampsher, Christopher A. Hannen, Rick Hollar, Eldon L,, Retired Holley, Louis J., Retired Holmes, Robert R. Jones, Scott V. Klosterbuer, James A. Lange, Edward, Retired Langer, Dundeana K. Larsen, John, O. Lausar, Dennis W. Lessly, Roger E., Retired Males, Renee, Retired Mann, Gerald, E., Retired Matthews, Ernest G. Sr., Retired McDermott, Michael E. McGaughy, Richard, Retired Pates, Virgil J, Retired Peveler, Kenneth E. Redfern, John, Retired Rehnstrom, Bernard, Retired Rehrauer, Harold W. Repp, Warren K., Retired Root , Ervin D. Sagar, John, Retired Sloan, Lauren J. Swails, Stephen L. Teply, Don, Retired VanMiddlesworth, Gary D. Voy, Larry R., Retired Wagner, Robert E. Walling, Gary Ward, Phillip D. Zhorne, Donald C., Retired EX-10 8 EXHIBIT 10(g) IES UTILITIES INC. GRANTOR TRUST FOR SUPPLEMENTAL RETIREMENT AGREEMENTS THIS AGREEMENT, made this 15th day of August, 1997, by and between IES UTILITIES INC. ("the Company") and NORWEST BANK IOWA, N.A. (the "Trustee"); W I T N E S S E T H: WHEREAS, the Company has adopted or entered into the nonqualified supplemental retirement plans and agreements (the "Plans") listed in Appendix A; WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1 ESTABLISHMENT OF TRUST 1.1 The Company hereby deposits with the Trustee, in trust, the sum of $1,000, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. 1.2 The Trust hereby established shall be irrevocable. 1.3 The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.4 The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 herein. 1.5 Within ten business days following a Change in Control, the Company shall make an irrevocable contribution to the Trust in an amount that is not less than the sum of the payments, determined on an undiscounted basis, which are then due or which may thereafter become due to participants or beneficiaries pursuant to the terms of the Plans. 1.6 As of each December 31 following a Change in Control ("Valuation Date"), the Company shall determine the amount of the contribution which would have been required pursuant to Section 1.5 if the Change in Control had occurred on such Valuation Date. If the amount so determined exceeds the fair market value of the Trust assets on such Valuation Date, the Company shall, within ten business days following such Valuation Date, make an irrevocable contribution to the Trust in an amount which is not less than such excess. 1.7 The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES 2.1 The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), or that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with the most recent Payment Schedule received by the Trustee. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. 2.2 The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plans shall be determined by the Company or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. 2.3 The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plans. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT 3.1 The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if it is unable to pay its debts as they become due, or if it is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 3.2 At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. a. The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. b. Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. c. If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plans or otherwise. d. The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). 3.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4 PAYMENTS TO COMPANY Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plans. SECTION 5 INVESTMENT AUTHORITY 5.1 Except as otherwise specifically provided herein, and subject to such investment guidelines as may be adopted by the Company and delivered to the Trustee, the Trustee may invest, reinvest, and hold the assets of the Trust in whatever form of investment the Trustee may see fit (including, but not limited to, contracts or policies of insurance), and in making or holding such investments, the Trustee shall not be restricted to those investments which are authorized by the laws of any state for the investment of trust funds. 5.2 The Company may at any time, and from time to time, appoint one or more investment managers to manage and control all or any part of the Trust's assets. Any such investment manager shall be a registered investment adviser under the Investment Advisers Act of 1940; a bank, as defined in that Act; or an insurance company that is qualified to manage, acquire or dispose of the Plans' assets under the laws of more than one state. Upon receipt of written notice of the appointment of an investment manager, the Trustee shall segregate the portion of the assets of the Trust to be managed by the investment manager into a separate "Investment Manager Account." An investment manager shall have full discretion and authority to invest, reinvest or dispose of the Trust assets in its Investment Manager Account, and the Trustee shall follow the directions of an investment manager with respect