-----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, PsIQx3tqQ0LJK13tSLXzRx3Fn15C4IVjwo9mtbvcIp15Gg+aAr/J7ZNr3+Zlb66x Q6+MZcwjvHiR2iilaaZUIw== 0001005150-99-000974.txt : 19991108 0001005150-99-000974.hdr.sgml : 19991108 ACCESSION NUMBER: 0001005150-99-000974 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19991105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CILCORP INC CENTRAL INDEX KEY: 0000762129 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 371169387 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-90373 FILM NUMBER: 99741806 BUSINESS ADDRESS: STREET 1: 300 HAMILTON BLVD STE 300 CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758810 MAIL ADDRESS: STREET 1: 300 LIBERTY STREET STREET 2: STE 300 CITY: PEORIA STATE: IL ZIP: 61602 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1999 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- CILCORP INC. (Exact name of registrant as specified in its charter) ILLINOIS 37-1169387 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ---------------- 300 Liberty Street Peoria, Illinois 61602 (309) 675-8810 (Address and telephone number of registrant's principal executive offices) Thomas D. Hutchinson Chief Financial Officer 300 Liberty Street Peoria, Illinois 61602 (309) 675-8810 (Name, address and telephone number of agent for service) Copies to: Stephen W. Hamilton Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C. 20005 (202) 371-7000 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] ---------------- CALCULATION OF REGISTRATION FEE ================================================================================
PROPOSED TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(1) 8.700% Senior Notes Due 2009 ......... $225,000,000 $ 62,550 9.375% Senior Bonds Due 2029 ......... $250,000,000 $ 69,500 Total ............................. $132,050
================================================================================ (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) of the Securities Act of 1933, as amended. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ PROSPECTUS SUBJECT TO COMPLETION NOVEMBER 5, 1999 OFFER TO EXCHANGE ALL 8.700% SENIOR NOTES DUE 2009 FOR 8.700% SENIOR NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 9.375% SENIOR BONDS DUE 2029 FOR 9.375% SENIOR BONDS DUE 2029 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OF [CILCORP INC. LOGO] THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM NEW YORK CITY TIME, ON [ ], 1999, UNLESS EXTENDED TERMS OF THE EXCHANGE OFFER: o We will exchange all outstanding senior notes and senior bonds that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer. Our outstanding senior notes and senior bonds were originally issued by Midwest Energy, Inc. on October 18, 1999 and assumed by us when we merged with Midwest Energy on that date. o The new senior notes and senior bonds will be substantially identical to the old senior notes and senior bonds, except for transfer restrictions and registration rights relating to the old senior notes and senior bonds. o You may withdraw tendered outstanding senior notes or senior bonds at any time prior to the expiration of the exchange offer. o The exchange of outstanding senior notes and senior bonds will not be a taxable exchange for U.S. federal income tax purposes. o We will not receive any proceeds from the exchange offer. o There is no existing market for the senior notes and senior bonds to be issued, and we do not intend to apply for their listing on any securities exchange. See the section entitled "Description of the Securities" that begins on page 39 for more information about the senior notes and senior bonds to be issued in this exchange offer. This investment involves risks. See the section entitled "Risk Factors" that begins on page 12 for a discussion of the risks that you should consider prior to tendering your outstanding senior notes or senior bonds for exchange. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. This prospectus is dated [ ], 1999 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. TABLE OF CONTENTS Summary ............................................... 3 Risk Factors .......................................... 12 Special Note on Forward-Looking Statements ............ 16 Use of Proceeds ....................................... 16 Accounting Treatment .................................. 16 Capitalization ........................................ 17 The Exchange Offer .................................... 18 Where You Can Find Additional Information ............. 27 Incorporation by Reference ............................ 27 Business .............................................. 28 Our Merger with Midwest Energy ........................ 36 Management ............................................ 37 Description of the Securities ......................... 39 United States Federal Income Tax Consequences ......... 64 Plan of Distribution .................................. 66 Legal Matters ......................................... 66 Experts ............................................... 66 Index to Financial Statements ......................... F-1 Index to Unaudited Pro Forma Financial Data ........... P-1 ABOUT THIS PROSPECTUS As used in this prospectus, the terms "CILCORP", "we", "us" and "our" and similar expressions mean CILCORP Inc., the term "CILCO" refers to our subsidiary, the Central Illinois Light Company, the term AES means The AES Corporation and the term "Midwest Energy" means Midwest Energy, Inc. In addition, we use the phrase "old securities" to mean the outstanding senior notes and senior bonds and the phrase "new securities" to mean the new senior notes and senior bonds to be issued in this exchange offer. You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any person to provide you with different information If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Information incorporated by reference into this prospectus from our prior filings with the SEC is accurate only as of the date of filing of the incorporated documents. Our business, financial condition, results of operations and prospects may have changed since those dates. We are not making an offer to sell the securities in any jurisdiction except where the offer or sale is permitted. 2 SUMMARY The following summary contains the basic information about this exchange offer. It does not contain all of the information that may be important to you in deciding whether to exchange your old securities for new securities. We encourage you to read the prospectus in its entirety. SUMMARY OF THE EXCHANGE OFFER On October 18, 1999, Midwest Energy privately placed $225 million aggregate principal amount of 8.700% Senior Notes due 2009 and $250 million aggregate principal amount of 9.375% Senior Bonds due 2029. The senior notes and senior bonds were issued to finance a portion of the cost of our merger with Midwest Energy, which occurred simultaneously with the private placement. We survived the merger as a wholly-owned subsidiary of The AES Corporation and assumed all of Midwest Energy's liabilities under the senior notes and senior bonds. In the merger, we also assumed all of Midwest Energy's obligations under a registration rights agreement it entered into on October 18, 1999 with the initial purchasers of the outstanding senior notes and senior bonds. Under that registration rights agreement, we must use our reasonable best efforts to complete this exchange offer within 30 days after the the effective date of the registration statement of which this prospectus is a part, which effective date must occur on or prior to April 15, 2000. If we do not complete this exchange offer before that date, we must pay liquidated damages until the exchange offer is completed. In this exchange offer, you may exchange your outstanding senior notes for our 8.700% Senior Notes due 2009 to be issued in the exchange offer which have substantially the same terms and you may exchange your outstanding senior bonds for our 9.375% Senior Bonds due 2029 to be issued in the exchange offer which have substantially the same terms. You should read the discussion under the heading "The Exchange Offer" and "Description of the Securities" for further information regarding the senior notes and senior bonds to be issued in the exchange offer. Securities offered...... o $225 million in principal amount of new 8.700% Senior Notes due 2009, which have been registered under the Securities Act of 1933. o $250 million in principal amount of new 9.375% Senior Bonds due 2029, which have been registered under the Securities Act of 1933. The terms of the senior notes and senior bonds offered in the exchange offer are substantially identical to those of the outstanding senior notes and senior bonds, except that certain transfer restrictions, registration rights and liquidated damages provisions relating to the outstanding senior notes and senior bonds do not apply to the new registered senior notes and senior bonds. The exchange offer..... We are offering to issue registered senior notes for a like amount of our outstanding senior notes and to issue registered senior bonds for a like amount of our outstanding senior bonds. We are offering to issue these registered senior notes and senior bonds to satisfy our obligations under the registration rights agreement that Midwest Energy entered into with the initial purchasers of the outstanding senior notes and senior bonds. You may tender your outstanding 3 senior notes or senior bonds for exchange by following the procedures described under the heading "The Exchange Offer." Tenders; expiration date; withdrawal.............. The exchange offer will expire at 5:00 p.m., New York City time, on [ ], 1999 unless we extend it. If you decide to exchange your old securities for new securities, you must acknowledge that you are not engaging in, and do not intend to engage in, a distribution of the new securities. You may withdraw your tender of old securities at any time before [ ], 1999. If we decide for any reason not to accept your senior notes or senior bonds for exchange, we will return them to you promptly and without expense after the exchange offer expires or terminates. Conditions to the exchange offer................... We are not required to accept any old securities in exchange for new securities. We may terminate or amend the exchange offer if we determine that the exchange offer violates applicable law or any applicable SEC interpretation. Federal tax considerations.. The exchange of old senior notes for new senior notes and of old senior bonds for new senior bonds under the exchange offer will not result in any gain or loss to you for federal income tax purposes. Use of proceeds......... We will not receive any proceeds from the exchange offer. Accrued interest......... The new securities will bear interest from October 18, 1999, the date the old securities were originally issued. No interest will be paid on the old securities following their acceptance for exchange. See "Description of the Securities." Exchange agent.......... The Bank of New York is the exchange agent for the exchange offer. The address and telephone number of the exchange agent are set forth under the heading "The Exchange Offer -- Exchange Agent." CONSEQUENCES OF NOT EXCHANGING YOUR OUTSTANDING SENIOR NOTES OR SENIOR BONDS If you do not exchange your outstanding senior notes or senior bonds in the exchange offer, they will continue to be subject to the restrictions on transfer that are described in the legend on the senior notes and senior bonds. In general, you may offer or sell your outstanding senior notes or senior bonds only if they are registered under, or offered or sold under an exemption from, the Securities Act of 1933, or the Securities Act, and applicable state securities laws. If outstanding senior notes and senior bonds are tendered and accepted in the exchange offer, it may become more difficult for you to sell or transfer your unexchanged senior notes and senior bonds. In addition, if you do not exchange your outstanding senior notes and senior bonds in the exchange offer, you will no longer be entitled to have those senior notes and senior bonds registered under the Securities Act, except in limited circumstances with respect to specific types of holders of outstanding senior notes or senior bonds. See "The Exchange Offer -- Consequences of Failure to Exchange Outstanding Securities." 4 CONSEQUENCES OF EXCHANGING YOUR OUTSTANDING SENIOR NOTES OR SENIOR BONDS Based on interpretations of the staff of the SEC, we believe that you may offer for resale, resell or otherwise transfer the new securities that we issue in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act if: o you acquire the new securities issued in the exchange offer in the ordinary course of business; o you are not participating, do not intend to participate, and have no arrangement or undertaking with anyone to participate, in the distribution of the new securities issued to you in the exchange offer; and o you are not an "affiliate" of CILCORP, as defined in Rule 405 of the Securities Act. If any of these conditions are not satisfied and you transfer any new securities issued to you in the exchange offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We will not be responsible for or indemnify you against any liability you may incur. Any broker-dealer that acquires new securities in the exchange offer for its own account in exchange for old securities, which it acquired through market-making or other trading activities, must acknowledge that it will deliver a prospectus when it resells or transfers any new securities issued in the exchange offer. See "Plan of Distribution." THE COMPANY We are an energy services holding company headquartered in Peoria, Illinois. In 1998, we had consolidated assets, revenues and net income from continuing operations of $1.3 billion, $559 million and $38 million, respectively. Our principal subsidiary is Central Illinois Light Company, or CILCO, a public utility providing electricity and natural gas service to residential, commercial and industrial customers in central Illinois. CILCO had 1998 operating revenues of $532 million, approximately 68% of which were from the generation and sale of electricity with the remainder from the sale and transport of natural gas. CILCO has approximately 189,000 electric customers and 197,000 gas customers, many of which receive both electric and natural gas service. Among its electric sales, residential, commercial and industrial electricity customers contributed 37%, 31% and 25%, respectively, of 1998 electric revenues. Among its gas sales, residential, commercial and industrial/transportation customers contributed 58%, 25% and 7%, respectively, of 1998 gas revenues. CILCO has 1,152 megawatts of generating capacity, of which 96% is coal-fired and the balance consists of gas-fired peaking and co-generation units. CILCO has the lowest overall average electric rates of any investor-owned utility in Illinois, and its rates also compare favorably with those of utilities in surrounding states. Illinois began a transition process to a fully competitive market for electricity with the passage of the Electric Service Customer Choice and Rate Relief Law of 1997, which we refer to in this document as the "Illinois Customer Choice Law." Large industrial customers and customers representing one-third of the remaining non-residential kilowatt hour sales were able to choose their electric supplier beginning October 1, 1999, with all non-residential customers able to choose after December 31, 2000. Residential electric customers will be able to choose their electric supplier beginning May 1, 2002. As of September 2, 1999, over 160 commercial or industrial electricity accounts representing approximately 41% of 1998 commercial/industrial kilowatt hour sales have entered into multi-year contracts with CILCO to continue to provide electricity service. The Illinois Customer Choice Law also provides for electric base rate reductions and ceilings on allowed returns on equity. In recognition of CILCO's already low rates, its rate reductions were a lesser percent than, and its return on equity ceiling higher than, other Illinois utilities. 5 In 1998, we began a process to refocus our corporate strategy on our core electric and gas utility business by divesting unrelated and higher risk businesses. Several of these businesses were eliminated, discontinued or divested in late 1998 and 1999. While we conduct other limited energy-related businesses through our subsidiaries CILCORP Investment Management Inc. and CILCORP Ventures Inc., in 1998 approximately 96% of our revenues came from CILCO. RECENT DEVELOPMENTS. During July 1999, CILCO purchased approximately $23 million of additional electricity to meet increased consumer demand due to abnormally warm weather conditions. CILCO's fuel adjustment clause allows it to pass on to its customers the cost of these additional power purchases, normally through a single bill. In this instance, on September 1, 1999, the Illinois Commerce Commission approved a request by CILCO to charge customers over a twelve-month period without interest, beginning in September 1999. See "Business - -- Electric Fuel and Purchased Gas Adjustment Clauses." SUMMARY OF ANTICIPATED THIRD QUARTER 1999 SALES AND EARNINGS We anticipate that we will record a loss from continuing operations of approximately $(2.4) million for the quarter ended September 30, 1999, compared to net income of $18 million for the quarter ended September 30, 1998. Our net income was adversely impacted in the third quarter of 1999 in large part by a $16.6 million after-tax charge related to our voluntary early retirement program, by approximately $1.1 million of after-tax costs related to our merger with Midwest Energy and, to a lesser extent, by lower margins on unregulated electricity sales resulting from higher purchased energy costs during unusually hot weather occurring in late July 1999. For the quarter ended September 30, 1998, we reported income of $4.7 million related to discontinued operations, primarily due to our sale of our subsidiary QST Communications Inc. OUR INDEPENDENCE FROM AES We preserve our independence from AES in several respects. Among other obligations, AES must appoint one independent director to serve on our board of directors with specified voting rights. We and AES also keep in place the additional measures specified under "Our Merger with Midwest Energy -- Our Independence." ---------------------- Our principal executive offices are located at 300 Liberty Street, Peoria, Illinois 61602, and our telephone number is (309) 675-8810. 6 SUMMARY DESCRIPTION OF THE NEW SECURITIES The form and terms of the new securities to be issued in the exchange are the same as the form and terms of the old securities except that the new securities to be issued in the exchange offer have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain the registration rights and liquidated damages provisions contained in the old securities. The new securities will evidence the same debt as the old securities and both the new securities and the old securities are governed by the same indenture. The following is a brief summary of select terms of the new securities. For a more complete description of the terms of the new securities, see "Description of the Securities." Issuer................... CILCORP Total amount of securities offered................. o $225,000,000 million aggregate principal amount of senior notes due 2029 registered under the Securities Act o $250,000,000 million aggregate principal amount of senior bonds due 2029 registered under the Securities Act Maturity................. o In the case of the senior notes, the entire principal amount on October 15, 2009 o In the case of the senior bonds, the entire principal amount on October 15, 2029 Interest................. Annual rate: o 8.700%, in the case of the senior notes o 9.375%, in the case of the senior bonds Interest payment frequency: every six months on April 15 and October 15 First interest payment: April 15, 2000 Collateral............... Upon issuance, the new securities will not be secured by any collateral. On the earlier of January 31, 2002 or the date on which our existing $30.5 million Series A medium-term notes are no longer outstanding, the new securities will be secured through our pledge of all of the capital stock of CILCO, excluding the shares of preferred stock of CILCO outstanding on October 18, 1999. From and after our pledge, we may secure other permitted senior debt equally and ratably with the securities. We currently have no senior secured debt outstanding. See "Description of the Securities -- Collateral." Ranking.................. The securities are our direct senior obligations, ranking equally with all our other existing and future senior obligations. The securities are senior to all of our subordinated debt. We are a holding company with substantially all of our operations conducted through CILCO and our other subsidiaries. We are dependent upon cash flow from those entities to meet our obligations, including obligations under the new securities. Accordingly, the new securities effectively rank junior to all liabilities and preferred stock of our subsidiaries. 7 As of June 30, 1999, after giving effect to this exchange offer, the merger and our offering of old securities and our use of the net proceeds from that offering: o we would have had outstanding approximately $65 million of senior debt ranking equally with the new securities; and o our subsidiaries would have had approximately $282 million of debt and approximately $66 million of preferred stock. Ratings.................. The new securities have been assigned ratings of Baa2 by Moody's Investors Service, Inc., BBB by Duff & Phelps Credit Rating Co. and BB+ by Standard & Poor's Ratings Group. Optional redemption..... We may redeem the new securities, in whole or in part, at any time at a redemption price equal to the greater of: o 100% of the principal amount of the securities being redeemed; or o the sum of the present values of the remaining scheduled payments of principal and interest on the securities being redeemed, discounted to the date of redemption on a semiannual basis at the discount rate described in "Description of the Securities -- Optional Redemption." Covenants................ The indenture governing the new securities contains covenants that, among other things, will limit our ability and, in the case of restrictions on liens and permitted business activities, our restricted subsidiaries to: o incur additional debt that is not a part of our permitted business activities and that would cause Standard & Poor's, Moody's or Duff & Phelps to downgrade the existing ratings assigned to the new securities; o pay dividends or other distributions and payments on our capital stock unless we satisfy a leverage ratio and an interest coverage ratio or at the time we have an assigned rating on our long-term secured debt of at least BB+ from Standard & Poor's, at least Baa2 from Moody's and at least BBB from Duff & Phelps; o create certain liens on our assets or properties (including the capital stock of CILCO) unless the new securities are also secured equally and ratably by those assets or properties; o enter into new businesses and activities unless that new business or activity would not cause Standard & Poor's, Moody's or Duff & Phelps to downgrade the existing ratings assigned to the new securities; and 8 o consolidate or merge, or convey, transfer or lease substantially all of our consolidated properties and assets, unless we are the surviving entity or, if not, the surviving entity expressly assumes our obligations under the new securities and the indenture, and the transaction would not result in a ratings downgrade below the initial ratings assigned to the old securities. These covenants are subject to important exceptions and qualifications, which are described in "Description of the Securities -- Covenants." The indenture does not in any way restrict or prevent CILCO or any other subsidiary from incurring unsecured indebtedness. Use of proceeds......... We will not receive any proceeds from the issuance of the new securities in this exchange offer. The net proceeds from the initial offering of the old securities were used to provide a portion of the funds necessary to complete our merger with Midwest Energy. See "Use of Proceeds." Risk factors............ See "Risk Factors" and the other information in this prospectus for a discussion of factors you should carefully consider before deciding to tender your old securities in the exchange offer. 9 SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA Our summary selected historical financial data as of and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 set forth below have been derived from audited financial statements. Our summary selected historical financial data for the six months ended June 30, 1998 and June 30, 1999 set forth below have been derived from unaudited financial statements. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year. We believe the unaudited information for the six months ended June 30, 1998 and 1999 contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the operating results for those periods. You should read the financial data set forth below in conjunction with our historical consolidated financial statements and the related notes to those financial statements included in this prospectus. Our summary unaudited pro forma information is based on our historical financial data and the historical financial data of Midwest Energy. It gives effect to the merger, the initial offering of the old senior notes and senior bonds and an equity contribution from AES to Midwest Energy to complete the financing for the merger. The information is presented as if all those transactions had occurred on June 30, 1999 with respect to the balance sheet data and as of the earliest period presented with respect to the income statement data and other financial data. The summary unaudited pro forma financial information does not purport to represent what our results of operations or financial condition actually would have been had the offering and the merger in fact occurred on the assumed dates, nor does it purport to project the results of operations and financial position for any future period. You should read the summary unaudited pro forma financial information set forth below in conjunction with our historical consolidated financial statements and unaudited pro forma condensed consolidated financial data and the related notes to those financial statements and financial data appearing elsewhere in this prospectus.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ HISTORICAL ------------------------------------------------------------------ 1994 1995 1996 1997 1998 ------------ ------------ ------------ ------------- ------------- (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Revenues ........................................ $ 472,340 $ 487,210 $ 527,060 $ 557,960 $ 559,024 Operating income ................................ $ 76,631 $ 94,165 $ 91,383 $ 97,779 $ 91,563 Income (loss) from continuing operations before extraordinary item ...................... $ 30,762 $ 38,469 $ 37,940 $ 43,709 $ 38,218 Income (loss) from discontinued operations ...... $ 1,824 $ 113 $ (9,997) $ (31,414) $ (21,908) OTHER FINANCIAL DATA: Depreciation and amortization ................... $ 55,276 $ 57,680 $ 60,574 $ 62,416 $ 66,179 Cash flow from operations ....................... 110,356 90,789 102,376 91,014 68,310 Cash flow from investing activities ............. (97,665) (83,999) (50,993) (59,920) (52,457) Cash flow from financing activities ............. (12,527) 8,706 (63,542) (25,459) (24,760) EBITDA (1) ...................................... $ 134,309 $ 154,085 $ 154,099 $ 162,643 $ 162,387 Ratio of EBITDA to fixed charges (2) ............ 3.8x 3.9x 4.0x 4.3x 4.0x Ratio of EBITDA to interest (3) ................. 4.9x 5.1x 5.0x 5.8x 5.5x Ratio of earnings to fixed charges (4) .......... 2.3x 2.5x 2.5x 2.7x 2.4x YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ------------- -------------------------------------- PRO FORMA HISTORICAL PRO FORMA ------------- ------------------------- ------------ 1998 1998 1999 1999 ------------- ------------- ----------- ------------ (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Revenues ........................................ $ 559,024 $ 276,076 $ 288,505 $288,505 Operating income ................................ $ 76,924 $ 44,450 $ 37,196 $ 29,878 Income (loss) from continuing operations before extraordinary item ...................... $ (1,283) $ 19,051 $ 13,691 $ (6,059) Income (loss) from discontinued operations ...... $ (21,908) $ (12,045) $ (407) $ (407) OTHER FINANCIAL DATA: Depreciation and amortization ................... $ 80,818 $ 31,966 $ 34,481 $ 41,799 Cash flow from operations ....................... -- 49,810 62,862 -- Cash flow from investing activities ............. -- (36,139) (18,785) -- Cash flow from financing activities ............. -- (18,108) (42,205) -- EBITDA (1) ...................................... $ 162,387 $ 77,711 $ 84,993 $ 84,993 Ratio of EBITDA to fixed charges (2) ............ 2.0x 3.9x 4.3x 2.1x Ratio of EBITDA to interest (3) ................. 2.3x 5.3x 5.8x 2.4x Ratio of earnings to fixed charges (4) .......... 1.0x 2.3x 2.0x 0.8x
10
AS OF DECEMBER 31, --------------------------------------------------------------------------------- HISTORICAL --------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 ---------------- ---------------- --------------- --------------- --------------- (IN THOUSANDS, EXCEPT RATIOS) BALANCE SHEET DATA: Total assets .............................. $ 1,238,384 $ 1,279,303 $ 1,285,693 $ 1,334,819 $ 1,312,940 Long-term debt ............................ $ 326,695 $ 344,113 $ 320,666 $ 304,785 $ 288,135 Short-term borrowings ..................... $ 50,600 $ 66,152 $ 50,957 $ 84,335 $ 109,227 Preferred stock of subsidiary ............. $ 66,120 $ 66,120 $ 66,120 $ 66,120 $ 66,120 Stockholders' equity ...................... $ 344,715 $ 361,978 $ 368,205 $ 352,593 $ 335,538 Ratio of total debt and preferred stock of subsidiary to capitalization (5) ...... 56.3% 56.8% 54.3% 56.4% 58.0% AS OF JUNE 30, ----------------------------------------------- HISTORICAL PRO FORMA ------------------------------- --------------- 1998 1999 1999 --------------- --------------- --------------- (IN THOUSANDS, EXCEPT RATIOS) BALANCE SHEET DATA: Total assets .............................. $ 1,275,076 $ 1,202,635 $ 1,794,239 Long-term debt ............................ $ 313,340 $ 257,168 $ 731,120 Short-term borrowings ..................... $ 76,013 $ 116,300 $ 89,600 Preferred stock of subsidiary ............. $ 66,120 $ 66,120 $ 66,120 Stockholders' equity ...................... $ 342,858 $ 332,696 $ 463,048 Ratio of total debt and preferred stock of subsidiary to capitalization (5) ...... 57.1% 56.9% 65.7%
- ----------- (1) For purposes of this definition, EBITDA includes consolidated income from continuing operations before income taxes plus consolidated interest expense, plus interest expense on company owned life insurance, dividends on preferred stock of subsidiary, merger-related expenses including one-time expenses relating to restructuring efforts, and depreciation and amortization. Merger-related expenses consist of professional fees and expenses of approximately $2.0 million and $11.9 million for the six months ended December 31, 1998 and June 30, 1999, respectively, incurred in connection with the pending acquisition of CILCORP by AES, including fees and expenses resulting from the voluntary early retirement program offered in April 1999 as a result of the pending acquisition. No merger-related costs related to AES's acquisition of CILCORP were expensed prior to June 30, 1998. This definition of EBITDA may be different from that used by other companies and should not be considered a substitute for cash flows from operating activities as defined by generally accepted accounting principles. (2) For the purpose of computing the ratio of EBITDA to fixed charges, fixed charges consist of interest expense on all indebtedness, interest expense on company owned life insurance, the amount of pre-tax earnings required to pay dividends on preferred stock of subsidiary, and that portion of rental expense which CILCORP believes to be representative of an interest factor. (3) For the purpose of computing the ratio of EBITDA to interest, interest consists of dividends declared on preferred stock of subsidiary and interest expense incurred at the stated coupon rate during the specified period on all short-term borrowings and long-term debt. Interest for each of the years in the five-year period ended December 31, 1998 was, in thousands, $27,502, $29,943, $30,856, $28,168 and $29,343, respectively. Interest for the six-month periods ended June 30, 1998 and 1999 was, in thousands, $14,605 and $14,688, respectively. Interest increased, in thousands, $41,393 and $20,696 as a result of pro forma adjustments reflecting the issuance of the senior notes and senior bonds for the year ended December 31, 1998 and the six-month period ended June 30, 1999, respectively. (4) For the purpose of computing the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense on all indebtedness, interest expense on company owned life insurance, the amount of pre-tax earnings required to pay dividends on preferred stock of subsidiary, and that portion of rental expense which CILCORP believes to be representative of an interest factor. The deficiency in earnings for the pro forma six-month period ended June 30, 1999 was approximately $8.2 million. (5) For the purpose of computing the ratio of total debt and preferred stock of subsidiary to capitalization, total debt consists of all short-term borrowings and long-term debt. Capitalization consists of short-term borrowings and long-term debt, preferred stock of subsidiary and stockholders' equity. 11 RISK FACTORS You should carefully consider the risks described below in addition to all other information provided to you in this prospectus before deciding whether to tender your old securities in the exchange offer. The risk factors set forth below, other than those which discuss the consequences of failing to exchange your old securities in the exchange offer, are generally applicable to both the old securities and the new securities issued in the exchange offer. There may be additional risks and uncertainties not presently known to us or that we currently do not believe are material that may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of the new securities could decline and you may lose all or part of your investment. RISKS RELATING TO THE NEW SECURITIES YOU MAY HAVE DIFFICULTY SELLING THE OLD SECURITIES WHICH YOU DO NOT EXCHANGE. If you do not exchange your old securities for the new securities offered in this exchange offer, you will continue to be subject to the restrictions on the transfer of your old securities. Those transfer restrictions are described in the indenture and in the legend contained on the old securities, and arose because the old securities were originally issued under exemptions from, and in transactions not subject to, the registration requirements of the Securities Act. Except in limited circumstances with respect to specific types of holders of old securities, we will have no further obligation to provide for registration under the Securities Act of the old securities upon completion of the exchange offer. In general, you may offer or sell your old securities only if they are registered under the Securities Act and applicable state securities laws, or if they are offered and sold under an exemption from those requirements. We do not intend to register the old securities under the Securities Act. If a large number of old securities are exchanged for new securities issued in the exchange offer, it may be more difficult for you to sell your unexchanged senior notes and senior bonds. See "The Exchange Offer -- Consequences of Failure to Exchange Outstanding Securities" for a discussion of the possible consequences of failing to exchange your old securities. WE ARE A HOLDING COMPANY, WHICH MEANS THAT YOUR RIGHT TO RECEIVE PAYMENT ON THE NEW SECURITIES IS EFFECTIVELY JUNIOR TO EXISTING DEBT AND POSSIBLY ALL FUTURE BORROWINGS OF CILCO AND OUR OTHER SUBSIDIARIES. We are a holding company, with limited direct operations and few assets other than the stock of CILCO and our other subsidiaries. We are dependent on the cash flows of our subsidiaries to meet our obligations, including the payment of principal of and interest on the new securities. If those subsidiaries are unable to provide cash to us when we need it, we may be unable to meet these obligations. The new securities will be solely our obligation. AES and its other subsidiaries are separate legal entities that will have no obligation to pay any amounts due under the senior notes and senior bonds or to make any funds available for payment of amounts due under the senior notes and senior bonds, whether by dividends, loans or other payments. In addition, the ability of our subsidiaries to make any payments or advances to us is limited by the laws of the relevant jurisdictions in which those entities are organized or located. In some cases, prior or subsequent approval of any such payments or advances may be required from applicable regulatory bodies or other governmental entities. Your right to receive payments on the new securities is effectively junior to existing and future debt, including preferred stock, of our subsidiaries. The rights of holders of new securities to participate in the assets of our subsidiaries upon any liquidation or reorganization of any subsidiary will rank junior to the prior claims of that subsidiary's creditors and preferred stockholders. The terms of the indenture for the new securities will permit us and our subsidiaries to incur substantial amounts of debt and preferred stock. 12 THE COLLATERAL SECURING OUR PAYMENT OBLIGATIONS UNDER THE NEW SECURITIES MAY NOT BE SUFFICIENT TO SATISFY THOSE OBLIGATIONS. Upon issuance, the new securities will not be secured by any collateral. On the earlier of January 31, 2002 or the date on which our existing $30.5 million Series A medium-term notes are no longer outstanding, the new securities will be secured through our pledge of all of the capital stock of CILCO, excluding the shares of preferred stock of CILCO outstanding on October 18, 1999. Upon the effectiveness of our pledge, we will be permitted to secure our other permitted senior debt equally and ratably with the indebtedness under the new securities. See "Description of the Securities--Collateral." If an event of default has occurred and is continuing under the indenture governing the new securities, we cannot assure you that the net proceeds of any sale of the pledged capital stock of CILCO will be sufficient to satisfy in full CILCORP's obligations under the new securities and under our additional senior secured debt. If there are any remaining payment obligations due on the new securities, then the holders of the new securities will rank equally with all of our other senior unsecured debt, and will rank junior to the holders of any other senior secured debt as to our specific assets securing that debt. We do not presently have any secured debt outstanding, but the terms of the indenture for the new securities permits us to, and our other debt agreements will permit us and our subsidiaries to, incur secured debt. If the date of the pledge of CILCO stock occurs within 90 days prior to a filing of bankruptcy by us, the pledge of the CILCO stock may be voidable by a trustee in bankruptcy as a preferential transfer of property. Upon the occurrence of an event of default under the indenture, the foreclosure proceedings, the enforcement of our pledge agreement and the right to take other actions with respect to the pledged shares of CILCO stock will be controlled by holders of a majority of the aggregate principal amount of the then outstanding obligations which are equally and ratably secured by the pledge of the CILCO stock. THERE IS NO PUBLIC MARKET FOR THE NEW SECURITIES TO BE ISSUED IN THE EXCHANGE OFFER. There is no public market for the new securities to be issued in the exchange offer. We do not intend to apply for listing or quotation of the new securities on any exchange. Therefore, we do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be, nor can we make any assurances regarding the ability of security holders to sell their senior notes or senior bonds or the price at which the senior notes or senior bonds might be sold. Although the initial purchasers of the old securities have informed us that they currently intend to make a market in the new securities to be issued in the exchange offer, they are not obligated to do so, and any such market-making may be discontinued at any time without notice. In addition, the liquidity and the market price of the new securities to be offered in the exchange offer may be adversely affected by changes in our financial performance or prospects, or in the prospects for companies in our industry. As a result, you cannot be sure that an active trading market will develop for the new securities. RISKS RELATING TO AN INVESTMENT IN US AND THE ILLINOIS UTILITY INDUSTRY WE ARE SUBJECT TO CERTAIN OPERATING UNCERTAINTIES COMMONLY ASSOCIATED WITH UTILITIES. The operation of a utility involves many risks, including the breakdown or failure of power generation equipment, pipelines, transmission lines, distribution lines or other equipment or processes, fuel interruption, and performance below expected levels of output or efficiency. Sales and revenues of a utility may also be adversely affected by general economic and business conditions and weather conditions in its territory. WE ARE SUBJECT TO INCREASED COMPETITION AS A RESULT OF THE ONGOING DEREGULATION OF THE ILLINOIS UTILITY INDUSTRY. The passage of the Illinois Customer Choice Law in 1997 began a nine-year transition process to a more competitive market for electricity in Illinois. Under the Illinois Customer Choice Law, electric utilities are required to "unbundle" their services by offering as a tariffed service "delivery services," 13 those services necessary to allow retail customers located in the utilities' service territory to receive electric power and energy from suppliers other than the electric utility, including standard metering and billing services. Unbundling of electric utility services and access to a utility's customers enhances competition because a customer can choose a supplier of generation services on the basis of price, while obtaining delivery services from the electric utility in whose service territory the customer is located. The Illinois Customer Choice Law sets up a timetable over the next five years for the implementation of choice of electric suppliers by customers of electric utilities. Thus, the generation segment of the electric utility industry in Illinois will be significantly affected by competition. The introduction of competition in the wholesale market for electricity, regulated by the Federal Energy Regulatory Commission, has resulted in a proliferation of power marketers and a substantial increase in competitive behavior by participants in that market. As retail competition increases over time, the same competitive forces are likely to become active at the retail level and existing margins are likely to come under pressure. Restructuring could materially affect our results of operations in a manner and magnitude which cannot be predicted. The effects of competition are dependent on the number and cost structure of competitors, the loyalty of CILCO's existing customer base and the possibility of additional legislation which may affect the extent and timing of competition. Also, the cost of any assets whose recovery is impaired by the transition to a competitive marketplace must be written off. CILCO has not determined its electric generating asset values to be impaired. Its ability to keep total production costs competitive in a deregulated market will determine whether and to what extent the value of these assets may be impaired in the future. WE ARE SUBJECT TO ENVIRONMENTAL, ENERGY AND OTHER REGULATIONS, WHICH, IF THEY BECOME MORE STRINGENT, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. We are subject to a number of environmental and other laws and regulations affecting many aspects of our present and future operations, including the disposal of various forms of waste, the construction or permitting of new facilities and air and water quality. Those laws and regulations generally require us to obtain and comply with a wide variety of licenses, permits and other approvals. We will also be subject to a number of complex and stringent laws and regulations that both public officials and private individuals may seek to enforce. Existing regulations may be revised or new regulations may be adopted or become applicable to us which could have an adverse impact on our operations, including potential regulatory developments related to emissions of greenhouse gases, sulfur dioxide and nitrous oxides. The implementation of regulatory changes imposing more comprehensive or stringent requirements on us, to the extent such changes would result in increased compliance costs or additional operating restrictions, could have a material adverse effect on our results of operations. OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD DISRUPT OUR OPERATIONS AND ADVERSELY AFFECT OUR BUSINESS. We have undertaken an extensive ongoing project to address our systems potentially affected by the year 2000 date change. We currently believe we will be able to adequately address year 2000 issues through a combination of modifications of certain existing programs and systems, the replacement of others with new software that is year 2000 compliant, and the development of contingency plans. We have completed our compliance testing of all identified suspect embedded chip devices, except for the testing of approximately 1% of non-critical embedded chip devices associated with power plant operations. We have also substantially completed the testing of operating system software and development and testing of contingency plans. We expect to complete the testing of all embedded chip devices and the testing of the applications that have undergone year 2000 upgrades or modifications by the end of November 1999. Despite the comprehensive nature of our year 2000 project, it is possible that we may experience random, widespread and simultaneous failures in our generation, transmission and distribution systems as a result of the year 2000 date change. Although we are developing contingency plans for 14 anticipated risks of interruption to the generation or distribution of energy, we may experience outages. Although the impact on our future operations and revenues is unknown, any failure of our systems to perform because of year 2000 implications could result in operating problems and costs material to us. Although we believe we will complete our compliance project sufficiently in advance of January 1, 2000, unforeseen and other factors could cause delays in the project and require material expenditures by us, which could have a material adverse effect on our results of operations. In addition, we cannot predict the nature or impact on our operations of third-party noncompliance with year 2000 requirements beyond the assurances given during critical vendor assessments. AES IS OUR SOLE AND CONTROLLING SHAREHOLDER, AND AES'S INTERESTS MAY CONFLICT WITH YOUR INTERESTS. AES is our sole shareholder. AES has taken steps to preserve our independence in several respects, including the appointment of one independent director with specified voting rights, as further described in "Our Merger with Midwest Energy -- Our Independence." Despite those steps, in the event of a conflict of interest between AES as sole shareholder and the holders of the new securities as our creditors, AES may exercise its rights as our sole shareholder and direct our Board of Directors in a manner that is deemed to be in AES's best interests, which may be to the detriment of the holders of the new securities. 15 SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions about us and our subsidiaries, including, among other things: o changes in company-wide operation and plant availability compared to our historical performance and changes in our historical operating cost structure, including changes in various costs and expenses; o regulation and restrictions; o legislation intended to promote competition in Illinois; o tariffs; o governmental approval processes; o environmental matters; o construction, operating and fuel risks; o unusual weather patterns; o load growth, dispatch and transmission constraints and demands; and o impact of the Year 2000 issue. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. USE OF PROCEEDS We will not receive any proceeds from the issuance of the new securities in this exchange offer. All of the old securities that are tendered in the exchange offer will be retired and cancelled. The net proceeds from the initial issuance of old securities, approximately $468 million, were used to provide a portion of the funds necessary to complete our merger with Midwest Energy, with the remaining portion being provided by an equity contribution to Midwest Energy by AES. See "Our Merger with Midwest Energy." ACCOUNTING TREATMENT The new securities to be issued in the exchange offer will be recorded at the same carrying value as the old securities as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes. The expenses of the exchange offer and the unamortized expenses relating to the issuance of the old securities will be amortized over the term of the old securities and the new securities to be issued in the exchange offer. 16 CAPITALIZATION The following table sets forth our historical consolidated capitalization at June 30, 1999, and our unaudited pro forma consolidated capitalization as if the merger, the initial offering of old securities and the AES equity contribution to Midwest Energy to finance a portion of the merger costs had all occurred on June 30, 1999. Consolidated capitalization consists of short-term borrowings, long-term debt, preferred stock of subsidiary and stockholders' equity. You should read this table in conjunction with the unaudited pro forma financial information and the related notes to them appearing elsewhere in this prospectus. See "Summary -- Summary Selected Historical and Unaudited Pro Forma Consolidated Financial Data" and "Our Merger with Midwest Energy."
JUNE 30, 1999 -------------------------- (IN THOUSANDS) ACTUAL PRO FORMA ---------- ------------- SHORT-TERM BORROWINGS: Notes payable ............................. $ 73,300 $ 46,600 Current portion of long term debt ......... $ 43,000 $ 43,000 -------- ---------- Total short-term borrowings ............ $116,300 $ 89,600 LONG-TERM DEBT: Senior notes and senior bonds ............. $ -- $ 473,952 Other senior long-term debt ............... $257,168 $ 257,168 -------- ---------- Total long-term debt ................... $257,168 $ 731,120 PREFERRED STOCK OF SUBSIDIARY ............. $ 66,120 $ 66,120 STOCKHOLDERS' EQUITY ...................... $332,696 $ 463,048 -------- ---------- Total capitalization ................... $772,284 $1,349,888 ======== ==========
17 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER When Midwest Energy sold the outstanding senior notes and senior bonds on October 18, 1999, it entered into a registration rights agreement with the initial purchasers of those senior notes and senior bonds. We assumed all of Midwest Energy's obligations under the registration rights agreement when we merged with Midwest Energy. Under the registration rights agreement, we have agreed to file a registration statement regarding the exchange of the outstanding senior notes and senior bonds for new senior notes and senior bonds which are registered under the Securites Act. We have also agreed to use our reasonable best efforts to cause the registration statement to become effective with the SEC, and to conduct this exchange offer after the registration statement is declared effective. We will use our reasonable best efforts to keep this registration statement effective at least until the exchange offer is completed. The registration rights agreement provides that we will be required to pay liquidated damages to the holders of the outstanding senior notes and senior bonds if: o the registration statement is not filed by January 16, 2000; o the registration statement is not declared effective by April 15, 2000; or o the exchange offer has not been completed within 30 business days after the registration statement becomes effective. TERMS OF THE EXCHANGE OFFER This prospectus and the accompanying letter of transmittal together constitute the exchange offer. Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange outstanding senior notes and senior bonds which are properly tendered on or before the expiration date and are not withdrawn as permitted below. The expiration date for this exchange offer is 5:00 p.m., New York City time, on [ ], or such later date and time to which we, in our sole discretion, extend the exchange offer. The form and terms of the new securities being issued in the exchange offer are the same as the form and terms of the old securities, except that: o the new securities being issued in the exchange offer will have been registered under the Securities Act; o the new securities being issued in the exchange offer will not bear the restrictive legends restricting their transfer under the Securities Act; and o the new securities being issued in the exchange offer will not contain the registration rights and liquidated damages provisions contained in the old securities. Outstanding senior notes and senior bonds being tendered in the exchange offer must be in denominations of the principal amount of $1,000 and integral multiples of that amount. We expressly reserve the right, in our sole discretion: o to extend the expiration date; o to delay accepting any outstanding senior notes or senior bonds; o if any of the conditions set forth below under "--Conditions to the Exchange Offer" have not been satisfied, to terminate the exchange offer and not accept any old securities for exchange; or o to amend the exchange offer in any manner. We will give oral or written notice of any extension, delay, non-acceptence, termination or amendment as promptly as practicable by a public announcement, and in the case of an extension, not later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. 18 During an extension, all outstanding senior notes and senior bonds previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any outstanding senior notes and senior bonds not accepted for exchange for any reason will be returned without cost to the holder that tendered them as promptly as practicable after the expiration or termination of the exchange offer. HOW TO TENDER OLD SECURITIES FOR EXCHANGE When the holder of old securities tenders, and we accept, old securities for exchange, a binding agreement between us and the tendering holder is created, subject to the terms and conditions set forth in this prospectus and the accompanying letter of transmittal. Execpt as set forth below, a holder of outstanding senior notes or senior bonds who wishes to tender them for exchange must, on or prior to the expiration date: o transmit a properly completed and duly executed letter of transmittal, including all other documents required by that letter of transmittal, to The Bank of New York, the "exchange agent", at the address set forth below under the heading "Exchange Agent"; or o if senior notes or senior bonds are tendered pursuant to the book-entry procedures set forth below, the tendering holder must transmit an agent's message to the exchange agent at the address set forth below under the heading "Exchange Agent." In addition, either: o the exchange agent must receive the certificates for the outstanding senior notes or senior bonds being tendered and the letter of transmittal; o the exchange agent must receive, prior to the expiration date, a timely confirmation of the book-entry transfer of the senior notes or senior bonds being tendered into the exchange agent's account at DTC or an agent's message; or o the holder must comply with the guaranteed delivery procedures described below. The term "agent's message" means a message, transmitted to DTC and received by the exchange agent and forming a part of a book-entry transfer, which states DTC has received an express acknowledgment that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against that holder. THE METHOD OF DELIVERY OF THE OUTSTANDING SENIOR NOTES AND SENIOR BONDS, THE LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF THE DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR SENIOR NOTES OR SENIOR BONDS SHOULD BE SENT DIRECTLY TO US. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the old securities surrendered for exchange are tendered: o by a holder of the old securities, who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or o for the account of an eligible institution. An "eligible institution" is a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. If signatures on a letter of transmittal or notice of withdrawal are required to be guaranteed, the guarantor must be an eligible institution. If old securities are registered in the name of a person other than the signer of the letter of transmittal, the old securities surrendered for exchange must be 19 endorsed by, or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the holder's signature guaranteed by an eligible institution. We will determine all questions as to the validity, form, eligibility and acceptance of old securities tendered for exchange in our sole discretion, including questions as to time of receipt. Our determination will be final and binding. We reserve the absolute right to: o reject any and all tenders of any old security improperly tendered; o refuse to accept any old security if, in our judgement or the judgment of our counsel, acceptance of the old security may be deemed unlawful; and o waive any defects or irregularities or conditions of the exchange offer as to any particular old security either before or after the expiration date, including the right to waive the ineligibility of any holder who seeks to tender old securities in the exchange offer. Our interpretation of the terms and conditions of the exchange offer as to any particular old securities either before or after the expiration date, including the letter of transmittal and the instructions to it, will be final and binding on all parties. Holders must cure any defects and irregularities in connection with tenders of old securities for exchange within such reasonable period of time as we will determine, unless we waive those defects or irregularities. Neither we, the exchange agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of old securities for exchange, nor shall any of us incur any liability for failure to give that notification. If a person or persons other than the registered holder or holders of the old securities tendered for exchange signs the letter of transmittal, the tendered old securities must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the old securities being tendered. If trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity sign the letter of transmittal or any old securities or any power of attorney, those persons should so indicate when signing, and you must submit proper evidence satisfactory to us of, such person's authority to so act unless we waive this requirement. By tendering, each holder will represent to us that, among other things, the person acquiring new securities in the exchange offer is obtaining them in the ordinary course of its business, whether or not such person is the holder, and that neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the new securities issued in the exchange offer. If any holder or any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of CILCORP, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of new securities to be acquired in the exchange offer, that holder or any such other person: o may not rely on the applicable interpretations of the staff of the SEC; and o must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer who acquired its old securities as a result of market-making activities or other trading activities and thereafter receives new securities issued for its own account in the exchange offer, must acknowledge that it will deliver a prospectus in connection with any resale of such new securities issued in the exchange offer. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution" for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer. 20 ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES ISSUED IN THE EXCHANGE OFFER Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all outstanding old securities properly tendered and will issue new securities registered under the Securities Act. For purposes of the exchange offer, we will be deemed to have accepted properly tendered outstanding old securities for exchange when, as and if we have given oral or written notice to the exchange agent, with written confirmation of any oral notice to be given promptly thereafter. See "--Conditions to the Exchange Offer" for a discussion of the conditions that must be satisfied before we accept any old securities for exchange. For each outstanding old security accepted for exchange, the holder will receive a new security registered under the Securities Act having a principal amount equal to that of the surrendered old security. Accordingly, registered holders of new securities issued in the exchange offer on the relevant record date for the first interest payment date following the completion of the exchange offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid on the outstanding senior notes and senior bonds, from October 18, 1999. Outstanding old securities that we accept for exchange will cease to accrue interest from and after the date of completion of the exchange offer. Under the registration rights agreement, we may be required to make additional payments in the form of liquidated damages to the holders of the outstanding senior notes and senior bonds under circumstances relating to the timing of the exchange offer. In all cases, we will issue new securities in the exchange offer for outstanding old securities that are accepted for exchange only after the exchange agent timely receives: o certificates for such old securities or a timely book-entry confirmation of such old securities into the exchange agent's account at DTC; o a properly completed and duly executed letter of transmittal or an agent's message; and o all other required documents. If for any reason set forth in the terms and conditions of the exchange offer we do not accept any tendered outstanding old securities, or if a holder submits outstanding old securities for a greater principal amount than the holder desires to exchange, we will return such unaccepted or non-exchanged old securities without cost to the tendering holder. In the case of old securities tendered by book-entry transfer into the exchange agent's account at DTC, such non-exchanged old securities will be credited to an account maintained with DTC. We will return the old securities or have them credited to the DTC account as promptly as practicable after the expiration or termination of the exchange offer. BOOK-ENTRY TRANSFERS The exchange agent will make a request to establish an account with respect to the outstanding old securities at DTC for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in DTC's systems must make book-entry delivery of outstanding old securities by causing DTC to transfer such outstanding old securities into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. That participant should transmit its acceptance to DTC on or prior to the expiration date or comply with the guaranteed delivery procedures described below. DTC will verify that acceptance, execute a book-entry transfer of the tendered old securities into the exchange agent's account at DTC and then send to the exchange agent confirmation of that book-entry transfer. The confirmation of the book-entry transfer will include an agent's message confirming that DTC has received an express acknowledgment from the participant that the participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against that participant. Delivery of new securities issued in the exchange offer may be effected through book-entry transfer at DTC. However, the letter of transmittal or a facsimile of it or an agent's message, with any required signature guarantees and any other required documents, must: 21 o be transmitted to and received by the exchange agent at the address set forth below under "--Exchange Agent" on or prior to the expiration date; or o comply with the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES If a holder of outstanding old securities desires to tender them but they are not immediately available, or if the holder cannot deliver the old securities or other required documents to the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if: o the holder tenders the outstanding old securities through an eligible institution; o prior to the expiration date, the exchange agent receives from that eligible institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form we have provided, by telegram, telex, facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the old securities being tendered and the amount of the old securities being tendered. The notice of guaranteed delivery must state that the tender is being made and guarantee that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered old securities, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent's message with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by the eligible institution with the Exchange Agent; and o the exchange agent receives the certificates for all physically tendered old securities, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent's message with any required signature guarantees and any other documents required by the letter of transmittal, within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. WITHDRAWAL RIGHTS You may withdraw tenders of your old securities at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, you must send a written notice of withdrawal or a properly transmitted agent's message to the exchange agent at one of the addresses set forth below under "--Exchange Agent." The notice of withdrawal must: o specify the name of the person having tendered the old securities to be withdrawn; o identify the old securities to be withdrawn, including the principal amount of the old securities; and o where certificates for old securities are transmitted, specify the name in which the old securities are registered, if different from that of the withdrawing holder. If certificates for old securities have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and signed notice of withdrawal with signatures guaranteed by an eligible institution unless the holder is an eligible institution. If old securities have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old securities and otherwise comply with the procedures of that facility. We will determine all questions as to the validity, form and eligibilty of such notices, including questions as to time of receipt, and our determination will be final and binding on all parties. Any tendered old securities so 22 withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any old securities which have been tendered for exchange but which are not exchanged for any reason will be returned to the tendering holder without cost to that holder. In the case of old securities tendered by book-entry transfer into the exchange agent's account at DTC, the old securities withdrawn will be credited to an account maintained with DTC for the outstanding old securities. The old securities will be returned or credited to the DTC account as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old securities may be re-tendered by following the procedures described under "--How to Tender Old Securities for Exchange" above at any time on or prior to 5:00 p.m., New York City time, on the expiration date. CONDITIONS TO THE EXCHANGE OFFER We are not required to accept for exchange, or to issue new securities in the exchange offer for, any outstanding old securities. We may terminate or amend the exchange offer, if at any time before the acceptance of outstanding old securities for exchange: o any federal law, statute, rule or regulation is adopted or enacted which, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer; o any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939; or o there occurs a change in the current interpretation by staff of the SEC which permits the new securities to be issued in the exchange offer to be offered for resale, resold and otherwise transferred by the holders of the new securities, other than broker-dealers and any holder which is an "affiliate" of CILCORP within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the new securities acquired in the exchange offer are acquired in the ordinary course of that holder's business and that holder has no arrangement or understanding with any person to participate in the distribution of the new securities to be issued in the exchange offer. The preceding conditions are for our sole benefit and we may assert them regardless of the circumstances giving rise to any such condition. We may waive the preceding conditions in whole or in part at any time and from time to time in our sole discretion. If we do so, the exchange offer will remain open for at least three business days following any waiver of the preceding conditions. Our failure at any time to exercise the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which we may assert at any time and from time to time. THE EXCHANGE AGENT The Bank of New York has been appointed as our exchange agent for the exchange offer. All executed letters of transmittal should be directed to our exchange agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows: 23 Main Delivery To: The Bank of New York as Exchange Agent
By mail, hand or overnight courier to: By Facsimile (for eligible institutions only): The Bank of New York (212) [ ] 101 Barclay Street 7 East New York, New York 10286 Confirm by telephone: Attn: Reorganization Section -- Confidential (212) [ ]
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THE LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL. FEES AND EXPENSES We will not make any payment to brokers, dealers, or others soliciting acceptance of the exchange offer except for reimbursement of mailing expenses. The estimated cash expenses to be incurred in connection with the exchange offer will be paid by us and are estimated in the aggregate to be approximately $500,000. TRANSFER TAXES Holders who tender their outstanding old securities for exchange will not be obligated to pay any transfer taxes in connection with the exchange. If, however, new securities issued in the exchange offer are to be delivered to, or are to be issued in the name of, any person other than the holder of the old securities tendered, or if a transfer tax is imposed for any reason other than the exchange of the old securities in connection with the exchange offer, then the holder must pay any such transfer taxes, whether imposed on the registered holder or on any other person. If satisfactory evidence of payment of, or exemption from, those taxes is not submitted with the letter of transmittal, the amount of those transfer taxes will be billed directly to the tendering holder. CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING SECURITIES Holders who desire to tender their outstanding old securities in exchange for new securities registered under the Securities Act should allow sufficient time to ensure timely delivery. Neither the exchange agent nor CILCORP is under any duty to give notification of defects or irregularities with respect to the tenders of securities for exchange. Outstanding old securities that are not tendered or are tendered but not accepted will, following the completion of the exchange offer, continue to be subject to the provisions in the indenture regarding the transfer and exchange of the outstanding old securities and the existing restrictions on transfer set forth in the legend on the outstanding old securities and in the offering memorandum dated October 13, 1999, relating to the outstanding old securities. Except in limited circumstances with respect to specific types of holders of outstanding old securities, we will have no further obligation to provide for the registration under the Securities Act of such outstanding old securities. In general, outstanding old securities, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will take any action to register the outstanding old securities under the Securities Act or under any state securities laws. Upon completion of the exchange offer, holders of the outstanding old securities will not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances. 24 Holders of the new securities of either series issued in the exchange offer and any outstanding old securities of that series which remain outstanding after completion of the exchange offer will vote together as a single class for purposes of determining whether holders of the requisite percentage of the class have taken certain actions or exercised certain rights under the indenture. CONSEQUENCES OF EXCHANGING OUTSTANDING SECURITIES Based on interpretations of the staff of the SEC, as set forth in no-action letters to third parties, we believe that the new securities issued in the exchange offer may be offered for resale, resold or otherwise transferred by holders of those new securities, other than by any holder which is an "affiliate" of CILCORP within the meaning of Rule 405 under the Securities Act. Those new securities may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act, if: o those new securities issued in the exchange offer are acquired in the ordinary course of the holder's business; and o the holder, other than a broker-dealer, has no arrangement or understanding with any person to participate in the distribution of the new securities to be issued in the exchange offer. However, the SEC has not considered our exchange offer in the context of a no-action letter and we cannot guarantee that the staff of the SEC would make a similar determination with respect to our exchange offer as in such other circumstances. Each holder, other than a broker-dealer, must furnish a written representation, at our request, that: o it is acquiring the new securities issued in the exchange offer in the ordinary course of its business; o it is not engaged in, and does not intend to engage in, a distribution of the new securities issued in the exchange offer and has no arrangement or understanding to participate in a distribution of new securities issued in the exchange offer; o it is not a broker-dealer that acquired old securities directly from Midwest Energy or CILCORP; o it is not an affiliate of CILCORP; and o it is not acting on behalf of any person who could not truthfully make the foregoing representations. Each broker-dealer that receives new securities issued in the exchange offer for its own account in exchange for outstanding old securities must acknowledge that the old securities were acquired by that broker-dealer as a result of market-making or other trading activities and that it will deliver a prospectus in connection with any resale of those new securities issued in the exchange offer. See "Plan of Distribution" for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer. In addition, to comply with the state securities laws of certain jurisdictions, the new securities issued in the exchange offer may not be offered or sold in any state unless they have been registered or qualified for sale in that state or an exemption from registration or qualification is available and complied with by the holders selling the new securities. We have agreed in the registration rights agreement that, prior to any public offering of transfer restricted securities, we will register or qualify the transfer restricted securities for offer or sale under the securities laws of any jurisdiction requested by a holder, provided that we are not required to qualify as a foreign corporation or as a dealer in securities in any jurisdiction where we would not otherwise be required to qualify, or to take any action that would subject us to taxation or to general service of process in any jurisdiction where we are not then so subject to taxation or service of process. Unless a holder requests, we 25 currently do not intend to register or qualify the sale of the new securities issued in the exchange offer in any state where an exemption from registration or qualification is required and not available. "Transfer restricted securities" means each outstanding old security until: o the date on which that old security has been exchanged by a person other than a broker-dealer for a new security in the exchange offer; o following the exchange by a broker-dealer in the exchange offer of the outstanding old security for a new security issued in the exchange offer, the date on which the new security issued in the exchange offer is sold to a purchaser who receives from that broker-dealer on or prior to the date of the sale a copy of this prospectus; o the date on which that old security has been effectively registered under the Securities Act and disposed of in accordance with a shelf registration statement that we file in accordance with the registration rights agreement; or o the date on which that old security is distributed to the public in a transaction under Rule 144 of the Securities Act. 26 WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-4 under the Securities Act covering the new securities to be issued in the exchange offer. This prospectus does not contain all of the information included in the registration statement. If we have filed any contract, agreement or other document as an exhibit to the registration statement, you should read the exhibit for a more complete understanding of the document or matter involved. We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information we file at the SEC's public reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov". INCORPORATION BY REFERENCE We have "incorporated by reference" certain documents. This means that we are disclosing important information to you by referring you to those documents. The information in the documents we are incorporating by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act: o Annual Report on Form 10-K for the year ended December 31, 1998. o Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999. o Current Report on Form 8-K filed on March 22, 1999. o Current Report on Form 8-K filed on November 2, 1999 We will provide a copy of the documents we incorporate by reference, at no cost, to any person who receives this prospectus. To request a copy of any or all of these documents, you should write or telephone us at the following address and telephone number: CILCORP Inc. 300 Liberty Street Peoria, Illinois 61602 Attention: Corporate Secretary (309) 675-8810 27 BUSINESS We are an energy services holding company headquartered in Peoria, Illinois. In 1998, we had consolidated assets, revenues and net income from continuing operations of $1.3 billion, $559 million and $38 million, respectively. Our principal business subsidiary and our primary source of revenue is CILCO, a public utility providing electricity and natural gas service to industrial, commercial and residential customers in central Illinois. We were incorporated as a holding company in Illinois in 1985. In 1998, we began a process to refocus our corporate strategy on our core electric and gas utility business by divesting unrelated and higher risk businesses. Several of these businesses were eliminated, discontinued or divested in late 1998 and 1999. While we conduct other limited energy-related businesses through our subsidiaries CILCORP Investment Management Inc. and CILCORP Ventures Inc., in 1998 approximately 96% of our revenues came from CILCO. CILCO CILCO generates, transmits, distributes and sells electric energy to approximately 189,000 customers in an area of about 3,700 square miles in central Illinois, and purchases, distributes, transports and sells natural gas to approximately 197,000 customers in an area of about 4,500 square miles in central Illinois. Many of our customers receive both electric and natural gas service. CILCO has an installed generation capacity of 1,152 megawatts, of which 96% is coal-fired and the balance consists of gas-fired peaking and co-generation units. CILCO has the lowest overall average electric cost rates of any investor-owned utility in Illinois, and its rates also compare favorably with those of utilities in surrounding states. CILCO continues to experience in varying degrees the impact of developments common to the electric and gas utility industries. These include increased competition in wholesale markets and the prospect of competition in retail markets, changes in regulation and legislation affecting utilities, uncertainties as to the future demand for electricity and natural gas, structural and competitive changes in the markets for these commodities, the high cost of compliance with environmental and safety laws and regulations and uncertainties in regulatory and political processes. At the same time, CILCO has sought to provide reliable service at reasonable rates for its customers and a fair return for its investors. PROPERTIES. CILCO owns and operates two steam-electric generating plants, a cogeneration plant and two combustion turbine-generators. These facilities had an available summer capability of 1,152 megawatts in 1998. Each combustion turbine generator has a summer rating of 15 megawatts and is used during peak periods. They typically operate less than 100 hours per year. The cogeneration plant, which became operational during 1995, produces steam for Midwest Grain Products, Inc. and also generates electricity for distribution to CILCO's customers. This turbine-generator has an available summer capability of 16 megawatts. The following table shows the major generating facilities of CILCO. They represent 96% of CILCO's available generating capability projected for 1999 and are all fueled with coal: AVAILABLE CAPABILITY (MEGAWATTS) STATION & UNIT INSTALLED ACTUAL 1998 - ---------------------- ----------- --------------------- Duck Creek Unit 1 ............. 1976 366 E. D. Edwards Unit 1 ............. 1960 117 Unit 2 ............. 1968 262 Unit 3 ............. 1972 361 CILCO's transmission system includes approximately 285 circuit miles operating at 138,000 volts, 48 circuit miles operating at 345,000 volts and 16 principal substations with an installed capacity of 2,150,000 kilovolt-amperes. 28 The electric distribution system includes approximately 6,223 miles of overhead pole and tower lines and 2,096 miles of underground distribution cables. The distribution system also includes 105 substations with an installed capacity of 1,665,885 kilovolt-amperes. The gas system includes approximately 3,581 miles of transmission and distribution mains. CILCO has an underground gas storage facility located about ten miles southwest of Peoria near Glasford, Illinois. The facility has a present recoverable capacity of approximately 4.5 Bcf. An additional storage facility near Lincoln, Illinois has a present recoverable capacity of approximately 5.2 Bcf. ELECTRIC SERVICE. CILCO furnishes electric service to retail customers in 136 Illinois communities, including Peoria, East Peoria, Pekin, Lincoln and Morton. At December 31, 1998, CILCO had approximately 189,000 retail electric customers. In 1998, 68% of CILCO's total operating revenue was derived from the sale of electricity. Approximately 37% of electric revenue resulted from residential sales, 31% from commercial sales, 25% from industrial sales, 5% from sales for resale and 2% from other sales. Electric sales, particularly residential and commercial sales during the summer months, fluctuate based on weather conditions. The electric operating revenues of CILCO were derived from the following sources (in thousands): 1998 1997 1996 ----------- ----------- ----------- Residential ..................... $133,687 $125,071 $121,668 Commercial ...................... 111,830 103,747 100,944 Industrial ...................... 87,895 82,318 79,065 Sales for resale ................ 18,866 19,966 15,206 Street lighting ................. 1,385 1,343 1,283 Other revenue ................... 6,346 5,651 4,619 -------- -------- -------- Total electric revenue .......... $360,009 $338,096 $322,785 ======== ======== ======== The 1998 system peak demand was 1,195 megawatts on June 26, 1998. To date, the 1999 system peak demand was 1,235 megawatts on July 21, 1999. This was a new all-time system peak demand. CILCO's planned reserve margin of 18.7% for 1999 takes into account 185 megawatts of firm purchased power and 55 megawatts of instantaneous interruptible industrial load. Studies conducted by CILCO indicate that it has sufficient base load generating capacity and purchased capacity to provide an adequate and reliable supply of electricity to satisfy base load demand. CILCO is interconnected with AmerenCIPS, Commonwealth Edison Company, Illinois Power Company and the Springfield City Water, Light and Power Department to provide for the interchange of electric energy on an emergency and mutual help basis. GAS SERVICE. CILCO provides gas service to customers in 128 Illinois communities, including Peoria, East Peoria, Pekin, Lincoln and Springfield. At December 31, 1998, CILCO had approximately 197,000 gas customers, including industrial, commercial and residential gas transportation customers that purchase gas directly from suppliers for transportation through CILCO's system. In 1998, 32% of CILCO's total operating revenue was derived from the sale or transportation of natural gas. Approximately 58% of gas revenue resulted from residential sales, 25% from commercial sales, 4% from industrial sales, 3% from transportation and 10% from other sales. Gas sales, particularly residential and commercial sales during the winter months, fluctuate based on weather conditions. 29 The gas operating revenues of CILCO were derived from the following sources (in thousands): 1998 1997 1996 ----------- ----------- ----------- Residential .................... $100,010 $124,440 $125,869 Commercial ..................... 42,713 51,204 44,695 Industrial ..................... 6,627 8,276 5,670 Transportation of gas .......... 5,911 6,484 8,388 Other revenue .................. 17,066 18,354 11,148 -------- -------- -------- Total gas revenue .............. $172,327 $208,758 $195,770 ======== ======== ======== CILCO's all-time maximum daily send-out of 443,167 MCF occurred on January 15, 1972. The 1998 peak day send-out of 327,328 MCF occurred on January 13, 1998. CILCO was able to meet all of its existing customer requirements during the 1998-1999 heating season. CILCO believes that its present and planned supplies of gas will continue to be sufficient to serve all of its existing customer requirements during the 1999-2000 heating season. ILLINOIS CUSTOMER CHOICE LAW. Under the Illinois Customer Choice Law, large industrial customers and customers representing one-third of remaining non-residential KWh sales were able to choose their electric supplier beginning October 1, 1999, with all non-residential customers able to choose after December 31, 2000. Residential electric customers will be able to choose their electric supplier beginning May 1, 2002. If a customer chooses to leave its present electricity supplier, that utility will collect a fee for delivering power and may assess an additional transition charge on the customer. This charge must be filed with the Illinois Commerce Commission and is designed to help utilities recover the cost of past investments made under a regulated system. The transition charge is calculated by deducting three costs from the existing tariff for bundled electric service: (1) the charge for transmission and distribution services; (2) the market price for electricity (determined by a neutral fact finder); and (3) a mitigation factor established by the Illinois Customer Choice Law. The transition charge will reduce a customer's economic incentive to switch suppliers. Transition charges may be collected through 2006, or 2008 upon specific findings by the Illinois Commerce Commission, including a finding that the recovery is needed to maintain the utility's financial integrity. The Illinois Customer Choice Law also requires electric base rate reductions that vary by utility. CILCO began its reduction in residential base rates with an initial 2% decrease beginning August 1998. A further 2% decrease is required effective October 1, 2000 and a final 1% decrease is required effective October 1, 2002. Also, CILCO's return on common equity will, in general, be capped at a specified index plus 1.5%. The index will be a 12-month average yield for 30-year U.S. Treasury bonds plus 8% for calendar years 1998 and 1999 and a 12-month average yield for 30-year U.S. Treasury bonds plus 9% for calendar years 2000 through 2004. If CILCO's two-year average return on common equity exceeds the two-year average of that equity cap, 50% of the earnings in excess of the average equity cap must be refunded to customers in the following year. On June 30, 1999, the Illinois General Assembly amended the Illinois Customer Choice Law to allow certain utilities, including CILCO, to increase the equity cap by an additional 2% over the equity cap provided under the original law, for the period 2000 through 2004. The increase in the equity cap is allowed in exchange for these utilities offering choice of electricity suppliers to certain non-residential customers three to six months earlier than previously allowed under the Illinois Customer Choice Law and for waiving the right to seek a two-year extension on the collection of transition charges. As the Illinois Customer Choice Law is implemented, electric generation in Illinois will become deregulated and competitive. As a result, the accounting principles applicable to rate-regulated enterprises will no longer apply to the electric generation portion of CILCO's business. Also, the cost of any assets whose recovery is impaired by the transition to a competitive marketplace must be 30 written off. CILCO has not determined its electric generating asset values to be impaired. Its ability to keep total production costs competitive in a deregulated market will determine whether and to what extent the value of these assets may be impaired in the future. As required by the Illinois Customer Choice Law, on March 5, 1999, CILCO filed proposed tariffs for delivery services to its large industrial customers and customers representing one-third of nonresidential KWh sales. On August 25, 1999, the Illinois Commerce Commission entered an order which established rates for delivery services which were approximately 18% lower than CILCO had requested. This lower requirement was calculated by the Illinois Commerce Commission to enable CILCO to yield a return on equity for its delivery services of 10.5%. CILCO currently is unable to estimate the effect of the Illinois Commerce Commission's order on its revenues. OTHER REGULATORY MATTERS. CILCO is a public utility under the laws of the State of Illinois and is subject to the jurisdiction of the Illinois Commerce Commission. The Illinois Commerce Commission has general power of supervision and regulation with respect to services and facilities, rates and charges, classification of accounts, valuations of property, determination of depreciation rates, construction, contracts with any affiliated interest, the issuance of stock and evidences of indebtedness and various other matters. The Illinois Commerce Commission's supervision and regulatory oversight of certain transactions by electric utilities is reduced or suspended during the mandatory transition period, which terminates on January 1, 2005. With respect to certain electric matters, CILCO is subject to regulation by the Federal Energy Regulatory Commission. CILCO is exempt from the provisions of the Natural Gas Act, but is affected by orders, rules and regulations issued by the Federal Energy Regulatory Commission with respect to certain gas matters. ELECTRIC FUEL AND PURCHASED GAS ADJUSTMENT CLAUSES. CILCO's tariffs provide for adjustments to its electric rates through the fuel adjustment clause to recover the cost of energy purchased from other suppliers and to reflect increases or decreases in the cost of fuel used in its generating stations. The transportation costs of coal are not currently included in the fuel adjustment clause, but are collected through base rates. CILCO's current tariffs also provide for adjustments to its gas rates through the purchased gas adjustment clause to reflect increases or decreases in the cost of natural gas purchased for sale to customers. As a result of abnormally warm weather during July 1999, CILCO incurred $33 million of generation and purchased power costs which are subject to recovery from customers through the fuel adjustment clause. Of this amount, $10 million was recovered in July 1999 and the balance remained unrecovered at the end of that month. CILCO's fuel adjustment clause allows it to pass on to its customers the cost of unrecovered fuel and purchased power costs, normally through a single bill. In this instance, on September 1, 1999 the Illinois Commerce Commission approved a request by CILCO to charge customers over a twelve-month period without interest, beginning in September 1999. Large industrial customers, however, who were eligible to choose their electricity supplier on October 1, 1999, may be charged for their full share of the costs incurred through a single bill. These customers may elect to pay over a 12-month period (ending with the August 2000 bill due date) after making appropriate arrangements with CILCO. While CILCO has already paid for the additional power by borrowing under short-term financing resources, it will recover the cost over a twelve-month period. During this time, CILCO will carry the cost as a current asset on its balance sheet which will be offset through collections of monthly billings. The Illinois Commerce Commission will conduct its routine review of the fuel adjustment clause in early 2000 and will determine the prudency of CILCO's electricity purchases. Any amount of the additional $23 million of electricity purchases ultimately determined to be imprudent by the Illinois Commerce Commission would not be recoverable from CILCO's customers, and therefore would be expensed by CILCO on its income statement. We currently believe these costs to be recoverable through the fuel adjustment clause. A significant disallowance of these costs by the Illinois Commerce Commission would be material to CILCO's results of operations. COAL SUPPLY. Substantially all of CILCO's electric generation capacity is coal-fired. Approximately 2.7 million tons of coal were burned during 1998. Existing coal contracts with suppliers in Illinois are expected to supply 100% of the 1999 requirements. 31 During the years 1998, 1997 and 1996, the average cost per ton of coal burned, including transportation, was $33.56, $34.01 and $31.82, respectively. The cost of coal burned per million BTU's was $1.54, $1.56 and $1.44, respectively. See "-- Electric Fuel and Purchased Gas Adjustment Clauses" immediately above. CILCO has a long-term contract with Freeman United Coal Mining Company for the purchase of high-sulfur, Illinois coal used predominantly at the Duck Creek Station. The contract gives CILCO the flexibility to purchase between 500,000 and 1,000,000 tons annually from Freeman. Under the terms of the contract, CILCO's obligation to purchase coal could be extended through 2010; however, Freeman has the option of terminating the contract with two years' notice. The contract requires CILCO to pay all variable coal production costs on tons purchased and certain fixed costs not affected by the volume purchased. On August 8, 1997, CILCO filed a demand for arbitration with Freeman alleging that Freeman has failed to keep and perform its prudent mining obligations, as required by the parties' contract. The relief sought by CILCO through this arbitration includes damages and confirmation of CILCO's termination rights under this contract. CILCO and Freeman have agreed to continue operating under the present contract until a ruling on CILCO's claims is reached by the arbitrators, which is expected in late 1999. CILCO cannot at this time predict the ultimate outcome of this dispute or whether its resolution will have a material impact on CILCO's operating results. NATURAL GAS SUPPLY. During 1998, CILCO continued to maintain a widely diversified and flexible natural gas supply portfolio. This portfolio is structured around firm and interruptible gas transportation service provided by five interstate pipeline suppliers and firm and interruptible gas purchase arrangements of varying terms made directly with approximately 20 gas suppliers. Reliability is enhanced through natural gas injections and withdrawals at CILCO's two natural gas storage fields and contracted storage facilities. The supply and pipeline capacity portfolio continues to provide reliable supplies at prevailing market prices. CILCO believes that its present and planned supply of gas will continue to be sufficient to serve all of its present and projected firm customer requirements. During 1998, CILCO purchased and delivered approximately 37,828,000 MCF of natural gas at a cost of approximately $101 million, or an average cost of $2.67 per MCF. The average cost per MCF of natural gas purchased and delivered was $3.03 in 1997 and $3.05 in 1996. See "-- Electric Fuel and Purchased Gas Adjustment Clauses" above. SIGNIFICANT CUSTOMER. Caterpillar Inc. is CILCO's largest industrial customer. Aggregate gas and electric revenues from sales to Caterpillar were 7.6%, 7.5% and 7.5% of CILCO's total operating revenue for 1998, 1997 and 1996, respectively. FRANCHISES. CILCO negotiates franchise agreements which authorize it to provide utility services to the communities in its service area. The franchises are for various terms, usually 10 to 25 years. Based on past experience, CILCO anticipates that, as franchises expire, new franchises will be granted in the normal course of business. EMPLOYEES AND UNION CONTRACTS. Excluding employees assigned to us, CILCO had 1,150 full-time and part-time employees at June 30, 1999. Of those employees, 392 gas and electric department employees were represented by Local 51 of the International Brotherhood of Electrical Workers, and 158 power plant employees were represented by Local 8 of the National Conference of Firemen and Oilers. On October 10, 1997, the International Brotherhood of Electrical Workers ratified its current labor contract with CILCO, which expires on July 1, 2000. On October 23, 1998, the National Conference of Firemen and Oilers ratified its current labor contract with CILCO, which expires on July 1, 2001. QST We formed QST Enterprises, Inc. in December 1995. Its operations were discontinued in the fourth quarter of 1998, except for the utility infrastructure operation and maintenance services 32 provided by a QST subsidiary, CILCORP Infraservices, and for QST's membership interests in the three limited liability companies that acquired the assets of ESE Land from a QST subsidiary in November 1997. OTHER BUSINESSES CILCORP INVESTMENT MANAGEMENT. The following table shows the investment portfolio of CILCORP Investment Management at December 31, 1998 and December 31, 1997 (in thousands): TYPE OF INVESTMENT 1998 1997 - ---------------------------------------------------- ----------- ----------- Investment in leveraged leases .................. $146,990 $146,458 Cash and temporary cash investments ............. 71 152 Investment in Energy Investors Fund ............. 1,510 1,158 Investment in affordable housing funds .......... 13,808 15,557 Other ........................................... 120 156 -------- -------- Total ........................................ $162,499 $163,481 ======== ======== At December 31, 1998, CILCORP Investment Management held equity investments in eight leveraged leases through its wholly-owned subsidiaries. Under those lease agreements, CILCORP Investment Management's subsidiaries may, in specified circumstances, be obligated to incur additional non-recourse debt to finance the cost of certain alterations, additions, or improvements required by the lessee. Through a wholly-owned subsidiary, CILCORP Investment Management also has a net investment of $1,510,000 in the Energy Investors Fund, L.P., representing a 3.1% interest in that fund at December 31, 1998. The fund invests in non-regulated, non-utility facilities for the production of electricity or thermal energy. The equity method of accounting is used for this investment. CILCORP Investment Management is also a limited partner in eight affordable housing portfolios. The ownership interests in these partnerships range from 3% to 10% at December 31, 1998. The equity method of accounting is also used for these investments. CILCORP VENTURES. CILCORP Ventures invests primarily in ventures relating to energy-related products and services. It has an 80% ownership interest in the Agricultural Research and Development Corporation and has one wholly-owned subsidiary, CILCORP Energy Services, Inc. CILCORP Ventures's net investment in that subsidiary is approximately $1.1 million. CILCORP Energy Services's primary business is the sale of gas management services, including commodity purchasing. In addition, during 1998, costs related to providing additional value-added services to Caterpillar in connection with CILCO's Power Quest programs were reflected in the operating results of CILCORP Energy Services. LEGAL PROCEEDINGS SPRINGFIELD GAS OPERATIONS. As permitted by CILCO's By-Laws, CILCO has advanced legal and other expenses actually and reasonably incurred by current and former employees in connection with the U.S. Justice Department's investigation of CILCO's Springfield gas operations. In 1992, after a significant number of leaks were detected in CILCO's Springfield cast iron distribution system, CILCO began a detailed examination of the system and related operating practices and procedures. CILCO then began an aggressive program, which it completed in September 1993, to renew the Springfield cast iron system. The Illinois Commerce Commission staff began an informal review of CILCO's Springfield gas operations and record keeping practices in September 1992. Subsequently, the U.S. Department of Transportation and the Justice Department began conducting investigations of CILCO, which were also focused principally on CILCO's Springfield gas operations. Those investigations were subject to a September 1994 settlement agreement under which CILCO entered into a federal court civil consent decree that concluded both investigations. As part of the settlement, 33 CILCO accepted adjustments recommended by the Illinois Commerce Commission staff which resulted in disallowance from rate base of $4.5 million of the cost of the Springfield renewal program and payments of $1 million by CILCO in civil fines and investigation costs. AMERENCIPS. In August 1990, CILCO entered into a firm, wholesale power purchase agreement with Central Illinois Public Service Company, now AmerenCIPS. This agreement provided for a minimum contract delivery rate from AmerenCIPS of 90 MW until the contract expired in May 1998. In March 1995, CILCO and AmerenCIPS amended a limited-term power agreement reached in November 1992. This agreement provided for CILCO to purchase 150 MW of AmerenCIPS' capacity from June 1998 through May 2002, and 50 MW from June 2002 through May 2009. In May 1999, a settlement was reached between CILCO and AmerenCIPS regarding disputed issues pertaining to these capacity and energy agreements. The settlement amends the previous agreements to provide for 100 MW of capacity and firm energy for the months of June through September for the year 2000 through 2003 and additionally provide for 100 MW of firm energy for the month of January in each of those years. There are no commitments to purchase capacity or energy beyond those dates. The agreements provide specific prices for on-peak and off-peak energy, which eliminates the ambiguity that arose under the old agreements due to the use of pricing queues. Under the settlement, CILCO will have no capacity payment obligations to AmerenCIPS for February through December 1999, resulting in 1999 capacity reservation savings of approximately $6 million. The settlement also obligates both parties to withdraw from regulatory action pertaining to related contract issues. AmerenCIPS and CILCO are currently preparing the settlement document filing for approval by the Federal Energy Regulatory Commission. FORMER GAS PLANT SITES. CILCO continues to investigate and monitor four former gas manufacturing plant sites located within its present gas service territory. The purpose of these studies is to determine if waste materials, principally coal tar, are present, whether the waste materials constitute an environmental or health risk and if CILCO is responsible for the remediation of any remaining waste materials at those sites. Remediation work at one of the four sites was substantially completed in 1991. Based on the operation of a groundwater collection system and other controls, CILCO expects to receive a "No Further Remediation" letter from the Illinois EPA for this site in 1999 subject to requirements for confirmatory groundwater monitoring. Site remediation was completed for a second site in 1998. CILCO has received a "No Further Remediation" letter from the Illinois EPA for the second site subject to requirements for additional confirmatory groundwater monitoring. Additional groundwater monitoring costs at these two sites are expected to be minimal. CILCO has not determined the ultimate extent of its liability for, or the ultimate cost of any remediation of, the remaining two sites, pending further studies. Investigation of the third site is underway. CILCO spent approximately $1.7 million for former gas manufacturing plant site monitoring, legal fees and feasibility studies in 1998. During the first six months of 1999, CILCO paid approximately $362,000 to outside parties for additional monitoring, remediation and legal fees, and expects to spend approximately $642,000 during the remainder of 1999. A $1.2 million liability is recorded on the balance sheet, representing CILCO's minimum obligation expected for coal tar investigation and remediation costs. Coal tar remediation costs incurred through June 1999 have been deferred as a regulatory asset on the balance sheet, less amounts recovered from customers. Through June 30, 1999, CILCO has recovered approximately $6.6 million in coal tar remediation costs from its customers through a gas rate rider approved by the Illinois Commerce Commission. Currently, that rider allows recovery of prudently incurred coal tar remediation costs in the year they are incurred. Under these circumstances, CILCO's management believes that the cost of coal tar remediation will not have a material adverse effect on CILCO's financial position or results of operations. ASH RE-USE. CILCO is currently in the process of investigating and implementing potential beneficial re-use for ash, a coal combustion by-product, generated at both generating stations. Providing alternate uses for the ash will allow CILCO to avoid potential costs associated with the construction of additional facilities to store and manage this by-product. 34 COAL SUPPLY CONTRACT. In August 1997, CILCO initiated arbitration proceedings against Freeman United Coal Mining Company because CILCO believes Freeman has breached its obligations under the long-term coal supply contract between them. This arbitration is discussed further above under "-- Coal Supply." QST ENERGY. In February 1999, QST Energy notified two of its California commercial customers that they were in default of their contracts with QST Energy as a result of not paying QST Energy for energy delivered. QST Energy filed two suits in the U.S. District Court, Central District of Illinois, seeking payment. In March, the customers filed a suit in California Superior Court, Alameda County, California, alleging that QST Energy was in breach of the contract. This suit was subsequently removed to the U.S. District Court, Northern District of California. QST Energy has moved to dismiss this suit filed in California as duplicative of the suits pending in Illinois, and the customers similarly filed motions to dismiss the suits pending in Illinois. QST Energy cannot predict the ultimate outcome of this matter, but intends to vigorously pursue its claims to collect all amounts due from the customers. The accounts receivable reflected in our consolidated balance sheet at June 30, 1999 for these two customers totaled $17.1 million. Under the terms of the contract, QST Energy has terminated delivery of electricity to the two customers. OTHER MATTERS. We and our subsidiaries are subject to certain claims and lawsuits in connection with work performed in the ordinary course of our businesses. Except as otherwise referred to above, in the opinion of our management, all such claims currently pending either will not result in a material adverse effect on our financial position and results of operations or are adequately covered by insurance, contractual or statutory indemnification, or reserves for potential losses. 35 OUR MERGER WITH MIDWEST ENERGY On November 22, 1998, we, AES and AES's wholly-owned subsidiary Midwest Energy entered into a merger agreement under which, subject to the satisfaction of specified conditions, Midwest Energy would merge with and into us, and we would survive the merger as a wholly-owned subsidiary of AES. Midwest Energy was formed by AES solely for the purpose of completing the merger and had no independent operations. The merger was completed on October 18, 1999. On that date, each of our 13,625,680 outstanding shares of common stock was converted into the right to receive $65 in cash and we became a direct, wholly-owned subsidiary of AES. All of our direct and indirect subsidiaries existing immediately prior to completion of the merger, including CILCO, continue as our direct and indirect subsidiaries following completion of the merger. FINANCING OF THE MERGER The approximate $468 million in net proceeds from the initial offering of the old securities, together with a $463 million equity contribution by AES to Midwest Energy, were allocated to acquire all of the outstanding shares of our common stock, to retire approximately $27 million of short-term borrowings of CILCO, to pay approximately $14 million in merger-related personnel costs (of which approximately $10 million represents cash payments under our terminated stock option plan), and to pay approximately $10 million in transaction fees and expenses. ACCOUNTING TREATMENT The merger is being accounted for using the purchase method of accounting. Under this method of accounting, the purchase price is being allocated to the fair value of the assets acquired and liabilities assumed. The excess purchase price over the fair value of the assets acquired and liabilities assumed is being allocated to goodwill. OUR INDEPENDENCE Our by-laws include provisions to preserve our independence from AES in several respects. Among them: o AES must appoint one independent director to serve on our board of directors, and that independent director must approve in advance specified actions by us relating to creditor rights and the bankruptcy laws. Mr. Mark A. Ferrucci is currently serving as the initial independent director of CILCORP. See "Management" for additional information about Mr. Ferrucci. o All of our directors, including the independent director, have a fiduciary duty to us, including our creditors, and must make decisions with respect to our business and operations independent of AES and its other affiliates. o We must ensure that our capitalization is adequate in light of our business and purpose and must maintain an arm's length relationship with AES and its other affiliates. o We must pay our own liabilities out of our own funds and, except in the case of our own subsidiaries, we cannot become liable for the debts of AES and its affiliates, or make loans or advances to those entities or acquire their securities. o We must conduct our own business in our own name, must maintain our separate identity and must keep our own funds, accounts, assets, records and books of accounts. TAX MATTERS We anticipate that we, AES and our respective subsidiaries will enter into customary arrangements regarding the sharing of taxes. 36 MANAGEMENT The table shown below provides certain information as of November 1, 1999 with respect to our current directors and executive officers.