to the investment of Trust assets allocated to such Investment Manager's Account; provided, however, that if the Trustee shall not have received contrary instructions from an investment manager, the Trustee may invest for short term purposes any cash in its custody in short term, cash equivalent investments or in common or collective funds composed thereof. To the extent necessary to comply with the directions of an investment manager, the Trustee may enter into a subtrust agreement with the investment manager. The Company may terminate the appointment of an investment manager at any time, in which event the Company shall either appoint a successor to such investment manager or direct the Trustee to return the assets in the Investment Manager's Account to the unsegregated portion of the Trust. SECTION 6 DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7 ACCOUNTING BY TRUSTEE The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year, and within 60 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. SECTION 8 RESPONSIBILITY OF TRUSTEE 8.1 The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company or an investment manager which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by the Company or such investment manager. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. 8.2 If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. 8.3 The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. 8.4 The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder, and may reasonably compensate them out of the Trust assets. 8.5 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. 8.6 Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7700-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. SECTION 9 COMPENSATION AND EXPENSES OF TRUSTEE The Company shall pay all administrative and the Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. SECTION 10 RESIGNATION OR REMOVAL OF TRUSTEE 10.1 The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. 10.2 Prior to a Change in Control, the Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee. Following a Change in Control, the Trustee may not be removed by the Company unless 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans consent in writing to such removal. 10.3 Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. 10.4 If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Section 10.1 or 10.2 of this section. If no such appointment has been made, the Trustee may appoint a successor Trustee or it may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11 APPOINTMENT OF SUCCESSOR 11.1 If the Trustee resigns or is removed in accordance with Section 10.1 or 10.2 hereof, the Company, or if a Change in Control shall previously have occurred the Company and at least 65% of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans, may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. 11.2 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event or any condition existing at the time it becomes a successor Trustee. SECTION 12 AMENDMENT OR TERMINATION 12.1 This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable after it has become irrevocable in accordance with Section 1.2 hereof. 12.2 The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. 12.3 Notwithstanding the foregoing: a. This Trust Agreement may not be amended by the Company prior to a Change in Control without the written approval of any Plan participant or beneficiary whose rights or protections under a Plan or this Agreement may be reduced, impaired, or otherwise adversely affected by the amendment. b. This Trust Agreement may not be amended by the Company following a Change in Control without the written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans. c. The Company may terminate this Trust prior to the date specified in Section 12.2 upon the written approval of all employees or former employees of the Company who are or may become entitled to the payment of benefits pursuant to the Plans. SECTION 13 MISCELLANEOUS 13.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.2 Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of Iowa, except to the extent the same are preempted by federal law. 13.4 This Trust Agreement shall be binding upon, and shall inure to the benefit of, any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company. The Company (and any successor to the Company) may not otherwise assign its obligations under this Trust Agreement without the prior written approval of all employees or former employees of the Company who are, or may become, entitled to the payment of benefits pursuant to the Plans; provided, however, that, subsequent to the merger of IES Industries Inc. with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, and prior to a Change in Control, the Company (or its successor) may assign its obligations under this agreement to any corporation, 100% of the stock of which is owned (either directly or through one or more subsidiaries) by the entity resulting from such merger. 