NAME AGE POSITIONS - ---------------------------------- ------- --------------------------------------- Thomas A. Tribone ............. 47 Director Mark A. Ferrucci .............. 48 Director Paul D. Stinson ............... 42 Director and President Scott Cisel ................... 46 Vice President Randy J. DeWulf ............... 44 Vice President Mark E. Miller ................ 38 Vice President Robert J. Sprowls ............. 42 Vice President Thomas D. Hutchinson .......... 44 Chief Financial Officer and Controller Thomas S. Romanowski .......... 49 Treasurer Michael D. Austin ............. 41 Assistant Treasurer John G. Sahn .................. 53 Secretary
Thomas A. Tribone. Mr. Tribone has served as a director of CILCORP since October 18, 1999. Mr. Tribone has been an Executive Vice President of AES since January 1998, and was appointed Senior Vice President of AES in 1990. Mr. Tribone leads AES Americas, a group responsible for power marketing, project development, construction and plant operations in northern portions of South America including much of Brazil. From 1987 to 1990, he served as Vice President for project development and, from 1985 to 1987, he served as project director of the AES Shady Point plant. Mark A. Ferrucci. Mr. Ferrucci has served as a director of CILCORP since October 18, 1999. Under an existing agreement between us and CT Corporation System, Mr. Ferrucci or another employee of CT Corporation System will serve as an independent director of CILCORP. Mr. Ferrucci has been employed by CT Corporation System for 22 years and, among other capacities, has served as an Assistant Vice President of CT Corporation System since 1993. Mr. Ferrucci serves as an independent director of many other companies under comparable arrangements between CT Corporation System and those companies providing for the appointment of an independent director. See "Our Merger with Midwest Energy -- Our Independence." Paul D. Stinson. Mr. Stinson has served as a director and President of CILCORP since October 18, 1999. Mr. Stinson has been a Vice President of AES since January 1998 and has been working as a co-manager of the newly formed AES Great Plains Group responsible for the acquisition of CILCORP businesses in the central U.S. Prior to that, Mr. Stinson served as President of AES Silk Road group, responsible for AES businesses and business development projects in the CIS countries, as Managing Director of Medway Power Ltd in England, and as Project Engineer at AES Thames in Connecticut. Scott Cisel. Mr. Cisel has served as a Vice President of CILCORP since October 18, 1999. He has been employed with CILCO since 1975. Since 1995, Mr. Cisel has served as Vice President of CILCO. In April 1999, Mr. Cisel became the leader of CILCO's Sales and Marketing Business Unit. Prior to that, Mr. Cisel served in various sales and customer service management positions within CILCO. Mr. Cisel is a Trustee of Eureka College and is a member of the Board of Directors of the Illinois State Chamber of Commerce. Randy J. DeWulf. Mr. DeWulf has served as a Vice President of CILCORP since October 18, 1999. He has been employed with AES since 1992. He is the plant manager of the Edwards Power Plant within the AES Great Plains Group. Mr. DeWulf had worked for Detroit Edison Company prior to joining AES. His AES career began as a team leader at the Shady Point Power Plant in Oklahoma, he then assisted in the start-up of the AES Elsta Plant in the Netherlands and was president/plant manager of AES Tiszapalkonya in northeast Hungary. Mark E. Miller. Mr. Miller has served as a Vice President of CILCORP since October 18, 1999. He has been employed with AES for ten years. He is the plant manager of the Duck Creek Station 37 within the AES Great Plains Group in the central U.S. Mr. Miller had served as managing director of AES Indian Queens Power Ltd in England, as plant leader of AES Lyukobanya mine in northeast Hungary and as superintendent at AES Thames in Connecticut. Robert J. Sprowls. Mr. Sprowls has served as a Vice President of CILCORP since October 18, 1999. He has been employed with CILCO since 1982. Since 1998, he has served as Vice President of CILCO, and has been the leader of CILCO's Energy Delivery Business Unit since March 1999. Mr. Sprowls has served in numerous capacities within CILCORP and its subsidiaries, including, among others, Treasurer and Chief Financial Officer of both CILCO and CILCORP, President of CILCORP Ventures Inc., Chairman of CILCORP Energy Services Inc., a subsidiary of CILCORP Ventures, Vice President-Strategic Services for CILCO and Assistant to the CEO of CILCORP. Mr. Sprowls is a certified public accountant and certified management accountant. He is a member of the Board of Directors of Goodwill Industries of Central Illinois. Thomas D. Hutchinson. Mr. Hutchinson has served as Chief Financial Officer of CILCORP since October 18, 1999 and as Controller of CILCORP and CILCO since 1997. During 1996 he was Director of Planning and Administration of QST Enterprises Inc., a CILCORP subsidiary and in 1995 was Director of Competitive Strategy for CILCO. Prior to 1995, Mr. Hutchinson has served in a variety of positions in accounting areas of CILCORP and CILCO, including Controller of both companies, Tax Manager and Supervisor of Plant and Tax Accounting. He has been employed by CILCORP or one of its subsidiaries since 1974. Mr. Hutchinson is a certified public accountant and serves on the Board of Directors and various committees of the Peoria Production Shop, WD Boyce Council-Boy Scouts of America, and Easter Seals of Central Illinois. Thomas S. Romanowski. Mr. Romanowski has served as Treasurer of CILCORP and CILCO since October 18, 1999. Prior to this, he served as Vice President of CILCO from 1986 until October 1999. Mr. Romanowski has been employed with CILCO since 1971 advancing through several positions in the accounting, treasury and information systems areas. He serves as treasurer and board member of the Employers' Association and is also a director on the boards of the Illinois Central College Educational Foundation, the Tri-County (Peoria) Urban League, Inc., the Heartland Community Development Corporation and the Biotechnology Research and Development Corporation. Mr. Romanowski graduated from Bradley University in 1971 with a degree in Business Administration. Michael D. Austin. Mr. Austin has served as Assistant Treasurer of CILCORP since 1998. From 1995 to 1998, he served as Treasurer of CILCORP. From 1990 to 1995 he served as Director of Investments of CILCORP. Prior to this, Mr. Austin served in a variety of positions in finance and administration. He has been employed by CILCORP or its subsidiaries since 1979. Mr. Austin is a certified public accountant and serves as Chairman of the Board of Trustees of the Peoria Association of Retarded Citizens Foundation. John G. Sahn. Mr. Sahn has served as Secretary of CILCORP since 1994. He has been employed by CILCORP since 1988 and has served as Vice President, General Counsel and Treasurer as well as Corporate Secretary. He also serves as Secretary of CILCO and other CILCORP subsidiaries. Mr. Sahn is active in numerous civic, professional and charitable organizations. 38 DESCRIPTION OF THE SECURITIES GENERAL You can find the definitions of certain terms used in this description under the subheading "Certain Definitions" at the end of this section of the prospectus. Midwest Energy issued the old securities under an indenture dated October 18, 1999 between itself and The Bank of New York, as trustee, in a private transaction that was not subject to the registration requirements of the Securities Act. When we merged with Midwest Energy simultaneously with the issuance of the old securities, we assumed all of Midwest Energy's obligations under the old securities, the indenture and the registration rights agreement between Midwest Energy and the initial purchasers of the old securities. Upon the issuance of the new securities and the effectiveness of a registration statement with respect to the securities, the indenture will be subject to and governed by the Trust Indenture Act of 1939 (the "TIA"). Copies of the indenture and the registration rights agreement are filed as exhibits to the registration statement which includes this prospectus and are available to you at no cost upon request. The terms of the new securities in the exchange offer are identical in all material respects to the terms of the old securities, except for transfer restrictions and registration rights relating to the old securities. Any outstanding old securities of either series and the new securities related to that series will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments and redemptions. When we refer to the term "securities" in this section of the prospectus, we are referring to the old securities of either series and the new securities related to that series issued in the exchange offer, unless the context otherwise requires. The following description is a summary of the material provisions of the indenture and the registration rights agreement. It does not restate those agreements in their entirety. We urge you to read the indenture and the registration rights agreement because they, and not this description, define your rights as holders of the securities. BRIEF DESCRIPTION OF THE SECURITIES The securities: o are senior obligations of CILCORP; o rank equally with all other existing and future senior obligations of CILCORP; o are senior to all existing and future subordinated Indebtedness of CILCORP; and o rank junior to all Indebtedness and other liabilities of CILCO and CILCORP's other subsidiaries. The indenture contains certain restrictions on the ability of CILCORP to incur additional indebtedness. The indenture contains no restrictions on the amount of additional unsecured indebtedness which may be incurred by CILCORP's subsidiaries. In addition, the indenture would permit each of CILCORP's subsidiaries to incur significant additional amounts of secured indebtedness. Because CILCORP is a holding company, its rights and the rights of its creditors, including holders of the securities, in respect of claims on the assets of each of CILCORP's subsidiaries upon any liquidation or administration are structurally subordinated to, and therefore will be subject to the prior claims of, each such subsidiary's preferred stockholders and creditors (including trade creditors of and holders of debt issued by such subsidiary). At June 30, 1999, CILCORP's direct and indirect subsidiaries had total indebtedness and preferred stock of approximately $375 million, all of which would be effectively senior to the securities. The ability of CILCORP to pay interest on the securities is, to a large extent, dependent upon the receipt by it of dividends and other distributions from direct and indirect subsidiaries, including CILCO in particular. CILCORP believes that those payments, which will be funded by cash flows 39 generated through the operations of CILCO and its other subsidiaries, will be sufficient to enable CILCORP to meet all of its obligations as they become due, including CILCORP's obligations under the securities. The availability of distributions from CILCORP's subsidiaries is subject to the satisfaction of various covenants and conditions contained in the applicable subsidiaries' existing and future financing documents. PRINCIPAL, MATURITY AND INTEREST The senior notes were issued initially on October 18, 1999 in the aggregate principal amount of $225 million and will mature on October 15, 2009. The senior bonds were issued initially on October 18, 1999 in the aggregate principal amount of $250 million and will mature on October 15, 2029. Each senior note bears interest at the rate of 8.700% per year and each senior bond bears interest at the rate of 9.375% per year, in each case from October 18, 1999, or from the most recent interest payment date to which interest has been paid or provided for. CILCORP will make each interest payment semi-annually on April 15 and October 15 of each year, commencing April 15, 2000 to the holders of record at the close of business on the preceding April 1 and October 1 respectively, until the relevant principal amount has been paid or made available for payment. Interest on the securities will be computed on the basis of a 360-day year of twelve 30-day months. COLLATERAL The securities are not presently secured by any collateral. On the Pledge Effective Date, the securities will be secured through a pledge by CILCORP of all the outstanding capital stock of CILCO, excluding the shares of preferred stock of CILCO outstanding on October 18, 1999. Under the indenture, prior to the Pledge Effective Date, CILCORP may not issue any additional Indebtedness that requires that such Indebtedness be secured equally and ratably with the securities, unless such Indebtedness matures on or prior to December 21, 2001, the latest maturity date of the existing Series A medium-term notes, or unless the terms of such Indebtedness specify that it will be secured under the same terms and conditions provided in the indenture for the securities. From and after the pledge by CILCORP, CILCORP may secure other Indebtedness equally and ratably with the securities, subject to compliance with the limitations on the incurrence of Indebtedness described below under the caption "--Limitation on Indebtedness." From and after the Pledge Effective Date, CILCORP will be able to vote, as it sees fit in its sole discretion, the pledged shares of capital stock, unless an Event of Default has occurred and is continuing. If CILCORP meets the conditions to its defeasance option or its covenant defeasance option with respect to either series of the securities, as described below under the caption "--Defeasance and Covenant Defeasance," or the indenture is otherwise discharged, the Lien on the pledged shares will terminate with respect to either or both series of the securities, as the case may be. From and after the Pledge Effective Date, if an Event of Default occurs and is continuing under the indenture, the collateral agent, on behalf of the holders of the securities and the holders of other permitted CILCORP senior secured Indebtedness, in addition to any rights or remedies available to it under the pledge agreement, may take such action as it deems advisable to protect and enforce its right in the collateral, including the institution of foreclosure proceedings. Such foreclosure proceedings, the enforcement of the CILCORP pledge agreement and the right to take other actions with respect to the pledged shares of CILCO stock will be controlled by holders of a majority of the aggregate principal amount of the then outstanding obligations which are equally and ratably secured by the pledge of the CILCO stock. The proceeds received by the collateral agent from any foreclosure will be applied by the collateral agent, first, to pay the expenses of such foreclosure and fees and other amounts then payable to the collateral agent under the pledge agreement and, thereafter, to pay the securities and the other permitted CILCORP senior secured Indebtedness on a pro rata basis based on the aggregate amount outstanding of the securities and the other permitted CILCORP senior secured Indebtedness. 40 METHODS OF RECEIVING PAYMENTS ON THE SECURITIES All payments on the securities will be made at the office or agency of the paying agent and registrar within the City of New York unless CILCORP elects to make interest payments by check mailed to the holders at their address set forth in the register of holders. A holder owning at least $50 million of securities may elect to receive all principal, premium, if any, and interest payments on the securities by wire transfer in accordance with the written wire transfer instructions provided by that holder to CILCORP. PAYING AGENT AND REGISTRAR FOR THE SECURITIES The trustee will initially act as paying agent and registrar. CILCORP may change the paying agent or registrar without prior notice to the holders of the securities, and CILCORP or any of its subsidiaries may act as paying agent or registrar; provided that CILCORP will at all times maintain one or more paying agents that has an office in the borough of Manhattan, the City of New York. TRANSFER AND EXCHANGE A holder may transfer or exchange securities in accordance with the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and CILCORP may require a holder to pay any taxes and fees required by law or permitted by the indenture. CILCORP is not required to transfer or exchange any securities selected for redemption. Also, CILCORP is not required to transfer or exchange any securities for a period of 15 days before a selection of securities to be redeemed is made. The registered holder of a security will be treated as the owner of it for all purposes. See "--Book-Entry; Delivery and Form" below. COVENANTS Except as otherwise set forth under "--Defeasance and Covenant Defeasance" below, for so long as any securities remain outstanding or any amount remains unpaid on any of the securities, CILCORP will comply with the terms of the covenants set forth below. However, each of the "Limitation on Distributions" covenant and "Limitation on Indebtedness" covenant will cease to be in effect if the Rating Agencies confirm in writing that, without these covenants, CILCORP's senior long term debt would still be rated at least the Initial Ratings. If the limitations on Distributions and Indebtedness cease to be in effect, as anticipated, CILCORP will be under no obligation to reinstate such limitations or otherwise observe its terms in the event that such ratings are thereafter lowered or withdrawn. PAYMENT OF PRINCIPAL AND INTEREST CILCORP will duly and punctually pay the principal of and interest on the securities in accordance with the terms of the securities and the indenture. LIMITATIONS ON CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE Except in connection with the merger, CILCORP may not consolidate with or merge with or into any other Person, or convey, transfer or lease its consolidated properties and assets substantially as an entirety (in one transaction or in a series of related transactions) to any Person, or permit any Person to merge into or consolidate with CILCORP, unless: o either (1) CILCORP will be the surviving entity, or (2) the surviving entity, if other than CILCORP, will be an entity organized under the laws of the United States of America, one of its States or the District of Columbia and expressly assumes by supplemental indenture CILCORP's obligations under the securities and the indenture; and 41 o immediately after giving effect to that transaction, (1) no Event of Default shall have occurred and be continuing and (2) CILCORP obtains written confirmation from the Rating Agencies that the transaction will not result in a Ratings Downgrade below the Rating Agency's Initial Rating. LIMITATION ON DISTRIBUTIONS AND INTERCOMPANY LOANS CILCORP may only (1) declare, recommend, make or pay any Distribution to any of its stockholders and (2) make any intercompany loan to AES or any of its affiliates (other than CILCORP or any of its direct or indirect subsidiaries) if there exists no Event of Default and no such Event of Default will result from the making of such Distribution or intercompany loan and either: o at the time and as a result of such Distribution or intercompany loan, CILCORP's Leverage Ratio does not exceed 0.67:1, and CILCORP's Interest Coverage Ratio is not less than 2.0:1 during fiscal years 1999 and 2000 and not less than 2.2:1 thereafter; or o if it is not in compliance with the foregoing ratios, at such time its senior long term debt rating is at least BB+ (or its then equivalent) with S&P, Baa2 (or its then equivalent) with Moody's and BBB (or its then equivalent) with Duff & Phelps. Prior to making any Distribution or intercompany loan described above, an independent director of the CILCORP Board of Directors must have confirmed that such Distribution or intercompany loan complies with this "Limitation on Distributions and Intercompany Loans" covenant, provided that, in the case of a Distribution or intercompany loan to be made under the circumstances described in the first bullet point above, such independent director shall first have obtained (1) a compliance certificate from an officer of CILCORP that, at the time and after giving effect to such Distribution or intercompany loan, CILCORP is in compliance with the Leverage Ratio and the Interest Coverage Ratio set forth above and (2) a written confirmation by a nationally recognized accounting firm as to their agreement with the calculations specified in the compliance certificate. The foregoing independent director approval will not be required in the case of intercompany loans, however, if the aggregate amount of intercompany loans outstanding at any one time does not exceed $20 million. This "Limitation on Distributions and Intercompany Loans" covenant will cease to be in effect if the Rating Agencies confirm in writing that, without this covenant, CILCORP's senior long term debt would still be rated at least the Initial Ratings. If the limitation on Distributions and Intercompany Loans ceases to be in effect, CILCORP will be under no obligation to reinstate such limitation or otherwise observe its terms in the event that such ratings are thereafter lowered or withdrawn. In order to obtain the release of the limitation on Distributions and intercompany loans, CILCORP must deliver to the trustee written confirmation from each Rating Agency of the ratings conditions as described in the preceding paragraph. LIMITATION ON INDEBTEDNESS CILCORP may not incur any Indebtedness other than: o as part of CILCORP's permitted businesses and activities described under "-- Limitation on Business Activities" below; o Indebtedness outstanding on the date of original issue of the securities under CILCORP's agreements then in existence and extensions of such Indebtedness; and o other Indebtedness (including Permitted Debt) incurred subsequent to receipt of written confirmation from the Rating Agencies that such incurrence would not result in a Ratings Downgrade. 42 This "Limitation on Indebtedness" covenant will cease to be in effect if the Rating Agencies confirm in writing that, without this covenant, CILCORP's senior long term debt would still be rated at least the Initial Ratings. If the limitation on Indebtedness ceases to be in effect, CILCORP will be under no obligation to reinstate such limitation or otherwise observe its terms in the event that such ratings are thereafter lowered or withdrawn. In order to obtain the release of the limitation on Indebtedness, CILCORP must deliver to the trustee written confirmation from each Rating Agency of the ratings conditions as described in the preceding paragraph. The indenture does not in any way restrict or prevent CILCO or any other subsidiary from incurring unsecured indebtedness. LIMITATION ON LIENS Liens on the CILCO Stock. CILCORP may not secure any Indebtedness by CILCORP or any other Person by a Lien upon any capital stock of CILCO without effectively providing that the outstanding securities (together with, if CILCORP so determines, any other indebtedness or obligation then existing or thereafter created ranking equally with the securities) will be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness is so secured. The foregoing limitation on Liens will not, however, apply to: (1) any Lien securing amounts not more than 180 days overdue or otherwise being contested in good faith; (2) (a) any Lien incurred or deposits made in the ordinary course of business, including, but not limited to, (1) any mechanics', materialmen's, carriers', workmen's, vendors' and other like Liens and (2) any Liens securing amounts in connection with workers' compensation, unemployment insurance and other types of social security; (b) any Lien incurred or deposits made securing the performance of tenders, bids, leases, trade contracts (other than for borrowed money), statutory obligations, surety bonds, appeal bonds, government contracts, performance bonds, return-of-money bonds, letters of credit not securing borrowings and other obligations of like nature incurred in the ordinary course of business; and (c) any Lien securing reimbursement obligations under letters of credit, guaranties and other forms of credit enhancement given in connection with the purchase of goods and equipment in the ordinary course of business; (3) (a) Liens required by any contract, statute or regulation in order to permit CILCORP or a Significant Subsidiary to perform any contract or subcontract made by it with or at the request of a governmental entity or any governmental department, agency or instrumentality, or to secure partial, progress, advance or any other payments by CILCORP or a Significant Subsidiary to such governmental unit under the provisions of any contract, statute or regulation; and (b) any Lien securing taxes or assessments or other applicable governmental charges or levies; (4) any Lien which arises under any order of attachment, restraint or similar legal process arising in connection with court proceedings and any Lien which secures the reimbursement obligation for any bond obtained in connection with an appeal taken in any court proceeding, so long as the execution or other enforcement of such Lien arising under such legal process is effectively stayed and the claims secured by that Lien are being contested in good faith and, if appropriate, by appropriate legal proceedings, and any Lien in favor of a plaintiff or defendant in any action before a court or tribunal as security for costs and/or expenses; and 43 (5) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses, for amounts not exceeding the principal amount of the Indebtedness secured by the Lien so extended, renewed or replaced, provided that such extension, renewal or replacement Lien is limited to all or a part of the capital stock of CILCO that was covered by the Lien extended, renewed or replaced. Liens on Property or Assets other than the CILCO Stock. Neither CILCORP nor any Significant Subsidiary may issue, assume or guarantee any Indebtedness secured by a Lien upon any property or assets (other than any capital stock of CILCO or cash or cash equivalents) of CILCORP or such Significant Subsidiary, as applicable, without effectively providing that the outstanding securities (together with, if CILCORP so determines, any other indebtedness or obligation then existing or thereafter created ranking equally with the securities) will be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness is so secured. The foregoing limitation on Liens will not, however, apply to: (1) Liens in existence on the date of original issue of the securities; (2) any Lien created or arising over any property which is acquired, constructed or created by CILCORP or any of its Significant Subsidiaries, but only if: (a) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation to that property or a guarantee given in respect of that property; (b) such Lien is created or arises on or before 180 days after the completion of such acquisition, construction or creation; and (c) such Lien is confined solely to the property so acquired, constructed or created; (3) any Lien securing amounts not more than 180 days overdue or otherwise being contested in good faith; (4) (a) rights of financial institutions to offset credit balances in connection with the operation of cash management programs established for the benefit of CILCORP and/or a Significant Subsidiary or in connection with the issuance of letters of credit for the benefit of CILCORP and/or a Significant Subsidiary; (b) any Lien on accounts receivable securing Indebtedness of CILCORP and/or a Significant Subsidiary incurred in connection with the financing of such accounts receivable; (c) any Lien incurred or deposits made in the ordinary course of business, including, but not limited to, (1) any mechanics', materialmen's, carriers', workmen's, vendors' and other like Liens and (2) any Liens securing amounts in connection with workers' compensation, unemployment insurance and other types of social security; (d) any Lien upon specific items of inventory or other goods and proceeds of CILCORP and/or a Significant Subsidiary securing obligations of CILCORP and/or a Significant Subsidiary in respect of bankers' acceptances issued or created for the account of such person to facilitate the purchase, shipment or storage of such inventory or other goods; (e) any Lien incurred or deposits made securing the performance of tenders, bids, leases, trade contracts (other than for borrowed money), statutory obligations, surety bonds, appeal bonds, government contracts, performance bonds, return-of-money bonds, letters of credit not securing borrowings and other obligations of like nature incurred in the ordinary course of business; 44 (f) any Lien created by CILCORP or a Significant Subsidiary under or in connection with or arising out of a Currency, Interest Rate or Commodity Agreement or any transactions or arrangements entered into in connection with the hedging or management of risks relating to the electricity or natural gas distribution industry, including a right of set off or right over a margin call account or any form of cash or cash collateral or any similar arrangement for obligations incurred in respect of Currency, Interest Rate or Commodity Agreements; (g) any Lien arising out of title retention or like provisions in connection with the purchase of goods and equipment in the ordinary course of business; and (h) any Lien securing reimbursement obligations under letters of credit, guaranties and other forms of credit enhancement given in connection with the purchase of goods and equipment in the ordinary course of business; (5) Liens in favor of CILCORP or a subsidiary; (6) (a) Liens on any property or assets acquired from an entity which is merged with or into CILCORP or a Significant Subsidiary or any Liens on the property or assets of any entity existing at the time such entity becomes a subsidiary of CILCORP and, in either case, is not created in anticipation of the transaction, unless the Lien was created to secure or provide for the payment of any part of the purchase price of that entity; (b) any Lien on any property or assets existing at the time of its acquisition and which is not created in anticipation of such acquisition, unless the Lien was created to secure or provide for the payment of any part of the purchase price of such property or assets; and (c) any Lien created or outstanding on or over any asset of any entity which becomes a Significant Subsidiary on or after the date of the issuance of the securities, where the Lien is created prior to the date on which that entity becomes a Significant Subsidiary; (7) (a) Liens required by any contract, statute or regulation in order to permit CILCORP or a Significant Subsidiary to perform any contract or subcontract made by it with or at the request of a governmental entity or any governmental department, agency or instrumentality, or to secure partial, progress, advance or any other payments by CILCORP or a Significant Subsidiary to such governmental unit under the provisions of any contract, statute or regulation; (b) any Lien securing industrial revenue, development, pollution control or similar bonds issued by or for the benefit of CILCORP or a Significant Subsidiary, provided that such industrial revenue, development, pollution control or similar bonds do not provide recourse generally to CILCORP and/or such Significant Subsidiary; and (c) any Lien securing taxes or assessments or other applicable governmental charges or levies; (8) any Lien which arises under any order of attachment, restraint or similar legal process arising in connection with court proceedings and any Lien which secures the reimbursement obligation for any bond obtained in connection with an appeal taken in any court proceeding, so long as the execution or other enforcement of such Lien arising under such legal process is effectively stayed and the claims secured by that Lien are being contested in good faith and, if appropriate, by appropriate legal proceedings, and any Lien in favor of a plaintiff or defendant in any action before a court or tribunal as security for costs and/or expenses; 45 (9) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses, for amounts not exceeding the principal amount of the Indebtedness secured by the Lien so extended, renewed or replaced, provided that such extension, renewal or replacement Lien is limited to all or a part of the same property or assets that were covered by the Lien extended, renewed or replaced (plus improvements on such property or assets); (10) any Lien created in connection with Project Finance Debt; (11) any Lien created by CILCO that is then permitted to be created under the terms of its then existing mortgages and indentures on the terms in effect at the time of creation of the Lien; (12) any Lien created in connection with the securitization of some or all of the assets of CILCO and the associated issuance of Indebtedness as authorized by applicable state or federal law in connection with the restructuring of jurisdictional electric or gas businesses; and (13) any Lien on stock created in connection with a mandatorily convertible or exchangeable stock or debt financing, provided that any such financing may not be secured by or otherwise involve the creation of a Lien on any capital stock of CILCO or any successor entity to CILCO. Notwithstanding the foregoing restriction on liens on property or assets other than capital stock of CILCO, CILCORP and its Significant Subsidiaries may create Liens over any of such of their respective properties or assets so long as the aggregate amount of Indebtedness secured by all such Liens (excluding therefrom the amount of Indebtedness secured by Liens set forth in clauses (1) through (13), inclusive, above) does not exceed 10% of Consolidated Net Tangible Assets in the aggregate calculated as of the date of creation of such Liens (based upon the Consolidated Net Tangible Assets appearing on the most recently available balance sheet for the most recently concluded calendar quarter). LIMITATION ON BUSINESS ACTIVITIES CILCORP may, and must cause its Significant Subsidiaries to, engage only in: o those types of business and other activities in which CILCORP or any of its direct or indirect subsidiaries or controlled partnerships or joint ventures are engaged today (including, without limitation, any geographic or other expansion of such business or activities); and o any other business or activity which is deemed necessary, useful or desirable in connection with such existing businesses and activities or any such permitted additional geographic or other expansions of such businesses and activities; provided that CILCORP may enter into additional business operations from time to time in the future if, prior to doing so, it obtains written confirmation from the Rating Agencies that the entering into of such new businesses will not result in a Ratings Downgrade. MODIFICATION OF THE INDENTURE The indenture contains provisions permitting CILCORP and the trustee to modify the indenture or any supplemental indenture or the rights of the holders of securities of each series to be affected with the consent of the holders of a majority in aggregate principal amount of the then outstanding securities of each series to be affected, subject to the same conditions described below under "--Modification or Waiver of Certain Covenants." The indenture also contains provisions permitting CILCORP and the trustee to amend the indenture by entering into one or more supplemental indentures in certain circumstances without the consent of the holders of any securities to cure any ambiguity, to correct or supplement any provision 46 in the indenture which may be defective or inconsistent with any other provision in the indenture, to evidence the merger of CILCORP or the replacement of the trustee and to make any other changes that do not materially adversely affect the rights of any holders of securities. EVENTS OF DEFAULT An Event of Default with respect to the securities of either series is defined in the indenture as being: (1) default for 30 days in the payment of any interest on the securities of that series; (2) default in the payment of principal of or any premium on, the securities of that series at maturity, upon redemption, upon required purchase, upon acceleration or otherwise; (3) default in the performance, or breach, of any covenant or obligation of CILCORP in the indenture and continuance of the default or breach for a period of 30 days after written notice specifying the default is given to CILCORP by the trustee or to CILCORP and the trustee by the holders of at least 25% in aggregate principal amount of the securities of that series; (4) default in the payment of the principal of any bond, debenture, note or other evidence of indebtedness, in each case for money borrowed, issued by CILCORP, or in the payment of principal under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for Borrowed Money, of CILCORP or any Significant Subsidiary if such Indebtedness for Borrowed Money is not Project Finance Debt and provides for recourse generally to CILCORP or any Significant Subsidiary, which default for payment of principal is in an aggregate principal amount exceeding $25 million when such indebtedness becomes due and payable (whether at maturity, upon redemption or acceleration or otherwise), if such default shall continue unremedied or unwaived for more than 30 Business Days and the time for payment of such amount has not been expressly extended (until such time as such payment default is remedied, cured or waived); (5) a court having jurisdiction enters a decree or order for: o relief in respect of CILCORP or any of its Significant Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect; o appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official of CILCORP or any of its Significant Subsidiaries or for all or substantially all of the property and assets of CILCORP or any of its Significant Subsidiaries; or o the winding up or liquidation of the affairs of CILCORP or any of its Significant Subsidiaries; o and, in each case, such decree or order shall remain unstayed and in effect for a period of 180 consecutive days; (6) CILCORP or any of its Significant Subsidiaries: o commences a voluntary case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law; o consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official of CILCORP or any of its Significant Subsidiaries or for all or substantially all of the property and assets of CILCORP or any of its Significant Subsidiaries; or o effects any general assignment for the benefit of creditors; or 47 (7) after the Pledge Effective Date, the trustee fails to have a perfected security interest in the pledged capital stock of CILCO for a period of 10 days. If an Event of Default (other than an Event of Default specified in clauses (5) or (6) with respect to CILCORP) occurs with respect to a series of the securities and continues, then the trustee or the holders of at least 25% in principal amount of the securities of that series then outstanding may, by written notice to CILCORP, and the trustee at the request of at least 25% in principal amount of the securities of that series then outstanding will, declare the principal, premium, if any, and accrued interest on the outstanding securities to be immediately due and payable. Upon a declaration of acceleration, the principal, premium, if any, and accrued interest shall be immediately due and payable. If an Event of Default specified in clauses (5) or (6) above occurs with respect to CILCORP, the principal, premium, if any, and accrued interest on the securities shall be immediately due and payable, without any declaration or other act on the part of the trustee or any holder. The holders of at least a majority in principal amount of an outstanding series of securities may, by written notice to CILCORP and to the trustee, waive all past defaults with respect to that series of securities and rescind and annul a declaration of acceleration with respect to that series of securities and its consequences if: o all existing Events of Default applicable to the securities of that series other than the nonpayment of the principal, premium, if any, and interest on the securities of that series that have become due solely by that declaration of acceleration, have been cured or waived; and o the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. No holder of the securities of a series will have any right to institute any proceeding, judicial or otherwise, with respect to the indenture, or for the appointment of a receiver or trustee, or for any other remedy under the indenture, unless: o such holder has previously given written notice to the trustee of a continuing Event of Default with respect to the securities of that series; o the holders of not less than 25% in principal amount of the securities of that series shall have made written request to a responsible officer of the trustee to institute proceedings in respect of such Event of Default in its own name as trustee; o such holder or holders have offered the trustee indemnity satisfactory to the trustee against the costs, expenses and liabilities to be incurred in compliance with such request; o the trustee, for 60 days after its receipt of such notice, request and offer of indemnity, has failed to institute any such proceeding; and o no direction inconsistent with such written request has been given to the trustee during such 60-day period by the holders of a majority in principal amount of the outstanding securities of that series. However, these limitations do not apply to the right of any holder of a security to receive payment of the principal, premium, if any, or interest on, that security or to bring suit for the enforcement of any payment, on or after the due date expressed in the securities, which right shall not be impaired or affected without the consent of the holder. The indenture requires that certain of CILCORP's officers certify, on or before a date not more than 120 days after the end of each fiscal year, that to the best of those officers' knowledge, CILCORP has fulfilled all its obligations under the indenture. CILCORP is also obligated to notify 48 the trustee of any default or defaults in the performance of any covenants or agreements under the indenture provided, however, that a failure by CILCORP to deliver such notice of a default shall not constitute a default of the indenture, if CILCORP has remedied such default within any applicable cure period. OPTIONAL REDEMPTION General The securities of each series will be redeemable in whole or in part, at the option of CILCORP at any time, at a redemption price equal to the greater of: (1) 100% of the principal amount of the series of securities being redeemed; or (2) the sum of the present values of the remaining scheduled payments of principal of and interest on the series of securities being redeemed discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, in the case of the senior notes and the Treasury Yield plus 50.0 basis points, in the case of the senior bonds; plus, for (1) or (2) above, whichever is applicable, accrued interest on such securities to the date of redemption. Notice of redemption must be given not less than 30 days nor more than 60 days prior to the date of redemption. If fewer than all the securities are to be redeemed, selection of securities of a series for redemption will be made by the trustee in any manner the trustee deems fair and appropriate. Unless CILCORP defaults in payment of the redemption price from and after the redemption date, the securities or portions of them called for redemption will cease to bear interest, and the holders of the securities will have no right in respect to such securities except the right to receive the redemption price for them. Discussion of Optional Redemption Provisions Under the procedures set forth above, the redemption price payable upon the optional redemption at any time of a security is determined by calculating the present value at that time of each remaining payment of principal of or interest on the security and then totaling those present values. If the sum of those present values is equal to or less than 100% of the principal amount of the security, the redemption price of the security will be 100% of its principal amount (redemption at par). If the sum of the present values is greater than 100% of the principal amount of the security, the redemption price of the security will be that greater amount (redemption at a premium). In no event may a security be redeemed optionally at less than 100% of its principal amount. The present value at any time of a payment of principal of or interest on a security is calculated by applying to the payment the discount rate applicable to the security. The discount rate applicable at any time to payment of principal of or interest on a security equals the equivalent yield to maturity at that time of a fixed rate United States treasury security having a maturity comparable to the maturity of the security plus 37.5 basis points (in the case of the senior notes) and 50.0 basis points (in the case of the senior bonds), such yield being calculated on the basis of the interest rate borne by that United States treasury security and the price at that time of that treasury security. While the coupon borne by a United States treasury security is fixed, the price of that treasury security tends to vary with interest rate levels prevailing from time to time. In general, if at a particular time the prevailing level of interest rates is higher than the level of interest rates prevailing at the time the relevant United States treasury security was issued, the price of that treasury security will be lower than its issue price. Conversely, if at a particular time the prevailing level of interest rates is lower than the level of interest rates prevailing at the time the relevant United States treasury security was issued, the price of that treasury security will be higher than its issue price. 49 As a result, an increase or a decrease in the then prevailing level of interest rates above or below the level of interest rates prevailing at the time of issue of a United States treasury security will generally result in an increase or a decrease, respectively, in the yield to maturity of that security and, therefore, in the discount rate used to determine the present value of a payment of principal of or interest on a security. An increase or a decrease in the discount rate will result in a decrease or an increase, respectively, of the present value of a payment of principal of or interest on a security. In other words, the redemption price varies inversely with the prevailing levels of interest rates. As noted above, however, if the sum of the present values of the remaining payments of principal of and interest on a security proposed to be redeemed is less than its principal amount, that security may only be redeemed at par. The United States treasury security employed in the calculation of a discount rate as well as the price and equivalent yield to maturity of that treasury security will be selected or determined by an independent investment banking institution of international standing appointed by CILCORP. DEFEASANCE AND COVENANT DEFEASANCE CILCORP, at its option, may elect: o to be discharged from any and all obligations in respect of a series of securities ("Defeasance") (except in each case for the obligations to, among other things, register the transfer or exchange of such securities, replace stolen, lost or mutilated securities, maintain paying agencies, hold moneys for payment in trust and pay when due all principal and interest solely out of moneys held in trust); or o not to comply with certain covenants ("Covenant Defeasance") of the indenture with respect to a series of securities described above under "Limitations on Consolidation, Merger, Conveyance, Sale or Lease," "Limitation on Distributions," "Limitation on Indebtedness," "Limitation on Liens" and "Limitations on Business Activities;" if, in either case, CILCORP irrevocably deposits with the trustee, as trust funds in a trust specifically pledged as security for, and dedicated solely to, the benefit of the holder or holders of such securities of such series: o money; or o U.S. Government Obligations which through the payment of interest and principal in respect of those U.S. Government Obligations in accordance with their terms will provide money not later than one day before the due date of any payment; or o a combination of money and U.S. Government Obligations, in each case in an amount sufficient, in the opinion of a nationally recognized firm of independent accountants, to pay and discharge the principal of and premium (if any) and interest on the outstanding securities of such series on the dates such payments are due in accordance with the terms of the securities of such series (or if CILCORP has designated a redemption date pursuant to the second succeeding paragraph, to and including the redemption date so designated by CILCORP). Certain other conditions must be satisfied in order for the Defeasance or Covenant Defeasance to occur, including: o that the securities will not be delisted by any securities exchange on which they are then traded as a result of the deposit of trust funds in trust; o no Event of Default or event which with notice or lapse of time would become an Event of Default (including by reason of such deposit) with respect to the securities of such series shall have occurred and be continuing on the date of such deposit; and 50 o such Defeasance or Covenant Defeasance shall not result in the breach or violation of, or constitute a default under, any other material agreement or instrument by which CILCORP is bound. To exercise any such option, CILCORP is required to deliver to the trustee: o an opinion of independent counsel of recognized standing to the effect that the holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such deposit, which in the case of Defeasance must be based on a change in law or a ruling by the U.S. Internal Revenue Service; and o an officer's certificate as to compliance with all conditions provided for in the indenture relating to the satisfaction and discharge of the securities of such series. If CILCORP meets the conditions to effect its Defeasance option or its Covenant Defeasance option with respect to either series of the securities, or the indenture is otherwise discharged, the Lien on the pledged CILCO shares will terminate with respect to either or both series of the securities, as the case may be. If CILCORP wishes to deposit or cause to be deposited money or U.S. Government Obligations to pay or discharge the principal of and interest, if any, on the outstanding securities of a series to and including a redemption date on which all of the outstanding securities of such series are to be redeemed, such redemption date shall be irrevocably designated by a board resolution delivered to the trustee on or prior to the date of deposit of such money or U.S. Government Obligations, and such board resolution shall be accompanied by an irrevocable CILCORP request that the trustee give notice of such redemption in the name and at the expense of CILCORP not less than 30 nor more than 60 days prior to such redemption date in accordance with the indenture. If the trustee or the paying agent is unable to apply any moneys deposited in trust to effect a Defeasance or Covenant Defeasance by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then any obligations from which CILCORP had been discharged or released will be revived and reinstated as though no such deposit of moneys in trust had occurred, until such time as the trustee or paying agent is permitted so to apply all of such moneys deposited in trust. MODIFICATION OR WAIVER OF CERTAIN COVENANTS CILCORP may omit in any particular instance to comply with any term, provision or condition set forth in the indenture with respect to the securities of a series if before the time for compliance the holders of at least a majority in aggregate principal amount of the outstanding securities of that series shall, by act of such holders, either modify the covenant or waive compliance in that instance or generally waive compliance with that term, provision or condition; provided that no modification shall, without the consent of each holder of securities of that series: o change the stated maturity upon which the principal of or the interest on the securities of that series is due and payable; o reduce the principal amount or redemption price of the securities or the rate of interest on them; o change any place of payment or the currency in which the securities of that series or any premium or the interest on them is payable; o impair the right to institute suit for the enforcement of any such payment on or after the stated maturity of the securities (or, in the case of redemption, on or after the redemption date for those securities); o release any collateral from the Lien created by the pledge agreement except in accordance with the terms thereof, or amend such terms, or terminate the Lien created by the pledge agreement or deprive the holders of the security afforded by the Lien created by the pledge agreement; or 51 o reduce the percentage in principal amount of the outstanding securities of such series, the consent of holders of which is required for any waiver of compliance with certain provisions of the indenture or certain defaults under the indenture and their consequences provided for in the indenture. The securities owned by CILCORP or any of its affiliates shall be deemed not to be outstanding for, among other purposes, consenting to any such modification. CONCERNING THE TRUSTEE The Bank of New York will be the trustee under the indenture and has been appointed by us as paying agent and registrar with respect to the securities. GOVERNING LAW The indenture and the securities will be governed by New York law. REGISTRATION RIGHTS; LIQUIDATED DAMAGES Midwest Energy and the initial purchasers entered into a registration rights agreement on October 18, 1999. CILCORP assumed all of Midwest Energy's obligations under that agreement once the merger was completed. Under the registration rights agreement, CILCORP has agreed to file with the Securities and Exchange Commission the exchange offer registration statement on the appropriate form under the Securities Act permitting registration of the new securities to be issued in the exchange offer for the Transfer Restricted Securities (as defined below) and to permit resales of exchange securities held by broker-dealers as contemplated by the registration rights agreement. Upon the effectiveness of the exchange offer registration statement, CILCORP will offer to the holders of Transfer Restricted Securities who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for exchange securities pursuant to the exchange offer. The registration rights agreement provides, unless the exchange offer would not be permitted by applicable law or Securities and Exchange Commission policy, that: o CILCORP will use its best efforts to file (which filing may be a confidential filing) the exchange offer registration statement with the Securities and Exchange Commission on or prior to January 16, 2000; o CILCORP will use its reasonable best efforts to have the exchange offer registration statement declared effective by the Securities and Exchange Commission on or prior to April 15, 2000; o CILCORP will: o file all pre-effective amendments to the exchange offer registration statement as may be necessary in order to cause the exchange offer registration statement to become effective; o file, if applicable, a post-effective amendment to the exchange offer registration statement pursuant to Rule 430A under the Securities Act; and o cause all necessary filings in connection with the registration and qualifications of the exchange securities to be made under the blue sky laws of such jurisdictions as are necessary to permit completion of the exchange offer; and o CILCORP will commence the exchange offer and use its reasonable best efforts to issue on or prior to 30 days after the date on which the exchange offer registration statement was declared effective by the Securities and Exchange Commission, exchange securities in exchange for all securities tendered prior to that in the exchange offer. For purposes of this section, "Transfer Restricted Securities" means each senior note and senior bond until: o the date on which such security has been exchanged by a person other than a broker-dealer for a new security in the exchange offer; 52 o following the exchange by a broker-dealer in the exchange offer of a security for a new security, the date on which such new security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the exchange offer registration statement; o the date on which such security has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement referred to below; or o the date on which such security is distributed to the public pursuant to Rule 144 under the Securities Act. Under existing Securities and Exchange Commission interpretations, exchange securities would, in general, be freely transferable after the exchange offer without further registration under the Securities Act, except that broker-dealers ("Participating Broker Dealers") receiving exchange securities in the exchange offer will be subject to a prospectus delivery requirement with respect to resale of those exchange securities. The Securities and Exchange Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the exchange securities (other than a resale of any unsold allotment from the original sale of the securities) by delivery of the prospectus contained in the exchange offer registration statement. Under the registration rights agreement, CILCORP is required to allow Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements, to use the prospectus contained in the exchange offer registration statement in connection with the resale of such exchange securities. The exchange offer registration statement will be kept effective for a period of up to 180 days after the exchange offer has been completed in order to permit resales of exchange securities acquired by broker-dealers in after-market transactions. Each holder of the securities (other than certain specified holders) who wishes to exchange such securities for exchange securities in the exchange offer will be required to represent that: o any exchange securities to be received by it will be acquired in the ordinary course of its business; o it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the exchange securities; o it is not a broker-dealer that acquired securities directly from CILCORP; o it is not an "affiliate," as defined in Rule 405 of the Securities Act, of CILCORP, or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable; and o it is not acting on behalf of any person who could not truthfully make the foregoing representations. If the holder of the securities is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the exchange securities. If the holder is a broker-dealer that will receive exchange securities for its own account in exchange for securities that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such exchange securities. In connection with the exchange offer, CILCORP will mail to each holder of securities a copy of the prospectus forming part of the exchange offer registration statement, together with an appropriate letter of transmittal and related documents. CILCORP will utilize the services of a depositary for the exchange offer with an address in the borough of Manhattan, the City of New York. CILCORP has agreed to pay all expenses incident to the exchange offer and will indemnify each initial purchaser against certain liabilities, including liabilities under the Securities Act. 53 If: (1) CILCORP is not permitted to file the exchange offer registration statement or to complete the exchange offer because the exchange offer is not permitted by applicable law or Securities and Exchange Commission policy; (2) any holder of Transfer Restricted Securities that is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) notifies CILCORP on or before the 20th business day following the consummation of the exchange offer that: o it is prohibited by law or Securities and Exchange Commission policy from participating in the exchange offer; o it may not resell the exchange securities acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales; or o it is a broker-dealer and owns securities acquired directly from CILCORP or an affiliate of CILCORP; (3) the exchange offer registration statement is not for any other reason declared effective within 180 days of the closing of the merger; (4) any holder (other than a Participating Broker-Dealer) is not eligible to participate in the exchange offer, or in the case of any holder that participates in the exchange offer, such holder does not receive exchange securities on the date of the exchange that may be sold without restriction under U.S. Federal securities laws (other than due solely to the status of such holder as an affiliate of CILCORP within the meaning of the Securities Act of 1933 or due to the requirement that such holder deliver a prospectus in connection with any resale of the exchange securities); or (5) the exchange offer has been completed and in the opinion of counsel for the initial purchasers a registration statement must be filed and a prospectus must be delivered by the initial purchasers in connection with any offering or sale of Transfer Restricted Securities, then CILCORP will file with the Securities and Exchange Commission a shelf registration statement to cover resales of the securities by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement. CILCORP will: o use its best efforts to file the shelf registration statement (which filing may be a confidential filing) within 60 days of the earliest to occur of clauses (1) through (5) in the preceding paragraph; and o use its reasonable best efforts to cause the shelf registration statement to be declared effective by the Securities and Exchange Commission on or prior to the 180th day after such obligation arises. CILCORP shall use its reasonable best efforts to keep such shelf registration statement continuously effective, supplemented and amended to ensure that it is available for resales of securities by the holders of Transfer Restricted Securities entitled to this benefit and to ensure that such shelf registration statement conforms and continues to conform with the requirements of the registration rights agreement, the Securities Act and the policies, rules and regulations of the Securities and Exchange Commission, as announced from time to time, until October 18, 2001; provided, however, that during such two-year period the holders may be prevented or restricted by CILCORP from effecting sales pursuant to the shelf registration statement as more fully described in the registration rights agreement. 54 A holder of securities that sells its securities pursuant to the shelf registration statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement that are applicable to such holder (including certain indemnification and contribution obligations). If: (1) CILCORP fails to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing; (2) any of such registration statements required by the registration rights agreement is not declared effective by the Securities and Exchange Commission on or prior to the date specified for such effectiveness (the "effectiveness target date"); (3) CILCORP fails to consummate the exchange offer within 30 business days of the effectiveness target date with respect to the exchange offer registration statement; or (4) the shelf registration statement or the exchange offer registration statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the registration rights agreement without being succeeded within five business days by a post-effective amendment to such registration statement that cures such failure and that is itself immediately declared effective, then CILCORP will pay liquidated damages to each holder of securities in an amount equal to 0.50% per annum on the principal amount of securities commencing on the date of the occurrence of any of the events specified in the preceding clauses (1) through (4), provided, however, that the aggregate amount of liquidated damages payable pursuant to these provisions shall in no event exceed 0.50% per annum of the principal amount of the securities. Upon the filing of the registration statement, the effectiveness of the registration statement, the consummation of the exchange offer or the filing of a post-effective amendment that is immediately declared effective, as the case may be, the liquidated damages payable on the securities will cease to accrue. All accrued liquidated damages will be paid by CILCORP on each interest payment date to the holders in the same manner as interest is paid pursuant to the indenture. Holders of securities will be required to make certain representations to CILCORP (as described in the registration rights agreement) in order to participate in the exchange offer and will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the registration rights agreement in order to have their securities included in the shelf registration statement and benefit from the provisions regarding liquidated damages set forth above. BOOK-ENTRY; DELIVERY AND FORM The securities to be issued in the exchange offer will be issued in the form of one or more fully registered securities in global form ("global securities") representing the total amount of securities issued by us in the exchange offer. The global securities will be deposited with the trustee as custodian for The Depository Trust Company, or DTC, and registered in the name of Cede & Co. or another nominee as DTC may designate. The global securities will be exchangeable for definitive certificates in registered form with the same terms as the global securities only if: o DTC is unwilling or unable to continue to act as a depositary or DTC ceases to be a clearing agency registered under applicable law and, in each case, CILCORP does not appoint a successor depositary within 90 days; o there is an event of default under the indenture with respect to the securities; or 55 o we decide, in our sole discretion, to exchange the global securities in whole but not in part, for definitive certificates. If definitive certificates are issued in exchange for all or part of the global securities, then such definitive certificates may be exchanged for an interest in the global securities representing the principal amount of securities being transferred, unless the global securities have already been exchanged for definitive securities. In all cases, definitive securities delivered in exchange for any global securities, or beneficial interests in the global securities, will be registered in names, and issued in any approved denominations, requested by or on behalf of DTC, in accordance with its customary procedures, and may bear restrictive legends regarding their transfer. DTC is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "participants" or "DTC's participants") and to facilitate the clearance and settlement of transactions in those securities between participants through electronic book-entry changes in accounts of its participants. DTC's participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (collectively, the "indirect participants" or "DTC's indirect participants"). Persons who are not participants may beneficially own securities held by or on behalf of DTC only through DTC's participants or DTC's indirect participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the participants and indirect participants. We expect that pursuant to procedures established by DTC: o upon deposit of the global securities, DTC will credit, on its internal system, the respective principal amounts of the new securities to be issued in the exchange offer represented by the global securities to the accounts of participants; and o ownership of these interests in the global securities will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the participants) or by the participants and indirect participants (with respect to other owners of beneficial interest in the global securities). The laws of some jurisdictions require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a global security to such persons will be limited to that extent. So long as the holder of a global security is the registered owner of any securities, the holder of a global security will be considered the sole holder under the indenture of any securities evidenced by the global securities. Beneficial owners of securities evidenced by the global securities will not be considered the owners or holders under the indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the trustee thereunder. Neither we nor the trustee will have any responsibility or liability for any aspect of the records of DTC or for maintaining, supervising or reviewing any records of DTC relating to the securities. In addition, we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the securities for all purposes. Payments in respect of the principal of, and interest and premium, if any, on a global security registered in the name of the holder of a global security on the applicable record date will be payable by the trustee to or at the direction of the holder of a global security in its capacity as the registered holder under the indenture. Under the terms of the indenture, we and the trustee will treat the persons in whose names the securities, including the global securities, are registered as the owners of the securities for the purpose of receiving payments and for all other purposes. Consequently, neither we, the trustee nor any agent of ours or the trustee has or will have any responsibility or liability for: o any aspect of DTC's records or any participant's or indirect participant's records relating to or payments made on account of beneficial ownership interest in the global securities or for maintaining, supervising or reviewing any of DTC's records or any participant's or indirect participant's records relating to the beneficial ownership interests in the global securities; or 56 o any other matter relating to the actions and practices of DTC or any of its participants or indirect participants. DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the senior notes and the senior bonds (including principal and interest), is to credit the accounts of the relevant participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the participants and the indirect participants to the beneficial owners of the securities will be governed by standing instructions and customary practices and will be the responsibility of the participants or the indirect participants and will not be the responsibility of DTC, the trustee or CILCORP. CILCORP and the trustee will not be liable for any delay by DTC or any of its participants in identifying the beneficial owners of the securities, and CILCORP and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. DTC's management is aware that some computer applications, systems, and the like for processing data that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter Year 2000 problems. DTC has informed its participants and other members of the financial community (the "Industry") that it has developed and is implementing a program so that its systems, as the same relate to the timely payment of distributions (including principal and income payments) to security holders, book-entry deliveries, and settlement of trades within DTC, continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. However, DTC's ability to perform properly its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third party vendors from whom DTC licenses software and hardware, and third party vendors on whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the Industry that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: o impress upon them the importance of such services being Year 2000 compliant; and o determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans as it deems appropriate. According to DTC, the foregoing information with respect to Year 2000 problems has been provided to the Industry for informational purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind. We obtained the information in this section regarding DTC and its book-entry system from sources that we believe to be accurate, but we assume no responsibility for the accuracy of this information. In addition, we have no responsibility for the performance by DTC or its participants of their obligations as described here or under the rules and procedures governing these obligations. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the indenture. We refer you to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used in this section of the prospectus for which no definition is provided. "Capitalized Lease Obligations" means all lease obligations of CILCORP and its subsidiaries which, under GAAP, are or will be required to be capitalized, in each case taken at the amount of the lease obligation accounted for as indebtedness in conformity with those principles. 57 "Comparable Treasury Issue" means, with respect to any securities to be redeemed, the United States Treasury security selected by an independent investment banking institution of international standing appointed by CILCORP as having a maturity comparable to the remaining term of such securities that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such securities. "Comparable Treasury Price" means, with respect to any Comparable Treasury Issue: o the average of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, on the third Business Day preceding the redemption date of the securities to be redeemed, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities"; or o if such release (or any successor release) is not published or does not contain such prices on such Business Day, the average, as determined by CILCORP, of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount and quoted in writing to CILCORP by a primary U.S. government securities dealer in New York City appointed by CILCORP at 5:00 p.m. on the third Business Day preceding such redemption date. "Consolidated Current Liabilities" means the consolidated current liabilities of CILCORP and its subsidiaries, but excluding the current portion of long term Indebtedness which would otherwise be included in it, as determined on a consolidated basis in accordance with GAAP. "Consolidated Debt" means, at any time, the sum of the aggregate outstanding principal amount of all Indebtedness for Borrowed Money (including, without limitation, the principal component of Capitalized Lease Obligations, but excluding Permitted Debt, Currency, Interest Rate or Commodity Agreements and all Consolidated Current Liabilities and Project Finance Debt) of CILCORP and its subsidiaries, as determined on a consolidated basis in conformity with GAAP. "Consolidated EBITDA" means, for any period, the sum of the amounts for that period of CILCORP's: (1) Consolidated Net Income; (2) distributions paid, accrued or scheduled to be paid in respect of any Preferred Securities or other capital stock to the extent deducted in calculating Consolidated Net Income; (3) Consolidated Interest Expense plus: o interest paid, accrued or scheduled to be paid or to be accrued in respect of any Permitted Debt, and o interest expense related to company owned life insurance; (4) income taxes and deferred taxes (other than income taxes--either positive or negative-- attributable to extraordinary and non-recurring gains or losses or sales of assets); (5) depreciation expense; (6) amortization expense; and (7) all other non-cash items reducing Consolidated Net Income, less all non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis in conformity with GAAP, provided that, to the extent that CILCORP has any subsidiary that is not a wholly-owned subsidiary, Consolidated EBITDA will be reduced by an amount equal to the Consolidated Net Income of such subsidiary multiplied by the quotient of: 58 o the number of shares of outstanding common stock of such subsidiary not owned on the relevant Measurement Date by CILCORP or any subsidiary of CILCORP, divided by o the total number of shares of outstanding common stock of such subsidiary on the relevant Measurement Date. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness for Borrowed Money (excluding interest expense related to Permitted Debt and company owned life insurance and including amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; and all commissions, discounts and other fees and charges owed with respect to bankers' acceptance financing) and the net costs associated with Interest Rate Agreements and all but the principal component of rentals in respect of Capitalized Lease Obligations, paid, accrued or scheduled to be paid or to be accrued by CILCORP and each of its subsidiaries during such period, excluding, however, any amount of such interest of any subsidiary of CILCORP if the net income (or loss) of such subsidiary is excluded from the calculation of Consolidated Net Income for such subsidiary pursuant to clause (2) of the definition of Consolidated Net Income (but only in the same proportion as the net income (or loss) of such subsidiary is excluded), less consolidated interest income, all as determined on a consolidated basis in conformity with GAAP; provided that, to the extent that CILCORP has any subsidiary that is not a wholly-owned subsidiary, Consolidated Interest Expense shall be reduced by an amount equal to such interest expense of such subsidiary multiplied by the quotient of: o the number of shares of outstanding common stock of such subsidiary not owned on the relevant Measurement Date by CILCORP or any subsidiary of CILCORP, divided by o the total number of shares of outstanding common stock of such subsidiary on the relevant Measurement Date. "Consolidated Net Income" means, for any period, the aggregate of the net income (or loss) of CILCORP and its subsidiaries for such period, as determined on a consolidated basis in conformity with GAAP; provided that the following items will be excluded from any calculation of Consolidated Net Income (without duplication): (1) the net income (or loss) of any person (other than a subsidiary) in which any other person has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to CILCORP or another subsidiary of CILCORP during such period; (2) the net income (or loss) of any subsidiary to the extent that the declaration or payment of dividends or similar distributions by such subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation or license; (3) all extraordinary gains and extraordinary losses, merger-related expenses and one-time expenses, cash or noncash, relating to restructuring efforts; and (4) all gains and losses from discontinued operations. "Consolidated Net Tangible Assets" means at any time, the total of all assets (including revaluations of those assets as a result of commercial appraisals, price level restatement or otherwise) appearing on the most recently available consolidated balance sheet of CILCORP and its subsidiaries (provided that such balance sheet is of a date not more than 60 days prior to the date of creation of the relevant Lien) prepared in accordance with GAAP, net of applicable reserves and deductions, but excluding goodwill, trade names, trademarks, patents, unamortized debt discount and all other like intangible assets (which term shall not be construed to include such revaluations), less the aggregate of the Consolidated Current Liabilities of CILCORP appearing on such balance sheet. 59 "Currency, Interest Rate or Commodity Agreements" means an agreement or transaction involving any currency, interest rate or energy price or volumetric swap, cap or collar arrangement, forward exchange transaction, option, warrant, forward rate agreement, futures contract or other derivative instrument of any kind for the hedging or management of foreign exchange, interest rate or energy price or volumetric risks, it being understood, for purposes of this definition, that the term "energy" will include, without limitation, coal, gas, oil and electricity. "Distribution" means any dividend, distribution or payment (including by way of redemption, repurchase, retirement, return or repayment) in respect of shares of capital stock of CILCORP, excluding any contract adjustment payments under contracts to purchase common stock of CILCORP, AES or any of its affiliates (which common stock was not held as an asset of CILCORP) entered into in connection with the issuance of any Permitted Debt. "Duff & Phelps" means Duff & Phelps Credit Rating Co., and any of its subsidiaries or successors. "Excluded Subsidiary" means any subsidiary of CILCORP: (1) in respect of which neither CILCORP nor any subsidiary of CILCORP (other than another Excluded Subsidiary) has undertaken any legal obligation to give any guarantee for the benefit of the holders of any Indebtedness for Borrowed Money (other than to another member of the Group) other than in respect of any statutory obligation and the subsidiaries of which are all Excluded Subsidiaries; and (2) which has been designated as such by CILCORP by written notice to the Trustee; provided that CILCORP may give written notice to the Trustee at any time that any Excluded Subsidiary is no longer an Excluded Subsidiary whereupon it shall cease to be an Excluded Subsidiary. "Existing Rating" means, for any Rating Agency on any date of determination, the Rating assigned to the securities by such Rating Agency as of such date. "GAAP" means generally accepted accounting principles in the United States as in effect from time to time. "Group" means CILCORP and its subsidiaries and "member of the Group" shall be construed accordingly. "incur" means, with respect to any Indebtedness, to incur, create, issue, assume or guarantee such Indebtedness. "Indebtedness" means, with respect to CILCORP or any of its subsidiaries at any date of determination (without duplication): (1) all Indebtedness for Borrowed Money (excluding any credit which is available but undrawn); (2) all obligations in respect of letters of credit (including reimbursement obligations with respect to letters of credit); (3) all obligations to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title to the property or the completion of such services, except trade payables; (4) all Capitalized Lease Obligations; (5) all indebtedness of other persons secured by a mortgage, charge, lien, pledge or other security interest on any asset of CILCORP or any of its subsidiaries, whether or not such indebtedness is assumed; provided that the amount of such Indebtedness must be the lesser of: (a) the fair market value of such asset at such date of determination and (b) the amount of the secured indebtedness; 60 (6) all indebtedness of other persons of the types specified in the preceding clauses (1) through (5), to the extent such indebtedness is guaranteed by CILCORP or any of its subsidiaries; and (7) to the extent not otherwise included in this defiition, net obligations under Currency, Interest Rate or Commodity Agreements. The amount of Indebtedness at any date will be the outstanding balance at such date of all unconditional obligations as described above and, upon the occurrence of the contingency giving rise to the obligation, the maximum liability of any contingent obligations of the types specified in the preceding clauses (1) through (7) at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Indebtedness For Borrowed Money" means any indebtedness (whether being principal, premium, interest or other amounts) for: o money borrowed; o payment obligations under or in respect of any trade acceptance or trade acceptance credit; or o any notes, bonds, loan stock or other debt securities offered, issued or distributed whether by way of public offer, private placement, acquisition consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash (including, without limitation, Permitted Debt); provided, however, in each case, that such term will exclude: o any indebtedness relating to any accounts receivable securitizations; o any Indebtedness of the type permitted to be secured by Liens pursuant to clause (13) under the caption "--Limitation on Liens" contained in this prospectus above; o any Preferred Securities which are issued and outstanding on the date of original issue of the securities or any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any such existing Preferred Securities, for amounts not exceeding the principal amount or liquidation preference of the Preferred Securities so extended, renewed or replaced; and o any Preferred Securities issued in replacement or in connection with a refinancing of any preferred securities or preferred stock which is issued and outstanding on the date of original issue of the securities, for amounts not exceeding the liquidation preference of the preferred securities or preferred stock so replaced or refinanced. "Initial Ratings" means, collectively, the initial rating received (or its then equivalent) from S&P, the initial rating received (or its then equivalent) from Moody's and the initial rating received (or its then equivalent) from Duff & Phelps. "Interest Coverage Ratio" means, with respect to CILCORP on any Measurement Date, the ratio of: (1) the aggregate amount of Consolidated EBITDA of CILCORP for the four fiscal quarters for which financial information in respect of Consolidated EBITDA is available immediately prior to such Measurement Date to (2) the aggregate Consolidated Interest Expense during such four fiscal quarters. "Investments" in any Person means any loan or advance to, any net payment on a guarantee of, any acquisition of capital stock, equity interest, obligation or other security of, or capital contribution or other investment in, such Person. Investments exclude advances to customers and suppliers in the ordinary course of business. 61 "Leverage Ratio" means the ratio of Consolidated Debt to Total Capital, calculated on the basis of the most recently available consolidated balance sheet of CILCORP and its consolidated subsidiaries (provided that such balance sheet is as of a date not more than 60 days prior to a Measurement Date) prepared in accordance with GAAP. "Lien" means any mortgage, lien, pledge, security interest or other encumbrance; provided, however, that the term "Lien" does not mean any easements, rights-of-way, restrictions and other similar encumbrances and encumbrances consisting of zoning restrictions, leases, subleases, restrictions on the use of property or defects in title. "Measurement Date" means the record date for any Distribution. "Moody's" means Moody's Investors Service, Inc., and any of its subsidiaries or successors. "Permitted Debt" means Indebtedness for Borrowed Money issued in connection with a contract or contracts to purchase from CILCORP common stock of CILCORP, AES or any affiliate of AES (which common stock was not held as an asset of CILCORP) for an aggregate amount equal to the aggregate principal amount of such Indebtedness for Borrowed Money. "Pledge Effective Date" means the earlier to occur of (a) January 31, 2002 and (b) the date on which the existing $30.5 million Series A medium-term notes are no longer outstanding. "Preferred Securities" means, without duplication, any trust preferred or preferred securities or related debt or guaranties of CILCORP or any of its subsidiaries. "Project Finance Debt" means: o any Indebtedness to finance or refinance the ownership, acquisition, development, design, engineering, procurement, construction, servicing, management and/or operation of any project or asset which is incurred by an Excluded Subsidiary; and o any Indebtedness to finance or refinance the ownership, acquisition, development, design, engineering, procurement, construction, servicing, management and/or operation of any project or asset in respect of which the person or persons to whom any such Indebtedness is or may be owed by the relevant borrower (whether or not a member of the Group) has or have no recourse whatsoever to any member of the Group (other than an Excluded Subsidiary) for the repayment of that Indebtedness other than: o recourse to such member of the Group for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic net cash flow) from, or ownership interests or other investments in, such project or asset; and/or o recourse to such member of the Group for the purpose only of enabling amounts to be claimed in respect of such Indebtedness in an enforcement of any encumbrance given by such member of the Group over such project or asset or the income, cash flow or other proceeds deriving from the project (or given by any shareholder or the like, or other investor in, the borrower or in the owner of such project or asset over its shares or the like in the capital of, or other investment in, the borrower or in the owner of such project or asset) to secure such Indebtedness, provided that the extent of such recourse to such member of the Group is limited solely to the amount of any recoveries made on any such enforcement; and/or o recourse to such borrower generally, or directly or indirectly to a member of the Group, under any form of assurance, indemnity, 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 breach of an obligation (not being a payment obligation or an obligation to procure payment by another or an indemnity in respect of a payment obligation, or any 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. 62 "Rating" means, for each Rating Agency, the credit rating assigned to the securities by such Rating Agency. "Rating Agency" means S&P, Moody's and Duff & Phelps, and any of their respective subsidiaries or successors, or, in any case, if such person ceases to rate any series of securities for reasons outside the control of CILCORP, any other "nationally recognized statistical rating organization" (within the meaning of Rule 15c3-l(c)(2)(vi)(F) under the Securities Exchange Act of 1934, as amended) selected by CILCORP as a replacement Rating Agency. "Ratings Downgrade" means a lowering by any Rating Agency of the Existing Rating assigned to the securities by such Rating Agency. "S&P" means Standard & Poor's Ratings Group, and any of its subsidiaries or successors. "Significant Subsidiary" means, at any particular time, any subsidiary of CILCORP whose gross assets or gross revenues (having regard to CILCORP's direct and/or indirect beneficial interest in the shares, or the like, of that subsidiary) represent at least 25% of the consolidated gross assets or, as the case may be, consolidated gross revenues of CILCORP. "Subsidiary" means, with respect to any person, any corporation, association, partnership, limited liability company or other business entity of which 50% or more of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees is at the time owned, directly or indirectly, by (1) such person, (2) such person and one or more subsidiaries of such person or (3) one or more subsidiaries of such person. "Total Capital" of any Person is defined to mean, as of any date, the sum (without duplication) of: (1) Indebtedness for Borrowed Money; (2) preferred stock and Preferred Securities of such Person and its consolidated subsidiaries; and (3) consolidated stockholder's equity of such Person and its consolidated subsidiaries (excluding any preferred stock in stockholder's equity). "Treasury Yield" means, with respect to any securities to be redeemed, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue for such securities, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to its Comparable Treasury Price. "U.S. Government Obligation" means any: (1) security which is: (a) a direct obligation of the United States for the payment of which the full faith and credit of the United States is pledged or (b) an obligation of a person controlled or supervised by and acting as an agency or instrumentality of the United States the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in the case of clause (a) or (b), is not callable or redeemable at the option of the issuer of the obligation, and (2) depositary receipt issued by a bank (as defined in the Securities Act) as custodian with respect to any security specified in clause (1) above and held by such bank for the account of the holder of such depositary receipt or with respect to any specific payment of principal of or interest on any such security held by any such bank, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depositary receipt. 63 UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of the material United States federal income tax consequences of o the ownership and disposition by a non-U.S. holder, as defined below, of the new securities to be issued in the exchange offer, and o the exchange of old securities for the new securities by a U.S. holder or a non-U.S. holder, but only to the extent discussed below under the caption "Exchange Offer." This discussion is addressed only to holders who acquired old securities in the initial offering, and does not address all of the tax consequences that may be relevant to holders subject to special tax treatment, such as, for example, insurance companies, broker-dealers, or tax-exempt organizations, or to holders who will hold the new securities as a position in a "straddle," as part of a "synthetic security" or "hedge," or as part of a "conversion transaction," or as other than a capital asset (generally, an asset held for investment). In addition, this discussion does not address any aspects of state, local, foreign or other tax laws. This discussion is based on the United States federal income tax law in effect as of the date hereof, which is subject to change, possibly on a retroactive basis. We have not sought, and will not seek, any ruling from the IRS with respect to the tax consequences discussed in this prospectus, and we cannot assure you that the IRS will not take a position contrary to the tax consequences discussed below or that a court would not sustain any such position taken by the IRS. You should consult your tax advisor as to the particular tax consequences of the exchange of old securities for the new securities and of the ownership and disposition of the new securities, including the application and effect of United States federal, state, local, foreign and other tax laws. For purposes of this discussion, the term "non-U.S. holder" means any person that is not a U.S. holder. A U.S. holder means: o an individual who is a citizen or resident of the United States; o a corporation or partnership created or organized in or under the laws of the United States or any state of the United States or the District of Columbia; o an estate the income of which is subject to United States federal income taxation, regardless of its source; or o a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (b) the trust has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. EXCHANGE OFFER The exchange of old securities for the new securities issued in the exchange offer will not be treated as an "exchange" for United States federal income tax purposes because the new securities issued in the exchange offer will not differ materially in kind or extent from the old securities. Rather, the new securities received by you in the exchange offer will be treated as a continuation of the old securities owned by you. As a result, you will not recognize gain or loss as a result of the exchange. In addition, you will have the same adjusted tax basis and holding period in the new securities issued in the exchange offer as you had in the old securities immediately prior to the exchange. NON-U.S. HOLDERS A non-U.S. holder will generally not be subject to United States federal income or withholding tax on payments of principal or interest on the new securities provided that the non-U.S. holder satisfies the requirements of the "portfolio interest" exemption. These requirements will generally be satisfied if the non-U.S. holder: o does not actually or constructively own 10% or more of the total combined voting power of all classes of the capital stock of AES or CILCORP; 64 o is not a controlled foreign corporation that is related to AES or CILCORP through stock ownership, a foreign tax-exempt organization, or a foreign private foundation for U.S. federal income tax purposes; and o either (A) the beneficial owner of the securities certifies to CILCORP or its paying agent, if any, under the penalty of perjury that it is a non-U.S. holder and provides its name and address or (B) a securities clearing organization, bank, or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the securities in that capacity, certifies to CILCORP or its paying agent, if any, under the penalty of perjury, that such statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes CILCORP or its paying agent, if any, with a copy of that statement. If a non-U.S. holder cannot satisfy the requirements of the "portfolio interest" exemption, payments of interest made to the non-U.S. holder will generally be subject to a 30% withholding tax. A non-U.S. holder may reduce or eliminate this 30% withholding tax if the holder provides CILCORP or its paying agent, as the case may be, with a properly executed: o IRS Form 1001 (or successor form) properly claiming an exemption from, or a reduction of, such withholding tax under an applicable tax treaty; or o IRS Form 4224 (or successor form) stating that payment with respect to the securities is not subject to withholding tax because it is effectively connected with the beneficial owner's conduct of a trade or business in the United States. Under regulations generally applicable to payments made after December 31, 2000, non-U.S. holders will generally be required to provide an IRS Form W-8BEN in lieu of IRS Form 1001 or IRS Form 4224, although alternative documentation may be applicable in certain situations. Generally, a non-U.S. holder will not be subject to United States federal income or withholding tax on any amount which constitutes gain upon sale, exchange, retirement or other disposition of a new security, provided: o the gain is not effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder; and o in the case of a non-U.S. holder who is a nonresident alien individual, either (a) that non-U.S. holder was not present in the United States for 183 days or more in the taxable year of the disposition or (b) certain other conditions necessary for the imposition of tax were not present. Any interest or gain from the new securities that is effectively connected with the conduct of a United States trade or business by a non-U.S. holder will be subject to United States federal income tax on a net income basis in the same manner as if that non-U.S. holder were a United States person and, if the non-U.S. holder is a corporation, that non-U.S. holder will be subject to a United States branch profits tax equal to 30 percent of its "effectively connected earnings and profits" as adjusted for the taxable year, unless the holder qualifies for an exemption from that tax or for a lower tax rate under an applicable treaty. 65 PLAN OF DISTRIBUTION Each broker-dealer that receives new securities for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of those securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new securities received in the exchange offer where the old securities were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the completion of the exchange offer, we will make this prospectus, as amended and supplemented, available to any broker-dealer for use in connection with any such resale. We will not receive any proceeds from any sale of new securities issued in the exchange offer by broker-dealers. New securities issued in the exchange offer received by broker-dealers for their own account under the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new securities. Any broker-dealer that resells new securities that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of such new securities may be deemed to be an "underwriter" within the meaning of the Securities Act, and profit on any such resale of new securities issued in the exchange and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the completion of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all fees and expenses incident to the exchange offer, other than the commissions or concessions of any broker-dealers, and will indemnify the holders of the old securities, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act. We note, however, that, in the opinion of the SEC, indemnification against liabilities arising under federal securities laws is against public policy and may be unenforceable. LEGAL MATTERS Certain legal matters with respect to the validity of the issuance of the new securities to be issued in the exchange offer will be passed upon for CILCORP by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. EXPERTS The consolidated financial statements of CILCORP at December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, appearing in this prospectus have been audited by Arthur Andersen LLP, independent auditors, as set forth in their reports thereon appearing elsewhere in this prospectus. 66 CILCORP INC. INDEX TO FINANCIAL STATEMENTS
PAGE NO. ----- CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Public Accountants ........................................... F-2 Consolidated Statements of Income for the Three Years Ended December 31, 1998 ...... F-3 Consolidated Balance Sheets as of December 31, 1998 and 1997 ....................... F-4 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1998 ................................................................. F-5 Consolidated Statements of Segments of Business for the Three Years Ended December 31, 1998 ................................................................. F-6 Consolidated Statements of Retained Earnings for the Three Years Ended December 31, 1998 ................................................................. F-9 Notes to Financial Statements ...................................................... F-10 INTERIM CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Statements of Income For the Six Months Ended June 30, 1999 and 1998 .......................................................................... F-26 Consolidated Balance Sheets as of June 30, 1999 and 1998 ........................... F-27 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1999 and 1998 .......................................................................... F-29 Consolidated Statements of Segments of Business for the Six Months Ended June 30, 1999 and 1998 ..................................................................... F-30 Notes to Consolidated Financial Statements ......................................... F-31
F-1 Report of Independent Public Accountants To the Stockholders of CILCORP Inc.: We have audited the accompanying consolidated balance sheets of CILCORP Inc. (an Illinois corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, cash flows, stockholders' equity and segments of business for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CILCORP Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois January 27, 1999 F-2 CONSOLIDATED STATEMENTS OF INCOME CILCORP INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ -------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue: Electric .............................................. $ 360,009 $ 338,096 $ 322,785 Gas ................................................... 172,327 208,758 195,770 Other Businesses ...................................... 26,688 11,106 8,505 --------- --------- --------- Total ............................................... 559,024 557,960 527,060 --------- --------- --------- Operating Expenses: Fuel for Generation and Purchased Power ............... 124,058 115,081 101,622 Gas Purchased for Resale .............................. 93,586 123,532 108,286 Other Operations and Maintenance ...................... 145,673 124,852 131,675 Depreciation and Amortization ......................... 66,179 62,416 60,574 State and Local Revenue Taxes ......................... 26,502 22,467 22,004 Other Taxes ........................................... 11,463 11,833 11,516 --------- --------- --------- Total ............................................... 467,461 460,181 435,677 --------- --------- --------- Fixed Charges and Other: Interest Expense ...................................... 29,473 27,462 28,964 Preferred Stock Dividends of Subsidiary ............... 3,194 3,216 3,188 Allowance for Funds Used During Construction. (34) (134) (90) Other ................................................. 1,013 1,177 679 --------- --------- --------- Total ............................................... 33,646 31,721 32,741 --------- --------- --------- Income from Continuing Operations Before Income Taxes .......................................... 57,917 66,058 58,642 Income Taxes ........................................... 19,699 22,349 20,702 --------- --------- --------- Net Income from Continuing Operations Before Extraordinary Item .................................... 38,218 43,709 37,940 Loss from Operations of Discontinued Businesses, Net of Tax of $(16,278), $(7,298) and $(6,197)......... (25,025) (34,126) (9,997) Gain on Sale/Disposal of Assets of Discontinued Businesses, Net of Tax of $2,014 and $1,889............ 3,117 2,712 -- Extraordinary Item (see Note 1) ........................ -- 4,100 -- --------- --------- --------- Net Income ............................................. $ 16,310 $ 16,395 $ 27,943 Other Comprehensive Income ............................. (169) (317) (5) --------- --------- --------- Comprehensive Income ................................... $ 16,141 $ 16,078 $ 27,938 ========= ========= ========= Average Common Shares Outstanding -- Basic ............. 13,611 13,611 13,480 Earnings Per Common Share -- Basic Continuing Operations ................................. $ 2.81 $ 3.21 $ 2.81 Discontinued Operations ............................... (1.61) (2.31) (.74) Extraordinary Item .................................... -- .30 -- --------- --------- --------- Net Income Per Common Share -- Basic ................... $ 1.20 $ 1.20 $ 2.07 ========= ========= ========= Average Common Shares Outstanding -- Diluted. 13,707 13,627 13,480 Earnings Per Common Share -- Diluted Continuing Operations ................................. $ 2.79 $ 3.21 $ 2.81 Discontinued Operations ............................... (1.60) (2.31) (.74) Extraordinary Item .................................... -- .30 -- --------- --------- --------- Net Income Per Common Share -- Diluted ................ $ 1.19 $ 1.20 $ 2.07 ========= ========= ========= Dividends per Common Share ............................ $ 2.46 $ 2.46 $ 2.46
The accompanying Notes to Financial Statements are an integral part of these statements. F-3 CONSOLIDATED BALANCE SHEETS CILCORP INC. AND SUBSIDIARIES
AS OF DECEMBER 31, ------------------------------ 1998 1997 -------------- ------------- (IN THOUSANDS) ASSETS Current Assets: Cash and Temporary Cash Investments ...................... $ 1,669 $ 10,576 Receivables, Less Reserves of $3,411 and $2,518........... 134,666 141,234 Accrued Unbilled Revenue ................................. 39,220 38,775 Fuel, at Average Cost .................................... 13,431 7,816 Materials and Supplies, at Average Cost .................. 15,062 13,685 Gas in Underground Storage, at Average Cost .............. 20,767 22,666 Prepayments and Other .................................... 7,706 10,971 ---------- ---------- Total Current Assets ................................... 232,521 245,723 ---------- ---------- Investments and Other Property: Investment in Leveraged Leases ............................ 146,990 146,458 Other Investments ......................................... 19,500 21,074 ---------- ---------- Total Investments and Other Property ................... 166,490 167,532 ---------- ---------- Property, Plant and Equipment: Utility Plant, at Original Cost Electric ................................................. 1,237,885 1,213,585 Gas ...................................................... 417,585 401,870 ---------- ---------- 1,655,470 1,615,455 Less -- Accumulated Provision for Depreciation ............ 812,630 769,792 ---------- ---------- 842,840 845,663 Construction Work in Progress ............................. 30,075 21,550 Other, Net of Depreciation ................................ 7,796 22,188 ---------- ---------- Total Property, Plant and Equipment .................... 880,711 889,401 ---------- ---------- Other Assets .............................................. 33,218 32,163 ---------- ---------- Total Assets ........................................... $1,312,940 $1,334,819 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current Portion of Long-Term Debt ........................ $ 13,027 $ 22,185 Notes Payable ............................................ 96,200 62,150 Accounts Payable ......................................... 136,840 132,286 Accrued Taxes ............................................ 8,185 2,810 Accrued Interest ......................................... 10,102 9,473 FCA/PGA Over-Recoveries .................................. 304 1,666 Other .................................................... 8,881 19,798 ---------- ---------- Total Current Liabilities .............................. 273,539 250,368 ---------- ---------- Long-Term Debt ............................................ 285,552 298,528 ---------- ---------- Deferred Credits and Other Liabilities: Deferred Income Taxes ..................................... 239,306 241,013 Regulatory Liability of Regulated Subsidiary .............. 46,346 56,807 Deferred Investment Tax Credit ............................ 19,450 21,117 Other ..................................................... 47,089 48,273 ---------- ---------- Total Deferred Credits ................................. 352,191 367,210 ---------- ---------- Preferred Stock of Subsidiary ............................. 66,120 66,120 ---------- ---------- Stockholders' Equity: Common Stock, no par value; Authorized 50,000,000 shares -- Outstanding 13,610,680 and 13,610,680 shares ............. 192,853 192,567 Retained Earnings ......................................... 143,530 160,702 Accumulated Other Comprehensive Income .................... (845) (676) ---------- ---------- Total Stockholders' Equity ............................. 335,538 352,593 ---------- ---------- Total Liabilities and Stockholders' Equity ............. $1,312,940 $1,334,819 ========== ==========
The accompanying Notes to Financial Statements are an integral part of these balance sheets. F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS CILCORP INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- (IN THOUSANDS) Cash Flows from Operating Activities: Net Income from Continuing Operations Before Preferred Dividends. $ 41,412 $ 46,925 $ 41,128 --------- --------- --------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Non-Cash Income ....................................................... (6,150) (4,102) (4,297) Cash Receipts in Excess of Debt Service on Leases ..................... 7,618 -- -- Depreciation and Amortization ......................................... 66,179 62,416 60,574 Deferred Income Taxes, Investment Tax Credit and Regulatory Liability of Subsidiary, Net ........................................ (5,865) (3,342) (1,707) Changes in Operating Assets and Liabilities: Decrease (Increase) in Accounts Receivable and Accrued Unbilled Revenue ............................................................. 5,430 (74) (3,474) (Increase) Decrease in Inventories .................................... (5,093) 3,294 (5,310) Increase (Decrease) in Accounts Payable ............................... 14,188 (1,961) 6,809 Increase (Decrease) in Accrued Taxes .................................. 10 3,893 (5,843) (Increase) Decrease in Other Assets ................................... 209 (17,027) 2,197 Increase (Decrease) in Other Liabilities .............................. (6,426) (9,039) 11,036 --------- --------- --------- Total Adjustments ...................................................... 70,100 34,058 59,985 --------- --------- --------- Net Cash Provided by Operating Activities .............................. 111,512 80,983 101,113 Net Cash Provided by (Used in) Operating Activities of Discontinued Operations ............................................................ (43,202) 10,031 1,263 --------- --------- --------- Cash Flow from Operations .............................................. 68,310 91,014 102,376 --------- --------- --------- Cash Flows from Investing Activities: Additions to Plant ..................................................... (67,112) (55,055) (43,680) Purchase of Long-Term Investments ...................................... -- (6,933) (4,713) Other .................................................................. (4,514) (1,242) 482 --------- --------- --------- Net Cash Used in Investing Activities .................................. (71,626) (63,230) (47,911) Net Cash Provided by (Used in) Investing Activities of Discontinued Operations ............................................................ 19,169 3,310 (3,082) --------- --------- --------- Cash Flow from Investing Activities .................................... (52,457) (59,920) (50,993) --------- --------- --------- Cash Flows from Financing Activities: Net Increase (Decrease) in Short-Term Debt ............................. 34,050 34,250 (19,200) Repayment of Long-Term Debt ............................................ (22,102) (22,954) (19,393) Common Dividends Paid .................................................. (33,482) (33,482) (33,142) Preferred Dividends Paid ............................................... (3,194) (3,216) (3,188) Common Stock Issued .................................................... -- -- 11,430 --------- --------- --------- Net Cash Provided by (Used in) Financing Activities of Continuing Operations ............................................................ (24,728) (25,402) (63,493) Net Cash Provided by (Used in) Financing Activities of Discontinued Operations ............................................................ (32) (57) (49) --------- --------- --------- Net Cash Used in Financing Activities .................................. (24,760) (25,459) (63,542) --------- --------- --------- Net Increase (Decrease) in Cash and Temporary Cash Investments ......... (8,907) 5,635 (12,159) Cash and Temporary Cash Investments at Beginning of Year ............... 10,576 4,941 17,100 --------- --------- --------- Cash and Temporary Cash Investments at End of Year ..................... $ 1,669 $ 10,576 $ 4,941 ========= ========= =========
The accompanying Notes to Financial Statements are an integral part of these statements. F-5 STATEMENTS OF SEGMENTS OF BUSINESS CILCORP INC. AND SUBSIDIARIES
1998 ---------------------------------------------------------------------------------- CILCO CILCO CILCO OTHER DISCONT. ELECTRIC GAS OTHER BUSINESSES OPERATIONS TOTALS ------------ ----------- ------------ ------------- --------------- -------------- (IN THOUSANDS) Revenues ............................. $360,009 $172,327 $ 1,743 $ 24,717 $ -- $ 558,796 Interest income ...................... 228 228 -------- -------- -------- ---------- -------- ---------- Total ............................. 360,009 172,327 1,971 24,717 559,024 -------- -------- -------- ---------- -------- ---------- Operating expenses ................... 235,801 138,459 3,600 23,422 401,282 Depreciation and amortization ........ 46,017 19,256 713 193 66,179 -------- -------- -------- ---------- -------- ---------- Total ............................. 281,818 157,715 4,313 23,615 467,461 -------- -------- -------- ---------- -------- ---------- Interest expense ..................... 16,261 6,514 6,698 29,473 Preferred stock dividends ............ 3,194 3,194 Fixed charges and other expenses (34) 1,013 979 -------- -------- -------- ---------- -------- ---------- Total ............................. 16,227 6,514 4,207 6,698 33,646 -------- -------- -------- ---------- -------- ---------- Income from continuing oper. before income taxes ................. 61,964 8,098 (6,549) (5,596) 57,917 Income taxes ......................... 21,645 3,443 (2,616) (2,773) 19,699 -------- -------- -------- ---------- -------- ---------- Net income from continuing operations .......................... 40,319 4,655 (3,933) (2,823) 38,218 Effect of discontinued operations..... (21,908) (21,908) -------- -------- -------- ---------- -------- ---------- Segment net income ................... $ 40,319 $ 4,655 $ (3,933) $ (2,823) $(21,908) $ 16,310 ======== ======== ======== ========== ======== ========== Capital expenditures ................. $ 44,213 $ 22,889 $ -- $ 10 $ 8,916 $ 76,028 Revenue from major customer Caterpillar Inc. .................... $ 39,354 $ 948 $ -- $ 7,669 $ 1,130 $ 49,101 Segment assets ....................... $730,354 $286,737 $ 5,072 $ 594,734 $121,647 $1,738,544 Consolidation adjustments ............ (1,304) (507) -- (423,789) (4) (425,604) -------- -------- -------- ---------- ----------- ---------- Total assets ...................... $729,050 $286,230 $ 5,072 $ 170,945 $121,643 $1,312,940 ======== ======== ======== ========== ========== ==========
F-6 STATEMENTS OF SEGMENTS OF BUSINESS CILCORP INC. AND SUBSIDIARIES
1997 ----------------------------------------------------------------------------- CILCO CILCO CILCO OTHER DISCONT. ELECTRIC GAS OTHER BUSINESSES OPERATIONS TOTALS ------------ ----------- ----------- ------------ ------------ -------------- (IN THOUSANDS) Revenues ................................. $338,096 $208,758 $ -- $ 10,867 $ -- $ 557,721 Interest income .......................... 239 239 -------- -------- -------- ---------- --------- ---------- Total ................................. 338,096 208,758 239 10,867 557,960 -------- -------- -------- ---------- --------- ---------- Operating expenses ....................... 217,700 165,020 2,831 12,214 397,765 Depreciation and amortization ............ 43,858 17,647 713 198 62,416 -------- -------- -------- ---------- --------- ---------- Total ................................. 261,558 182,667 3,544 12,412 460,181 -------- -------- -------- ---------- --------- ---------- Interest expense ......................... 16,192 6,454 4,816 27,462 Preferred stock dividends ................ 3,216 3,216 Fixed charges and other expenses ......... (134) 1,177 1,043 -------- -------- -------- ---------- --------- ---------- Total ................................. 16,058 6,454 4,393 4,816 31,721 -------- -------- -------- ---------- --------- ---------- Income from continuing oper. before income taxes ..................... 60,480 19,637 (7,698) (6,361) 66,058 Income taxes ............................. 21,901 7,416 (3,049) (3,919) 22,349 -------- -------- -------- ---------- --------- ---------- Net income from cont. oper. before extraord. item ................... 38,579 12,221 (4,649) (2,442) 43,709 Effect of discontinued operations and extraordinary item .................. 4,100 (31,414) (27,314) -------- -------- -------- ---------- --------- ---------- Segment net income ....................... $ 42,679 $ 12,221 $ (4,649) $ (2,442) $ (31,414) $ 16,395 ======== ======== ======== ========== ========= ========== Capital expenditures ..................... $ 35,196 $ 19,830 $ -- $ 29 $ 6,188 $ 61,243 Revenue from major customer Caterpillar Inc. ........................ $ 40,106 $ 934 $ -- $ 1,208 $ 1,870 $ 44,118 Segment assets ........................... $724,869 $290,958 $ 5,639 $ 606,786 $ 144,412 $1,772,664 Consolidation adjustments ................ (1,070) (416) -- (436,345) (14) (437,845) -------- -------- -------- ---------- --------- ---------- Total assets .......................... $723,799 $290,542 $ 5,639 $ 170,441 $ 144,398 $1,334,819 ======== ======== ======== ========== ========= ==========
F-7 STATEMENTS OF SEGMENTS OF BUSINESS CILCORP INC. AND SUBSIDIARIES
1996 ------------------------------------------------------------------------------ CILCO CILCO CILCO OTHER DISCONT. ELECTRIC GAS OTHER BUSINESSES OPERATIONS TOTALS ------------ ----------- ----------- ------------- ------------ -------------- (IN THOUSANDS) Revenues ............................. $322,785 $195,770 $ -- $ 7,825 $ -- $ 526,380 Interest income ...................... 680 680 -------- -------- -------- ---------- -------- ---------- Total ............................. 322,785 195,770 680 7,825 527,060 -------- -------- -------- ---------- -------- ---------- Operating expenses ................... 208,566 154,099 2,234 10,204 375,103 Depreciation and amortization ........ 42,530 17,134 713 197 60,574 -------- -------- -------- ---------- -------- ---------- Total ............................. 251,096 171,233 2,947 10,401 435,677 -------- -------- -------- ---------- -------- ---------- Interest expense ..................... 17,445 6,716 4,803 28,964 Preferred stock dividends ............ 3,188 3,188 Fixed charges and other expenses...... (90) 679 589 -------- -------- -------- ---------- -------- ---------- Total ............................. 17,355 6,716 3,867 4,803 32,741 -------- -------- -------- ---------- -------- ---------- Income from continuing oper. before income taxes ................. 54,334 17,821 (6,134) (7,379) 58,642 Income taxes ......................... 19,576 6,972 (2,466) (3,380) 20,702 -------- -------- -------- ---------- -------- ---------- Net income from continuing operations .......................... 34,758 10,849 (3,668) (3,999) 37,940 Effect of discontinued operations..... (9,997) (9,997) -------- -------- -------- ---------- -------- ---------- Segment net income ................... $ 34,758 $ 10,849 $ (3,668) $ (3,999) $ (9,997) $ 27,943 ======== ======== ======== ========== ======== ========== Capital expenditures ................. $ 28,032 $ 15,529 $ -- $ 119 $ 3,061 $ 46,741 Revenue from major customer Caterpillar Inc. .................... $ 37,724 $ 1,053 $ -- $ 68 $ 119 $ 38,964 Segment assets ....................... $732,219 $296,343 $ 6,424 $ 585,732 $ 94,492 $1,715,210 Consolidation adjustments ............ (352) (137) -- (428,815) (213) (429,517) -------- -------- -------- ---------- -------- ---------- Total assets ...................... $731,867 $296,206 $ 6,424 $ 156,917 $ 94,279 $1,285,693 ======== ======== ======== ========== ======== ==========
F-8 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS CILCORP INC. AND SUBSIDIARIES
COMMON STOCK OTHER -------------------------- RETAINED COMPREHENSIVE SHARES AMOUNT EARNINGS INCOME TOTAL ------------ ----------- ------------ -------------- -------------- (IN THOUSANDS EXCEPT SHARE AMOUNTS) Balance at December 31, 1995 ............. 13,335,606 $179,330 $183,002 $ (354) $361,978 Common Stock Issued ...................... 275,074 11,430 11,430 Cash Dividend Declared on Common Stock ($2.46 per share).................. (33,141) (33,141) Additional Minimum Liability of Non-Qualified Pension Plan at December 31, 1996, net of $(3) taxes..... (5) (5) Net Income ............................... 27,943 27,943 ---------- -------- --------- --------- ---------- Balance at December 31, 1996 ............. 13,610,680 $190,760 $177,804 $ (359) $368,205 CILCORP Shareholder Return Incentive Compensation .................. 1,807 1,807 Cash Dividend Declared on Common Stock ($2.46 per share).................. (33,482) (33,482) Additional Minimum Liability of Non-Qualified Pension Plan at December 31, 1997, net of $(208) taxes ................................... (317) (317) Other .................................... (15) (15) Net Income ............................... 16,395 16,395 ---------- -------- --------- -------- ---------- Balance at December 31, 1997 ............. 13,610,680 $192,567 $160,702 $ (676) $352,593 Cash Dividend Declared on Common Stock ($2.46 per share).................. (33,482) (33,482) Additional Minimum Liability of Non-Qualified Pension Plan at December 31, 1998, net of $(111) taxes ................................... (169) (169) Other .................................... 286 286 Net Income ............................... 16,310 16,310 ---------- -------- --------- -------- ---------- Balance at December 31, 1998 ............. 13,610,680 $192,853 $143,530 $ (845) $335,538 ========== ======== ========= ======== ==========
The accompanying Notes to Financial Statements are an integral part of these statements. F-9 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of CILCORP Inc. (CILCORP or the Holding Company), Central Illinois Light Company (CILCO), QST Enterprises Inc. (QST) and its subsidiaries (QST Environmental Inc., formerly known as Environmental Science & Engineering, Inc. (ESE) and QST Energy Inc. (QST Energy)) and CILCORP's other subsidiaries (collectively, the Company) after elimination of significant intercompany transactions. In 1998, the operations of QST and its subsidiaries were discontinued (see Note 10). Prior year amounts have been reclassified on a basis consistent with the 1998 presentation. CILCORP is an investor-owned public utility holding company. CILCO, the Company's principal business subsidiary, is engaged in the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east-central Illinois, and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east-central Illinois. Other CILCORP first-tier subsidiaries are CILCORP Investment Management Inc. (CIM), which manages the Company's investment portfolio and CILCORP Ventures Inc. (CVI), which pursues investment opportunities in energy-related products and services. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. See Management's Discussion and Analysis of Financial Condition and Results of Operations--New Accounting Pronouncements for a discussion of accounting pronouncements issued by the Financial Accounting Standards Board which are effective in 1998 or thereafter. REGULATION CILCO is a public utility subject to regulation by the Illinois Commerce Commission (ICC) and the Federal Energy Regulatory Commission (FERC) with respect to accounting matters, and maintains its accounts in accordance with the Uniform System of Accounts prescribed by these agencies. CILCO is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71) for its regulated public utility operations. Under SFAS 71, assets and liabilities are recorded to represent probable future increases and decreases, respectively, of revenues to CILCO resulting from the ratemaking action of regulatory agencies. The Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) became effective in Illinois in December 1997. Among other provisions, this law begins a nine-year transition process to a fully competitive market for electricity in Illinois. Electric transmission and distribution activities are expected to continue to be regulated, but a customer may choose to purchase electricity from another supplier (see Management's Discussion--Competition). F-10 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Due to the transition cost recovery limitations and base rate reductions of the Customer Choice Law, CILCO's electric generation activities will no longer be subject to the provisions of SFAS 71. Accordingly, regulatory assets of $1.5 million and liabilities of $5.6 million associated with electric generating plant were written-off or credited, respectively, to income in 1997 as a net $4.1 million after-tax extraordinary item. Regulatory assets included on the Consolidated Balance Sheets at December 31, 1998 and 1997 are as follows:
1998 1997 ---------- --------- (IN THOUSANDS) Included in prepayments and other: Fuel and gas cost adjustments .............................. $ 4,740 $ 2,954 Coal tar remediation cost -- estimated current ............. 609 844 Gas transition costs ....................................... -- 159 ------- ------- Current costs included in prepayments and other ......... 5,349 3,957 ------- ------- Included in other assets: Coal tar remediation cost, net of recoveries ............... 1,281 2,745 Regulatory tax asset ....................................... 5,723 7,578 Deferred gas costs ......................................... 4,039 4,145 Unamortized loss on reacquired debt ........................ 3,261 3,581 ------- ------- Future costs included in other assets ...................... 14,304 18,049 ------- ------- Total regulatory assets ................................. $19,653 $22,006 ======= =======
Regulatory assets at December 31, 1998 are related to CILCO's regulated electric and gas distribution activities. CILCO does not currently believe the costs recorded for its generating plants and related assets at December 31, 1998 to be impaired as a result of the Customer Choice Law. Regulatory liabilities, consisting of deferred tax items primarily related to CILCO's electric and gas transmission and distribution operations, are approximately $46.3 million and $56.8 million at December 31, 1998 and 1997, respectively. CILCO's electric generation-related identifiable assets included in the balance sheet at December 31, 1998 and 1997 were:
1998 1997 ------------ ------------ (IN THOUSANDS) Property, Plant and Equipment ......................... $ 537,358 $ 535,065 Less: Accumulated Depreciation ........................ (266,461) (259,988) ---------- ---------- 270,897 275,077 Construction Work in Progress ......................... 3,268 1,979 ---------- ---------- Net Property, Plant and Equipment .................... 274,165 277,056 Fuel, at Average Cost ................................. 8,704 8,520 Materials and Supplies, at Average Cost ............... 8,452 8,202 ---------- ---------- Total Identifiable Electric Generation Assets ......... $ 291,321 $ 293,778 ========== ==========
Accumulated deferred income taxes associated with electric generation property at December 31, 1998 and 1997 were approximately $72 million and $79 million, respectively. F-11 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) OPERATING REVENUES, FUEL COSTS AND COST OF GAS Electric, gas, and non-regulated energy and energy services revenues include service provided but unbilled at year end. Substantially all electric rates and gas system sales rates of CILCO include a fuel adjustment clause and a purchased gas adjustment clause, respectively. These clauses provide for the recovery of changes in electric fuel costs, excluding coal transportation, and changes in the cost of gas on a current basis in billings to customers. CILCO adjusts the cost of fuel and cost of gas to recognize over or under recoveries of allowable costs. The cumulative effects are deferred on the Balance Sheets as a current asset or current liability (see Regulation, above) and adjusted by refunds or collections through future billings to customers. CONCENTRATION OF CREDIT RISK CILCO, as a public utility, must provide service to customers within its defined service territory and may not discontinue service to residential customers when certain weather conditions exist. CILCO continually reviews customers' creditworthiness and requests deposits or refunds deposits based on that review. At December 31, 1998, CILCO had net receivables of $35.8 million, of which approximately $4.7 million was due from its major customers. See Note 6 for a discussion of receivables related to CILCORP Investment Management Inc.'s leveraged lease portfolio. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of Cash and Temporary Cash Investments, Other Investments, and Notes Payable approximates fair value. The estimated fair value of the Company's Preferred Stock with Mandatory Redemption was $23 million at December 31, 1998 and 1997, based on current market interest rates for other companies with comparable credit ratings, capital structure, and size. The estimated fair value of the Company's Long-Term Debt, including current maturities, was $339 million at December 31, 1998, and $352 million at December 31, 1997. The fair market value of these instruments was based on current market interest rates for other companies with comparable credit ratings, capital structures, and size. DEPRECIATION AND MAINTENANCE Provisions for depreciation of utility property for financial reporting purposes are based on straight-line composite rates. The annual provisions for utility plant depreciation, expressed as a percentage of average depreciable utility property, were 3.8% and 4.6% for electric and gas, respectively, for each of the last three years. Utility maintenance and repair costs are charged directly to expense. Renewals of units of property are charged to the utility plant account, and the original cost of depreciable property replaced or retired, together with the removal cost less salvage, is charged to the accumulated provision for depreciation. Non-utility property is depreciated over estimated lives ranging from 3 to 40 years. GOODWILL As a result of significant downsizing of QST Environmental Inc. (QST Environmental) during 1996 and 1997 and continuing overcapacity and competition in the environmental segment in the fourth quarter of 1997, the Company determined that an impairment to goodwill associated with QST Environmental existed. As a result, the Company wrote off the $22.6 million unamortized goodwill balance. In late 1998, the Company decided to sell its 100% ownership interest in QST Environmental and has classified its results as discontinued (see Note 10). F-12 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) INCOME TAXES The Company follows a policy of comprehensive interperiod income tax allocation. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property. CILCORP and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the individual companies based on their respective taxable income or loss. CONSOLIDATED STATEMENTS OF CASH FLOWS The Company considers all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents for purposes of the Consolidated Statements of Cash Flows. Cash paid for interest and income taxes was as follows:
DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- (IN THOUSANDS) Interest ............. $26,067 $28,710 $28,988 Income taxes ......... $19,611 $28,537 $13,572 ------- ------- -------
COMPANY-OWNED LIFE INSURANCE POLICIES The following amounts related to Company-owned life insurance contracts, issued by one major insurance company, are included in Other Investments:
DECEMBER 31, ------------------------- 1998 1997 ----------- ----------- (IN THOUSANDS) Cash surrender value of contracts ......... $ 50,786 $ 45,297 Borrowings against contracts .............. (48,132) (42,898) --------- --------- Net investment ......................... $ 2,654 $ 2,399 ========= =========
Interest expense related to borrowings against Company-owned life insurance, included in "Other" on the Consolidated Statements of Income, was $3.6 million, $3.5 million and $2.7 million for 1998, 1997 and 1996, respectively. F-13 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. INCOME TAXES The Company uses the liability method to account for income taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Temporary differences occur because the income tax law either requires or permits certain items to be reported on the Company's income tax return in a different year than they are reported in the financial statements. CILCO has recorded a regulatory asset and liability to account for the effect of expected future regulatory actions related to unamortized investment tax credits, income tax liabilities initially recorded at tax rates in excess of current rates, the equity component of Allowance for Funds Used during Construction and other items for which deferred taxes had not previously been provided. The temporary differences related to the consolidated deferred income tax asset and liability at December 31, 1998, 1997, and 1996 were as follows:
DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- (IN THOUSANDS) Deferred tax assets: Deferred tax asset ............................. $ 20,742 $ 18,347 $ 16,452 Adjustment to reflect regulatory asset ......... (5,723) (7,578) (4,777) -------- -------- -------- Net deferred tax asset ......................... $ 15,019 $ 10,769 $ 11,675 ======== ======== ========
DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- (IN THOUSANDS) Deferred tax liabilities: Deferred tax liability-property ...................................... $ 196,301 $ 207,460 $ 214,356 Adjustment to reflect regulatory liability ........................... (46,346) (56,807) (68,565) --------- --------- --------- Net deferred tax liability-property .................................. 149,955 150,653 145,791 Deferred tax liability-leases ........................................ 103,566 101,005 97,964 Deferred tax liability-other ......................................... 804 124 3,159 --------- --------- --------- Accumulated deferred income tax liability ............................ $ 254,325 $ 251,782 $ 246,914 ========= ========= ========= Accumulated deferred income tax liability, net of deferred tax assets $ 239,306 $ 241,013 $ 235,239 ========= ========= =========
The following table reconciles the change in the accumulated deferred income tax liability to the deferred income tax expense included in the income statement:
DECEMBER 31, ---------------------------- 1998 1997 ------------- ------------ (IN THOUSANDS) Net change in deferred income tax liability per above table ............ $ (1,707) $ 5,774 Change in tax effects of income tax related regulatory assets and liabilities ........................................................... (8,606) (14,559) Deferred taxes related to extraordinary item ........................... -- 5,634 Other .................................................................. (106) 125 --------- --------- Deferred income tax benefit for the period ............................. (10,419) (3,026) Less: Deferred income tax benefit for the period from discontinued operations ............................................................ (6,115) (1,245) --------- --------- Deferred income tax benefit for the period from continuing operations... $ (4,304) $ (1,781) ========= =========
F-14 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. INCOME TAXES -- (CONTINUED) Income tax expenses were as follows:
DECEMBER 31, ------------------------------------- 1998 1997 1996 ----------- ---------- ---------- (IN THOUSANDS) Current income taxes Federal ....................................................... $ 13,731 $ 17,814 $ 15,129 State ......................................................... 3,791 3,836 2,169 --------- -------- -------- Total current taxes ........................................... 17,522 21,650 17,298 --------- -------- -------- Deferred income taxes, net .................................... Property-related deferred income taxes ........................ (11,262) (841) (2,346) Leveraged leases .............................................. 2,602 3,040 4,398 Unbilled revenue .............................................. (287) (885) 425 Gas take-or-pay settlements ................................... 522 (339) (706) Environmental remediation costs ............................... (58) 46 (642) Pension expenses .............................................. 869 (1,798) (1,726) Other post-employment benefits expenses ....................... (847) (617) 187 Customer advances ............................................. 478 (438) (40) Gas in underground storage .................................... (1,681) (191) 405 Amortization of debt discounts, premiums and expenses ......... (790) (179) (179) CILCO Executive Deferred Compensation Plan .................... (671) (191) (525) CILCORP Shareholder Return Incentive Comp. Plan ............... (717) -- -- QST Gas Derivatives Mark to Market ............................ 948 -- -- Other ......................................................... 475 (633) (360) --------- -------- -------- Total deferred income taxes, net .............................. (10,419) (3,026) (1,109) --------- -------- -------- Investment tax credit amortization ............................ (1,668) (1,684) (1,684) --------- -------- -------- Total income tax provisions before extraordinary item ......... 5,435 16,940 14,505 Deferred taxes related to extraordinary item .................. -- (5,634) -- --------- -------- -------- Total income tax provisions ................................... $ 5,435 $ 11,306 $ 14,505 ========= ======== ========
Total income tax provisions are presented within the Income Statement as follows:
DECEMBER 31, ------------------------------------- 1998 1997 1996 ----------- ---------- ---------- (IN THOUSANDS) Income taxes from continuing operations .............. $ 19,699 $ 22,349 $ 20,702 Tax on income (loss) from operations of discontinued businesses .......................................... (16,278) (7,298) (6,197) Tax on gain (loss) on sale/disposal of discontinued businesses .......................................... 2,014 1,889 -- Deferred taxes related to extraordinary item ......... -- (5,634) -- --------- -------- -------- Total income tax provisions .......................... $ 5,435 $ 11,306 $ 14,505 --------- -------- --------
The 1997 income tax provision has been reduced to reflect the crediting to income as an extraordinary item the regulatory liability related to electric generation property deferred taxes which were recorded at tax rates in excess of the current rate. Total deferred income taxes, net, includes deferred state income taxes of $(1,635,000), $(229,000) and $(538,000) for 1998, 1997 and 1996, respectively. F-15 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. INCOME TAXES -- (CONTINUED) The following table represents a reconciliation of the effective tax rate with the statutory federal income tax rate.
YEARS ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- Statutory federal income tax ................................. 35.0% 35.0% 35.0% ---- ----- ---- Amortization of property related deferred taxes provided at tax rates in excess of current rate ......................... (8.3) (3.9) (3.4) Amortization of investment tax credit ........................ (7.6) (6.1) (4.0) State income taxes ........................................... 5.5 9.0 4.8 Goodwill write-off and amortization .......................... -- 29.2 .6 Preferred dividends of subsidiary and other permanent differences ................................................. 6.6 5.2 3.6 Tax provision adjustment ..................................... -- (1.6) (.4) Affordable housing tax credits ............................... (6.1) (3.4) (.1) Corporate-owned life insurance ............................... (4.2) (2.9) (1.7) AES transaction costs ........................................ 3.3 -- -- Other differences ............................................ 1.1 .7 (.2) ---- ----- ---- Total ........................................................ (9.7) 26.2 (.8) ---- ----- ---- Effective income tax rate before effect of extraordinary item. 25.3 61.2 34.2 Tax effect of extraordinary item ............................. -- (20.4) -- ---- ----- ---- Effective income tax rate .................................... 25.3% 40.8% 34.2% ==== ===== ====
F-16 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE CILCO has recorded a liability of approximately $1.5 million at December 31, 1998 and 1997, for benefits other than pensions or health care provided to former or inactive employees. The liability for these benefits (primarily long-term and short-term disability payments under plans self-insured by CILCO) is actuarially determined. PENSION BENEFITS Substantially all of CILCO's full-time employees, including those assigned to the Holding Company, are covered by trusteed, non-contributory defined benefit pension plans. Benefits under these qualified plans reflect the employee's years of service, age at retirement and maximum total compensation for any consecutive sixty-month period prior to retirement. CILCO also has an unfunded nonqualified plan for certain employees. Pension costs for the past three years were charged as follows:
1998 1997 1996 ----------- -------- ---------- (IN THOUSANDS) Operating expenses .............. $ (893) $ 493 $ 9,700 Utility plant and other ......... 6 125 922 ------- ----- ------- Net pension costs ............... $ (887) $ 618 $10,622 ======= ===== =======
Provisions for pension expense reflect the use of the projected unit credit actuarial cost method. At December 31, 1998 and 1997, CILCO recognized an additional minimum liability on the Balance Sheets for the plan in which the accumulated benefit obligation exceeds the fair value of plan assets. POSTRETIREMENT HEALTH CARE BENEFITS Provisions for postretirement benefits expenses are determined under the accrual method of accounting. Substantially all of CILCO's full-time employees, including those assigned to the Holding Company, are currently covered by a trusteed, non-contributory defined benefit postretirement health care plan. The plan pays stated percentages of most necessary medical expenses incurred by retirees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. Participants become eligible for the benefits if they retire from CILCO after reaching age 55 with 10 or more years of service. Neither QST Enterprises nor its subsidiaries provide health care benefits to retired employees. Postretirement health care benefit costs were charged as follows:
1998 1997 1996 --------- --------- --------- (IN THOUSANDS) Operating expenses ................................... $3,904 $3,989 $5,096 Utility plant and other .............................. 1,260 1,825 1,883 ------ ------ ------ Net postretirement health care benefit costs ......... $5,164 $5,814 $6,979 ====== ====== ======
F-17 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS-- (CONTINUED) The components of net periodic benefit costs follow:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS --------------------------- ----------------------- 1998 1997 1998 1997 ------------ ------------ ---------- ---------- (IN THOUSANDS) Service cost ......................................... $ 5,410 $ 4,384 $ 1,417 $ 1,298 Interest cost ........................................ 19,024 17,561 5,371 5,047 Expected return on plan assets ....................... (25,304) (21,005) (4,388) (3,249) Amortization of transition liability (asset) ......... (888) (888) 2,858 2,858 Amortization of past service cost .................... 1,068 1,068 -- -- Recognized actuarial loss ............................ (197) (502) (94) (140) --------- --------- -------- -------- Net benefit cost ..................................... $ (887) $ 618 $ 5,164 $ 5,814 ========= ========= ======== ======== Pension Plans with Accumulated Benefit Obligations in Excess of Assets Total projected benefit obligation ................... $ (4,191) $ (3,692) Total accumulated benefit obligation ................. $ (3,582) $ (2,902) Total fair value of assets ........................... $ -- $ --
Information on the plans, funded status follows:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------------------- ----------------------------- 1998 1997 1998 1997 -------------- -------------- ------------- ------------- (IN THOUSANDS) Change in Benefit Obligations Benefit obligation at January 1, ...................... $ (254,929) $ (235,441) $ (72,542) $ (67,367) Service cost .......................................... (5,410) (4,384) (1,417) (1,298) Interest cost ......................................... (19,024) (17,561) (5,371) (5,047) Actuarial (gain) loss ................................. (22,521) (13,928) (7,500) (2,891) Benefits paid ......................................... 16,238 16,385 4,514 4,061 ---------- ---------- --------- --------- Benefit obligation at December 31, .................... $ (285,646) $ (254,929) $ (82,316) $ (72,542) ========== ========== ========= ========= Change in Plan Assets Fair value of assets at January 1, .................... $ 289,091 $ 254,824 $ 52,263 $ 39,601 Actual return on assets ............................... 36,467 50,489 5,781 9,907 Company contributions ................................. 163 163 863 6,816 Participant contributions ............................. -- -- -- -- Benefits paid ......................................... (16,238) (16,385) (4,514) (4,061) ---------- ---------- --------- --------- Fair value of assets at December 31, .................. $ 309,483 $ 289,091 $ 54,393 $ 52,263 ========== ========== ========= ========= Funded Status at December 31, Benefit obligation less (greater) than plan assets ............................................... $ 23,837 $ 34,162 $ (27,923) $ (20,279) Unrecognized net transition liability (asset) ......... (4,011) (4,899) 30,297 33,155 Unrecognized actuarial (gain) loss .................... (35,875) (47,431) (6,777) (12,977) Unrecognized prior service cost ....................... 6,365 7,433 -- -- Intangible asset ...................................... (415) (455) -- -- Accumulated other comprehensive income ................ (1,401) (1,120) -- -- ---------- ---------- --------- --------- Prepaid (accrued) benefit cost ........................ $ (11,500) $ (12,310) $ (4,403) $ (101) ========== ========== ========= ========= Assumptions as of December 31, Discount rate ......................................... 6.75% 7.25% 6.75% 7.25% Long-term return on assets ............................ 9.00% 8.50% 8.50% 8.50% Long-term compensation increase ....................... 3.50% 4.50% N/A N/A
F-18 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS-- (CONTINUED) For measurement purposes, a 7.2 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998. The rate was assumed to decrease gradually to 5.7 percent for 2025 and remain level thereafter. Increasing the assumed health care cost trend rate by 1% in each year would increase the accumulated postretirement benefit obligation at December 31, 1998, by $2.9 million and the aggregate of the service and interest cost components of net postretirement health care cost for 1998 by $252,000. Decreasing the assumed health care cost trend rate by 1% in each year would decrease the accumulated postretirement benefit obligation at December 31, 1998, by $3.3 million and the aggregate of the service and interest cost components of net postretirement health care cost for 1998 by $295,000. NOTE 4. CILCORP SHAREHOLDER RETURN INCENTIVE COMPENSATION PLAN Under the Company's Shareholder Return Incentive Compensation Plan (the Plan), eligible key employees of the Company and its subsidiaries are entitled to receive shares of the Company's common stock based on a performance methodology established and periodically amended by the Compensation Committee of the Company's Board of Directors. During 1997, 350,000 fully-vested performance shares were distributed. Such shares are convertible into common stock with the number of shares received based upon the number of performance shares exercised multiplied by the difference between the average market price of the Company's common stock for the fifteen days prior to exercise and $36, divided by the market price of common stock at the exercise date. The compensation expense recognized under this Plan, based on the provisions of Statement of Financial Accounting Standards No. 123, (SFAS 123) was $1.8 million in 1997 when the performance shares were distributed. These shares were convertible into common stock at any time until December 31, 1998 (the Performance Period). The fair value of each performance share granted under the Plan was $5.98 -- estimated using the Black-Scholes option-pricing model assuming a risk-free interest rate of 5.7%, dividend yield of 5.9%, expected life of one year and volatility of 16.1%. In 1998, the Performance Period for the originally granted performance shares was extended to December 31, 1999. No additional expense was recorded following this extension, as a revaluation of the fair value of the performance shares per the provisions of SFAS 123 yielded no material valuation difference due to the one-year extension. To the extent that the market price exceeds $56, the Plan participants are entitled to receive cash in lieu of common stock. Consequently, the Company recognized expense of $1.75 million in the fourth quarter 1998 to reflect a share price approximating $61. NOTE 5. SHORT-TERM DEBT Short-term debt at December 31, 1998, consisted of $55.6 million of Holding Company bank borrowings and $40.6 million of CILCO commercial paper. Short-term debt at December 31, 1997, included $40.9 million of Holding Company bank borrowings and $21.3 million of CILCO commercial paper. The Holding Company had arrangements for bank lines of credit totaling $60 million at December 31, 1998, of which $55.6 million was used. These lines were maintained by commitment fees of 1/8 of 1% per annum in lieu of balances. CILCO had arrangements for bank lines of credit totaling $45 million at December 31, 1998, all of which were unused. These lines of credit were maintained by commitment fees of 1/20 of 1% per annum in lieu of balances. These bank lines of credit support CILCO's issuance of commercial paper. F-19 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 6. LEVERAGED LEASE INVESTMENTS The Company, through subsidiaries of CILCORP Investment Management Inc. (CIM), is a lessor in eight leveraged lease arrangements under which mining equipment, electric production facilities, warehouses, office buildings, passenger railway equipment and an aircraft are leased to third parties. The economic lives and lease terms vary with the leases. CIM's share of total equipment and facilities cost was approximately $350 million at December 31, 1998, and 1997. The cost of the equipment and facilities owned by CIM is partially financed by non-recourse debt provided by lenders, who have been granted, as their sole remedy in the event of a lessee default, an assignment of rents due under the leases and a security interest in the leased property. Such debt amounted to $232 million at December 31, 1998, and $237 million at December 31, 1997. Leveraged lease residual value assumptions, which are conservative in relation to independently appraised residual values of the lease portfolio, are tested on a periodic basis. In 1998, CIM decreased the estimated residual value of one of its leases by approximately $6.8 million to reflect current conditions in the secondary market for the asset. CIM's net investment in leveraged leases at December 31, 1998 and 1997 is shown below:
1998 1997 ----------- ----------- (IN THOUSANDS) Minimum lease payments receivable ..................... $142,095 $136,916 Estimated residual value .............................. 87,569 94,368 Less: Unearned income ................................. 82,674 84,826 -------- -------- Investment in lease financing receivables ............. 146,990 146,458 Less: Deferred taxes arising from leveraged leases..... 103,566 101,005 -------- -------- Net investment in leveraged leases .................... $ 43,424 $ 45,453 ======== ========
NOTE 7. PREFERRED STOCK PREFERRED STOCK OF SUBSIDIARY
AT DECEMBER 31, ----------------------- 1998 1997 ---------- ---------- (IN THOUSANDS) Preferred stock, cumulative $100 par value, authorized 1,500,000 shares Without mandatory redemption 4.50% series -- 111,264 shares ........... $11,126 $11,126 4.64% series -- 79,940 shares ....................... 7,994 7,994 Class A, no par value, authorized 3,500,000 shares Flexible auction rate -- 250,000 shares (*) ......... 25,000 25,000 With mandatory redemption 5.85% series -- 220,000 shares .................................... 22,000 22,000 ------- ------- Total preferred stock ............................. $66,120 $66,120 ======= =======
- ---------- (*) Dividend rates at December 31, 1998 and 1997, were 4.04% and 4.18%, respectively. All classes of preferred stock are entitled to receive cumulative dividends and rank equally as to dividends and assets, according to their respective terms. The total annual dividend requirement for preferred stock outstanding at December 31, 1998, is $3.2 million, assuming a continuation of the auction dividend rate at December 31, 1998, for the flexible auction rate series. F-20 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 7. PREFERRED STOCK -- (CONTINUED) PREFERRED STOCK WITHOUT MANDATORY REDEMPTION The call provisions of preferred stock redeemable at CILCO's option outstanding at December 31, 1998, are as follows: Series Callable Price Per Share (plus accrued dividends) 4.50% $110 4.64% $102 Flexible Auction Rate $100
PREFERRED STOCK WITH MANDATORY REDEMPTION CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per share. A mandatory redemption fund must be established on July 1, 2003. The fund will provide for the redemption of 11,000 shares for $1.1 million on July 1 of each year through July 1, 2007. On July 1, 2008, the remaining 165,000 shares will be retired for $16.5 million. PREFERENCE STOCK OF SUBSIDIARY, CUMULATIVE No Par Value, Authorized 2,000,000 shares, of which none have been issued. PREFERRED STOCK OF HOLDING COMPANY No Par Value, Authorized 4,000,000 shares, of which none were outstanding at December 31, 1998 and 1997. COMMON STOCK RIGHTS On October 29, 1996, the Board of Directors of CILCORP authorized and declared a dividend distribution of one right for each share of common stock of the Company to stockholders of record at November 12, 1996, and for each share of common stock issued thereafter. Each right gives the stockholder the right to purchase one one-hundredth of a share of preferred stock of the Company for $100, subject to the conditions set forth in the agreement governing the rights plan. NOTE 8. LONG-TERM DEBT
AT DECEMBER 31, ----------------------- 1998 1997 ---------- ---------- (IN THOUSANDS) CILCO first mortgage bonds 7 1/2% series due 2007 ......... $ 50,000 $ 50,000 8 1/5% series due 2022 ......... 65,000 65,000 Medium-term notes 6.4% series due 2000 ........... 30,000 30,000 6.82% series due 2003 .......... 25,350 25,350 6.13% series due 2005 .......... 16,000 16,000 7.8% series due 2023 ........... 10,000 10,000 7.73% series due 2025 .......... 20,000 20,000 Pollution control refunding bonds 6.5% series F due 2010 ......... 5,000 5,000 6.2% series G due 2012 ......... 1,000 1,000 6.5% series E due 2018 ......... 14,200 14,200 5.9% series H due 2023 ......... 32,000 32,000 -------- -------- 268,550 268,550 -------- --------
F-21 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 8. LONG-TERM DEBT -- (CONTINUED)
AT DECEMBER 31, --------------------------- 1998 1997 ------------ ------------ (IN THOUSANDS) CILCO first mortgage bonds Unamortized premium and discount on long-term debt, net ................................. (666) (714) -------- -------- Total CILCO .............................. $267,884 $267,836 -------- -------- CILCORP Inc. Unsecured medium-term notes; various maturities in 2001; interest rates ranging from 8.52% to 9.10% .............. 17,500 30,500 Other ..................................... 168 192 -------- -------- Total long-term debt ..................... $285,552 $298,528 ======== ========
CILCO's first mortgage bonds are secured by a lien on substantially all of its property and franchises. Unamortized borrowing expense, premium and discount on outstanding long-term debt are being amortized over the lives of the respective issues. Total consolidated maturities of long-term debt for 2000-2003 are as follows: $30 million in 2000, $18 million in 2001, no debt due in 2002, and $25 million in 2003. The remaining maturities of long-term debt of $214 million, occur in 2004 and beyond. The 1999 and 1998 maturities of long-term borrowings have been classified as current liabilities. NOTE 9. COMMITMENTS & CONTINGENCIES CILCO's 1999 capital expenditures are estimated to be $56.6 million in connection with which CILCO has normal and customary purchase commitments at December 31, 1998. CILCO acts as a self-insurer for certain insurable risks resulting from employee health and life insurance programs. The International Brotherhood of Electrical Workers Local 51 (IBEW) ratified its current agreement on October 10, 1997. The contract expires on July 1, 2000. The IBEW represents approximately 389 CILCO gas and electric department employees. The National Conference of Firemen and Oilers Local 8 (NCF&O) ratified its current contract with the Company on October 23, 1998. CILCO's previous contract with the NCF&O expired on July 1, 1998, and the NCF&O membership had been working without a contract since that time. The new contract expires on July 1, 2001. The NCF&O represents approximately 200 CILCO power plant employees. In August 1990, CILCO entered into a firm, wholesale power purchase agreement with Central Illinois Public Service Company, now AmerenCIPS (CIPS). This agreement provided for a minimum contract delivery rate from CIPS of 90 MW until the contract expired in May 1998. In March 1995, CILCO and CIPS amended a limited-term power agreement reached in November 1992. This agreement, which now expires in May 2009, provides for CILCO to purchase up to 150 MW of CIPS' capacity from June 1998 through May 2002, and 50 MW from June 2002 through May 2009. In January 1997, CILCO intervened in a proceeding before the Federal Energy Regulatory Commission (FERC) to raise contract issues relating to CIPS' proposal to engage with a second utility in joint dispatch of their respective generating units. CILCO also challenged the validity of the power agreements with CIPS because of CIPS' failure to obtain FERC approval of the agreements. In the alternative, CILCO requested that FERC provide an "open season" during which CILCO may cancel the power agreements in whole or in part. In an October 1997 order, FERC rejected CILCO's F-22 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) challenges to joint dispatch and denied CILCO's request for an open season. However, CIPS was ordered to file the agreements with FERC and, on its own motion, FERC initiated a separate proceeding to investigate the NOTE 9. COMMITMENTS & CONTINGENCIES -- (CONTINUED) terms of the agreements. Hearings in that proceeding have concluded, and the Administrative Law Judge has entered an order finding the agreements are, with minor exceptions, just and reasonable. CILCO is appealing that order to FERC and is requesting FERC to assess penalties against CIPS for CIPS' failure to file the 1990 agreement before providing service to CILCO under that agreement. FERC's October 1997 order failed to address certain contract issues raised by CILCO. FERC denied rehearing of that order in February 1998, and CILCO has appealed to the United States Court of Appeals for the District of Columbia Circuit for a review of FERC's orders concerning the CIPS agreements. CILCO also filed a separate complaint at FERC in December 1998, challenging the manner in which CIPS is performing, or failing to perform, under the agreements and has notified CIPS that CILCO considers CIPS to be in default under the agreements. On the ground that CIPS is in default regarding performance under the 1992 agreement, CILCO suspended capacity reservation payments to CIPS under the agreements as of January 21, 1999. CILCO cannot predict how FERC or the Court will ultimately rule on the issues pending before them. If CILCO's position is not upheld on certain issues, CILCO could be required to pay the suspended capacity reservation charges which are currently $865,000 per month, plus interest, to CIPS. While the capacity payments are suspended, CILCO is purchasing power and energy from other sources. Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations -- Environmental Matters (regarding former gas manufacturing sites) for a discussion of that item. NOTE 10. QST ENTERPRISES DISCONTINUED OPERATIONS Due to uncertainties related to energy deregulation across the country, the illiquidity of certain energy markets and its pending acquisition by AES, the Company will focus in the future on the opportunities in the Illinois energy market resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Management's Discussion and Analysis -- Competition). As a result, the Company decided in the fourth quarter of 1998 to sell its 100% ownership interest in QST Environmental Inc., a first-tier subsidiary of QST providing environmental consulting and engineering services. In August 1998, QST sold its wholly-owned fiber optic-based telecommunications subsidiary, QST Communications, for $20 million cash and stock options valued at $5.5 million. Since incurring material losses in the wholesale electricity market in June 1998 and subsequent losses in its energy operations outside of Illinois, QST Energy has transferred its Pennsylvania retail customers to other marketers, ceased its Houston-based energy trading operations, and has begun an effort to negotiate an end to its obligation to provide electricity to its non-Illinois customers. Accordingly, the operations of QST Enterprises and its subsidiaries are shown as discontinued operations in the statements of income. The Company's investment in QST Enterprises, as of December 31, 1998, on the accompanying consolidated balance sheet, consists primarily of $17.4 million in working capital, $6.9 million in fixed assets and $6.3 million of investments and other assets. Prior year financial statements, which also include the discontinued operations of ESE Land Corporation (sold by QST Environmental in November 1997, for $9.5 million and residual interests in three limited liability corporations), have been reclassified to conform to the current year presentation. NOTE 11. LEASES The Company and its subsidiaries lease certain equipment, buildings and other facilities under capital and operating leases. Several of the operating leases provide that the Company pay taxes, maintenance and other occupancy costs applicable to these premises. F-23 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Minimum future rental payments under non-cancellable capital and operating leases having remaining terms in excess of one year as of December 31, 1998, are $19.9 million in total. Payments due during the years ending December 31, 1999, through December 31, 2003, are $8.1 million, $5.6 million, $3.4 million, $1.9 million and $.5 million, respectively. NOTE 12. FINANCIAL INSTRUMENTS AND PRICE RISK MANAGEMENT CILCORP utilizes commodity futures contracts, options and swaps in the normal course of its natural gas business activities. However, it does not currently utilize these instruments to hedge its electric purchase and sale transactions or to participate in energy trading activities. Gains and losses arising from derivative financial instrument transactions which hedge the impact of fluctuations in energy prices are recognized in income concurrent with the related purchases and sales of the commodity. If a derivative financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. If a derivative financial instrument contract is terminated early for other economic reasons, any gain or loss as of the termination date is deferred and recorded concurrently with the related purchase and sale of natural gas. CILCORP is subject to commodity price risk for deregulated sales to the extent that energy is sold under firm price commitments. Due to market conditions, at times CILCORP may have unmatched commitments to purchase and sell energy on a price and quantity basis. Physical and derivative financial instruments give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. Market risks are actively monitored to ensure compliance with the Company's risk management policies, including limits to the Company's total net exposure at any time. The net loss reflected in operating results from derivative financial instruments was $2.2 million for the year 1998. As of December 31, 1998, CILCORP had fixed-price derivative financial instruments representing hedges of natural gas purchases of 5.6 Bcf and natural gas sales of 7.2 Bcf for commitments through September 1999. The net deferred loss and carrying amount on these fixed-price derivatives at December 31, 1998 was $.9 million. At December 31, 1998, CILCORP had open positions in derivative financial instruments used to hedge basis of 1.0 Bcf for commitments through October 1999. The net deferred loss on these basis derivatives at December 31, 1998, was $.1 million. NOTE 13. EARNINGS PER SHARE The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock. The shares calculated for dilutive potential result from the CILCORP Shareholder Return Incentive Compensation Plan.
1998 1997 ---------- ---------- (IN THOUSANDS) Income available to common shareholders .................. $16,310 $16,395 Weighted average number of common shares used in Basic Earnings Per Share ...................................... 13,611 13,611 Weighted number of dilutive potential common stock used in Diluted Earnings Per Share .............................. 96 16
The Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share, beginning with the year ended December 31, 1997. Restatement of 1996 is not applicable as no potential common stock dilution occurred until 1997. F-24 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following quarterly operating results are unaudited, but, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the Company's operating results for the periods indicated. The results of operations for each of the fiscal quarters are not necessarily comparable to, or indicative of, the results of an entire year due to the seasonal nature of the Company's business and other factors.
FOR THE THREE MONTHS ENDED ------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ------------ ------------ -------------- -------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1998 Revenue .................................................... $154,274 $121,435 $141,143 $ 142,172 Income from continuing operations before income taxes .................................................... 17,566 10,254 29,020 1,077 Income taxes ............................................... 6,250 2,519 10,983 (53) Net income from continuing operations ...................... 11,316 7,735 18,037 1,130 Loss from operations of discontinued business, net of tax of $(2,355), $(5,512), $(2,354) and $(6,057).................................................. (3,622) (8,423) (3,620) (9,360) Gain (loss) on sale/disposal of assets of discontinued business, net of tax of $5,425 and $(3,411).................................................. -- -- 8,252 (5,135) Net income (loss) .......................................... $ 7,694 $ (688) $ 22,669 $ (13,365) Earnings per average common share--basic ................... Continuing operations ...................................... $ 0.83 $ 0.57 $ 1.33 $ 0.08 Discontinued operations .................................... (0.27) (0.62) 0.34 (1.06) Net income (loss) .......................................... $ 0.56 $ (0.05) $ 1.67 $ (0.98) Earnings per average common share--diluted ................. Continuing operations ...................................... $ 0.83 $ 0.56 $ 1.32 $ 0.08 Discontinued operations .................................... (0.27) (0.61) 0.34 (1.06) Net income (loss) .......................................... $ 0.56 $ (0.05) $ 1.66 $ (0.98) 1997 Revenue .................................................... $168,595 $113,610 $125,050 $ 150,705 Income from continuing operations before income taxes .................................................... 16,793 10,889 23,966 14,410 Income taxes ............................................... 5,254 3,559 8,858 4,678 Net income from continuing operations before extraordinary item ....................................... 11,539 7,330 15,108 9,732 Loss from operations of discontinued business, net of tax of $(1,060), $(842), $(1,195) and $(4,201)......... (1,820) (1,513) (2,034) (28,759) Gain on sale of assets of discontinued business, net of tax of $1,889.......................................... -- -- -- 2,712 Extraordinary item ......................................... -- -- -- 4,100 Net income (loss) .......................................... $ 9,719 $ 5,817 $ 13,074 $ (12,215) Earnings per average common share--basic ................... Continuing operations ...................................... $ 0.85 $ 0.54 $ 1.11 $ 0.71 Discontinued operations .................................... (0.14) (0.11) (0.15) (1.91) Extraordinary item ......................................... -- -- -- 0.30 Net income (loss) .......................................... $ 0.71 $ 0.43 $ 0.96 $ (0.90) Earnings per average common share--diluted ................. Continuing operations ...................................... $ 0.85 $ 0.54 $ 1.11 $ 0.71 Discontinued operations .................................... (0.14) (0.11) (0.15) (1.91) Extraordinary item ......................................... -- -- -- .30 Net income (loss) .......................................... $ 0.71 $ 0.43 $ 0.96 $ (0.90)
F-25 CILCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)* (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------------- 1999 1998 ------------ -------------- Revenue: Electric utility ................................................. $169,006 $167,482 Gas utility ...................................................... 102,366 98,212 Other businesses ................................................. 17,133 10,382 -------- --------- Total ........................................................... 288,505 276,076 -------- --------- Operating expenses: Fuel for generation and purchased power .......................... 57,183 58,329 Gas purchased for resale ......................................... 65,005 60,025 Other operations and maintenance ................................. 73,724 62,001 Depreciation and amortization .................................... 34,481 31,966 Taxes, other than income taxes ................................... 20,916 19,305 -------- --------- Total ........................................................... 251,309 231,626 -------- --------- Fixed charges and other: Interest expense ................................................. 14,340 14,625 Preferred stock dividends of subsidiary .......................... 1,570 1,599 Allowance for funds used during construction ..................... (26) (6) Other ............................................................ 506 412 -------- ---------- Total ........................................................... 16,390 16,630 -------- ---------- Income from continuing operations before income taxes ............ 20,806 27,820 Income taxes ..................................................... 7,115 8,769 -------- ---------- Net income from continuing operations ............................ 13,691 19,051 Loss from operations of discontinued business, net of tax of $(266), $(5,512), $(221) and $(7,867)............................ (407) (12,045) -------- ---------- Net income (loss) ................................................ $ 13,284 $ 7,006 ======== ========== Average common shares outstanding - basic ........................ 13,611 13,611 Earnings per common share--basic Continuing operations ........... $ 1.01 $ 1.40 Discontinued operations .......................................... (.03) (.89) -------- ---------- Net income per common share--basic ............................... $ .98 $ .51 ======== ========== Average common shares outstanding - diluted ...................... 13,752 13,690 Earnings per common share--diluted Continuing operations ......... $ 1.00 $ 1.39 Discontinued operations .......................................... (.03) (.88) -------- ---------- Net income per common share--diluted ............................. $ .97 $ .51 ======== ========== Dividends per common share ....................................... $ 1.23 $ 1.23 ======== ==========
- ---------- * Except per share amounts The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-26 CILCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, ------------ ------------- 1999 1998 ------------ ------------- (UNAUDITED) ASSETS Current assets: Cash and temporary cash investments .................... $ 3,541 $ 1,669 Receivables, less reserves of $1,657 and $3,411.......... 68,405 134,548 Accrued unbilled revenue ................................ 27,800 39,339 Fuel, at average cost ................................... 9,049 13,431 Materials and supplies, at average cost ................. 16,444 15,435 Gas in underground storage, at average cost ............. 12,478 20,494 Prepayments and other ................................... 8,639 7,646 ---------- ---------- Total current assets ................................... 146,356 232,562 ---------- ---------- Investments and other property: Investment in leveraged leases .......................... 143,297 146,977 Cash surrender value of company-owned life insurance, net of related policy loans of $51,871 and $48,132.......... 2,362 2,655 Other investments ....................................... 21,698 16,882 ---------- ---------- Total investments and other property ................... 167,357 166,514 ---------- ---------- Property, plant and equipment: Utility plant, at original cost Electric ................................................ 1,245,551 1,237,885 Gas ..................................................... 420,812 417,585 ---------- ---------- 1,666,363 1,655,470 Less -- accumulated provision for depreciation .......... 846,954 812,630 ---------- ---------- 819,409 842,840 Construction work in progress ........................... 45,576 30,075 Other, net of depreciation .............................. 610 7,755 ---------- ---------- Total property, plant and equipment .................... 865,595 880,670 ---------- ---------- Other assets ............................................ 23,327 33,194 ---------- ---------- Total assets ........................................... $1,202,635 $1,312,940 ========== ==========
The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets. F-27 CILCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, -------------- ------------- 1999 1998 -------------- ------------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ........................ $ 43,000 $ 13,027 Notes payable ............................................ 73,300 96,200 Accounts payable ......................................... 52,276 128,845 Accrued taxes ............................................ 5,031 8,262 Accrued interest ......................................... 9,386 9,994 FAC/PGA over-recoveries .................................. 367 304 Other .................................................... 4,519 14,316 ---------- ---------- Total current liabilities ............................... 187,879 270,948 ---------- ---------- Long-term debt ........................................... 257,168 288,135 ---------- ---------- Deferred credits and other liabilities: Accumulated deferred income taxes ........................ 240,446 239,305 Regulatory liability of regulated subsidiary ............. 41,302 46,346 Deferred investment tax credits .......................... 18,654 19,450 Other .................................................... 58,370 47,098 ---------- ---------- Total deferred credits and other liabilities ............ 358,772 352,199 ---------- ---------- Preferred stock of subsidiary ............................ 66,120 66,120 ---------- ---------- Stockholders' equity: Common stock, no par value; authorized 50,000,000 shares-- outstanding 13,610,680 shares ........................... 192,853 192,853 Retained earnings ........................................ 140,688 143,530 Accumulated other comprehensive income ................... (845) (845) ---------- ---------- Total stockholders' equity .............................. 332,696 335,538 ---------- ---------- Total liabilities and stockholders' equity .............. $1,202,635 $1,312,940 ========== ==========
The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets. F-28 CILCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net income before preferred dividends ............................................ $ 15,261 $ 20,650 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Non-cash lease income and investment income ..................................... (3,299) (3,415) Cash receipts in excess of debt service on leases ............................... 7,326 5,650 Depreciation and amortization ................................................... 34,481 31,966 Deferred income taxes, investment tax credit and regulatory liability of subsidiary, net ............................................................... (8,748) (4,094) Changes in operating assets and liabilities: Decrease in accounts receivable and accrued unbilled revenue .................... 7,719 21,343 Decrease in inventories ......................................................... 11,374 8,501 Decrease in accounts payable .................................................... (20,337) (22,702) Increase in accrued taxes ....................................................... 934 2,630 Decrease (increase) in other assets ............................................. 1,700 (512) Increase (decrease) in other liabilities ........................................ 8,339 (1,469) --------- --------- Total adjustments ............................................................... 39,489 37,898 --------- --------- Net cash provided by operating activities from continuing operations ............ 54,750 58,548 --------- --------- Net cash provided (used) by operating activities of discontinued operations ..... 8,112 (8,738) --------- --------- Cash flow from operations ....................................................... 62,862 49,810 --------- --------- Cash flows from investing activities: Additions to plant .............................................................. (27,311) (29,871) Proceeds from sale of discontinued operations ................................... 17,376 -- Other ........................................................................... (4,012) (909) --------- --------- Net cash used by investing activities from continuing operations ................ (13,947) (30,780) --------- --------- Net cash used by investing activities from discontinued operations .............. (4,838) (5,359) --------- --------- Cash flow from investing activities ............................................. (18,785) (36,139) --------- --------- Cash flow from financing activities: Net (decrease) increase in short-term debt ....................................... (22,900) 2,350 Net decrease in long-term debt ................................................... (994) (2,117) Common dividends paid ............................................................ (16,741) (16,742) Preferred dividends paid ......................................................... (1,570) (1,599) --------- --------- Cash flow from financing activities ............................................. (42,205) (18,108) --------- --------- Net increase (decrease) in cash and temporary cash investments ................... 1,872 (4,437) Cash and temporary cash investments at beginning of year ......................... 1,669 10,576 --------- --------- Cash and temporary cash investments at June 30 ................................... $ 3,541 $ 6,139 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ......................................................................... $ 13,832 $ 13,613 Income taxes ..................................................................... $ 10,872 $ 7,068
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. F-29 CILCORP INC. AND SUBSIDIARIES STATEMENTS OF SEGMENTS OF BUSINESS
SIX MONTHS ENDED JUNE 30, 1999 ------------------------------------------------------------------------------------ CILCO CILCO CILCO OTHER DISCONT. ELECTRIC GAS OTHER BUSINESSES OPERATNS. TOTALS ------------ ----------- ------------ ------------ ----------- ----------- (IN THOUSANDS) Revenues .............................. $169,006 $102,366 $ 1,729 $ 15,235 $ -- $288,336 Interest income ....................... -- -- 113 56 -- 169 -------- -------- -------- -------- ------- -------- Total ............................. 169,006 102,366 1,842 15,291 -- 288,505 -------- -------- -------- -------- ------- -------- Operating expenses .................... 120,487 79,013 3,161 14,167 -- 216,828 Depreciation and amortization ......... 23,786 10,175 432 88 -- 34,481 -------- -------- -------- -------- ------- -------- Total ............................. 144,273 89,188 3,593 14,255 -- 251,309 -------- -------- -------- -------- ------- -------- Interest expense ...................... 8,233 3,265 -- 2,842 -- 14,340 Preferred stock dividends ............. -- -- 1,570 -- -- 1,570 Fixed charges and other expenses....... (26) -- 506 -- -- 480 -------- -------- -------- -------- ------- -------- Total ............................. 8,207 3,265 2,076 2,842 -- 16,390 -------- -------- -------- -------- ------- -------- Income from continuing oper. before income taxes .................. 16,526 9,913 (3,827) (1,806) -- 20,806 Income taxes .......................... 5,315 4,044 (1,367) (877) -- 7,115 -------- -------- -------- -------- ------- -------- Net income from continuing operations ........................... 11,211 5,869 (2,460) (929) -- 13,691 -------- -------- -------- -------- ------- -------- Effect of discontinued operations ..... -- -- -- -- (407) (407) -------- -------- -------- -------- ------- -------- Segment net income .................... $ 11,211 $ 5,869 $ (2,460) $ (929) $ (407) $ 13,284 ======== ======== ======== ======== ======= ========
SIX MONTHS ENDED JUNE 30, 1998 ----------------------------------------------------------------------------- CILCO CILCO CILCO OTHER DISCONT. ELECTRIC GAS OTHER BUSINESSES OPERATNS. TOTALS -------------- ----------- ----------- ------------ ------------- ----------- (IN THOUSANDS) Revenues .............................. $167,482 $ 98,212 $ 355 $ 9,780 $ -- $ 275,829 Interest income ....................... -- -- 191 56 -- 247 -------- -------- -------- -------- --------- --------- Total ............................. 167,482 98,212 546 9,836 -- 276,076 -------- -------- -------- -------- --------- --------- Operating expenses .................... 112,626 76,816 1,553 8,665 -- 199,660 Depreciation and amortization ......... 22,436 9,073 356 101 -- 31,966 -------- -------- -------- -------- --------- --------- Total ............................. 135,062 85,889 1,909 8,766 -- 231,626 -------- -------- -------- -------- --------- --------- Interest expense ...................... 8,038 3,204 -- 3,383 -- 14,625 Preferred stock dividends ............. -- -- 1,599 -- -- 1,599 Fixed charges and other expenses....... (6) -- 412 -- -- 406 ---------- -------- -------- -------- --------- --------- Total ............................. 8,032 3,204 2,011 3,383 -- 16,630 --------- -------- -------- -------- --------- --------- Income from continuing oper. before income taxes .................. 24,388 9,119 (3,374) (2,313) -- 27,820 Income taxes .......................... 8,181 3,645 (1,339) (1,718) -- 8,769 --------- -------- -------- -------- --------- --------- Net income from continuing operations ........................... 16,207 5,474 (2,035) (595) -- 19,051 --------- -------- -------- -------- --------- --------- Effect of discontinued operations ..... -- -- -- -- (12,045) (12,045) --------- -------- -------- -------- --------- --------- Segment net income .................... $ 16,207 $ 5,474 $ (2,035) $ (595) $ (12,045) $ 7,006 ========= ======== ======== ======== ========= =========
F-30 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. INTRODUCTION The consolidated financial statements include the accounts of CILCORP Inc. (CILCORP or the Holding Company), Central Illinois Light Company (CILCO), QST Enterprises Inc. (QST) and its subsidiaries (QST Environmental Inc., QST Energy Inc. (QST Energy) and CILCORP Infraservices Inc.) and CILCORP's other subsidiaries (collectively, the Company) after elimination of significant intercompany transactions. The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company and CILCO Energy Corporation. CILCORP owns directly or indirectly 100% of the common stock of its first-tier subsidiaries. In the fourth quarter of 1998, the operations of QST and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc.-- see Management's Discussion and Analysis) were discontinued (see Note 4.) and, therefore, are being reported as discontinued operations in the financial statements. QST completed the sale of subsidiary QST Environmental Inc. in the second quarter of 1999 (see Results of Operations-- QST Enterprises Discontinued Operations). Prior year amounts have been reclassified on a basis consistent with the 1999 presentation. The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC). Although CILCORP believes the disclosures are adequate to make the information presented not misleading, these consolidated financial statements should be read along with the Company's 1998 Annual Report on Form 10-K. In the Company's opinion, the consolidated financial statements furnished reflect all normal and recurring adjustments necessary for a fair presentation of the results of operations for the periods presented. Operating results for interim periods are not necessarily indicative of operating results to be expected for the year or of the Company's future financial condition. NOTE 2. CONTINGENCIES GAS MANUFACTURING PLANT SITES CILCO continues to investigate and/or monitor four former gas manufacturing plant sites located within CILCO's present gas service territory. The purpose of the investigations is to determine if waste materials, principally coal tar, are present, whether such waste materials constitute an environmental or health risk and if CILCO is responsible for the remediation of any remaining waste materials at those sites. During the six months ended June 30, 1999, CILCO paid approximately $362,000 to outside parties for former gas manufacturing plant site monitoring, remediation and legal fees, and expects to spend approximately $250,000 during the remainder of 1999. A $1.5 million liability is recorded on the Balance Sheets, representing CILCO's minimum obligation expected for coal tar investigation and remediation costs. Coal tar remediation costs incurred through June 1999 have been deferred as a regulatory asset on the Balance Sheets, less amounts recovered from customers. Through June 30, 1999, CILCO has recovered approximately $6.6 million in coal tar remediation costs from its customers through a gas rate rider approved by the Illinois Commerce Commission (ICC). Currently, that rider allows recovery of prudently incurred coal tar remediation costs in the year that the expenditures occur. Under these circumstances, management believes that the cost of coal tar remediation will not have a material adverse effect on CILCO's financial position or results of operations. CILCO'S UNION CONTRACTS The International Brotherhood of Electrical Workers Local 51 (IBEW) ratified its current agreement on October 10, 1997. The current contract expires on July 1, 2000. The IBEW represents approximately 389 CILCO gas and electric department employees. The National Conference of Firemen and Oilers Local 8 (NCF&O), ratified its current agreement on October 23, 1998. The current contract expires on July 1, 2001. The NCF&O represents approximately 159 CILCO power plant employees. F-31 NOTE 3. COMMITMENTS In August 1990, CILCO entered into a firm, wholesale power purchase agreement with Central Illinois Public Service Company, now AmerenCIPS (CIPS). This agreement provided for a minimum contract delivery rate from CIPS of 90 MW until the contract expired in May 1998. In March 1995, CILCO and CIPS amended a limited-term power agreement reached in November 1992. This agreement provided for CILCO to purchase 150 MW of CIPS' capacity from June 1998 through May 2002, and 50 MW from June 2002 through May 2009. In May 1999, a settlement was reached between CILCO and CIPS regarding disputed issues pertaining to these capacity and energy agreements. The settlement amends the previous agreements to provide for 100 MW of capacity and firm energy for the months of June through September for the years 2000 through 2003 and additionally provide for 100 MW of firm energy for the month of January in each of those years. There are no commitments to purchase capacity or energy beyond those dates. The agreements provide specific prices for on-peak and off-peak energy, which eliminates the ambiguity that arose under the old agreements due to the use of pricing queues. Under the settlement, CILCO will have no capacity payment obligations to CIPS for February through December 1999, resulting in 1999 capacity reservation savings of approximately $6 million. The settlement also obligates both parties to withdraw from regulatory action pertaining to related contract issues. CIPS and CILCO are currently preparing the settlement document filing for approval by the FERC. NOTE 4. QST ENTERPRISES DISCONTINUED OPERATIONS Due to uncertainties related to energy deregulation across the country, the illiquidity of certain energy markets and the Company's pending acquisition by AES, the Company intends to focus on the opportunities in the Illinois energy market resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Management's Discussion and Analysis-- Illinois Electric Deregulation). As a result, the Company decided in the fourth quarter of 1998 to sell its 100% ownership interest in QST Environmental Inc. (QST Environmental), a first-tier subsidiary of QST Enterprises Inc. providing environmental consulting and engineering services. On May 7, 1999, QST Enterprises Inc. signed a definitive agreement for the sale of QST Environmental to MACTEC, Inc., a privately-held company which provides environmental management services, for approximately $18 million in cash, which was received by QST Enterprises Inc. on June 24, 1999, the effective date of the sale. In August 1998, QST Enterprises Inc. sold its wholly-owned fiber optic-based telecommunications subsidiary, QST Communications, for $20 million cash and stock options then valued at $5.5 million. After incurring material losses in the wholesale electricity market in June 1998 and subsequent losses in its energy operations outside of Illinois, QST Energy transferred its Pennsylvania retail customers to other marketers, ceased its Houston-based energy trading operations, and has terminated its obligations to provide electricity to its non-Illinois customers. Accordingly, the operations of QST Enterprises Inc. and its subsidiaries are shown as discontinued operations in the statements of income. The Company's investment in QST Enterprises Inc. (excluding CILCORP Infraservices Inc.), as of June 30, 1999, on the accompanying consolidated balance sheet, consists primarily of $1.7 million in working capital, $.2 million in fixed assets and $11.2 million of investments and other assets. Working capital consists mainly of $1.7 million in receivables (see QST Enterprises Discontinued Operations) offset by $16.6 million in outstanding debt to the Holding Company. Investments and other assets consists primarily of a $5.5 million investment in ESE Land Corporation (ESE Land) and $5.5 million of stock options obtained in the sale of QST Communications. The investment in ESE Land consists of residual interests in three limited liability corporations obtained as part of the sale of ESE Land assets in fourth quarter 1997. QST Environmental's residual investment in ESE Land was transferred to QST Enterprises Inc. prior to the sale of QST Environmental. Prior year financial statements have been reclassified to conform to the current year presentation. NOTE 5. FINANCIAL INSTRUMENTS AND PRICE RISK MANAGEMENT CILCORP utilizes commodity futures contracts, options and swaps in the normal course of its natural gas and electric business activities. Gains and losses arising from derivative financial instrument transactions which hedge the impact of fluctuations in energy prices are recognized in income concurrent F-32 NOTE 5. FINANCIAL INSTRUMENTS AND PRICE RISK MANAGEMENT-- (CONTINUED) with the related purchases and sales of the commodity. If a derivative financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. If a derivative financial instrument contract is terminated early for other economic reasons, any gain or loss as of the termination date is deferred and recorded concurrently with the related purchase and sale of natural gas. CILCORP is subject to commodity price risk for deregulated sales to the extent that energy is sold under firm price commitments. Due to market conditions, at times CILCORP may have unmatched commitments to purchase and sell energy on a price and quantity basis. Physical and derivative financial instruments give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. Market risks are actively monitored to ensure compliance with the Company's risk management policies, including limits to the Company's total net exposure at any time. The net gain reflected in operating results from derivative financial instruments was approximately $415,000 for the second quarter 1999. As of June 30, 1999, CILCORP had fixed-price derivative financial instruments representing hedges of natural gas purchases of .5 Bcf and natural gas sales of 1.6 Bcf for commitments through September 2000. The net deferred gain and carrying amount on these fixed-price derivatives at June 30, 1999, was approximately $571,600. At June 30, 1999, CILCORP had open positions in derivative financial instruments used to hedge basis of 1.4 Bcf for commitments through March 2000. The net deferred gain on these basis derivatives at June 30, 1999, was approximately $30,500. As of June 30, 1999, CILCORP had fixed-price derivative financial instruments representing hedges of electricity purchases of 49,312 MWh and electricity sales of 3,680 MWh for commitments through June 2000. The net deferred loss and carrying amount on these fixed-price derivatives at June 30, 1999, was approximately $132,400. NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. As issued, SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-- Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137). SFAS 137 amends SFAS 133 to require implementation of SFAS 133 for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company has not yet adopted SFAS 133 and has not yet determined its effect on the Company's financial position, results of operations or cash flows. NOTE 7. EARNINGS PER SHARE The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock. The shares calculated for dilutive potential result from Award Agreements entered into pursuant to the CILCORP Shareholder Return Incentive Compensation Plan.