13.5 For the purposes of this Trust Agreement, Change in Control shall mean: a. the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934, or any comparable successor provisions, of ownership (within the meaning of Rule 13d-3 promulgated under that Act) of 20% or more of the combined voting power of IES Industries Inc.'s outstanding voting securities entitled to vote generally in the election of directors; b. the approval by the stockholders of IES Industries Inc. of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of IES Industries Inc. immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated entity's then outstanding securities entitled to vote generally in the election of directors; c. the approval by the stockholders of IES Industries Inc. of a liquidation or dissolution of IES Industries Inc. or of the sale of all or substantially all of the IES Industries Inc.'s assets; or d. the failure of individuals who were Directors of IES Industries Inc. at the beginning of any two consecutive year period (including, for this purpose, any new Director whose election or nomination for election was approved by a vote of at least two- thirds of the Directors then still in office who were Directors at the beginning of such period) to constitute a majority of IES Industries Inc.'s Board of Directors; provided, however, that the merger of IES Industries Inc. with WPL Holdings, Inc. and Interstate Power Company in accordance with the Agreement and Plan of Merger dated November 10, 1995, as amended, shall not constitute a Change in Control unless and until the resulting corporation fails to make any payment due pursuant to a Plan at the time such payment is due. SECTION 14 EFFECTIVE DATE The effective date of this Trust Agreement shall be August 1, 1997. * * * * * IN WITNESS WHEREOF, this instrument has been executed as of the day and year last above written. IES UTILITIES INC. By: Larry D. Root President & Chief Operating Officer NORWEST BANK IOWA, N.A. By: Charles W. Hippee Employee Benefits Manager APPENDIX A PLANS The following plans and agreements shall be funded through the Trust: Leo J. Crow C.R.S. Anderson Gordon F. Cooper EX-12 9 EXHIBIT 12 IES UTILITIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Year Ended December 31, Ended 1992 1993 1994 1995 1996 September 30, 1997 (in thousands, except ratio of earnings to fixed charges) Net income $ 45,291 $ 67,970 $ 61,210 $ 59,278 $ 63,729 $ 69,736 Federal and state income taxes 20,723 37,963 37,966 41,095 43,092 46,843 Net income before income taxes 66,014 105,933 99,176 100,373 106,821 116,579 Interest on long-term debt 35,689 34,926 37,942 36,375 37,048 40,847 Other interest 3,939 5,243 3,630 8,085 6,666 7,966 Estimated interest component of rents 4,567 3,729 3,970 4,637 4,091 4,338 Fixed charges as defined 44,195 43,898 45,542 49,097 47,805 53,151 Earnings as defined $ 110,209 $ 149,831 $ 144,718 $ 149,470 $ 154,626 $ 169,730 Ratio of earnings to fixed charges (unaudited) 2.49 3.41 3.18 3.04 3.23 3.19 For the purposes of computation of these ratios (a) earnings have been calculated by adding fixed charges and federal and state income taxes to net income; (b) fixed charges consist of interest (including amortization of debt expense, premium and discount) on long-term and other debt and the estimated interest component of rents.
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UT EXHIBIT 27(a) The schedule contains summary financial information extracted from the Consolidated Balance Sheet at September 30, 1997 and the Consolidated Statement of Income and the Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000789943 IES INDUSTRIES INC. 1,000 9-MOS DEC-31-1997 SEP-30-1997 PER-BOOK 1,353,941 789,460 162,006 16,966 191,476 2,513,849 419,167 0 442,419 861,586 0 18,320 854,468 0 0 0 493 0 24,674 13,294 741,014 2,513,849 686,642 34,944 553,610 553,610 133,032 1,786 134,818 46,777 52,411 686 52,411 47,786 46,711 184,302 1.73 0 Includes $218,567 of unrealized security gains (net of taxes) and ($19) of cumulative foreign currency translation adjustments. Income tax expense is not included in Operating Expense in the Consolidated Statements of Income for IES Industries Inc. (Industries). Since the preferred dividends are for a subsidiary of Industries, they are considered a fixed charge on Industries' Consolidated Statement of Income.
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UT EXHIBIT 27(b) The schedule contains summary financial information extracted from the Consolidated Balance Sheet at September 30, 1997 and the Consolidated Statement of Income and the Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000052485 IES UTILITIES INC. 1,000 9-MOS DEC-31-1997 SEP-30-1997 PER-BOOK 1,353,941 85,040 126,900 11,168 191,476 1,768,525 33,427 279,042 236,028 548,497 0 18,320 651,781 0 0 0 140 0 24,674 13,294 511,819 1,768,525 601,733 36,550 478,996 478,996 122,737 (364) 122,373 38,446 47,377 686 46,691 42,000 46,711 157,281 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income for IES Utilities Inc.
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