SIX MONTHS ENDED JUNE 30, ----------------------- 1999 1998 ---------- ---------- (IN THOUSANDS) Income available to common shareholders ................... $13,284 $ 7,006 Weighted average number of common shares used in Basic Earnings Per Share ......................... 13,611 13,611 Weighted number of dilutive potential common shares used in Diluted Earnings Per Share ............................... 141 79
The Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share, for the year ended December 31, 1997. F-33 INDEX TO UNAUDITED PRO FORMA FINANCIAL DATA
PAGE NO. ----- UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA: Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999 .. P-3 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 1999 ................................................... P-4 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1998 ...................................................... P-5 Notes to Unaudited Pro Forma Condensed Consolidated Financial Data ............ P-6
P-1 The following unaudited pro forma condensed consolidated financial data are based on the historical financial statements of Midwest Energy, Inc. and the consolidated historical financial statements of CILCORP Inc. and its subsidiaries after giving effect on a pro forma basis to the merger of Midwest Energy and CILCORP, the contribution of equity and the initial offering of senior notes and senior bonds as described in the notes to the unaudited pro forma condensed consolidated financial data appearing below. This data should be read in conjunction with the historical consolidated financial statements and notes to those financial statements of CILCORP which are included in this offering memorandum. Throughout this discussion of unaudited pro forma condensed consolidated financial data, we use the term "CILCORP" to mean CILCORP and its subsidiaries. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1998 and the six months ended June 30, 1999 present the results of Midwest Energy and CILCORP as if the merger and related contribution of equity and offering of senior notes and senior bonds had occurred at the beginning of the earliest period presented. The accompanying unaudited pro forma condensed consolidated balance sheet as of June 30, 1999 presents the financial position of Midwest Energy and CILCORP as if the merger and related contribution of equity and offering of senior notes and senior bonds had occurred on that date. The pro forma adjustments are based on preliminary estimates, information currently available and certain assumptions that management believes are reasonable under the circumstances. The actual consolidated financial statements will reflect the effects of the merger on and after the effective date of the merger rather than the dates indicated above. The unaudited pro forma condensed consolidated financial data neither purport to represent what the consolidated results of operations or financial condition actually would have been had the merger and related transactions in fact occurred on the assumed dates, nor to project the consolidated results of operations and financial position for any future period. The merger will be accounted for by the purchase method and, therefore, the assets and liabilities of CILCORP will be recorded at their fair values. The excess of the purchase price over the fair value of net assets acquired at the effective date of the merger will be recorded as goodwill. Allocations included in the pro forma financial data are based on an analysis which is not yet completed. Accordingly, the final value of the purchase price and its allocation may differ, perhaps significantly, from the amounts included in this pro forma financial data. P-2 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 (IN THOUSANDS) ---------------------------------------------------------------------- PRO FORMA ADJUSTMENTS PRO FORMA FOR THE MIDWEST AFTER MERGER ENERGY, OFFERING CILCORP (NOTES 2, 3 PRO FORMA AS INC. (NOTES 1 AND 4) INC. AND 4) ADJUSTED --------- ----------------- -------------- ------------- ------------- ASSETS: Current Assets: Cash and Temporary Cash Investments ............................ $-- $ 931,000 $ 3,541 $ (917,000) $ 17,541 Receivables, Less Reserves of $1,657.................................. -- -- 68,405 -- 68,405 Accrued Unbilled Revenue ................ -- -- 27,800 -- 27,800 Inventories ............................. -- -- 37,971 -- 37,971 Prepayments and Other ................... -- -- 8,639 -- 8,639 --- --------- ---------- ---------- ---------- Total Current Assets ................. -- 931,000 146,356 (917,000) 160,356 --- --------- ---------- ---------- ---------- Investments and Other Property ............................... -- -- 167,357 -- 167,357 Property, Plant and Equipment .............................. -- -- 1,666,363 (846,954) 819,409 Accumulated Depreciation ................ -- -- (846,954) 846,954 -- Construction Work in Progress and Other .................................. -- -- 46,186 -- 46,186 --- --------- ---------- ---------- ---------- Total Property, Plant and Equipment ..... -- -- 865,595 -- 865,595 --- --------- ---------- ---------- ---------- Goodwill ................................ -- -- -- 571,604 571,604 Other Assets ............................ -- 6,000 23,327 -- 29,327 --- --------- ---------- ---------- ---------- Total Assets ......................... $-- $ 937,000 $1,202,635 $ (345,396) $1,794,239 === ========= ========== ========== ========== LIABILITIES: Current Liabilities: Current Portion of Long-Term Debt ....... $-- $ -- $ 43,000 $ -- $ 43,000 Notes Payable ........................... -- -- 73,300 (26,700) 46,600 Accounts Payable ........................ -- -- 52,276 -- 52,276 Accrued Interest and Other .............. -- -- 19,303 14,000 33,303 --- --------- ---------- ---------- ---------- Total Current Liabilities ............ -- -- 187,879 (12,700) 175,179 --- --------- ---------- ---------- ---------- Long-Term Debt .......................... -- 473,952 257,168 -- 731,120 Deferred Credits and Other Liabilities ............................ -- -- 358,772 -- 358,772 Preferred Stock of Subsidiary ........... -- -- 66,120 -- 66,120 Shareholders' Equity: Common Stock ........................... -- 463,048 192,853 (192,853) 463,048 Retained Earnings ....................... -- -- 140,688 (140,688) -- Accumulated Other Comprehensive Income ................... -- -- (845) 845 -- --- --------- ---------- ---------- ---------- Total Stockholders' Equity ........... -- 463,048 332,696 (332,696) 463,048 --- --------- ---------- ---------- ---------- Total Liabilities and Stockholders' Equity ................ $-- $ 937,000 $1,202,635 $ (345,396) $1,794,239 === ========= ========== ========== ==========
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Data are an integral part of these statements. P-3 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS) --------------------------------------------------------------------------- PRO FORMA ADJUSTMENTS PRO FORMA FOR THE MIDWEST AFTER MERGER ENERGY, OFFERINGS CILCORP (NOTES 2, 3 PRO FORMA AS INC. (NOTES 1 AND 4) INC. AND 4) ADJUSTED --------- ----------------- ----------- ------------- ------------- REVENUE: Electric .............................. $-- $ -- $169,006 $ -- $169,006 Gas ................................... -- -- 102,366 -- 102,366 Other ................................. -- -- 17,133 -- 17,133 --- --------- -------- -------- -------- Total Revenues ..................... -- -- 288,505 -- 288,505 --- --------- -------- -------- -------- OPERATING EXPENSES: Fuel for Generation and Purchased Power ...................... -- -- 57,183 -- 57,183 Gas Purchased for Resale .............. -- -- 65,005 -- 65,005 Other Operations and Maintenance -- -- 73,724 -- 73,724 Depreciation and Amortization ......... -- 173 34,481 7,145 41,799 State and Local Revenue Taxes ......... -- -- 14,199 -- 14,199 Other Taxes ........................... -- -- 6,717 -- 6,717 --- --------- -------- -------- -------- Total .............................. 173 251,309 7,145 258,627 --------- -------- -------- -------- FIXED CHARGES AND OTHER: Interest Expense ...................... -- 21,506 14,340 (810) 35,036 Other ................................. -- -- 2,050 -- 2,050 --- --------- -------- -------- -------- Total .............................. -- 21,506 16,390 (810) 37,086 --- --------- -------- -------- -------- (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ................................ -- (21,679) 20,806 (6,335) (7,208) (Benefit) Provision for Income Taxes ..................... -- (8,563) 7,115 299 (1,149) --- --------- -------- -------- -------- NET (LOSS) INCOME FROM CONTINUING OPERATIONS ........................... $-- $ (13,116) $ 13,691 $ (6,634) $ (6,059) === ========= ======== ======== ========
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Data are an integral part of these statements. P-4 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS) --------------------------------------------------------------------------- PRO FORMA ADJUSTMENTS PRO FORMA FOR THE MIDWEST AFTER MERGER ENERGY, OFFERINGS CILCORP (NOTES 2, 3 PRO FORMA AS INC. (NOTES 1 AND 4) INC. AND 4) ADJUSTED --------- ----------------- ----------- ------------- ------------- REVENUE: Electric ................................. $-- $ -- $360,009 $ -- $360,009 Gas ...................................... -- -- 172,327 -- 172,327 Other .................................... -- 26,688 -- 26,688 --------- -------- --------- -------- Total Revenues ........................ -- -- 559,024 -- 559,024 --- --------- -------- --------- -------- OPERATING EXPENSES: Fuel for Generation and Purchased Power ..................... -- -- 124,058 -- 124,058 Gas Purchased for Resale ................. -- -- 93,586 -- 93,586 Other Operations and Maintenance ......... -- -- 145,673 -- 145,673 Depreciation and Amortization ............ -- 349 66,179 14,290 80,818 State and Local Revenue Taxes ............ -- -- 26,502 -- 26,502 Other Taxes .............................. -- -- 11,463 -- 11,463 --- --------- -------- --------- -------- Total ................................ -- 349 467,461 14,290 482,100 --- --------- -------- --------- -------- FIXED CHARGES AND OTHER: Interest Expense ......................... -- 43,013 29,473 (1,620) 70,866 Other .................................... -- -- 4,173 -- 4,173 --- --------- -------- --------- -------- Total ................................ -- 43,013 33,646 (1,620) 75,039 --- --------- -------- --------- -------- (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ................................... -- (43,362) 57,917 (12,670) 1,885 (Benefit) Provision for Income Taxes ........................ -- (17,128) 19,699 597 3,168 --- --------- -------- --------- -------- NET (LOSS) INCOME FROM CONTINUING OPERATIONS .............................. $-- $ (26,234) $ 38,218 $ (13,267) $ (1,283) === ========= ======== ========= ========
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Data are an integral part of these statements. P-5 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The Unaudited Pro Forma Condensed Consolidated Financial Data are based on the following assumptions: (1) Offering -- The adjustments for the initial offering of senior notes and senior bonds assume the following: (a) Receipt of $463 million equity contribution from AES. (b) Issuance of $225 million of 8.700% 10 year senior notes, at 99.732%, due 10/15/09. (c) Issuance of $250 million of 9.375% 30 year senior bonds, at 99.822%, due 10/15/29. Issuance costs are assumed to be $6 million. (2) Use of proceeds -- The proceeds from the receipt of the equity contribution from AES and the offering of senior notes and senior bonds will be used to purchase all of the outstanding common shares of CILCORP for approximately $886 million, to pay fees and expenses of approximately $10 million, and to retire approximately $27 million of indebtedness of CILCO, which has an approximate weighted average interest rate of 6%. (3) Merger -- The merger with CILCORP will be accounted for as a purchase. The purchase price allocation has been prepared on a preliminary basis pending completion of engineering, environmental, legal and valuation analyses, all of which are ongoing. The preliminary adjustments which have been made to the assets and liabilities of CILCORP to reflect the effect of the acquisition are as follows (in thousands): Goodwill ............................... $571,604 Merger-related personnel costs ......... 14,000
(4) A. Income statement adjustments include the amortization of the excess of the purchase price over the fair value of the net assets acquired using the straight line method over 40 years. B. Income statement adjustments include amortization of the issuance costs over the terms of the senior notes and bonds. C. Income statement adjustments include income tax benefit for the effects of the pro forma adjustments which affect taxable income at an effective rate of 39.5%. D. Balance sheet adjustments include maintaining the CILCORP fixed rate debt at its historical cost. Upon consummation of the merger the fixed rate debt will be recorded at its fair value, considering the rates the combined companies would expect to receive in similar borrowing arrangements. As of December 31, 1998, the CILCORP fixed rate debt had a carrying amount of approximately $299 million and a fair value amount of approximately $339 million. P-6 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Reference is made to Section 2.10 and 8.65 of the Illinois Business Corporation Act (the "IBCA"), which enables a corporation in its original articles of incorporation or an amendment to those articles to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except: o for any breach of the director's duty of loyalty to the corporation or its stockholders; o for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; o under Section 8.65 of the IBCA, providing for liability of directors for: (1) voting for or assenting to certain distributions that are prohibited; (2) failing to take reasonable steps to cause notice to be given to creditors in the case of dissolution; or (3) carrying on business after the filing by the Secretary of State of articles of dissolution; or o for any transaction from which a director derived an improper personal benefit. Section 8.75 of the IBCA empowers CILCORP Inc. ("CILCORP") to indemnify, subject to the standards set forth therein, certain persons in connection with any action, suit or proceeding brought before or threatened by reason of the fact that the person is or was a director, officer, employee or agent of such company, or is or was serving as such with respect to another entity at the request of such company against certain expenses, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of CILCORP, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The IBCA also provides that CILCORP may purchase insurance on behalf of any such person against any liability asserted against and incurred by such person in any such capacity, whether or not CILCORP would have the power to indemnify such person against such liability. The By-laws of CILCORP provide for the indemnification of any person who is or was a director or officer of CILCORP, or at the discretion of the Board of Directors, of any person who is or was an employee or agent of CILCORP or is or was serving at the request of CILCORP, another corporation, partnership, joint venture, trust or other enterprise in any capacity, where that person: o was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, including all appeals (other than an action, suit or proceeding by or in the right of CILCORP), against expenses (including attorneys' fees), judgments, decrees, fines, penalties and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of CILCORP and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; and o was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit, including all appeals, by or in the right of CILCORP to procure a judgment in its favor, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of CILCORP, except that no indemnification shall be made II-1 in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable for negligence or misconduct in the performance of his or her duty to CILCORP unless and only to the extent that the court in which such action or suit was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. CILCORP has an insurance policy covering its liabilities and expenses which might arise in connection with its lawful indemnification of its directors and officers for certain of their liabilities and expenses. Officers and directors of CILCORP are covered under this policy for certain other liabilities and expenses. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits (see index to exhibits at E-1) ITEM 22. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that clauses (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those clauses is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information confirmed in the documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Peoria, State of Illinois on November 5, 1999. CILCORP INC. By: /s/ Paul D. Stinson ------------------------------------ Paul D. Stinson President Known to all person by these presents, that each person whose signature appears below constitutes and appoints Paul D. Stinson, Robert J. Sprowls and John G. Sahn his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this registration statement (including post-effective amendments), therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------- ------------------------- ------------------ /s/ Paul D. Stinson Director and President November 5, 1999 - ----------------------------- Paul D. Stinson /s/ Thomas A. Tribone Director November 5, 1999 - ----------------------------- Thomas A. Tribone /s/ Mark A. Ferrucci Director November 5, 1999 - ----------------------------- Mark A. Ferrucci /s/ Thomas D. Hutchinson Chief Financial Officer November 5, 1999 - ----------------------------- and Controller Thomas D. Hutchinson
II-4 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NO. DESCRIPTION NUMBERED PAGE - ----------- --------------------------------------------------------------------------------------- -------------- 1.1 -- Purchase Agreement dated October 13, 1999 between Midwest Energy, Inc. and Lehman Brothers Inc., as representative of J.P. Morgan & Co. and Morgan Stanley Dean Witter 2.1 -- Agreement and Plan of Merger among CILCORP Inc., The AES Corporation, and Midwest Energy Inc. Filed in the Form 8-K filed on December 3, 1998 and incorporated herein by reference. 2.2 -- First Amendment to the Agreement and Plan of Merger, dated as of October 14, 1999, among The AES Corporation, CILCORP Inc. and Midwest Energy, Inc. Filed as exhibit 2.2 to the Form 8-K filed on October 29, 1999 and incorporated herein by reference. 3.1 -- CILCORP Inc. Articles of Incorporation, as amended 3.2 -- CILCORP Inc. By-laws 4.1 -- Indenture dated October 18, 1999 between Midwest Energy, Inc. and The Bank of New York, as trustee 4.2 -- Supplemental Indenture dated October 18, 1999 between CILCORP Inc. and the Bank of New York, as trustee 4.3 -- Registration Rights Agreement dated October 18, 1999 between Midwest Energy, Inc. and Lehman Brothers Inc., J.P. Morgan & Co. and Morgan Stanley Dean Witter 4.4 -- Pledge Agreement dated October 18, 1999 by CILCORP Inc. in favor of the Bank of New York, as collateral agent. Filed as exhibit 10.1 to the Form 8-K filed on October 29, 1999 and incorporated herein by reference. 4.5 -- Form of Certificate of 8.700% Senior Note (included as Exhibit A to the Indenture filed as Exhibit 4.1) 4.6 -- Form of Certificate of 9.375% Senior Bond (included as Exhibit B to the Indenture filed as Exhibit 4.1) 5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP 10.1 -- CILCO Executive Deferral Plan. As amended effective August 17, 1998. Filed as exhibit 10 to the Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. 10.2 -- CILCO Executive Deferral Plan II. As amended effective August 17, 1998. Filed as exhibit 10(a) to the Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. 10.3 -- Employment Agreement between CILCORP and Robert O. Viets, President and Chief Executive Officer (effective September 23, 1997; extended for a period of three years effective April 28, 1998). Filed as exhibit 10(c) to the Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.* 10.4 -- CILCO Benefit Replacement Plan (as amended effective November 12, 1998). Filed as exhibit 10(d) to the Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. 10.5 -- Agreement and Plan of Merger among CILCORP Inc., The AES Corporation and Midwest Energy, Inc. Filed in the Form 8-K filed December 3, 1998 and incorporated herein by reference. 10.6 -- Management Continuity Agreement between CILCORP and various subsidiary officers (approved January 27, 1998). Filed as exhibit 10(h) to the Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. 10.7 -- CILCO Compensation Protection Plan (approved November 20, 1998). Filed as exhibit 10(i) to the Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. 12.1 -- Computation of Ratio of Earnings to Fixed Charges
E-1
EXHIBIT SEQUENTIALLY NO. DESCRIPTION NUMBERED PAGE - ----------- ----------------------------------------------------------------------------- -------------- 23.1 -- Consent of Arthur Andersen LLP 23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1) 24.1 -- Powers of Attorney (included on signature page) 25.1 -- Statement of Eligibility under Trust Indenture Act of 1939, as amended, on Form T-1 of the Bank of New York, as trustee 99.1 -- Form of Letter of Transmittal 99.2 -- Form of Notice of Guaranteed Delivery 99.3 -- Form of Letter to Clients 99.4 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees 99.5 -- Form of Exchange Agent Agreement 99.6 -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 - ---------- * A comparable Employment Agreement, effective April 28, 1998 exists between the Company and John G. Sahn. The only material difference in these Agreements pertains to the duration of the Agreements and the annual base salary in effect on the date of each Agreement. The duration of the Agreement with Mr. Sahn is two years and his annual base salary specified in the Agreement is $151,000.
E-2 EX-1.1 2 EXHIBIT 1.1 $475,000,000 MIDWEST ENERGY, INC. $225,000,000 8.700% Senior Notes due 2009 $250,000,000 9.375% Senior Bonds due 2029 PURCHASE AGREEMENT October 13, 1999 LEHMAN BROTHERS INC. J.P. MORGAN SECURITIES INC. MORGAN STANLEY DEAN WITTER c/o Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Ladies and Gentlemen: Midwest Energy, Inc., a Delaware corporation (the "Company"), confirms its agreement with Lehman Brothers Inc. and each of the Initial Purchasers named in Schedule I hereto (collectively, the "Initial Purchasers"), for whom Lehman Brothers Inc. is acting as representative (in such capacity, the "Representative"), with respect to the issue and sale by the Company and purchase by the Initial Purchasers, acting severally and not jointly, of $225,000,000 in aggregate principal amount of its 8.700% Senior Notes due 2009 (the "Notes") and $250,000,000 in aggregate principal amount of its 9.375% Senior Bonds due 2029 (the "Bonds" and together with the Notes, the "Offered Securities"). The Offered Securities are to be issued under an indenture to be entered into and to be dated as of or around October 18, 1999 (collectively, the "Indenture"), between the Company and The Bank of New York, as Trustee (the "Trustee"). The Company, The AES Corporation, a Delaware corporation and the sole stockholder of the Company ("AES"), and CILCORP Inc., an Illinois corporation ("CILCORP") have entered into a merger agreement dated as of November 22, 1998 (the "Merger Agreement"), pursuant to which the Company will merge into CILCORP (the "Merger") simultaneously with the issuance of the Offered Securities, with CILCORP being the surviving corporation and assuming all obligations under the Offered Securities and the Indenture by execution and delivery of a supplement to the Indenture (the "Supplemental Indenture"). The Offered Securities will be offered and sold to the Initial Purchasers without being registered under the United States Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption therefrom. The Company has prepared a preliminary offering memorandum dated September 30, 1999 (the "Preliminary Offering Memorandum") and will prepare an offering memorandum dated the date hereof (the "Offering Memorandum") setting forth 2 information concerning the Company, CILCORP, and the Offered Securities. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Company to the Initial Purchasers pursuant to the terms of this Agreement. Any reference herein to the Preliminary Offering Memorandum and the Offering Memorandum shall be deemed to include all amendments and supplements thereto, unless otherwise noted. The Company hereby confirms that it has authorized the use of the Preliminary Offering Memorandum and the Offering Memorandum in connection with the offering and resale of the Offered Securities by the Initial Purchasers in accordance with Section 3. Holders of the Offered Securities (including the Initial Purchasers and their direct and indirect transferees) will be entitled to the benefits of a Registration Rights Agreement, substantially in the form attached hereto as Annex A (the "Registration Rights Agreement"), pursuant to which the Company will agree to file with the U.S. Securities and Exchange Commission (the "Commission") (i) a registration statement under the Securities Act (the "Exchange Offer Registration Statement") registering senior notes and senior bonds of the Company (collectively, the "Exchange Securities") which are identical in all material respects to the Offered Securities (except that the Exchange Securities will not contain terms with respect to transfer restrictions) and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, the "Registration Statements"), and in each case to use their reasonable best efforts to cause such Registration Statements to be declared effective. In connection with the offering and sale of the Offered Securities, CILCORP will enter into a pledge agreement (the "Pledge Agreement") providing for the pledge by CILCORP to the Collateral Agent of all of the capital stock of Central Illinois Light Company ("CILCO") upon the earlier of (i) January 31, 2002 and (ii) the date on which the existing Medium-Term Notes, Series A of CILCORP are no longer outstanding (such date, the "Pledge Effective Date"), which shares shall be pledged for the benefit of the Holders of the Offered Securities as provided in the Pledge Agreement. This is to confirm the agreement regarding the purchase of the Offered Securities by the Initial Purchasers. This Agreement, the Indenture, the Registration Rights Agreement, the Pledge Agreement, the Merger Agreement and the Offered Securities are referred to herein collectively as the "Operative Documents." 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that: (a) Each of the Preliminary Offering Memorandum and the Offering Memorandum did not as of its respective date contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty as to information contained in or omitted from the Preliminary Offering Memorandum or the Offering Memorandum in reliance upon and in conformity with written information furnished to the Company by or on the behalf of the Initial Purchasers specifically for inclusion therein. (b) (i) The documents incorporated by reference in the Preliminary Offering Memorandum and the Offering Memorandum, when they became effective or were filed with the Commission, as the case may be, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) the documents incorporated by reference in the Preliminary Offering Memorandum and the Offering Memorandum, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iii) any further documents so filed and incorporated by reference in the Offering Memorandum or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Exchange Act; and (iv) any further documents so filed and incorporated by reference in the Offering Memorandum or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that the representations and warranties set forth in this paragraph (b) do not apply to statements or omissions in the Preliminary Offering Memorandum or Offering Memorandum based upon information relating to any Initial Purchaser furnished through you expressly for use therein. (c) Assuming the accuracy of the representations and warranties of the Initial Purchasers contained in Section 4 and their compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Offered Securities to the Initial Purchasers and the offer, resale and delivery of the Offered Securities by the Initial Purchasers in the manner contemplated by this Agreement and the Offering Memorandum, to register the Offered Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (d) Each of the Company, CILCORP and each of CILCORP's subsidiaries which meets the criteria in the definition of "significant subsidiary" pursuant to Rule 3 1-02(w) of Regulation S-X under the Securities Act (each, a "Principal Subsidiary") has been duly organized, is validly existing as a corporation or other entity in good standing under the laws of its jurisdiction of incorporation or organization and has the corporate power and authority required to carry on its business as it is currently being conducted and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, financial condition or results of operations of the Company, CILCORP and the Principal Subsidiaries, taken as a whole. The Company has no subsidiaries. (e) The Offered Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to the Initial Purchasers against payment therefor as provided by this Agreement, will be entitled to the benefits of the Indenture, and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights and remedies generally and by equitable principles of general applicability. (f) The Exchange Securities have been duly authorized and, when issued pursuant to the Registration Rights Agreement and in accordance with the provisions of the Indenture, will be valid and binding obligations of the Company, enforceable in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights and remedies generally and by equitable principles of general applicability. (g) The Indenture has been duly authorized, and when duly executed and delivered by the Company shall constitute a valid and binding agreement of the Company, enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights and remedies generally and by equitable principles of general applicability (regardless of whether enforcement is sought in a proceeding at law or in equity). Immediately following the effective time of the Merger, the Supplemental Indenture will be duly authorized, executed and delivered by CILCORP and will be a valid and binding agreement of CILCORP, enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement 5 of creditors' rights and remedies generally and by equitable principles of general applicability (regardless of whether enforcement is sought in a proceeding at law or equity). Company. (h) Immediately following the effective time of the Merger, the Pledge Agreement will be duly authorized, executed and delivered by CILCORP and will constitute a valid and binding agreement of CILCORP, enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights and remedies generally and by equitable principles of general applicability. (i) Upon delivery pursuant to the Pledge Agreement to the Collateral Agent on the Pledge Effective Date of the certificates representing the shares of common stock of CILCO listed on Schedule II to the Pledge Agreement (the "Pledged Shares"), along with stock powers duly endorsed in blank, and assuming (i) the Collateral Agent takes possession, and continuously maintains possession, of the certificates representing the Pledged Shares in the State of New York and (ii) the Collateral Agent takes such Pledged Shares without notice of any adverse claim, the security interest created in favor of the Collateral Agent under the Pledge Agreement in the Pledged Shares will constitute a valid and perfected first priority (subject to any Liens which may be existing after the date hereof which are permitted under the Indenture) security interest as security for the Obligations (as defined in the Pledge Agreement), and, except as specifically provided in the Pledge Agreement, subject to no equal or prior claim in favor of any person. No filings or recordings will be required in order to perfect the security interest created under the Pledge Agreement in such Pledged Shares. (j) The Registration Rights Agreement has been duly authorized, and when duly executed and delivered by the Company shall constitute a valid and binding agreement of the Company, enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights and remedies generally and by equitable principles of general applicability (except as rights to indemnity and contribution hereunder may be limited by applicable law). (k) The Merger Agreement has been duly authorized, executed and delivered by each of the Company, AES and CILCORP and is a valid and binding agreement of each of the Company, AES and CILCORP, enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws 6 affecting the enforcement of creditors' rights and remedies generally and by equitable principles of general applicability. (l) This Agreement has been duly authorized, executed and delivered by the Company. (m) The Offered Securities conform in all material respects to the descriptions thereof contained in the Offering Memorandum. (n) Immediately following the effective time of the Merger, CILCORP will have an authorized and issued share capital as set forth in the Offering Memorandum, and all of the issued share capital of CILCORP will have been duly and validly authorized and issued, and be fully paid and non-assessable and will not have been issued in violation of, and will not then be subject to, any preemptive rights and will be owned of record by AES; except as otherwise described in the Offering Memorandum there will be no outstanding securities convertible into or exchangeable for, or warrants, rights or options to purchase from CILCORP or any of its subsidiaries, or obligations of CILCORP or any of its subsidiaries to issue, any class of share capital of CILCORP or any of its subsidiaries; and, except as otherwise described in the Offering Memorandum, all of the issued share capital of CILCO has been duly and validly authorized and issued and is fully paid and non-assessable and, except as otherwise described in the Offering Memorandum, is owned directly by CILCORP (subject to the pledge of such shares for the benefit of the holders of the Offered Securities). (o) The Company is not in violation of its Articles of Incorporation or its By-laws and none of CILCORP or the Principal Subsidiaries is in violation of its respective charter, or except for any such violations which would not have a material adverse effect on the Company, CILCORP and the Principal Subsidiaries taken as a whole, in violation of its by-laws, nor is the Company, CILCORP or any of the Principal Subsidiaries, except as set forth in the Offering Memorandum, in default in the performance of any material term contained in any bond, debenture, note or any other evidence of indebtedness or in any other agreement, indenture or instrument to which the Company, CILCORP or any of the Principal Subsidiaries is a party or by which the Company, CILCORP or any of the Principal Subsidiaries or their respective property is bound except for any such defaults which, individually or in the aggregate, would not have a material adverse effect on the business, financial condition or results of operations of the Company, CILCORP and the Principal Subsidiaries, taken as a whole. (p) The execution, delivery and performance of the Operative Documents and compliance by each of the Company and CILCORP with all the provisions 7 hereof and thereof and the consummation of the transactions contemplated hereby and thereby (i) will not require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body, including, without limitation, the Illinois Commerce Commission or the Federal Energy Regulatory Commission, except (A) as have already been obtained, (B) with respect to the transactions contemplated by the Registration Rights Agreement, as may be required under the Securities Act, the Exchange Act, the Trust Indenture Act and the rules and regulations of the Commission thereunder, and (C) as required by state or foreign securities laws; and (ii) will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company, CILCORP or any of the Principal Subsidiaries or any agreement, indenture or other instrument to which the Company, CILCORP or any of the Principal Subsidiaries is a party or by which the Company, CILCORP or any of the Principal Subsidiaries or their respective property is bound, or violate or conflict with any laws, administrative regulations or rulings or court decrees applicable to the Company, CILCORP, any of the Principal Subsidiaries or their respective property (except state securities or Blue Sky laws) except for any such conflicts, breaches, defaults or violations with respect to this clause (ii) which, individually or in the aggregate, would not have a material adverse effect on the business, financial condition or results of operations of the Company, CILCORP and the Principal Subsidiaries, taken as a whole. (q) Except as set forth in the Offering Memorandum, and with respect to CILCORP and the Principal Subsidiaries, as set forth in CILCORP's public filings with the Commission, there are no material legal or governmental proceedings pending to which the Company, CILCORP or any of the Principal Subsidiaries is a party or to which any of their respective property is the subject, and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated. (r) Except as set forth in the Offering Memorandum, each of the Company, CILCORP and each of the Principal Subsidiaries has good and marketable title, free and clear of all liens, claims, encumbrances and restrictions except for (A) minor imperfections of title, easements and rights of way none of which, individually or in the aggregate, materially detracts from the value of or impairs the operations of CILCORP or any Principal Subsidiary and (B) liens for taxes not yet due and payable, to all property and assets described in the Offering Memorandum as being owned by it. All material leases to which the Company, CILCORP or any of the Principal Subsidiaries is a tenant are valid and binding and no default by the Company, CILCORP or any such Principal Subsidiary has occurred and is continuing thereunder, which could result in any material adverse change in the business, financial condition or results of operations of the Company, CILCORP and the Principal Subsidiaries taken as a whole, and the Company, CILCORP and the 8 Principal Subsidiaries enjoy peaceful and undisturbed possession under all such material leases to which any of them is a tenant with such exceptions as do not materially interfere with the use made by the Company, CILCORP or such Principal Subsidiary. (s) Each of Arthur Andersen LLP and Deloitte & Touche LLP are independent public accountants with respect to the Company and CILCORP as required by the Securities Act. (t) The financial statements, together with related schedules and notes forming part of the Offering Memorandum (and any supplement thereto), complied in all material respects with all applicable requirements of the appropriate statutes and the rules and regulations thereunder at the respective dates and for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein. (u) The pro forma financial information included in the Offering Memorandum (i) presents fairly in all material respects the information shown therein and (ii) has been prepared in accordance with applicable requirements of Regulation S-X promulgated under the Exchange Act. In the opinion of the Company, the assumptions used in the preparation of the pro forma financial statements included in the Offering Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (v) Each of the Company, CILCORP and the Principal Subsidiaries has such permits, licenses, franchises and governmental authorizations ("permits") which are necessary to conduct its business as presently conducted which are material to the operation of its respective business described in the Offering Memorandum, except for any such permits, the failure of which to have, individually or in the aggregate, would not have a material adverse effect on the business, financial condition or results of operations of the Company, CILCORP and the Principal Subsidiaries, taken as a whole, and subject to such qualifications as may be set forth in the Offering Memorandum. (w) CILCORP is a "public-utility holding company" (as defined in the Public Utility Holding Company Act of 1935, as amended ("PUHCA")) exempt from all provisions (other than Section 9(a)(2) of PUHCA, pursuant to Section 3(a)(1) in accordance with Rule 2 of PUHCA). With the exception of CILCO, no CILCORP Principal Subsidiary is a "holding company" or "public-utility company" within the meaning of Sections 2(a)(7) and 2(a)(5) of PUHCA, respectively, nor, except with 9 respect to their relationship with CILCORP, are any of such entities an "affiliate" or a "subsidiary company" of a holding company within the meaning of Sections 2(a)(11) and 2(a)(8) of PUHCA, respectively. (x) CILCO is regulated as a public utility by the FERC and in the State of Illinois and in no other state. Except as set forth in the preceding sentence, neither CILCORP nor any "subsidiary company" or "affiliate" (as each such term is defined in PUHCA) of CILCORP (other than CILCO) is subject to regulation as a public utility or public service company (or similar designation) by the FERC or any municipality, locality, state in the United States or any foreign country. (y) Neither the Company nor CILCORP is an "investment company" or, to the best knowledge of the Company after due inquiry, a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940 as amended. (z) Except as set forth in the Offering Memorandum, upon due inquiry, each of CILCORP and each Principal Subsidiary is in compliance with all applicable foreign, federal, state and local environmental (including, without limitation, the Comprehensive Environmental Response, Compensation & Liability Act of 1980, as amended), safety or similar law, rule and regulation, and there are no costs or liabilities associated with any such law, rule or regulation, except for any such noncompliances, costs or liabilities which, individually or in the aggregate, would not have a material adverse effect on the business, financial condition or results of operations of the Company, CILCORP and the Principal Subsidiaries, taken as a whole. (aa) Each of CILCORP and CILCO carry, or are covered by, insurance in such amounts and covering such risks as is customary for companies conducting the business as conducted by CILCORP and CILCO. (bb) The Company, CILCORP and each of the Principal Subsidiaries have duly filed with the appropriate taxing authorities all material tax returns, reports and other information required to be filed through the date hereof and have paid all taxes shown to be due thereon except for such failures to file or pay that would not, individually or in the aggregate, be reasonably likely to have a material adverse effect on the financial condition, business or results of operations of the Company, CILCORP and the Principal Subsidiaries, taken as a whole; and to the best of the Company's knowledge, each such tax return, report or other information was, when filed, accurate and complete in all material respects; and no tax ruling has been received by the Company, CILCORP or any of the Principal Subsidiaries which has 10 had or is reasonably likely to have, a Material Adverse Effect (other than deficiencies that are being contested in good faith). (cc) Each of CILCORP and the Principal Subsidiaries has undertaken a review of all its computer hardware and software which is used in the conduct of its business ("Computer Equipment") and determined that such Computer Equipment is not in need of replacement or reprogramming in order to function correctly on or after January 1, 2000 in substantially the same manner as on or before December 31, 1999, except where such need for replacement and reprogramming would not have a material adverse effect on the business, financial condition or results of operations of the Company, CILCORP and the Principal Subsidiaries, taken as a whole. (dd) Neither the issuance or sale of the Offered Securities, nor the application of the proceeds thereof by the Company will violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (ee) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Securities are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. (ff) Neither the Company nor any person acting on its behalf, to the best of the Company's knowledge, (assuming the accuracy of the representations of the Initial Purchasers set forth herein) has offered or, to the best of the Company's knowledge, will offer or sell the Offered Securities in the United States (A) by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S under the Securities Act, by means of any directed selling effort within the meaning of Rule 902(b) of Regulation S. 2. Officers' Certificates. Any certificate signed by any officer of the Company and delivered to the Representative or to counsel for the Initial Purchasers in connection with the offering of the Offered Securities shall be deemed a representation and warranty by the Company to each of the Initial Purchasers as to the matters covered thereby on the date of such certificate. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell to the Initial Purchasers, and the Initial Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 99.732% of the principal amount thereof plus accrued interest, if any, from October 18, 1999 the principal amounts 11 at maturity of the Notes set forth opposite the names of the Initial Purchasers in Schedule I hereto and, at a purchase price of 99.822% of the principal amount thereof plus accrued interest, if any, from October 18, 1999 the principal amount at maturity of the Bonds set forth opposite the names of the Initial Purchasers in Schedule I hereto. The Company will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global certificates (the "Global Notes"), deposited with The Depository Trust Company ("DTC") or its nominee. Payment for the Offered Securities shall be made by or on behalf of the Initial Purchasers in same day funds by wire transfer to an account as previously designated to Lehman Brothers Inc. by the Company at a bank reasonably acceptable to Lehman Brothers Inc. at 9:00 a.m. (New York time), on October 18, 1999, or at such other time or place thereafter as Lehman Brothers Inc. and the Company determine, such time being herein referred to as the "Closing Date", against delivery at the of rice of the Trustee at 101 Barclay Street, Floor 21W, New York, New York 10286, Attn: Corporate Trust Administration, to the Trustee of the Global Notes representing all of the Offered Securities. 4. Representations, Warranties and Agreements of the Initial Purchasers. Each Initial Purchaser severally represents, warrants and agrees with the Company that: (a) Such Initial Purchaser is an "accredited investor" within the meaning of Regulation D under the Securities Act. (b) Such Initial Purchaser acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Such Initial Purchaser represents, warrants and agrees that it has offered and sold the Offered Securities and will offer and sell the Offered Securities (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the date of the commencement of the offering and the Closing Date, only in accordance with Rule 903 or Rule 144A under the Securities Act ("Rule 144A"). Terms used in this subsection (b) have the meanings given to them by Regulation S. Neither such Initial Purchaser nor its affiliates nor any person acting on its or their behalf, has engaged or will engage in any directed selling efforts in the United States within the meaning of Regulation S with respect to the Offered Securities, and such Initial Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirements of Regulation S. (c) Such Initial Purchaser represents, warrants and agrees that it and each of its affiliates has not offered or sold and will not offer or sell the Offered Securities in the United States by means of any form of general solicitation or general 12 advertising within the meaning of Rule 502(c) under the Securities Act, including, but not limited to, (i) any advertising, article, notice or other communication published in any newspapers, magazine or similar media or broadcast over television or radio or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Initial Purchaser represents, warrants and agrees, with respect to initial resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such initial resale or otherwise prior to settlement of such initial resale a notice (which may be included in the Offering Memorandum) to the effect that the initial resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. (d) Such Initial Purchaser agrees that it and each of its affiliates have not entered and will not enter into any contractual arrangement with respect to the distribution of the Securities except for any such arrangements with the other Initial Purchasers or affiliates of the other Initial Purchasers or with the prior written consent of the Company. (e) Such Initial Purchaser represents, warrants and agrees that (i) it has not solicited, and will not solicit, offers to purchase any of the Offered Securities from, (ii) it has not sold, and will not sell, any of the Offered Securities to, and (iii) it has not distributed, and will not distribute, the Offering Memorandum to, any person or entity in any jurisdiction outside of the United States except, in each case to the best of each Initial Purchaser's knowledge and belief, in compliance in all material respects with all applicable laws. For the purpose of this Agreement, "United States" and "U.S." means the United States of America, its territories, its possessions and other areas subject to its jurisdiction. 5. Further Agreements of the Company. The Company agrees: (a) To advise you promptly of the happening of any event during the period prior to the completion of the resale of the Offered Securities by the Initial Purchasers which makes any statement of a material fact made in the Offering Memorandum untrue or which requires the making of any additions to or changes in the Offering Memorandum in order to make the statements therein not misleading. (b) The Company will furnish to the Initial Purchasers copies of the Preliminary Offering Memorandum and the Offering Memorandum (and all amendments and supplements thereto) in each case as soon as available and in such quantities as the Initial Purchasers reasonably request for internal use and for distribution to prospective purchasers. For so long as any of the Offered Securities are outstanding, if the Company is not subject to Section 13 or 15(d) of the Exchange 13 Act and is not exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, the Company will promptly furnish or cause to be furnished upon request to the Initial Purchasers and, upon request of holders and prospective purchasers of the Offered Securities, to such holders and purchasers, a reasonable number of copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. Subject to Section 6 hereof, the Company will pay the expenses of printing and distributing to the Initial Purchasers all such documents. (c) To cooperate with the Initial Purchasers and counsel for the Initial Purchasers in connection with the registration or qualification of the Offered Securities for offer and sale by the several Initial Purchasers and by dealers under the state securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may request, to continue such qualification in effect so long as required for distribution of the Offered Securities; provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction or to take any other action that would subject the Company to service of process in any suits other than those arising out of the offering of the Offered Securities or to taxation in respect of doing business in any jurisdiction in which it is not otherwise subject. (d) Until the earlier of (i) the completion of the Exchange Offer (as defined in the Offering Memorandum) and (ii) the second anniversary of the Closing Date, the Company will, upon request, furnish to the Initial Purchasers and any holder of Offered Securities, a copy of the restrictions on transfer set forth under "Notice to Investors" in the Offering Memorandum; provided, however, that nothing contained herein shall obligate the Company to track or trace particular Offered Securities held by anyone other than the Company or any of their affiliates (as defined in Rule 144 under the Securities Act). (e) In connection with the offering, until the earlier of (i) 180 days following the Closing Date or (ii) the date the Initial Purchasers shall have notified the Company of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. 14 (f) Neither the Company nor any of its direct or indirect subsidiaries will at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act, Rule 144A under the Securities Act or the safe harbor of Regulation S thereunder to cease to be applicable to the offer and sale of the Offered Securities. (g) The Company will apply the net proceeds from the sale of the Offered Securities being sold by the Company as set forth in the Offering Memorandum. (h) Between the date hereof and the Closing Date (both dates inclusive), the Company will notify and consult with the Initial Purchasers, and to cause their subsidiaries and all other parties acting on its or their behalf to notify and consult with the Initial Purchasers, prior to issuing any announcement which could be material in the context of the distribution of the Offered Securities. (i) The Company will promptly inform the Initial Purchasers or their legal counsel of any communications received by it from any governmental or regulatory agency or authority, including, without limitation, the ICC, FERC or the Commission, relating to the offering of the Offered Securities and to furnish the Initial Purchasers or their legal counsel with copies thereof. (j) During the period of two years after the Closing Date, the Company will take such steps as shall be necessary to ensure that it shall not become an "investment company" within the meaning of such term under the Investment Company Act and the rules and regulations of the Commission thereunder. (k) The Company will cause Arthur Andersen LLP to deliver an initial comfort letter, dated the date of the Offering Memorandum, to the Initial Purchasers in form and substance reasonably satisfactory to the Initial Purchasers at or prior to the time copies of the Offering Memorandum are furnished to the Initial Purchasers. (l) The Company will cause Deloitte & Touche LLP to deliver an initial comfort letter, dated the date of the Offering Memorandum, to the Initial Purchasers in form and substance reasonably satisfactory to the Initial Purchasers at or prior to the time copies of the Offering Memorandum are furnished to the Initial Purchasers. (m) If, at any time prior to completion of the resale of the Offered Securities by the Initial Purchasers, any event shall occur as a result of which, in the opinion of counsel for the Initial Purchasers, it becomes necessary to amend or supplement the Offering Memorandum in order to make the statements therein, in the light of the circumstances when the Offering Memorandum is delivered to a 15 purchaser, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with any law, forthwith to prepare an appropriate amendment or supplement to the Offering Memorandum so that the statements in the Offering Memorandum, as so amended or supplemented, will not in the light of the circumstances when it is so delivered, be misleading, or so that the Offering Memorandum will comply with law, and to furnish to each Initial Purchaser as you shall specify, such number of copies thereof as such Initial Purchaser may reasonably request. (n) To use its best efforts to do and perform all its responsibilities and obligations under this Agreement by the Company prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Offered Securities. 6. Expenses. The Company agrees to pay (a) the costs incident to the authorization, issuance, sale and delivery of the Offered Securities and any taxes payable in that connection; (b) the costs of producing and distributing this Agreement; (c) the costs incident to the preparation, printing and distribution of the Preliminary Offering Memorandum, the Offering Memorandum and any amendments or supplements thereto, (d) any fees charged by investment rating agencies for the rating of the Offered Securities; (e) the fees and expenses of qualifying the Offered Securities under the securities laws of the several jurisdictions as provided in Section 5(c) and of preparing, printing and distributing a Blue Sky Memorandum (including reasonable related fees and expenses of counsel to the Initial Purchasers); (f) (i) all costs and expenses incident to the preparation of the "road show" presentation materials and (ii) all costs and expenses incident to the road show traveling expenses of the Company and CILCORP; (g) the costs of preparing certificates evidencing the Offered Securities; (h) all expenses and fees in connection with the application for inclusion of the Offered Securities in the PORTAL Market; (i) the fees and expenses of the Trustee; (j) the cost and charges of any transfer agent or registrar; (k) all New York stamp or other issuance or governmental duties, if any, payable by the Initial Purchasers in connection with the offer and sale of the Offered Securities to the Initial Purchasers and by the Initial Purchasers to the initial purchasers therefrom; (1) the fees and expenses of Simpson Thacher & Bartlett, counsel to the Initial Purchasers, and (m) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement not otherwise specifically provided for in this Section, including, without limitation, the fees and expenses of each of Arthur Andersen LLP and Deloitte & Touche LLP, the Company's independent accountants, and the fees and expenses of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company. 7. Conditions of the Initial Purchasers' Obligations. The obligations of the several Initial Purchasers hereunder are subject (i) to the accuracy, when made and on the Closing Date, of the representations and warranties of the Company contained herein, or in certificates of any officer of the Company delivered pursuant to the provisions hereof, (ii) to the performance by the Company of its covenants and other obligations hereunder and (iii) to each of the following additional terms and conditions: 16 (a) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Indenture, the Registration Rights Agreement, the Pledge Agreement, the Merger Agreement and the Offering Memorandum or any amendment or supplement thereto, and all other legal matters relating to this Agreement, the Indenture, the Registration Rights Agreement and the Pledge Agreement and the transactions contemplated hereby and thereby shall be reasonably satisfactory in all material respects to counsel to the Initial Purchasers, and the Company shall have furnished to such counsel such documents as they may reasonably request to enable them to pass upon such matters. (b) The Company shall have delivered to the Initial Purchasers a certified copy of the resolutions of its Board of Directors approving the creation and issue of the Offered Securities by the Company on the terms and conditions provided in the Indenture and this Agreement and approving the terms hereof and authorizing the execution and delivery of this Agreement, the Registration Rights Agreement, the Indenture, the global certificates and any definitive certificates in registered form in respect of the Offered Securities, the Merger Agreement and all other agreements and documents relevant to the issue of the Offered Securities by the Company. (c) CILCORP shall have delivered to the Initial Purchasers a certified copy of the resolutions of the Board of Directors of CILCORP approving the terms of the Pledge Agreement and authorizing the execution and delivery of the Pledge Agreement. (d) The Initial Purchasers shall have received on the Closing Date the opinions of Skadden, Arps, Slate, Meagher & Flom LLP, outside counsel for the Company, dated the Closing Date, in the form attached hereto as Exhibit A-l [corporate matters], Exhibit A-2 [non-substantive consolidation], and Exhibit A-3 [tax opinion]. (e) The Initial Purchasers shall have received on the Closing Date an opinion of William Luraschi, Esq., General Counsel of AES, dated the Closing Date, to the effect set forth in Exhibit B. (f) The Initial Purchasers shall have received on the Closing Date an opinion of John Sahn, Esq., Vice President, Secretary and Treasurer of CILCORP, dated the Closing Date, to the effect set forth in Exhibit C. (g) The Initial Purchasers shall have received on the Closing Date an opinion of Sidley & Austin, outside counsel for the Company, dated the Closing Date, to the effect set forth in Exhibit D. 17 (h) The Trustee shall have furnished to the Initial Purchasers an officer's certificate, dated the Closing Date, in form and substance satisfactory to the Initial Purchasers, to the effect that (i) the Indenture has been duly authorized, executed and delivered by the Trustee and (ii) each person who, on behalf of the Trustee, executed and delivered the Indenture was at the date thereof and is now duly elected, appointed or authorized, qualified and acting as an officer or authorized signatory of the Trustee and duly authorized to perform such acts at the respective times of such acts and the signatures of such persons appearing on such document are their genuine signatures. Attached to the officer's certificate shall be an extract of the Bylaws of the Trustee, duly adopted by its Board of Directors, respecting the signing authority of the persons mentioned in clause (ii) above and a letter from an officer of the Trustee authorizing, pursuant to such Bylaws, such signing authority, which Bylaws and letter at the Closing Date are in full force and effect. (i) With respect to the letter of Deloitte & Touche LLP, delivered to the Initial Purchasers concurrently with the execution of this Agreement referred to in Section 5(1), the Company shall have furnished to the Initial Purchasers a letter (as used in this paragraph, the "bring-down letter") of each such accountant, addressed to the Initial Purchasers and dated the Closing Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (j) The Company shall have furnished to the Initial Purchasers an officer's certificate, dated the Closing Date, in which such officer, to the best of his knowledge after reasonable investigation, shall state that: (i) The representations and warranties of the Company in Section 1 are true and correct in all material respects as of the Closing Date; and the Company has complied with all its agreements contained herein and has satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and (ii) Subsequent to the dates of the most recent financial statements included in the Offering Memorandum, there has been no material adverse 18 change, nor any development or event involving a prospective material adverse change, in the financial condition, business or results of operations of Company, CILCORP and the Principal Subsidiaries taken as a whole except as set forth in or contemplated by the Offering Memorandum or as described in such certificate. (k) Since the date of the latest audited financial statements included in the Offering Memorandum (i) except as disclosed in the Offering Memorandum, there shall have been no material adverse change, or a development which is reasonably likely to lead to a material adverse change, in the financial condition, business or results of operations of the Company, CILCORP and Principal Subsidiaries, taken as a whole (otherwise than as contemplated in the Offering Memorandum), and (ii) except as disclosed in the Offering Memorandum, there shall not have been any transactions entered into by CILCORP or the Principal Subsidiaries, other than those in the ordinary course of business, which are material and adverse to CILCORP and the Principal Subsidiaries, taken as a whole, and which, in the judgment of the Initial Purchasers, make it impracticable or inadvisable to proceed with the offering or the delivery of the Offered Securities on the terms and in the manner contemplated in the Offering Memorandum. (l) Subsequent to the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating given to CILCORP's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of CILCORP's debt securities. (m) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, Inc. or the Nasdaq National Market System, or trading in any securities of the Company or CILCORP on any exchange, shall have been suspended or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by U.S. federal or state authorities in the United States, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general or United States economic, political or financial conditions or in currency exchange rates, taxation, exchange controls or foreign investment regulations (or the effect of domestic or international conditions on the international financial markets or the financial markets in the United States shall be 19 such) as to make it, in the reasonable judgment of a majority in interest of the Initial Purchasers, impracticable or inadvisable to proceed with the offering or delivery of the Offered Securities being delivered on the Closing Date on the terms and in the manner contemplated in the Offering Memorandum. (n) The Indenture shall have been duly executed and delivered by the Company and the Trustee and the Offered Securities shall have been duly executed and delivered by the Company and duly authenticated by the Trustee. (o) The Company and the Initial Purchasers shall have executed and delivered the Registration Rights Agreement (in form and substance satisfactory to the Initial Purchasers) and the Registration Rights Agreement shall be in full force and effect. (p) Immediately following the effective time of the Merger, CILCORP shall have executed and delivered the Pledge Agreement (in form and substance satisfactory to the Initial Purchasers) to the Collateral Agent and the Pledge Agreement shall be in full force and effect. (q) The NASD shall have accepted the Offered Securities for trading in the PORTAL market. (r) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Offered Securities; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Offered Securities. (s) AES shall have made an equity contribution to the Company in an amount which, together with the proceeds from the sale of the Offered Securities to the Initial Purchasers, shall equal the amount the Company is required to pay in order to purchase all of the outstanding shares of common stock of CILCORP, pursuant to the terms of the Merger Agreement. (t) The Company and CILCORP shall contemporaneously consummate the Merger on the terms described in the Offering Memorandum, and there shall have been no material amendments or waivers to the Merger Agreement. (u) The Initial Purchasers shall have received on the Closing Date an opinion of Simpson Thacher & Bartlett, counsel to the Initial Purchasers, in form and substance satisfactory to the Initial Purchasers. 20 All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance satisfactory to counsel to the Initial Purchasers. 8. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each Initial Purchaser, its officers and employees and each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of the Offered Securities), to which that Initial Purchaser, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum or the Offering Memorandum, or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in any Preliminary Offering Memorandum or the Offering Memorandum, or in any amendment or supplement thereto, any material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each Initial Purchaser and each such officer, employee and controlling person promptly upon demand for any legal or other expenses reasonably incurred by that Initial Purchaser, officer, employee or controlling person in connection with investigating or defending against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Offering Memorandum or the Offering Memorandum, or in any such amendment or supplement, or in any Blue Sky Application in reliance upon and in conformity with the written information furnished to the Company by any Initial Purchaser specifically for inclusion therein; provided, further, that as to any Preliminary Offering Memorandum this indemnity agreement shall not inure to the benefit of any Initial Purchaser, its officers or employees or any person controlling that Initial Purchaser on account of any loss, claim, damage, liability or action arising from the sale of Offered Securities to any person by that Initial Purchaser if that Initial Purchaser failed to send or give a copy of the Offering Memorandum, as the same may be amended or supplemented, to that person within the time required by the Securities Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Offering Memorandum was corrected in the Offering Memorandum unless such failure resulted from non-compliance by the Company with Section S(b). The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Initial Purchaser or to any officer, employee or controlling person of that Initial Purchaser. (b) Each Initial Purchaser, severally and not jointly, shall indemnify and hold harmless the Company, its officers and employees, each of its directors and each person, if any, who controls the Company within the meaning of the Securities Act from and against any loss, claim, 21 damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum or the Offering Memorandum or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein any material fact required to be stated in any Preliminary Offering Memorandum or the Offering Memorandum or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with the written information furnished to the Company through the Initial Purchasers by or on behalf of that Initial Purchaser specifically for inclusion therein, and shall reimburse the Company and any such director, officer or controlling person for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending against any such loss, claim, damage, liability or action as such expenses are incurred; provided however, that in no case shall the Initial Purchaser be liable or responsible for any amount in excess of the aggregate principal amount of the Offered Securities purchased by such Initial Purchaser. The foregoing indemnity agreement is in addition to any liability which any Initial Purchaser may otherwise have to the Company or any such director, officer or controlling person. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party). After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the 22 reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties, which firm shall be designated in writing by the Initial Purchasers, if the indemnified parties under this Section 8 consist of any Initial Purchasers or any of their respective officers, employees or controlling persons, or by the Company, if the indemnified parties under this Section consist of the Company or any of its directors, officers, employees or controlling persons. Each indemnified party, as a condition of the indemnity agreements contained in Sections 8(a) and 8(b), shall use its best efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld) settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchasers on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Offered Securities purchased under this Agreement 23 (before deducting expenses but after deducting discounts and commissions) received by the Company on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Offered Securities purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Offered Securities under this Agreement, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Initial Purchasers, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were to be determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 8(d) shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which such Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute as provided in this Section 8(d) are several in proportion to their respective purchase obligations and not joint. 9. Termination. The obligations of the Initial Purchasers hereunder may be terminated by the Initial Purchasers by notice given to and received by the Company prior to delivery of and payment for the Offered Securities if, prior to that time, any of the events described in Sections 7(k), (1) (m) or (r) shall have occurred or if the Initial Purchasers shall decline to purchase the Offered Securities for any reason permitted under this Agreement. 10. Reimbursement of Initial Purchasers' Expenses. If this Agreement shall be terminated, then the Company shall reimburse the Initial Purchasers for fees and expenses of their counsel and for such other out-of-pocket expenses as shall have been incurred by them in connection with this Agreement and the proposed purchase of the Offered Securities, and upon demand the Company shall pay the full amount thereof to the Initial Purchasers and the Company shall have no further liability to the Initial Purchasers except as provided in Sections 6 and 8. 11. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: 24 (a) if to the Initial Purchasers, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers Inc., Three World Financial Center, New York, New York 10285, Attention: Syndicate Department (Facsimile No.: 212-528-8822); (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to The AES Corporation, 1001 North 19th Street, 20th floor, Arlington, Virginia 22209, Attention: William Luraschi, Esq. (Facsimile No.: 703-528-4510); (c) if to CILCORP, shall be delivered or sent by mail, telex or facsimile transmission to: CILCORP Inc., 300 Hamilton Boulevard, Suite 300, Peoria, Illinois 61602, Attention: President (Facsimile No.: 309-677-5016); provided, however, that any notice to an Initial Purchaser pursuant to Section 8(c) shall be delivered or sent by mail, telex or facsimile transmission to such Initial Purchaser at its address set forth in its acceptance telex to the Representative, which address will be supplied to any other party hereto by the Representative upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers by the Representative. 12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the officers and employees of each Initial Purchaser and the person or persons, if any, who control each Initial Purchaser within the meaning of Section 15 of the Securities Act and (B) the representations, warranties, indemnities and agreements of the Initial Purchasers contained in this Agreement shall be deemed to be for the benefit of directors, officers and employees of the Company and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 12, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 13. Survival. The respective indemnities, representations, warranties and agreements of the Company and the Initial Purchasers contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Offered Securities and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any of them or any person controlling any of them. If this Agreement is terminated pursuant to Section 9 (or if for any reason the purchase of the Offered Securities by the Initial Purchasers is not 25 consummated), the respective obligations of the Company and the Initial Purchasers pursuant to Section 8 shall remain in effect. 14. Definition of the Terms "Business Day" and "Subsidiary." For purposes of this Agreement, (a) "business day" means any day on which the New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the rules and regulations under the Securities Act. 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 17. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. If the foregoing correctly sets forth the agreement between the Company and the Initial Purchasers, please indicate your acceptance in the space provided for that purpose below. Very truly yours, MIDWEST ENERGY, INC. By: /s/ Paul Stinson ------------------------------------- Name: Paul Stinson Title: Vice President Accepted: LEHMAN BROTHERS INC. J.P. MORGAN SECURITIES INC. MORGAN STANLEY DEAN WITTER BY: LEHMAN BROTHERS INC. By: /s/ David Schwarzbach --------------------------------- Authorized Representative For themselves and as Representative of the several Initial Purchasers named in Schedule I hereto. SCHEDULE I
Principal Principal Amount of Amount of Initial Purchasers Notes Bonds - ------------------ Lehman Brothers Inc................................................... $135,000,000 $150,000,000 J.P. Morgan Securities Inc............................................ 45,000,000 50,000,000 Morgan Stanley Dean Witter............................................ 45,000,000 50,000,000 Total................................................................. $225,000,000 $250,000,000 ============ ============
EX-3.1 3 EXHIBIT 3.1 JIM EDGAR SECRETARY OF STATE STATE OF ILLINOIS
Submit in Duplicate File # - -------------------------------------- -------------------------------- Payment must be made by Certified ARTICLES OF INCORPORATION This Space For Use By Check, Cashiers Check or a Money Secretary of State Order, payable to "Secretary of State." Date License Fee $ Franchise Tax $ Filing Fee $ Clerk DO NOT SEND CASH - -------------------------------------- -------------------------------- Pursuant to the provisions of "The Business Corporation Act of 1983", the undersigned incorporator(s) hereby adopt the following Articles of Incorporation. ARTICLE ONE The name of the corporation is CILCORP Inc. ------------------------------------------------------------- (shall contain the word "corporation," "company," Incorporated," - ----------------------------------------------------------------------------------------------------------- "limited," or an abbreviation thereof) ARTICLE TWO The name and address of the initial registered agent and its registered office are: Registered Agent M. J. Murray ----------------------------------------------------------------------- First Name Middle Name Last Name Registered Office 300 Liberty Street ----------------------------------------------------------------------- Number Street Suite # (A.P.O. Box alone is not acceptable) Peoria 61602 Peoria ----------------------------------------------------------------------- City Zip Code County ARTICLE THREE The purpose for which the corporation is organized are: If not sufficient space to cover this point add one or more sheets of this size any lawful purpose or purposes under the Business Corporation Act of 1983. ARTICLE FOUR Paragraph 1: The authorized shares shall be: Class *Par Value per share Number of shares authorized ------------------------------------------------------------------------------------------- Common Without par value 20,000,000 -------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- Paragraph 2: The preferences, qualifications, limitations, restrictions and the special or relative rights in respect of the shares of each class are: If not sufficient space to cover this point, add one or more sheets of this size. None ARTICLE FIVE The number of shares to be issued initially, and the consideration to be received by the corporation therefor, are: *Par Value Number of shares Consideration to be Class Per share proposed to be issued received therefor ------------------------------------------------------------------------------------------- Common Without par value 100 $1,000 ------------------------------------------------------------------------------------------- $ ------------------------------------------------------------------------------------------- $ ------------------------------------------------------------------------------------------- $ ------------------------------------------------------------------------------------------- TOTAL $1,000 ------------------- * A declaration as to a "par value" is optional. This space may be marked "n/a" when no reference to a par value is desired. ARTICLE SIX OPTIONAL The number of directors constituting the initial board of directors of the corporation is nine (9). ARTICLE SEVEN OPTIONAL (a) It is estimated that the value of all property to be owned by the corporation for the following year wherever located will be: $ -- --------- (b) It is estimated that the value of the property to be located within the State of Illinois during the following year will be: $ -- --------- (c) It is estimated that the gross amount of business which will be transacted by the corporation during the following year will be: $ -- --------- (d) It is estimated that the gross amount of business which will be transacted from places of business in the State of Illinois during the following year will be: $ -- --------- ARTICLE EIGHT OTHER PROVISIONS See Exhibit A attached hereto and made a part hereof. Attach a separate sheet of this size for any other provision to be included in the Articles of Incorporation, e.g., authorizing pre-emptive rights; denying cumulative voting;
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regulating internal affairs; voting majority requirements; fixing a duration other than perpetual; etc.
NAMES & ADDRESSES OF INCORPORATORS The undersigned incorporator(s) hereby declare(s), under penalties of perjury, that the statements made in the foregoing Articles of Incorporation are true. Dated: January 10, 1985 ---------------- Signatures and Names Post Office Address 1. /s/ Robert O. Viets 1. 300 Liberty Street ---------------------------- --------------------------------- Signature Street Robert O. Viets Peoria IL 61602 ---------------------------- --------------------------------- Name (please print) City/Town State Zip 2. 2. ---------------------------- --------------------------------- Signature Street ---------------------------- --------------------------------- Name (please print) City/Town State Zip 3. 3. ---------------------------- --------------------------------- Signature Street ---------------------------- --------------------------------- Name (please print) City/Town State Zip (Signatures must be in ink on original document. Carbon copy, xerox or rubber stamp signatures may only be used on conformed copies) NOTE: If a corporation acts as incorporator, the name of the corporation and the state of incorporation shall be shown and the execution shall be by its President or Vice-President and verified by him, and attested by its Secretary or an Assistant Secretary. 3 EXHIBIT A TO THE ARTICLES OF INCORPORATION OF CILCORP Inc. ARTICLE EIGHT The holders of capital stock of the corporation now or hereafter outstanding shall not have the right to cumulate their respective votes in any election for directors of the corporation. ARTICLE NINE Paragraph 1: A Business Combination (as hereinafter defined) shall require the affirmative vote of the holders of that percentage of the Voting Shares (as hereinafter defined) which is the greater of: A. 75%, or B. the percentage calculated by dividing (x) the sum of (i) the aggregate number of Voting Shares which are beneficially owned by each and every Related Person (as hereinafter defined) and (ii) one-half of all Voting Shares which are not beneficially owned by any such Related Person by (y) the total number of Voting Shares (the "Required Percentage"); provided, however, that for the purpose of determining the Required Percentage of affirmative votes required for any Business Combination between the corporation or any Subsidiary (as hereinafter defined) and any Related Person, only the Related Person which is a party to such transaction shall be deemed a "Related Person" under this Paragraph 1. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or otherwise. Paragraph 2: The provisions of Paragraph 1 shall not apply to a Business Combination, and such Business Combination shall require the affirmative vote of the holders of a majority of the Voting Shares, if all of the following conditions shall have been satisfied: 1 A. If, with respect to such Business Combination (i) at least two-thirds of the Continuing Directors (as hereinafter defined) shall have approved expressly a memorandum of understanding with the Related Person which is a party to such transaction, consistent in material terms with the Business Combination for which a shareholder vote is sought, before such Related Person became a Related Person; or (ii) at least two-thirds of the Continuing Directors shall have approved expressly in advance the acquisition of the Voting Shares that caused such Related Person to become a Related Person; or (iii) such Business Combination is approved expressly by the affirmative vote of at least two-thirds of the Continuing Directors before the consummation of such transaction. B. The aggregate amount of cash or fair market value of Other Consideration (as hereinafter defined) to be received per share by holders of Voting Shares in such Business Combination is not less than the Highest Per Share Price (as hereinafter defined) paid by the Related Person in acquiring within the two-year period immediately preceding the Business Combination any shares of capital stock of the corporation which if continued to be held at the Record Date (as hereinafter defined) would be (or are) Voting Shares. C. The consideration to be received by Public Holders (as hereinafter defined) in such Business Combination shall be in the same form and of the same kind as the consideration paid by the Related Person in acquiring within the two-year period immediately preceding the Business Combination any shares of capital stock of the corporation which if continued to be held at the Record Date would be (or are) Voting Shares. D. After such Related Person became a Related Person and before the Business Combination the Related Person shall have taken steps to ensure that the corporation's Board of Directors included at all times representation by Continuing Directors proportionate to the ratio that the Voting Shares which from time to time are owned by Public Holders bear to all Voting Shares outstanding at such respective times (with a Continuing Director to occupy any resulting fractional board position); E. Before the Business Combination, such Related Person shall not have (i) received the benefit, directly or indirectly, (except proportionately as a shareholder) of any loans, advances, guarantees, pledges, financial assistance or tax credits provided by the corporation, or (ii) made any major change in the corporation's business or equity capital structure without the approval of at least two-thirds of the Continuing Directors. 2 F. A proxy statement responsive to the requirements of the Securities Act of 1933, as amended, shall have been mailed to all holders of Voting Shares for the purpose of soliciting shareholder approval of such Business Combination. The proxy statement shall contain on the front page thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of them, may have furnished in writing and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or lack of fairness) of the terms of such Business Combination from the point of view of the Public Holders (such investment banking firm to be selected by a majority of the Continuing Directors, to be furnished with all information it reasonably requests and to be paid a reasonable fee for its services upon receipt by the corporation of such opinion). Paragraph 3: The following definitions shall apply to the provisions of Article Nine and Paragraph 1 of Article Ten of these Articles of Incorporation. A. "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (any such Rule hereinafter shall be referred to as "Rule"). B. A Person shall be the "Beneficial Owner" of Voting Shares: (i) which are beneficially owned, directly or indirectly, by it or any of its Affiliates and Associates; (ii) which such Person or any of its Affiliates or Associates has (a) the right to acquire at any time (notwithstanding that Rule 13d-3 deems shares to be beneficially owned only if such right may be exercised within 60 days) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Voting Shares. 3 C. "Business Combination" shall mean: (i) any merger or consolidation of the corporation or any Subsidiary with or into (a) any Related Person or (b) any other Person (whether or not itself a Related Person) which, after such merger or consolidation, would be an Affiliate of a Related Person; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition, either in a single transaction or a series of related transactions, to or with any Related Person of (x) a Substantial Part of the assets of the corporation (including without limitation any voting securities of a Subsidiary) or (y) any Subsidiary having total assets with an aggregate fair market value of $5,000,000 or more; (iii) the issuance or transfer by the corporation or any Subsidiary, either in a single transaction or a series of related transactions, of any securities of the corporation or of any Subsidiary to any Related Person in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $5,000,000 or more; (iv) the adoption of any plan or proposal for the liquidation or dissolution of the corporation; (v) any reclassification of securities, including without limitation, any reverse stock split, recapitalization, reorganization, merger or consolidation, of the corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving a Related Person) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of capital stock of the corporation or any Subsidiary which is directly or indirectly owned by any Related Person; or (vi) any agreement, contract or other arrangement providing for any of the transactions described in (i) through (v) of this subparagraph C. D. "Continuing Director" shall mean a person who was a member of the Board of Directors of the corporation elected by the Public Holders immediately before the date as of which any Related Person became a Related Person, or 4 a person designated (before his initial election as a director) as a Continuing Director by a majority of the then Continuing Directors. E. "Highest Per Share Price" shall mean the highest price that can be determined to have been paid at any time within the two-year period immediately preceding the Business Combination by the Related Person for any share or shares of capital stock of the corporation which if continued to be held at the Record Date would be (or are) Voting Shares. In determining the Highest Per Share Price, all purchases by the Related Person shall be taken into account regardless of whether the shares were purchased before or after the Related Person became a Related Person. Also, the Highest Per Share Price shall include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by the Related Person with respect to the shares acquired by that Related Person. Determination of the Highest Per Share Price as required from time to time by this Article Nine shall be made by at least two-thirds of the Continuing Directors then in office. F. "Other Consideration" shall include, without limitation, property, the capital stock of the corporation retained by its Public Holders in the event of a Business Combination in which the corporation is the surviving corporation, or other securities. G. "Person" shall mean any individual, firm, corporation, partnership or other entity. H. A "Public Holder" shall mean a Beneficial Owner of Voting Shares who is not a Related Person. I. "Record Date" shall mean the date set by the corporation for the determination of shareholders entitled to notice of and to vote on the proposed Business Combination. J. "Related Person" shall mean, with respect to any Business Combination, any Person (other than the corporation, any Subsidiary or any Person who owns all of the Voting Shares) who, together with its Affiliates and Associates, as of the Record Date or immediately prior to the consummation of any such transaction, is the Beneficial Owner of not less than 10% of the Voting Shares. K. "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1) is owned, directly or indirectly, by the corporation; provided, however, that for the purposes of the definition 5 of Related Person set forth in subparagraph J of this Paragraph 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of capital stock is owned, directly or indirectly, by the corporation. L. "Substantial Part" shall mean more than 20% of the fair market value as determined by at least two-thirds of the Continuing Directors of the total consolidated assets of the corporation and its Subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is being made. M. "Voting Shares" shall mean all of the shares of capital stock of the corporation which are issued and outstanding as of the Record Date. The Voting Shares shall include shares deemed owned through application of subparagraph B of this Paragraph 3 but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants, options or otherwise. Paragraph 4: For the purposes of this Article Nine, at least two-thirds of the Continuing Directors shall determine (A) the number of Voting Shares beneficially owned by any Person, (B) whether a Person is an Affiliate or Associate of another, (C) whether a Person is the Beneficial Owner of any Voting Shares, and (D) whether the assets subject to any Business Combination have an aggregate fair market value of $5,000,000 or more. Paragraph 5: Nothing contained in this Article Nine shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. ARTICLE TEN Paragraph 1: Any amendment, alteration, change or repeal of Article Nine or this Paragraph 1 of Article Ten of these Articles of Incorporation shall require the affirmative vote of the holders of at least 75% of the Voting Shares and if there is a Related Person, such action must also be approved by the affirmative vote of a majority in interest of the Public Holders; provided that this Paragraph 1 of Article Ten shall not apply to, and the majority vote prescribed by Paragraph 2 of this Article Ten shall be required for, any amendment, alteration, change or repeal recommended to the shareholders by two-thirds or more of the Continuing Directors. 6 Paragraph 2: Any provision of these Articles of Incorporation other than Article Nine and Paragraph 1 of Article Ten may be amended, altered, changed or repealed by the affirmative vote of the holders of a majority of the outstanding common stock of the corporation. 7 JIM EDGAR SECRETARY OF STATE STATE OF ILLINOIS Submit in Duplicate File #5370-721-1 - ----------------------------------- ----------------------------------- Payment must be made by Certified ARTICLES OF AMENDMENT This Space For Use By Check, Cashiers Check or a Money Secretary of State Order, payable to "Secretary of State." Date License Fee $ Franchise Tax $ Filing Fee $ DO NOT SEND CASH Clerk - ----------------------------------- ----------------------------------- Pursuant to the provisions of "The Business Corporation Act of 1983", the undersigned corporation hereby adopts these Articles of Amendment to its Articles of Incorporation. ARTICLE ONE The name of the corporation is CILCORP Inc. ------------------------------ -------------------------------------------------- (Note 1) ARTICLE TWO The following amendment of the Articles of Incorporation was adopted on April 28 , 19 87 in the manner indicated below. ("X" one box only.) - -------------------------------------------------- -----
/ / By a majority of the incorporators, provided no directors were named in the articles of incorporation and no directors have been elected; or by a majority of the board of directors, in accordance with Section 10.10, the corporation having issued no shares as of the time of adoption of this amendment; (Note 2) / / By a majority of the board of directors, in accordance with Section 10.15, shares having been issued but shareholder action not being required for the adoption of the amendment; (Note 3) /X/ By the shareholders, in accordance with Section 10.20, a resolution of the board of directors having been duly adopted and submitted to the shareholders. At a meeting of shareholders, not less than the minimum number of votes required by statute and by the articles of incorporation were voted in favor of the amendment; (Note 4) / / By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by shareholders having not less than the minimum number of votes required by statute and by the articles of incorporation. Shareholders who have not consented in writing have been given notice in accordance with Section 7.10; (Note 4) / / By the shareholders, in accordance with Section 10.20 and 7.10, a resolution of the board of directors have been duly adopted and submitted to the shareholders. A consent in writing has been signed by all the shareholders entitled to vote on this amendment. (Note 4) (INSERT AMENDMENT) (Any article being amended is required to be set forth in its entirety.) (Suggested language for an amendment to change the corporate name is: RESOLVED, that the Articles of Incorporation be amended to read as follows:) - -------------------------------------------------------------------------------- (NEW NAME) All changes other than name, include on page 2 (over) Page 2 Resolution Page 3 ARTICLE THREE The manner in which any exchange, reclassification or cancellation of issued shares, or a reduction of the number of authorized shares of any class below the number of issued shares of that class, provided for or effected by this amendment, is as follows: (If not applicable, insert "No change") No change ARTICLE FOUR (a) The manner in which said amendment effects a change in the amount of paid-in capital (Paid-in capital replaces the terms Stated Capital and Paid in Surplus and is equal to the total of these accounts) is as follows: (If not applicable, insert "No change") No change (b) The amount of paid-in capital (Paid in Capital replaces the terms Stated Capital and Paid in Surplus and is equal to the total of these accounts) as changed by this amendment is as follows: (If not applicable, insert "No change") No change Before Amendment After Amendment Paid-in Capital $ $ ---------------- --------------- (Complete either item 1 or 2 below) (1) The undersigned corporation has caused these articles to be signed by its duly authorized officers, each of whom affirm, under penalties of perjury, that the facts stated herein are true. Dated May 6 , 19 87 CILCORP Inc. ----------- ------ -------------------------------------------- (Exact Name of Corporation) attested by /s/ M. J. Murray by /s/ W. R. Vogelsang -------------------------- ---------------------------- (Signature of Secretary (Signature of President of or Assistant Secretary) Vice President) M. J. Murray, Secretary W. R. Vogelsang, President --------------------------- ---------------------------- (Type or Print Name & Title) (Type or Print Name and Title) (2) If amendment is authorized by the incorporators, the incorporators must sign below. OR If amendment is authorized by the directors and there are no officers, then a majority of the directors or such directors as may be designated by the board, must sign below. The undersigned affirms, under penalties of perjury, that the facts stated herein are true. Dated , 19 ------------------ -------- - ---------------------------------- ------------------------------------ - ---------------------------------- ------------------------------------ - ---------------------------------- ------------------------------------ - ---------------------------------- ------------------------------------ Extract from Minutes of Annual Meeting of Shareholders of CILCORP. INC. held April 28, 1987 I, M.J. Murray, Secretary of CILCORP Inc., hereby certify that at the Annual Meeting of Shareholders of the Company held April 28, 1987, at which a quorum was in attendance and voting throughout, the following resolutions were duly adopted and are now in full force and effect: RESOLVED: That Article Four of the Article of the Incorporation of the Company, be amended to read in its entirety as follows: Paragraph 1: The authorized shares shall be: Class Par Value Per Share Number of Shares Authorized - ----- ------------------- --------------------------- Common Without par value 50,000,000 Preferred Without par value 4,000,000 Paragraph 2: The designations, preferences, qualifications, limitations, restrictions and the special or relative rights in respect of the shares of each class are: Common Stock. Holders of the common stock shall be entitled to one vote per share on all matters submitted to a vote of the shareholders of the Company, except matters required to be voted on exclusively by holders of preferred stock or of any series of preferred stock. Subject only to the prior rights and preferences of the preferred stock, the holders of the common stock shall be entitled to dividends thereon, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor. In the event of any dissolution or liquidation of the Company, the holders of the common stock shall be entitled to receive, pro rata, after the prior rights of the holders of the preferred stock have been satisfied, all of the assets of the Company remaining available for distribution, if any. Preferred Stock. The preferred stock may be issued from time to time in one or more series and shall have preference over the common stock as to the payment of dividends and to the assets of the Company upon the voluntary or involuntary liquidation of the Company. Dividends on the preferred stock shall be cumulative and shares of preferred stock shall have such rights of conversion into shares of any other class, or into shares of any series of the same or any other class, as shall be provided with respect to such shares. The Board of Directors by resolution shall establish each series of preferred stock and fix and determine the number of shares and the relative rights and preferences of each such series, provided that all shares of the preferred stock shall be identical except as to the following relative rights and preferences, as to which there may be variations fixed and determined by the Board of Directors between different series: (1) The rate of dividend. (2) The price at and the terms and conditions on which shares.... (3) The amount payable upon shares in event of involuntary liquidation. (4) The amount payable upon shares in event of voluntary liquidation. (5) Sinking fund provisions for the redemption or purchase of shares. (6) The terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion. (7) The limitation or denial of voting rights, or the grant of special voting rights. (8) Any other rights or preferences now or hereafter permitted by the laws of the State of Illinois as variations between different series of preferred stock. RESOLVED FURTHER: That Article Ten of the Article of Incorporation of this Company, be amended to read in its entirety as follows: Paragraph 1: Any amendment, alteration, change or repeal of Article Nine or this Paragraph 1 of Article Ten of these Articles of Incorporation shall require the affirmative vote of the holders of at least 75% of the Voting Shares and if there is a Related Person, such action must also be approved by the affirmative vote of a majority in interest of the Public Holders; provided that this Paragraph 1 of Article Ten shall not apply to, and the majority vote prescribed by Paragraph 2 of this Article Ten shall be required for, any amendment, alteration, change or repeal recommended to the shareholders by two-thirds or more of the Continuing Directors. Paragraph 2: Any provision of these Articles of Incorporation other than Article Nine and Paragraph 1 of Article Ten may be amended, altered, changed or repealed by the affirmative vote of the holders of a majority of the outstanding capital stock of the corporation having the right to vote on the issue and, if a class vote thereon is required pursuant to applicable law, by the affirmative vote of the holders of a majority of the outstanding shares of each such class, and RESOLVED FURTHER: That the officers of this Company are hereby authorized and directed to do all things necessary or desirable to carry out the foregoing resolutions and make them effective. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Company this 6th day of May, 1987. /s/ M. J. Murray - -------------------------------------------------------------------------------- Secretary JIM EDGAR SECRETARY OF STATE STATE OF ILLINOIS Submit in Duplicate File #5370-721-1 - ----------------------------------- ----------------------------------- Payment must be made by Certified ARTICLES OF AMENDMENT This Space For Use By Check, Cashiers Check or a Money Secretary of State Order, payable to "Secretary of State." Date License Fee $ Franchise Tax $ Filing Fee $ DO NOT SEND CASH Clerk - ----------------------------------- ----------------------------------- Pursuant to the provisions of "The Business Corporation Act of 1983", the undersigned corporation hereby adopts these Articles of Amendment to its Articles of Incorporation. ARTICLE ONE The name of the corporation is CILCORP Inc. ------------------------------- ---------------------------------------------------- (Note 1) ARTICLE TWO The following amendment of the Articles of Incorporation was adopted on April 23 , 19 91 in the manner indicated below. ("X" one box only.) -------------------------- ------
/ / By a majority of the incorporators, provided no directors were named in the articles of incorporation and no directors have been elected; or by a majority of the board of directors, in accordance with Section 10.10, the corporation having issued no shares as of the time of adoption of this amendment; (Note 2) / / By a majority of the board of directors, in accordance with Section 10.15, shares having been issued but shareholder action not being required for the adoption of the amendment; (Note 3) /X/ By the shareholders, in accordance with Section 10.20, a resolution of the board of directors having been duly adopted and submitted to the shareholders. At a meeting of shareholders, not less than the minimum number of votes required by statute and by the articles of incorporation were voted in favor of the amendment; (Note 4) / / By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by shareholders having not less than the minimum number of votes required by statute and by the articles of incorporation. Shareholders who have not consented in writing have been given notice in accordance with Section 7.10; (Note 4) / / By the shareholders, in accordance with Section 10.20 and 7.10, a resolution of the board of directors have been duly adopted and submitted to the shareholders. A consent in writing has been signed by all the shareholders entitled to vote on this amendment. (Note 4) (INSERT AMENDMENT) (Any article being amended is required to be set forth in its entirety.) (Suggested language for an amendment to change the corporate name is: RESOLVED, that the Articles of Incorporation be amended to read as follows:) - -------------------------------------------------------------------------------- (NEW NAME) All changes other than name, include on page 2 (over) Page 2 Resolution See attached Exhibit Page 3 ARTICLE THREE The manner in which any exchange, reclassification or cancellation of issued shares, or a reduction of the number of authorized shares of any class below the number of issued shares of that class, provided for or effected by this amendment, is as follows: (If not applicable, insert "No change") No change ARTICLE FOUR (a) The manner in which said amendment effects a change in the amount of paid-in capital (Paid-in capital replaces the terms Stated Capital and Paid in Surplus and is equal to the total of these accounts) is as follows: (If not applicable, insert "No change") No change (b) The amount of paid-in capital (Paid in Capital replaces the terms Stated Capital and Paid in Surplus and is equal to the total of these accounts) as changed by this amendment is as follows: (If not applicable, insert "No change") No change Before Amendment After Amendment Paid-in Capital $ $ ---------------- --------------- (Complete either item 1 or 2 below) (1) The undersigned corporation has caused these articles to be signed by its duly authorized officers, each of whom affirm, under penalties of perjury, that the facts stated herein are true. Dated May 2 , 19 91 CILCORP Inc. -------------- ------- -------------------------------- (Exact Name of Corporation) attested by /s/ M. J. Murray by /s/ Robert O. Viets -------------------------- ----------------------------- (Signature of Secretary (Signature of President of or Assistant Secretary) Vice President) M. J. Murray, Secretary Robert O. Viets, President -------------------------- ----------------------------- (Type or Print Name & Title) (Type or Print Name and Title) (2) If amendment is authorized by the incorporators, the incorporators must sign below. OR If amendment is authorized by the directors and there are no officers, then a majority of the directors or such directors as may be designated by the board, must sign below. The undersigned affirms, under penalties of perjury, that the facts stated herein are true. Dated , 19 ---------------- -------- - ---------------------------------- ------------------------------------ - ---------------------------------- ------------------------------------ - ---------------------------------- ------------------------------------ - ---------------------------------- ------------------------------------ CILCORP. INC. EXHIBIT RESOLVED: That Article Six of the Articles of Incorporation of the Company be amended to read in its entirety as follows: ARTICLE SIX The number of directors of the corporation shall be such number as may from time to time be fixed by or pursuant to the By-laws. The directors shall be elected and divided into three classes, Class I, Class II and Class III, each class to be as nearly equal in number as possible. The directors shall initially be allocated to the same classes as those to which they were designated under the By-laws in effect immediately prior to the annual meeting in 1991. At each annual meeting the number of directors of the class whose terms expire at the time of such meeting (unless the number of directors in such class is increased or decreased as a result of a change in the total number of directors, in which case the number of directors in such class as so increased or deceased) shall be elected to hold office until the third succeeding annual meeting. Directors may be removed only for cause. RESOLVED: That Article Seven of the Articles of Incorporation of the Company be amended to read in its entirety as follows: ARTICLE SEVEN In furtherance of, and not in limitation of, the powers conferred by statute, the Board of Directors of the corporation is expressly authorized and empowered to adopt, amend or repeal the By-laws (or any portion thereof) of the corporation. The shareholders of the corporation are authorized and empowered to adopt, amend or repeal the By-laws only by an affirmative vote of 75% of the voting power of the shares outstanding and entitled to vote thereon. RESOLVED: That Article Eight of the Articles of Incorporation of the Company be amended to read in its entirety as follows: ARTICLE EIGHT Paragraph 1: The holders of capital stock of the corporation now or hereafter outstanding shall not have the right to cumulate their respective votes in any election for directors of the corporation. Paragraph 2: Any action required or permitted to be taken by the shareholders of the corporation shall be taken only at a duly called annual or special meeting. Such action may not be taken by written consent of the shareholders. EX-3.2 4 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF CILCORP INC. ARTICLE I. OFFICES Section 1. The registered office of the Corporation required by the Illinois Business Corporation Act of 1983, as amended (the "Act"), to be maintained in the State of Illinois shall be in the City of Chicago, County of Cook, State of Illinois. The Corporation may also have offices at such other places both within and without the State of Illinois as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II. SHAREHOLDERS Section 1. Time and Place of Meetings. All meetings of the shareholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Illinois, as shall be designated by the Board of Directors. In the absence of a designation of a place for any such meeting by the Board of Directors, each such meeting shall be held at the principal office of the Corporation. Section 2. Annual Meetings. An annual meeting of shareholders shall be held for the purpose of electing directors and transacting such other business as may properly be brought before the meeting. The date of the annual meeting shall be determined by the Board of Directors. Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by law, may be called by the Chief Executive Officer, by the President, by the Chairman of the Board, by a majority of the Board of Directors, or by the holders of not less than twenty percent of the outstanding shares entitled to vote on the matter for which the meeting is called by written request executed by such holders and delivered to the President or the Secretary of the Corporation. Section 4. Notice of Meetings. Written notice of each meeting of the shareholders stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty nor more than sixty days before the date of the meeting, either personally or by mail, by the President, or by the Secretary at the direction of the President or the person or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Any shareholder entitled to receive notice may waive notice of any meeting by a writing executed and delivered to the Corporation either before or after the meeting. Attendance of a shareholder at any meeting shall constitute a waiver of notice of such meeting, unless the shareholder attends such meeting for the express purpose of objecting to the holding of such meeting because proper notice was not given and at the beginning of such meeting records such objection with the person acting as secretary of the meeting and does not thereafter vote on any action taken at the meeting. Section 5. Quorum. The holders of record of a majority of the shares issued and outstanding and entitled to vote thereat, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by the Act or by the Articles of Incorporation. If a quorum is not represented, the holders of record of the shares represented in person or by proxy at the meeting and entitled to vote thereat shall have power, by the affirmative vote of the holders of a majority of such shares, to adjourn the meeting to another time and/or place, without notice other than announcement at the meeting, except as hereinafter provided, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Withdrawal of shareholders from any meeting shall not cause the failure of a duly constituted quorum at such meeting. Section 6. Voting. At all meetings of the shareholders, each shareholder shall be entitled to vote, in person or by proxy, each share owned by such shareholder of record on the record date for the meeting. Each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, unless otherwise provided in the Act or in the Articles of Incorporation. When a quorum is present at any meeting, the affirmative vote of the holders of record of a majority of the shares having voting power represented in person or by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the Act or of the Articles of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. A shareholder who is in attendance at a meeting of shareholders in person or by proxy, but who abstains from the vote on any matter, shall not be deemed to be represented at such meeting for purposes of the preceding sentence with respect to such vote, but shall be deemed to be represented at such meeting for all other purposes. Section 7. Informal Action by Shareholders. Unless otherwise provided by the Act or by the Articles of Incorporation, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by (a) the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting, provided, that (i) at least five days prior to the execution of the consent a notice in writing is delivered to all of the shareholders entitled to vote with respect to the subject matter thereof, and (ii) those shareholders who have not consented in writing are notified in writing of the taking of the corporate action promptly after the effective date of such action; or (b) all of the shareholders entitled to vote with respect to the subject matter thereof. Section 8. Proxies. At all meetings of shareholders, a shareholder may vote in person or vote by proxy which is executed by the shareholder or his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary or other person authorized to tabulate votes at any time prior to the commencement of the meeting. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. ARTICLE III. DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed and controlled by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Articles of Incorporation or by these By-laws directed or required to be exercised or done by the shareholders. 3 Section 2. Number, Qualification and Tenure. The Board of Directors of the Corporation shall consist of not less than three (3) members and not more than twelve (12) members, as may be determined by the Board of Directors from time to time. Within the limits above specified, the number of directors shall be determined from time to time by resolution of the Board of Directors. The directors shall be elected at the annual meeting of the shareholders, except as provided in the Articles of Incorporation or Section 3 of this Article, and each director elected shall hold office until his successor is elected and qualified or until his earlier death, termination, resignation or removal from office. Any decrease in the number of directors shall not have the effect of shortening the term of any incumbent director. Section 3. Vacancies and Newly Created Directorships. Vacancies and newly created directorships resulting from any increase in the number of directors may be filled by the appointment of a majority of the directors then in office though less than a quorum, and each director so appointed shall hold office until the next annual meeting of shareholders and until his successor is elected and qualified or until the earlier death, termination, resignation or removal from office of such director. Section 4. Independent Director. (a) The Corporation shall have at all times one individual who is an Independent Director (as defined below). If the Independent Director resigns, dies or becomes incapacitated, or such position is otherwise vacant, no action requiring the unanimous affirmative vote of the directors shall be taken until a successor Independent Director is appointed and qualified and approves such action. (b) Notwithstanding any other provision of these By-laws and any provision of law that otherwise so empowers the Corporation, the Corporation shall not, without the prior unanimous consent of the Board of Directors, including the Independent Director, do any of the following: (i) make a general assignment for the benefit of creditors; (ii) file a voluntary petition in bankruptcy; (iii) file a petition or answer seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; (iv) file an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, or the entry of any order appointing a trustee, liquidator or receiver of it or of its assets or any substantial portion thereof; or (v) seek, consent to or acquiesce in the appointment of a trustee, receiver or liquidator of it or of all or any substantial part of its assets. With regard to any action contemplated by the preceding sentence, or with regard to any action taken or determination made at any time when the Corporation is insolvent, each director will owe its primary fiduciary duty to the Corporation (including the creditors of the Corporation). (c) For purposes of these By-laws of the Corporation, "Independent Director" shall mean, with respect to the Corporation, a director who is not, and within the last five years was not (except solely by virtue of such person's serving as, or affiliation with any other person serving as, an independent director of The AES Corporation ("Parent") or any of its affiliates, (i) a stockholder, member, partner, director, officer, employee, affiliate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit in any form whatever from, or any person that has provided any service in any form whatever to, or any major creditor (or any affiliate of any major creditor) of, the Parent or any of its affiliates, or (ii) any person owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability corporation interests or any partnership interests, as applicable, of the Parent or any of its affiliates, or of any major creditor (or any affiliate of any major creditor) of any of the foregoing, or a stockholder, member, partner, director, officer, employee, affiliate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit in any form whatever from, or any person that has provided any service in any form whatever to, such benefi cial owner or any of such beneficial owner's affiliates, or (iii) a member of the immediate family of any person described above; provided that the indirect or beneficial ownership of stock through a mutual fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an Independent Director. For purposes of this definition, "major creditor" shall mean a natural person or 4 business entity to which the Parent or any of its affiliates has outstanding indebtedness for borrowed money or credit on open account in a sum sufficiently large as would reasonably be expected to influence the judgment of the proposed Independent Director adversely to the interests of the Corporation when the interests of that person or entity are adverse to those of the Corporation. Section 5. Directors' Duties. The directors, including the Independent Director, will act in good faith in accordance with the terms of the organizational documents and applicable law, and make decisions with respect to the business and operations of the Corporation independent of, and not dictated by, the Parent, or any other affiliate thereof, and any director shall bear a fiduciary duty to the Corporation (including its creditors). Section 6. Place of Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Illinois. Section 7. Meetings. The Board of Directors shall hold a regular meeting, to be known as the annual meeting, immediately following each annual meeting of the shareholders without any notice being given. Other regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may designate from time to time. No notice of regular meetings need be given, other than by announcement at the immediately preceding regular meeting. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or a majority of the Board of Directors. Notice of any special meeting of the Board shall be given at least two days prior thereto, either in writing, or telephonically if confirmed promptly in writing, to each director at the address shown for such director on the records of the Corporation. Section 8. Waiver of Notice; Business and Purpose. Notice of any meeting of the Board of Directors may be waived in writing signed by the person or persons entitled to such notice either before or after the time of the meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened and at the beginning of such meeting records such objection with the person acting as secretary of the meeting and does not thereafter vote on any action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice or waiver of notice of such meeting, unless specifically required by the Act. Section 9. Quorum and Voting. At all meetings of the Board of Directors a majority of the total number of directors then in office shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting without notice other than announcement at the meeting, to any other date, time and place until a quorum shall be present. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, unless the act of a greater number is required by the Act or by the Articles of Incorporation. Withdrawal of directors from any meeting shall not cause the failure of a duly constituted quorum at such meeting. A director who is in attendance at a meeting of the Board of Directors but who abstains from the vote on any matter by announcing his abstention to the person acting as secretary of the meeting and not voting on such matter shall not be deemed to be present at such meeting for purposes of the preceding sentence or Section 15 of this Article with respect to such vote, but shall be deemed to be present at such meeting for all other purposes. Section 10. Organization. The Chairman of the Board, if elected, shall act as chairman at all meetings of the Board of Directors. If the Chairman of the Board is not elected or if elected, is not present, the Vice Chairman, if any, or, if no such Vice Chairman is present, a director chosen by a majority of the directors present, shall act as chairman at such meeting of the Board of Directors. 5 Section 11. Committees. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate two or more directors to constitute an Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may create one or more other committees and appoint two or more directors to serve on such committee or committees. Each director appointed to serve on any such committee shall serve, unless the resolution designating the respective committee is sooner amended or rescinded by the Board of Directors, until the next annual meeting of the Board or until his respective successor is designated. The Board of Directors, by resolution adopted by a majority of the whole Board, may also designate additional directors as alternate members of any committee to serve as members of such committee in the place and stead of any regular member or members thereof who may be unable to attend a meeting or otherwise unavailable to act as a member of such committee. In the absence or disqualification of a member and all alternate members designated to serve in the place and stead of such member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place and stead of such absent or disqualified member. The Executive Committee may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation between the meetings of the Board of Directors, and any other committee may exercise the power and authority of the Board of Directors to the extent specified by the resolution designating such committee, or the Articles of Incorporation or these By-laws; provided, however, that no committee may take any action that is expressly required by the Act or the Articles of Incorporation or these By-laws to be taken by the Board of Directors and not by a committee thereof. Each committee shall keep a record of its acts and proceedings, which shall form a part of the records of the Corporation in the custody of the Secretary, and all actions of each committee shall be reported to the Board of Directors at the next meeting of the Board. Meetings of committees may be called at any time by the Chairman of the Board, if any, or the chairman of the respective committee. A majority of the members of the committee shall constitute a quorum for the transaction of business and, except as expressly limited by this section, the act of a majority of the members present at any meeting at which there is a quorum shall be the act of such committee. Except as expressly provided in this section or in the resolution designating the committee, a majority of the members of any such committee may select its chairman, fix its rules of procedure, fix the time and place of its meetings and specify what notice of meetings, if any, shall be given. Section 12. Action without Meeting. Unless otherwise specifically prohibited by the Articles of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if all members of the Board of Directors or such committee, as the case may be, execute a consent thereto in writing setting forth the action so taken, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. Section 13. Attendance by Telephone. Members of the Board of Directors or any committee thereof may participate in and act at any meeting of the Board of Directors or such committee, as the case may be, through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating. Section 14. Compensation. By resolution of the Board of Directors, irrespective of any personal interest of any of the members thereof, the directors may be paid their reasonable expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at meetings or a stated salary as directors, payable in cash or securities. These payments shall not preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 6 Section 15. Presumption of Assent. A director who is present at a meeting of the Board of Directors or any committee thereof when corporate action is taken shall be deemed to have assented to the action taken unless: (1) he objects at the beginning of the meeting to holding such meeting or transacting business at such meeting; (2) his dissent from the action taken is entered in the minutes of such meeting; or (3) he delivers written notice of his dissent to the person acting as the secretary of the meeting before the adjournment thereof or forwards such dissent by registered or certified mail to the Secretary immediately after the adjournment of such meeting. The right of dissent is not available to a director who votes in favor of the action taken. ARTICLE IV. OFFICERS Section 1. Enumeration. The officers of the Corporation shall be chosen by the Board of Directors and shall include a President and a Secretary. The Board of Directors may also elect a Chairman of the Board, a Vice Chairman, one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents as it may deem appropriate. Any number of offices may be held by the same person. Section 2. Term of Office. The officers of the Corporation shall be elected at the annual meeting of the Board of Directors and shall hold office until their successors are elected and qualified or until their earlier death, termination, resignation or removal from office. Any officer or agent of the Corporation may be removed, with or without cause, by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Any vacancy in any office because of death, resignation, termination, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Section 3. Chief Executive Officer. The Chief Executive Officer of the Corporation, if elected, shall have general supervision, direction and control of the business and affairs of the Corporation, subject to the control of the Board of Directors, and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive officer of a business corporation or as may be prescribed by the Board of Directors. Section 4. President. During any period when there shall be an office of Chief Executive Officer, the President shall be the chief operating officer of the Corporation and shall have such functions, authority and duties as may be prescribed by the Board of Directors or the Chief Executive Officer. During any period when there shall not be an office of Chief Executive Officer, the President shall be the chief executive officer of the Corporation, and, as such, shall have the functions, authority and duties provided for the Chief Executive Officer. Section 5. Vice President. The Vice President or, if there shall be more than one, each Vice President, in the absence of the President or in the event of the President's inability or refusal to act (and if there be no Chief Executive Officer), shall have the authority to perform the duties of the President, subject to such limitations thereon as may be imposed by the Board of Directors, and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer or the President. 7 Section 6. Secretary. The Secretary shall: (a) keep a record of all proceedings of the shareholders, the Board of Directors and any committees thereof in one of more books provided for that purpose; (b) give, or cause to be given, all notices that are required by law or these Bylaws to be given by the Secretary; (c) be custodian of the corporate records and, if the Corporation has a corporate seal, of the seal of the Corporation; (d) have authority to affix the seal of the Corporation to all instruments the execution of which requires such seal and to attest such affixing of the seal; (e) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (f) sign, with the Chief Executive Officer, if any, or President or any Vice President, or any other officer thereunto authorized by the Board of Directors, any certificates for shares of the Corporation, or any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed by the signature of more than one officer; (g) have general charge of the share transfer books of the Corporation; (h) have authority to certify as true and correct copies of the By-laws, or resolutions of the shareholders, the Board of Directors and committees thereof, and of other documents of the Corporation; and (i) in general, perform the duties incident to the office of secretary and such other duties as from time to time may be prescribed by the Board of Directors, the Chief Executive Officer or the President. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest such affixing of the seal. Section 7. Assistant Secretary. The Assistant Secretary, or if there shall be more than one, each Assistant Secretary in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, shall have the authority to perform the duties of the Secretary, subject to such limitations thereon as may be imposed by the Board of Directors, and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer, the President or the Secretary. Section 8. Treasurer. The Treasurer shall be the principal accounting and financial officer of the Corporation. The Treasurer shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the Corporation; (b) have charge and custody of all funds and securities of the Corporation, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform the duties incident to the office of treasurer and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer or the President. The Treasurer may sign with the Chief Executive Officer, if any, or the President, or any Vice President, or any other officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may determine. Section 9. Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, each Assistant Treasurer, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, shall have the authority to perform the duties of the Treasurer, subject to such limitations thereon as may be imposed by the Board of Directors, and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer, the President or the Treasurer. Section 10. Other Officers and Agents. Any officer or agent who is elected or appointed from time to time by the Board of Directors and whose duties are not specified in these By-laws shall perform such duties and have such powers as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer or the President. ARTICLE V. CERTIFICATES FOR SHARES Section 1. Form. The shares of the Corporation shall be represented by certificates; provided, however, the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's shares shall be uncertificated shares. Each certificate for shares shall be consecutively numbered or otherwise identified. Certificates representing shares in the 8 Corporation shall be signed by or in the name of the Corporation by the Chief Executive Officer or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation. Where a certificate is countersigned by a transfer agent, other than the Corporation or an employee of the Corporation, or by a registrar, the signatures of one or more officers of the Corporation may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were such officer, transfer agent or registrar at the date of its issue. Section 2. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate or uncertificated shares in place of any certificate therefor issued by the Corporation to the person entitled thereto, cancel the old certificate and record the transaction in its share book. Section 3. Replacement. In case of the loss, destruction, mutilation or theft of a certificate representing shares of the Corporation, a new certificate may be issued upon the surrender of the mutilated certificate or, in the case of loss, destruction or theft of a certificate, upon satisfactory proof of such loss, destruction or theft and upon such terms as the Board of Directors may prescribe. The Board of Directors may in its discretion require the owner of the lost, destroyed or stolen certificate, or his legal representative, to give the Corporation a bond, in such sum and in such form and with such surety or sureties as it may direct, to indemnify the Corporation against any claim that may be made against it with respect to the certificate alleged to have been lost, destroyed or stolen. ARTICLE VI. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS Section 1. Third Party Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including all appeals (other than an action, suit or proceeding by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation (and the Corporation, in the discretion of the Board of Directors, may so indemnify a person by reason of the fact that he is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation, another corporation, partnership, joint venture, trust or other enterprise in any capacity), against expenses (including attorneys' fees), judgments, decrees, fines, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was unlawful. Section 2. Actions By or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit, including all appeals, by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation (and the Corporation, in the discretion of the Board of Directors, may so indemnify a person by reason of the fact that he is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation in any other capacity for or on behalf of the Corporation), against expenses (including attorneys' fees) actually and 9 reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the court in which such action or suit was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. Notwithstanding the foregoing, the Corporation shall be required to indemnify an officer or director in connection with an action, suit or proceeding initiated by such person only if such action, suit or proceeding was authorized by the Board of Directors. Section 3. Indemnity if Successful. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Standard of Conduct. Except in a situation governed by Section 3 of this Article, any indemnification under Section 1 or 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or 2, as applicable, of this Article. Such determination shall be made (i) by a majority vote of directors acting at a meeting at which a quorum consisting of directors who were not parties to such action, suit or proceeding is present, or (ii) if such a quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders. Section 5. Expenses. Expenses of each officer and director hereunder indemnified actually and reasonably incurred in defending a civil or criminal action, suit or proceeding or threat thereof shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of any undertaking by or on behalf of such person to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by employees and agents may be so paid upon receipt of the aforesaid undertaking and such other terms and conditions, if any, as the Board of Directors deems appropriate. Section 6. Nonexclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to other Sections of this Article, shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may now or hereafter be entitled under any law, by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 7. Insurance. The Corporation may purchase and maintain insurance, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the Act. Section 8. Definitions. For purposes of this Article, references to "the Corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify any or all of its directors, officers, employees and agents, so that any person who was a director, officer, employee or agent of such merging corporation, or was 10 serving at the request of such merging corporation in any other capacity, shall stand in the same position under the provisions of this Article with respect to the surviving corporation as such person would have had with respect to such merging corporation if its separate existence had continued as such corporation was constituted immediately prior to such merger. For purposes of this Article, references to "other capacities" shall include serving as a trustee or agent for any employee benefit plan; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. Section 9. Reports to Shareholders. If required by the Act, the Corporation shall report any indemnity payment or advancement of expenses by the Corporation to any director, officer, employee or agent provided for in this Article to the shareholders in writing either with or before the distribution of the notice of the next shareholders' meeting. Section 10. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction, and the remaining provisions hereof shall be liberally construed to effectuate the provisions hereof, and the invalidity of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 11. Amendment. The right to indemnification conferred by this Article shall be deemed to be a contract between the Corporation and each person referred to herein until amended or repealed, but no amendment to or repeal of these provisions shall apply to or have any effect on the right to indemnification of any person with respect to any liability or alleged liability of such person for or with respect to any act or omission of such person occurring prior to such amendment or repeal. ARTICLE VII. SEPARATENESS Section 1. Funds, Assets and Accounts. The funds and other assets of the Corporation shall not be commingled with those of any other entity, and the Corporation shall maintain its accounts separate from any other person or entity. Section 2. Liability for Debts and Name. The Corporation shall not hold itself out as being liable for the debts of any other entity, and shall conduct its own business in its own name. Section 3. Action through Agents and Identity. The Corporation shall act solely in its own name and through its duly authorized directors, officers or agents in the conduct of its business, and shall conduct its business so as not to mislead others as to the identity of the entity or assets with which they are concerned. Section 4. Separate Records. The Corporation shall maintain separate records, books of account and financial statements, and shall not commingle its records and books of account with the records and books of account of any other entity. Section 5. Formalities. The Corporation shall observe in all material respects all formalities required by 11 its organizational documents and applicable law. Section 6. Capitalization. The Corporation shall at all times ensure that its capitalization is adequate in light of its business and purpose. Section 7. Debts of Affiliates. Subject to the last sentence of this Section 7, (i) neither the Parent nor any affiliate of the Parent (other than the Corporation) shall guaranty, become liable on or hold itself out as being liable for the debts of the Corporation; (ii) the Corporation shall not guarantee or become obligated for the debts of the Parent or any affiliate thereof (other than the Corporation), or otherwise hold out its credit as being available to satisfy the obligations of the Parent or any affiliate thereof (other than the Corporation); (iii) the Corporation shall not pledge its assets for the benefit of Parent or any of its affiliates; (iv) the Corporation shall not make loans or advances to Parent or any of its affiliates, and shall not acquire obligations or securities of the Parent or any affiliate thereof (other than the Corporation), other than the settlement of purchase contracts with respect to any Premium Income Equity Securities or similar securities issued by the Corporation. Notwithstanding the foregoing, the Corporation may take any action otherwise prohibited under this Section 7 if such action is taken with respect to its own subsidiaries, and its own subsidiaries may take any action otherwise prohibited under this Section 7 if such action is taken with respect to the Corporation. Section 8. Payment of Liabilities. The Corporation shall pay its own liabilities out of its own funds. Section 9. Arm's Length Relationship with Affiliates. The Corporation shall maintain an arm's-length relationship with its affiliates. Section 10. Overhead and Office Space. The Corporation shall allocate fairly and reasonably any overhead for office space shared with the Parent or any affiliate thereof. Section 11. Separate Business Forms. The Corporation shall use its own separate stationery, invoices, checks and other business forms. Section 12. Correction of Misunderstandings. The Corporation shall correct any known misunderstanding regarding its separate identity. ARTICLE VIII. GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed from time to time by resolution of the Board of Directors. Section 2. Corporation Seal. The corporate seal, if any, of the Corporation shall be in such form as may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 3. Notices and Mailing. Except as otherwise provided in the Act, the Articles of Incorporation or these By-laws, all notices required to be given by any provision of these By-laws shall be deemed to have been given (i) when received, if given in person, (ii) on the date of acknowledgment of receipt, if sent by telex, facsimile or other wire transmission, (iii) one day after delivery, properly addressed, to a reputable courier for same day or overnight delivery, or (iv) three days after being deposited, properly addressed, in the U.S. mail, certified or registered mail, postage prepaid. Section 4. Waiver of Notice. Whenever any notice is required to be given under the Act or the provisions of the Articles of Incorporation or these By-laws, a waiver thereof in writing, signed by the 12 person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Section 5. Interpretation. In these By-laws, unless a clear contrary intention appears, the singular number includes the plural number and vice versa, and reference to either gender includes the other gender. ARTICLE IX. AMENDMENTS Unless the power to make, alter, amend or repeal these By-laws is reserved to the shareholders by the Articles of Incorporation, these By-laws, including any By-law adopted by the shareholders, may be made, altered, amended or repealed by the shareholders or the Board of Directors, provided, that (i) the unanimous consent of the Board of Directors, including the Independent Director, shall be required to alter, amend or repeal (a) Section 4 and Section 5 of Article III hereof; (b) Article VII hereof; and (c) this Article IX; and (ii) subject to paragraph (i) above, the fact that the power to make, alter, amend or repeal these By-laws has been conferred upon the Board of Directors shall not divest the shareholders of the same powers. (248391) 13 EX-4.1 5 EXHIBIT 4.1 ================================================================================ MIDWEST ENERGY, INC. and THE BANK OF NEW YORK, as Trustee INDENTURE Dated as of October 18, 1999 $225,000,000 8.700% Senior Notes due 2009 $250,000,000 9.375% Senior Bonds due 2029 ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions.....................................................................................1 SECTION 1.02. Certificates and Opinions......................................................................17 SECTION 1.03. Form of Documents Delivered to Trustee.........................................................18 SECTION 1.04. Acts of Holders; Record Dates..................................................................18 SECTION 1.05. Notices, Etc., to Trustee and Company..........................................................21 SECTION 1.06. Notice to Holders; Waiver......................................................................21 SECTION 1.07. Effect of Headings and Table of Contents.......................................................22 SECTION 1.08. Successors and Assigns.........................................................................22 SECTION 1.09. Separability Clause............................................................................22 SECTION 1.10. Benefits of Indenture..........................................................................22 SECTION 1.11. Governing Law..................................................................................22 SECTION 1.12. Legal Holidays.................................................................................22 SECTION 1.13. Incorporation by Reference of Trust Indenture Act..............................................22 ARTICLE II SECURITY FORMS SECTION 2.01. Forms Generally................................................................................23 ARTICLE III SECURITIES SECTION 3.01. Terms and Issuance of the Securities...........................................................25 SECTION 3.02. Execution, Authentication, Delivery and Dating.................................................31 SECTION 3.03. Temporary Securities...........................................................................32 SECTION 3.04. Registrar and Paying Agent; Registration, Registration of Transfer and Exchange.......................................................................................32 SECTION 3.05. Restricted Securities..........................................................................34 SECTION 3.06. Global Securities..............................................................................35 SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Securities...............................................40 SECTION 3.08. Payment of Interest; Interest Rights Reserved..................................................41 SECTION 3.09. Persons Deemed Owners..........................................................................42 SECTION 3.10. Cancellation...................................................................................43 SECTION 3.11. Computation of Interest........................................................................43
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Page ---- SECTION 3.12. Certification Form.............................................................................43 SECTION 3.13. CUSIP and ISIN Numbers.........................................................................50 ARTICLE IV SATISFACTION, DISCHARGE AND DEFEASANCE SECTION 4.01. Satisfaction and Discharge of Indenture........................................................50 SECTION 4.02. Defeasance, Discharge and Covenant Defeasance..................................................51 SECTION 4.03. Application of Trust Money.....................................................................54 SECTION 4.04. Reinstatement..................................................................................54 ARTICLE V REMEDIES SECTION 5.01. Events of Default..............................................................................55 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.............................................56 SECTION 5.03. Other Remedies.................................................................................57 SECTION 5.04. Waiver of Past Defaults........................................................................57 SECTION 5.05. Control by Majority............................................................................57 SECTION 5.06. Limitation on Suits............................................................................58 SECTION 5.07. Rights of Holders to Receive Payments..........................................................58 SECTION 5.08. Collection Suit by Trustee.....................................................................58 SECTION 5.09. Trustee May File Proofs of Claim...............................................................59 SECTION 5.10. Application of Proceeds........................................................................59 SECTION 5.11. Restoration of Rights and Remedies.............................................................60 SECTION 5.12. Undertaking for Costs..........................................................................60 SECTION 5.13. Rights and Remedies Cumulative.................................................................60 SECTION 5.14. Delay or Omission Not Waiver...................................................................61 ARTICLE VI THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities............................................................61 SECTION 6.02. Notice of Defaults.............................................................................62 SECTION 6.03. Certain Rights of Trustee......................................................................62 SECTION 6.04. Not Responsible for Recitals or Issuance of Securities.........................................64 SECTION 6.05. May Hold Securities............................................................................64 SECTION 6.06. Money Held in Trust............................................................................64 SECTION 6.07. Compensation and Reimbursement.................................................................64 SECTION 6.08. Disqualification; Conflicting Interests........................................................65 SECTION 6.09. Corporate Trustee Required; Eligibility........................................................65 SECTION 6.10. Resignation and Removal; Appointment of Successor Trustee......................................65
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Page ---- SECTION 6.11. Acceptance of Appointment by Successor.........................................................67 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business....................................68 SECTION 6.13. Preferential Collecting of Claims Against Company..............................................68 SECTION 6.14. Authenticating Agents..........................................................................68 ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders......................................70 SECTION 7.02. Preservation of Information; Communications to Holders.........................................70 SECTION 7.03. Reports by Trustee.............................................................................71 SECTION 7.04. Reports by Company.............................................................................71 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms...........................................71 SECTION 8.02. Successor Corporation to be Substituted........................................................72 ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indenture without Consent of Holders..............................................72 SECTION 9.02. Supplemental Indentures with Consent of Holders................................................74 SECTION 9.03. Execution of Supplemental Indentures...........................................................75 SECTION 9.04. Effect of Supplemental Indentures..............................................................75 SECTION 9.05. Conformity with Trust Indenture Act............................................................75 SECTION 9.06. Reference in Securities to Supplemental Indentures.............................................75 SECTION 9.07. Amendments to the Pledge Agreement.............................................................75 ARTICLE X COVENANTS SECTION 10.01. Payment of Principal, Premium, if any, and Interest............................................76 SECTION 10.02. Maintenance of Office or Agency................................................................76 SECTION 10.03. Money for Securities Payments to Be Held in Trust..............................................77 SECTION 10.04. Limitation on Liens............................................................................78 SECTION 10.05. Limitation on Distributions and Intercompany Loans.............................................82 SECTION 10.06. Limitation on Indebtedness of the Company......................................................83 SECTION 10.07. Limitation on Business Activities..............................................................84 SECTION 10.08. Statement by Officers as to Default............................................................84
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Page ---- SECTION 10.09. Modification or Waiver of Certain Covenants....................................................84 SECTION 10.10. Further Assurances.............................................................................85 SECTION 10.11. Copies Available to Holders....................................................................85 SECTION 10.12. Reports by Company.............................................................................85 ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.01. Optional Redemption............................................................................86 SECTION 11.02. Election to Redeem; Notice to Trustee..........................................................86 SECTION 11.03. Selection by Trustee of Securities to Be Redeemed..............................................86 SECTION 11.04. Notice of Redemption...........................................................................87 SECTION 11.05. Deposit of Redemption Price....................................................................88 SECTION 11.06. Securities Payable on Redemption Date..........................................................88 SECTION 11.07. Securities Redeemed in Part....................................................................88 ARTICLE XII MEETINGS OF HOLDERS OF SECURITIES SECTION 12.01. Purposes of Meeting............................................................................89 SECTION 12.02. Place of Meetings..............................................................................89 SECTION 12.03. Voting at Meetings.............................................................................90 SECTION 12.04. Voting Rights, Conducts and Adjournment........................................................90 SECTION 12.05. Revocation of Consent by Holders...............................................................91 ARTICLE XIII SECURITY AND COLLATERAL SECTION 13.01. Pledge Agreement...............................................................................91 SECTION 13.02. Recording and Opinions.........................................................................92 SECTION 13.03. Release of Collateral..........................................................................92 SECTION 13.04. Certificates of the Company....................................................................93 SECTION 13.05. Certificates of the Trustee....................................................................93 SECTION 13.06. Authorization of Actions to be Taken by the Collateral Agent Under the Pledge Agreement...............................................................................93 SECTION 13.07. Authorization of Receipt of Refunds by the Trustee Under the Pledge Agreement......................................................................................94 SECTION 13.08. Termination of Security Interest...............................................................94
iv ARTICLE XIV MISCELLANEOUS
Page ---- SECTION 14.01. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process........................................................................................94 SECTION 14.02. Counterparts...................................................................................96
v EXHIBITS Exhibit A Form of Note Exhibit B Form of Bond Exhibit C First Supplemental Indenture, dated as of October 18, 1999, between CILCORP Inc., an Illinois Corporation and The Bank of New York, a New York banking corporation, as trustee vi CROSS-REFERENCE TABLE
Trust Indenture Indenture Act Section Section Section 310 (a)(1).........................................................................6.09 (a)(2).........................................................................6.09 (a)(3)...............................................................Not Applicable (a)(4)...............................................................Not Applicable (b)......................................................................6.08, 6.10 Section 311 (a)............................................................................6.13 (b)............................................................................6.13 (c)..................................................................Not Applicable Section 312 (a)......................................................................7.01, 7.02 (b)............................................................................7.02 (c)............................................................................7.02 Section 313 (a)............................................................................7.03 (b)............................................................................7.03 (c)............................................................................7.03 (d)............................................................................7.03 Section 314 (a)............................................................................7.04 (a)(4)...................................................................1.01, 7.04 (b)..................................................................Not Applicable (c)(1).........................................................................1.02 (c)(2).........................................................................1.02 (c)(3)...............................................................Not Applicable (d)..................................................................Not Applicable (e)............................................................................1.02 (f)..................................................................Not Applicable Section 315 (a)............................................................................6.01 (b)............................................................................6.02 (c)............................................................................6.01 (d)............................................................................6.01 (e)............................................................................5.12 Section 316 (a)............................................................1.01 ("Outstanding") (a)(1)(A)................................................................5.02, 5.05 (a)(1)(B)......................................................................5.04 (a)(2)...............................................................Not Applicable (b)............................................................................5.07 (c)............................................................................1.04 Section 317 (a)(1).........................................................................5.08 (a)(2).........................................................................5.09 (b)...........................................................................10.03 Section 318 (a)............................................................................1.13 (b)..................................................................Not Applicable (c)............................................................................1.13
- ------------------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. -i- INDENTURE, dated as of October 18, 1999, between MIDWEST ENERGY, INC., an Illinois corporation (herein called the "Company"), having its principal office at 1001 North 19th Street, 20th Floor, Arlington, Virginia 22209, and THE BANK OF NEW YORK, a New York banking corporation as trustee (herein called the "Trustee"). W I T N E S S E T H: WHEREAS, the Company desires to create two series of notes, one series in an aggregate principal amount of Two hundred and twenty-five million dollars ($225,000,000) to be designated the "8.700% Senior Notes due 2009" (the "Notes"), and one series in an aggregate principal amount of Two hundred and fifty million dollars ($250,000,000) to be designated the "9.375% Senior Bonds due 2029" (the "Bonds" and, together with the Notes, the "Securities"), and all action on the part of the Company necessary to authorize the issuance of the Securities under this Indenture has been duly taken; and WHEREAS, all acts and things necessary to make the Securities, when executed by the Company and authenticated and delivered by the Trustee as provided in this Indenture, the valid and binding obligations of the Company, have been done and performed; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in consideration of the premises and of the acceptance and purchase of the Securities by the holders thereof and of the acceptance of this trust by the Trustee, the Company covenants and agrees with the Trustee, for the equal benefit of holders of the Securities, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01 Definitions For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the respective meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein to the extent applicable; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States and, except as otherwise herein expressly provided, the term "generally accepted 2 accounting principles," with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States at the date of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article VI, are defined in that Article. "Act", when used with respect to any Holder, has the meaning specified in Section 1.04. "AES" means The AES Corporation, a Delaware corporation and the sole stockholder of the Company. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling", and "controlled" have meanings correlative to the foregoing. "Applicable Procedures" means the rules and procedures of DTC and, as applicable, Euroclear and Cedel, in each case pertaining to beneficial interests in a Global Security. "Auditors" means the auditors for the time being of the Company or, in the event of their being replaced by the Company or being unable or unwilling to carry out any action requested of them pursuant to the terms of the Indenture, such other firm of internationally recognized accountants as the Company may select for the purpose. "Authenticating Agent" means any Person authorized to authenticate and deliver Securities on behalf of the Trustee pursuant to Section 6.14. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that Board. "Board Resolution" means a copy of a resolution of the Company certified by the Secretary or any Assistant Secretary or by any other authorized designee of the Board of Directors to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. "Bonds" has the meaning specified in the first recital of this Indenture. 3 "Business Day", when used with respect to the Place of Payment of the Securities of any series, means each day which is not a Saturday, a Sunday or a day on which banking institutions in any Place of Payment for the Securities of that series are authorized or obligated by law to remain closed. "Capitalized Lease Obligations" means all lease obligations of the Company and its Subsidiaries which, under GAAP, are or will be required to be capitalized, in each case taken at the amount of the lease obligation accounted for as indebtedness in conformity with those principles. "Cedel" means Cedelbank, societe anonyme, or its successors. "CILCORP" means CILCORP Inc., an Illinois corporation. "CILCO" means Central Illinois Light Company, an Illinois corporation and wholly-owned subsidiary of CILCORP. "Collateral" has the meaning specified in the Pledge Agreement. "Collateral Agent" has the meaning specified in the Pledge Agreement. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by the Chairman of the Board of Directors, the President or a Vice President of the Company and by the Treasurer, an Assistant Treasurer, Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Consolidated Current Liabilities" means the consolidated current liabilities of the Company and its Subsidiaries but excluding the current portion of long term Indebtedness which would otherwise be included in it, as determined on a consolidated basis in accordance with GAAP. "Consolidated Debt" means, at any time, the sum of the aggregate outstanding principal amount of all Indebtedness for Borrowed Money (including, without limitation, the principal component of Capitalized Lease Obligations, but excluding Permitted Debt, Currency, Interest Rate or Commodity Agreements and all Consolidated Current Liabilities and Project 4 Finance Debt) of the Company and its Subsidiaries, as determined on a consolidated basis in conformity with GAAP. "Consolidated EBITDA" means, for any period, the sum of the amounts for such period of the Company's (i) Consolidated Net Income, (ii) distributions paid, accrued or scheduled to be paid in respect of any Preferred Securities or other capital stock to the extent deducted in calculating Consolidated Net Income, (iii) Consolidated Interest Expense plus (x) interest paid, accrued or scheduled to be paid or to be accrued in respect of any Permitted Debt, and (y) interest expense related to company owned life insurance, (iv) income taxes and deferred taxes (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales of assets), (v) depreciation expense, (vi) amortization expense, and (vii) all other non-cash items reducing Consolidated Net Income, less all non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis in conformity with GAAP; provided that, to the extent that the Company has any Subsidiary that is not a wholly owned Subsidiary, Consolidated EBITDA shall be reduced by an amount equal to the Consolidated Net Income of such Subsidiary multiplied by the quotient of (A) the number of shares of outstanding common stock of such Subsidiary not owned on the relevent Measurement Date by the Company or any Subsidiary of the Company, divided by (B) the total number of shares of outstanding common stock of such Subsidiary on the relevent Measurement Date. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness for Borrowed Money (excluding interest expense related to Permitted Debt and company owned life insurance and including amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; and all commissions, discounts and other fees and charges owed with respect to bankers' acceptance financing) and the net costs associated with Interest Rate Agreements and all but the principal component of rentals in respect of Capitalized Lease Obligations, paid, accrued or scheduled to be paid or to be accrued by the Company and each of its Subsidiaries during such period, excluding, however, any amount of such interest of any Subsidiary of the Company if the net income (or loss) of such Subsidiary is excluded from the calculation of Consolidated Net Income for such Subsidiary pursuant to clause (ii) of the definition thereof (but only in the same proportion as the net operating income (or loss) of such Subsidiary is excluded), less consolidated interest income, all as determined on a consolidated basis in conformity with GAAP; provided that, to the extent that the Company has any Subsidiary that is not a wholly owned Subsidiary, Consolidated Interest Expense shall be reduced by an amount equal to such interest expense of such Subsidiary multiplied by the quotient of (A) the number of shares of outstanding common stock of such Subsidiary not owned on the relevent Measurement Date by the Company or any Subsidiary of the Company divided by (B) the total number of shares of outstanding common stock of such Subsidiary on the relevent Measurement Date. "Consolidated Net Income" means, for any period, the aggregate of the net income (or loss) of the Company and its Subsidiaries for such period, as determined on a consolidated basis in conformity with GAAP; provided that the following items shall be excluded from any calculation of Consolidated Net Income (without duplication): (i) the net 5 income (or loss) of any Person (other than a Subsidiary) in which any other person has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or another Subsidiary of the Company during such period; (ii) the net income (or loss) of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation or license; (iii) all extraordinary gains and extraordinary losses, merger related expenses and one-time expenses, cash or noncash, relating to restructuring efforts; and (iv) all gains and losses from discontinued operations. "Consolidated Net Tangible Assets" means at any time, the total of all assets (including revaluations thereof as a result of commercial appraisals, price level restatement or otherwise) appearing on the most recently available consolidated balance sheet of the Company and its Subsidiaries (provided that such balance sheet is of a date not more than 60 days prior to the date of creation of the relevent Lien) prepared in accordance with GAAP, net of applicable reserves and deductions, but excluding goodwill, trade names, trademarks, patents, unamortized debt discount and all other like intangible assets (which term shall not be construed to include such revaluations), less the aggregate of the Consolidated Current Liabilities of the Company appearing on such balance sheet. "Corporate Trust Office" means the principal office of the Trustee in The City of New York, at which at any particular time its corporate trust business shall be administered, which at the date hereof is located at 101 Barclay Street, Floor 21W, New York, NY 10286, Attention: Corporate Trust Administration, or at any other time at such other address as the Trustee may designate from time to time. "corporation" includes corporations, associations, companies and business trusts. "Covenant Defeasance" has the meaning specified in Section 4.02(b). "Currency, Interest Rate or Commodity Agreements" means an agreement or transaction involving any currency, interest rate or energy price or volumetric swap, cap or collar arrangement, forward exchange transaction, option, warrant, forward rate agreement, futures contract or other derivative instrument of any kind for the hedging or management of foreign exchange, interest rate or energy price or volumetric risks; it being understood, for purposes of this definition, that the term "energy" shall include, without limitation, coal, gas, oil and electricity. "default" means, for purposes of Section 5.01 hereof, an "Event of Default" as specified in Section 5.01 hereof. For purposes of Section 310(b) of the Trust Indenture Act (if applicable to the Securities of any series), "default" shall mean an "Event of Default" as specified in Section 5.01 hereof, but exclusive of any period of grace or requirement of notice. "Defaulted Interest" has the meaning specified in Section 3.08. 6 "Defeasance" has the meaning specified in Section 4.02(a). "Definitive Security" means a physical security in fully registered form. "Depositary" means, with respect to the Securities issued in whole or in part in the form of one or more Global Securities, DTC. "Discharged" means, with respect to the Securities of any series, the discharge of the entire indebtedness represented by, and obligations of the Company under, the Securities of such series and the satisfaction of all the obligations of the Company under this Indenture relating to the Securities of such series, except (A) the rights of Holders of the Securities of such series to receive, from the trust fund described in Section 4.03 hereof, payment of the principal of and interest and premium, if any, on the Securities of such series when such payments are due, (B) the Company's obligations with respect to the Securities of such series with respect to registration, transfer, exchange and maintenance of a Place of Payment and (C) the rights, powers, trusts, duties, protections and immunities of the Trustee under this Indenture. "Distribution" means any dividend, distribution or payment (including by way of redemption, repurchase, retirement, return or repayment) in respect of shares of capital stock of the Company, excluding any contract adjustment payments under contracts to purchase common stock of CILCORP, AES or any of its affiliates (which common stock was not held as an asset of CILCORP) entered into in connection with the issuance of any Permitted Debt. "Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debt. "DTC" means The Depository Trust Company or its successors, or any successor clearing agency which is registered as such under the Exchange Act and approved by the Company. "Duff & Phelps" means Duff & Phelps Credit Rating Co., and any Subsidiary or successor thereof. "Effective Date" means the effective date of the Merger, as provided for in the certificate of merger filed and accepted by the appropriate state authorities. "Euroclear" means the Euroclear System or its successors. "Event of Default" has the meaning specified in Section 5.01. "Exchange Definitive Security" has the meaning specified in Section 2.01. "Exchange Global Security" has the meaning specified in Section 2.01. 7 "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. "Exchange Security" means a security which has been registered under the Securities Act in global form as an Exchange Global Security or definitive form as an Exchange Definitive Security. "Existing Rating" means, for any Rating Agency on any date of determination, the Rating assigned to the securities by such Rating Agency as of such date. "Excluded Subsidiary" means any Subsidiary of the Company (i) in respect of which neither the Company nor any Subsidiary of the Company (other than another Excluded Subsidiary) has undertaken any legal obligation to give any guarantee for the benefit of the holders of any Indebtedness for Borrowed Money (other than to another member of the Group) other than in respect of any statutory obligation and the Subsidiaries of which are all Excluded Subsidiaries; and (ii) which has been designated as such by the Company by written notice to the Trustee; provided that the Company may give written notice to a Responsible Officer of the Trustee at any time that any Excluded Subsidiary is no longer an Excluded Subsidiary whereupon it shall cease to be an Excluded Subsidiary. "Existing Rating" means, for any Rating Agency on any date of determination, the Rating assigned to the Securities of any series by such Rating Agency as of such date. "Expiration Date" has the meaning specified in Section 1.04. "GAAP" means generally accepted accounting principles in the United States, as in effect from time to time. "Global Security" means a Rule 144A Global Security, a Regulations S Global Security or an Exchange Global Security, in global form substantially in the form set forth in Exhibit A, with respect to the Notes, or Exhibit B, with respect to the Bonds, in each case, to this Indenture. "Group" means the Company and its Subsidiaries and "member of the Group" shall be construed accordingly. "Holder", "holder of Securities", "Securityholder" and other similar terms mean the Person in whose name a Security is registered in the Security Register. "Holding Period" has the meaning specified in Section 2.01. 8 "incur" means, with respect to any Indebtedness, to incur, create, issue, assume or guarantee such Indebtedness. "Indebtedness" means, with respect to the Company or any of its Subsidiaries at any date of determination (without duplication): (i) all Indebtedness for Borrowed Money (excluding any credit which is available but undrawn), (ii) all obligations in respect of letters of credit (including reimbursement obligations with respect thereto), (iii) all obligations to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except trade payables, (iv) all Capitalized Lease Obligations, (v) all indebtedness of other persons secured by a mortgage, charge, lien, pledge or other security interest on any asset of the Company or any of its Subsidiaries, whether or not such indebtedness is assumed; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of the secured indebtedness, (vi) all indebtedness of other persons of the types specified in the preceding clauses (i) through (v), to the extent such indebtedness is guaranteed by the Company or any of its Subsidiaries, and (vii) to the extent not otherwise included in this definition, net obligations under Currency, Interest Rate or Commodity Agreements. The amount of Indebtedness at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, upon the occurrence of the contingency giving rise to the obligation, the maximum liability of any contingent obligations of the types specified in the preceding clauses (i) through (vii) at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Indebtedness For Borrowed Money" means any indebtedness (whether being principal, premium, interest or other amounts) for (i) money borrowed, (ii) payment obligations under or in respect of any trade acceptance or trade acceptance credit, or (iii) any notes, bonds, loan stock or other debt securities offered, issued or distributed whether by way of public offer, private placement, acquisition consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash (including, without limitation, Permitted Debt); provided, however, in each case, that such term shall exclude (a) any indebtedness relating to any accounts receivable securitizations, (b) any Indebtedness of the type permitted to be secured by Liens pursuant to Section 10.04(m) herein, (c) any Preferred Securities which are issued and outstanding on the date of original issue of the Securities or any extension, renewal, or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any such existing Preferred Securities, for amounts not exceeding the principal amount or liquidation preference of the Preferred Securities so extended, renewed or replaced, and (d) any Preferred Securities issued in replacement or in connection with a refinancing of any preferred securities or preferred stock which is issued and outstanding on the date or original issue of the Securities, for amounts not exceeding the liquidation preference of the preferred securities or preferred stock so replaced or refinanced. 9 "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Indirect Participant" means a Person that holds a beneficial interest in a Global Security through a person that has an account with DTC. "Initial Purchaser" means Lehman Brothers Inc., J.P. Morgan & Co. and Morgan Stanley Dean Witter. "Initial Ratings" has the meaning specified in Section 10.05. "Initial Securities" means Securities of any series issued under this Indenture which are offered and sold pursuant to an exemption from registration under the Securities Act. "Interest Coverage Ratio" means, with respect to the Company on any Measurement Date, the ratio of (i) the aggregate amount of Consolidated EBITDA of the Company for the four fiscal quarters for which financial information in respect thereof is available immediately prior to such Measurement Date to (ii) the aggregate Consolidated Interest Expense during such four fiscal quarters. "Interest Payment Date", when used with respect to any installment or interest in respect of a Security, means the Stated Maturity of such installment of interest. "Investments" in any Person means any loan or advance to, any net payment on a guarantee of, any acquisition of capital stock, equity interest, obligation or other security of, or capital contribution or other investment in, such Person. Investments exclude advances to customers and suppliers and similar payments in the ordinary course of business. "Leverage Ratio" means the ratio of Consolidated Debt to Total Capital, calculated on the basis of the most recently available consolidated balance sheet of the Company and its consolidated Subsidiaries (provided that such balance sheet is as of a date not more than 60 days prior to a Measurement Date) prepared in accordance with GAAP. "Lien" means any mortgage, lien, pledge, security interest or other encumbrance; provided, however, that the term "Lien" shall not mean any easements, rights-of-way, restrictions and other similar encumbrances and encumbrances consisting of zoning restrictions, leases, subleases, restrictions on the use of property or defects in the title thereto. "Maturity", when used with respect to any Security or any installment of principal thereof, means the date on which the principal of such Security or installment of principal, as applicable, becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Measurement Date" means the record date for any Distribution. 10 "Merger" means the consummation of the merger of the Company with and into CILCORP and the other transactions contemplated by the Merger Agreement, as a result of which CILCORP becomes a direct wholly-owned Subsidiary of AES. "Merger Agreement" means the Agreement and Plan of Merger dated as of November 22, 1998 among AES, CILCORP and the Company, as the same may be amended from time to time. "Moody's" means Moody's Investors Service, Inc., and any Subsidiary or successor thereof. "Notes" has the meaning stated in the first recital of this Indenture. "Notice of Default" means a written notice of the kind specified in Section 5.01(3). "Obligations" has the meaning specified in Section 13.01. "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors, the President or any Vice President of the Company and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, and delivered to the Trustee. One of the Officers signing an Officers' Certificate delivered pursuant to Section 10.08 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who, unless otherwise specified herein or required by the Trust Indenture Act, may be an employee of or regular counsel for the Company, or may be other counsel to the Company. "Outstanding", when used with respect to the Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption money or U.S. Governmental Obligations in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 3.09 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have 11 been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned as described in the proviso to the preceding sentence which have been pledged in good faith may be regarded as Outstanding if the pledgee certifies to the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor. "Participant" means a Person that has an account with DTC. "Paying Agent" means The Bank of New York until a successor Paying Agent shall have become such pursuant to the applicable provisions of this Indenture and, thereafter, "Paying Agent" shall mean such successor Paying Agent. "Permanent Global Security" means a Global Security that is, at the time of the initial issuance of the related series of Securities, issued in permanent form. "Permitted Debt" means Indebtedness for Borrowed Money issued in connection with a contract or contracts to purchase from CILCORP common stock of CILCORP, AES or any affiliate of AES (which common stock was not held as an asset of CILCORP) for an aggregate amount equal to the aggregate principal amount of such Indebtedness for Borrowed Money. "Permitted Liens" means liens permitted by clauses (a) through (e) under Section 10.04(i). "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest, if any, on the Securities of that series are payable as specified in or as contemplated by Section 3.01. "Pledge Agreement" means the Pledge Agreement dated as of the date hereof, made by CILCORP in favor of The Bank of New York, as collateral agent. 12 "Pledge Effective Date" means the earlier to occur of (i) January 31, 2002 and (ii) the date on which the existing $30.5 million Series A medium-term notes of CILCORP are no longer outstanding. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purpose of this definition, any Security authenticated and delivered under Section 3.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen security. "Preferred Securities" means, without duplication, any trust preferred or preferred securities or related debt or guaranties of CILCORP or any of its subsidiaries. "Principal Amount" has the meaning specified in Section 3.01. "Project Finance Debt" means: (i) any Indebtedness to finance or refinance the ownership, acquisition, development, design, engineering, procurement, construction, servicing, management and/or operation of any project or asset which is incurred by an Excluded Subsidiary; and (ii) any Indebtedness to finance or refinance the ownership, acquisition, development, design, engineering, procurement, construction, servicing, management and/or operation of any project or asset in respect of which the person or persons to whom any such Indebtedness is or may be owed by the relevant borrower (whether or not a member of the Group) has or have no recourse whatsoever to any member of the Group (other than an Excluded Subsidiary) for the repayment thereof other than: (a) recourse to such member of the Group for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic net cash flow) from, or ownership interests or other investments in, such project or asset; and/or (b) recourse to such member of the Group for the purpose only of enabling amounts to be claimed in respect of such Indebtedness in an enforcement of any encumbrance given by such member of the Group over such project or asset or the income, cash flow or other proceeds deriving therefrom (or given by any shareholder or the like, or other investor in the borrower or in the owner of such project or asset over its shares or the like in the capital of, or other investment in, the borrower or in the owner of such project or asset) to secure such Indebtedness, provided that the extent of such recourse to such member of the Group is limited solely to the amount of any recoveries made on any such enforcement; and/or (c) recourse to such borrower generally, or directly or indirectly to a member of the Group, under any form of assurance, indemnity, undertaking or 13 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 breach of an obligation (not being a payment obligation or an obligation to procure payment by another or an indemnity in respect thereof or any 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. "QIB" means a Qualified Institutional Buyer, as defined in Rule 144A. "Rating" means, for each Rating Agency, the credit rating assigned to the Securities of any series by such Rating Agency. "Rating Agency" means (i) S&P, (ii) Moody's, and (iii) Duff & Phelps, any of their respective Subsidiaries or successors, or, in any case, if such person ceases to rate any series of Securities for reasons outside the control of the Company, any other "nationally recognized statistical rating organization" (within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act) selected by the Company as a replacement Rating Agency. "Ratings Downgrade" means a lowering by any of the Rating Agencies of the Existing Rating assigned to the Securities by such Rating Agency. "Redemption Date" means any date on which the Company redeems all or any portion of any Security in accordance with the terms of this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture, exclusive of accrued and unpaid interest. "Registered Exchange Offer" means the offer by the Company, pursuant to the Registration Rights Agreement, to Holders of the Initial Securities, to issue and deliver to such Holders, in exchange for such Initial Securities, a like aggregate principal amount of Exchange Securities which have been registered under the Securities Act. "Registered Security" means any Security that is payable to a registered owner or registered assigns thereof as registered in the Security Register. "Registration Rights Agreement" means the Registration Rights Agreement dated as of October 18, 1999 between the Company and the Initial Purchasers. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01. "Regulation S" means Regulation S promulgated under the Securities Act, or any successor provision thereto and as may be amended from time to time. 14 "Regulation S Global Security" has the meaning specified in Section 2.01. "Regulation S Security" means Securities of any series offered and sold in their initial distribution to non-US Persons in offshore transactions in reliance on Regulation S, until such time as the Restricted Period shall have terminated. "Relevant Date" means, for any payment made with respect to the Securities of any series, the later of (i) the date on which such payment first becomes due and (ii) if the full amount payable has not been received in The City of New York by the Depositary or by the Trustee on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the Holders in accordance with this Indenture. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Office, including any vice president, assistant vice president, assistant secretary (if any), treasurer, assistant treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers; and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restricted Definitive Securities" means Definitive Securities that are Restricted Securities. "Restricted Period" has the meaning specified in Section 2.01. "Restricted Securities" means Securities required to bear a legend containing Securities Act transfer restrictions, in substantially the form specified on Exhibits A and B hereto. "Rule 144" means Rule 144 promulgated under the Securities Act, or any successor provision thereto and as may be amended from time to time. "Rule 144A" means Rule 144A promulgated under the Securities Act, or any successor provision thereto and as may be amended from time to time. "Rule 144A Global Security" has the meaning specified in Section 2.01. "Rule 144A Security" means Securities of any series offered and sold in their initial resale distribution to QIBs in reliance on Rule 144A, until such time as the Holding Period shall have terminated. "S&P" means Standard & Poor's Rating Group, and any, Subsidiary or successor thereof. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. 15 "Securities Act" means the U.S. Securities Act of 1933, as amended. "Security Register" and "Security Exchange Agent/Registrar" have the respective meanings specified in Section 3.04. "Shelf Registration Statement" means any registration statement filed with the Commission by the Company, in connection with the offer and sale of any series of Initial Securities pursuant to the Registration Rights Agreement. "Significant Subsidiary" means, at any particular time, any Subsidiary of the Company whose gross assets or gross revenues (having regard to the Company's direct and/or indirect beneficial interest in the shares, or the like, of that Subsidiary) represent at least 25% of the consolidated gross assets or, as the case may be, consolidated gross revenues of the Company. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.08. "Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means, with respect to any Person, any corporation, association, partnership or other business entity of which 50% or more of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned, directly or indirectly, by (i) such person, (ii) such person and one or more Subsidiaries of such person or (iii) one or more Subsidiaries of such person. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States or any agency thereof or obligations guaranteed by the United States or any agency thereof, in each case, maturing within 360 days of the date of acquisition thereof, (ii) investment in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company (including the Trustee) which is organized under the laws of the United States, any state thereof or any foreign country recognized by the United States having capital, surplus and undivided profits aggregating in excess of $250,000,000 and whose debt is rated "A" (or such similar equivalent rating) or higher by at least one Rating Agency or any money-market fund sponsored by any registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a nationally recognized broker-dealer, (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an affiliate of the Company) organized and in existence under the laws of the United States or any foreign country recognized by the United States with a rating at the time as of which any 16 investment therein is made of "P-2" (or higher) according to Moody's or "A-2" (or higher) according to S&P and (v) securities with maturities of six months or less from the date of acquisition backed by standby or direct pay letters of credit issued by any bank satisfying the requirements of clause (ii) above. "Total Capital" of any Person means, as of any date, the sum (without duplication) of (a) Indebtedness for Borrowed Money, (b) preferred stock and Preferred Securities of such Person and its consolidated Subsidiaries and (c) consolidated stockholder's equity of such Person and its consolidated Subsidiaries (excluding any preferred stock in stockholder's equity). "Transactions" means the transactions contemplated by the Merger Agreement, Pledge Agreement, Registration Rights Agreement and this Indenture. "Transfer Agent" means any Person authorized by the Company to effectuate the exchange or transfer of any Security on behalf of the Company hereunder. "Trust Indenture Act" means the U.S. Trust Indenture Act of 1939, as amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "United States" and "U.S." means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "U.S. Government Obligation" means any (a) security which is (i) a direct obligation of the United States for the payment of which the full faith and credit of the United States is pledged or (ii) an obligation of a person controlled or supervised by and acting as an agency of instrumentality of the United States the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in the case of clause (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (b) depositary receipt issued by a bank (as defined in the Securities Act) as custodian with respect to any security specified in clause (a) above and held by such bank for the account of the holder of such depositary receipt or with respect to any specific payment of principal of or interest on any such security held by any such bank, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Unrestricted Security" has the meaning specified in Section 2.01. 17 SECTION 1.02. Certificates and Opinions Except as otherwise expressly provided by this Indenture, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee (i) an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the Officers' Certificate required by Section 10.08) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or instrument required to be given or executed by a Person which is not a natural person may be given or executed on behalf of such Person by any duly authorized designee of such Person. Any certificate or opinion of an Officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers of the Company stating that the information with respect to such factual matters is in the possession 18 of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Holders; Record Dates (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by the Holders of any series of Securities may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by each such Holder in Person or by an agent duly appointed in writing, and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are received by the Trustee and by the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.04. Without limiting the generality of the foregoing, unless otherwise established in or pursuant to a Board Resolution or set forth or determined in an Officers' Certificate, (i) a Holder of any Security may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by the Holder of any such Security, (ii) a Holder of any such Security, including a Depositary that is a Holder of a Global Security, entitled hereunder to take any action hereunder with regard to such Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of the principal amount of such Security; and (iii) a Depositary that is a Holder of a Global Security may provide its proxy or proxies to the beneficial owners of interest in such Global Security through the Depositary's standing instructions and customary practices. (b) The fact and date of the execution by any Person of any such instrument, writing or proxy may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument, writing or proxy acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument, writing or proxy, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of Securities shall be proved by the Security Register. 19 (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (e) The Company may, in its discretion, by Board Resolution, set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, consent, waiver or Act provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series; provided that the Company shall have no obligation to set a record date; and provided further that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to any applicable Expiration Date (as defined below) by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect); provided, however, that no new record date may be established with the purpose or effect of rendering, and no other provision of this paragraph shall be construed to render, ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.06. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.02, (iii) any request to institute proceedings referred to in Section 5.06 or (iv) any direction referred to in Section 5.05; provided that if the Trustee does not set any record date within ten days after first receiving any such notice, declaration, rescission and annulment, request or direction, as the case may be, then the record date shall be the close of business on the date on which the Trustee first receives any such notice, declaration, rescission and annulment, request or direction, as the case may be. If any record date is set by the Trustee pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to any applicable Expiration Date by Holders of the requisite principal amount of 20 Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect); provided, however, that no new record date may be established with the purpose or effect of rendering, and no other provision of this paragraph shall be construed to render, ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken based on such record date previously set. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.06. With respect to any record date set pursuant to this Section 1.04(e), the party hereto which sets such record date may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other parties hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 1.06, on or prior to the earlier of (i) the existing Expiration Date and (ii) the proposed new Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 90th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. SECTION 1.05. Notices, Etc., to Trustee and Company Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if in writing and mailed, first-class, postage prepaid, to the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to CILCORP at 300 Hamilton Blvd., Suite 300, Peoria, Illinois 61602 Attention: Corporate Secretary or at any other address previously furnished in writing to the Trustee by the Company. 21 SECTION 1.06. Notice to Holders; Waiver Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event at the Holder's address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. If, by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to give such notice by mail, then such notification as shall be made at the direction of the Company in a manner reasonably calculated, to the extent practicable under the circumstances, to provide prompt notice shall constitute a sufficient notification for every purpose hereunder. Any notice required or permitted hereunder may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.07. Effect of Headings and Table of Contents The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.08. Successors and Assigns All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.09. Separability Clause In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10. Benefits of Indenture Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. 22 SECTION 1.11. Governing Law THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 1.12. Legal Holidays In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest, if any, or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. SECTION 1.13. Incorporation by Reference of Trust Indenture Act Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made part of this Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings: "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture, as then supplemented. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" in the indenture securities means the Company and any other obligor in the indenture securities. All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. 23 ARTICLE II SECURITY FORMS SECTION 2.01. Forms Generally The Securities of each series shall be in substantially the form set forth in Exhibits A and B hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon (i) as may be required by law or to comply with the rules of (a) any securities exchange, (b) DTC or any other clearing agency registered as such under the Exchange Act or (c) Euroclear or Cedel; or (ii) as may, consistently herewith, be determined by the Officers executing such Securities, as evidenced by their execution thereof. The Trustee's certificate of authentication shall be in substantially the form set forth in Exhibits A and B hereto. The Definitive Securities shall be printed, typewritten, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the Officers executing such Securities, as evidenced by their execution thereof. Initial Securities of any series offered and sold in their initial resale distribution to QIBs in reliance on Rule 144A shall initially be issued in the form of one or more global Securities of such series in definitive, fully registered form, substantially in the form set forth in Exhibits A and B, with respect to Notes and Bonds, respectively, with such applicable legends as are provided for in Section 3.01(h). Such global Securities shall be duly executed by the Company and authenticated by the Trustee as provided, and deposited with the Trustee, which will hold such global Securities for the benefit of DTC. Until such time as the Holding Period (as defined below) shall have terminated, each such Security shall be referred to as a "Rule 144A Global Security." The aggregate principal amount of any Rule 144A Global Security may be adjusted by endorsements to Schedule A on the reverse thereof in any situation where adjustment is permitted or required by this Indenture. Unless the Company determines otherwise in accordance with applicable law, the legend setting forth transfer restrictions shall be removed from a Rule 144A Security in accordance with the procedures set forth in Section 3.05(b) after such time as the applicable Holding Period shall have terminated, and each such Security shall thereafter be held as an "Unrestricted Security." As used herein, the term "Holding Period," with respect to Rule 144A Securities of any series, means the period referred to in Rule 144(k) or any successor provision thereto and as may be amended or revised from time to time, beginning from the later of (i) the original issue date of such Securities or (ii) the last date on which the Company or any affiliate of the Company was the beneficial owner of such Securities (or any predecessor thereof). Initial Securities of any series offered and sold in their initial distribution to non-U.S. Persons in offshore transactions in reliance on Regulation S shall initially be issued in the form of one or more global Securities of such series in definitive, fully registered form, substantially in the form set forth in Exhibits A and B, with respect to Notes and Bonds, 24 respectively, with such applicable legends as are provided for in Section 3.01(h). Such global Securities shall be duly executed by the Company and authenticated by the Trustee as provided, and deposited with the Trustee, which will hold such global Securities for the benefit of DTC, for credit initially only to such accounts at Euroclear or Cedel as DTC's Participants may direct. Until such time as the Restricted Period (as defined below) shall have terminated, each such global Security shall be referred to as a "Regulation S Global Security." The aggregate principal amount of any Regulation S Global Security may be adjusted by endorsements to Schedule A on the reverse thereof in any situation where adjustment is permitted or required by this Indenture. Unless the Company determines otherwise in accordance with applicable law, the legend setting forth transfer restrictions shall be removed from a Regulation S Security in accordance with the procedures set forth in Section 3.05(b) after such time as the applicable Restricted Period shall have terminated, and each such Security shall thereafter be held as an "Unrestricted Security." As used herein, the term "Restricted Period," with respect to Regulation S Securities of any series, means the period of 40 consecutive days beginning on and including the later of (i) the date on which such Securities are first offered to Persons other than distributors (as defined in Regulation S) in reliance on Regulation S and (ii) the original issue date of such Securities. No Regulation S Global Security shall be issued except as provided in this paragraph to evidence Securities offered and sold in their initial distribution in reliance on Regulation S. Exchange Securities of any series exchanged for interests in a Rule 144A Global Security or a Regulation S Global Security will be issued in the form of one or more permanent global Securities of such series substantially in the form set forth in Exhibits A and B with respect to Notes and Bonds, respectively, including the appropriate legend set forth in Section 3.01(h), (the "Exchange Global Securities") which shall be duly executed by the Company and authenticated by the Trustee as provided, and deposited with the Trustee. The Exchange Global Securities may be represented by more than one certificate, if so required by DTC's rules regarding the maximum principal amount to be represented by a single certificate. Exchange Securities exchanged for interests in a Rule 144A Definitive Security or a Regulation S Definitive Security will be issued in the form of a Definitive Security substantially in the form set forth in Exhibits A and B with respect to Notes and Bonds, respectively, including the appropriate legend set forth in Section 3.01(h) (the "Exchange Definitive Securities"). ARTICLE III SECURITIES SECTION 3.01. Terms and Issuance of the Securities (a) Issue of Securities. Two series of Securities, which shall be designated the "8.700% Senior Notes due 2009", and the "9.375% Senior Bonds due 2029", respectively, shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of this Indenture (including the forms of Securities set forth in Exhibits A and B, as applicable). The aggregate principal amount of the Notes, and the 25 aggregate principal amount of the Bonds which may be authenticated and delivered under this Indenture shall not exceed $225 million and $250 million, respectively. (b) Optional Redemption. The Securities may be redeemed, in whole or in part, at the option of the Company pursuant to the terms set forth in paragraph 2 of the series of Securities to be redeemed. The provisions of Article XI of this Indenture shall also apply to any optional redemption of Securities by the Company. (c) Place of Payment. The Place of Payment in respect of the Securities will be in The City of New York, initially at the Corporate Trust Office of The Bank of New York (which as of the date hereof is located at 101 Barclay Street, Floor 21W, New York, New York 10286, Attention: Corporate Trust Administration). (d) Form of Securities; Incorporation of Terms. The form of the Securities shall be substantially in the forms of Exhibits A and B attached hereto, as applicable, the respective terms of which are herein incorporated by reference and which are part of this Indenture. The Securities shall be issued as one or more Global Securities in fully registered form and one or more Definitive Securities in fully registered form, as determined in accordance with Section 2.01 hereof. The Global Securities shall be deposited with the Trustee, as custodian for DTC, to be held by the Trustee in accordance with this Indenture. (e) Exchange of the Global Securities. Each of the Global Securities shall be exchangeable for Definitive Securities only as provided in Section 3.06(b)(ii) hereof. (f) Regular Record Date for the Securities. The Regular Record Date for the Securities shall be immediately prior to the April 1 or October 1 immediately prior to the respective Interest Payment Date. (g) Authorized Denominations. Beneficial interests in Global Securities, as well as Definitive Securities, may be held only in denominations of $1,000 and integral multiples of $1,000 in excess thereof. 26 (h) Restrictive Legends. Except as otherwise provided in clause (A) or (B) below, unless and until (i) an Initial Security is sold under an effective registration statement or (ii) an Initial Security is exchanged for an Exchange Security in connection with an effective registration statement, in each case pursuant to the Registration Rights Agreement or a similar agreement, (A) the Rule 144A Global Securities shall bear the following legend on the face thereof: "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS HELD BY THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES HELD BY A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE MADE EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY (OR ITS PREDECESSOR) HAS BEEN INITIALLY RESOLD IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE. THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND, ACCORDINGLY, THIS SECURITY MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION 27 THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A AND REGULATION S THEREUNDER. BY ITS ACQUISITION HEREOF, EACH HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN, FOR THE BENEFIT OF THE COMPANY, (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) IN THE UNITED STATES TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (A) TO (E) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND (3) AGREES THAT IT WILL, AND EACH SUBSEQUENT HOLDER WILL BE REQUIRED TO, DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND ON THESE RESALE RESTRICTIONS. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF)."; and (B) the Regulation S Global Securities shall bear the following legend on the face thereof: "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS HELD BY THE 28 DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES HELD BY A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE MADE EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY (OR ITS PREDECESSOR) HAS BEEN ISSUED IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE. THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT, AND, ACCORDINGLY, THIS SECURITY MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A AND REGULATION S THEREUNDER. BY ITS ACQUISITION HEREOF, EACH HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN, FOR THE BENEFIT OF THE COMPANY, (1) REPRESENTS THAT IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR 29 HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) IN THE UNITED STATES TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (A) TO (E) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND (3) AGREES THAT IT WILL, AND EACH SUBSEQUENT HOLDER WILL BE REQUIRED TO, DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND ON THESE RESALE RESTRICTIONS. THE RIGHTS ATTACHED TO THIS REGULATION S GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SECURITIES, ARE AS SPECIFIED IN THE INDENTURE. PRIOR TO THE COMMENCEMENT OF THE REGISTERED EXCHANGE OFFER OR THE EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT, TRANSFERS OF INTERESTS IN THIS REGULATION S GLOBAL SECURITY TO U.S. PERSONS SHALL BE LIMITED TO TRANSFERS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A UNDER THE SECURITIES ACT. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT."; and (C) the Exchange Global Securities shall bear the following legend on the face thereof: "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS HELD BY THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF 30 THE DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES HELD BY A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE MADE EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 31 SECTION 3.02. Execution, Authentication, Delivery and Dating The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents. The signature of any such Person on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signature of any individual who was at any time the proper Officer of the Company shall bind the Company, notwithstanding that such individual has ceased to hold such office prior to the authentication and delivery of such Securities or did not hold such office at the date of authentication of such Securities. The Company may deliver the Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver the Securities. In authenticating the Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee will be entitled to receive, and (subject to Section 6.01 and 6.03) shall be fully protected in relying upon, an Opinion of Counsel stating, (a) that the terms of the Securities have been established in conformity with the provisions of this Indenture; and (b) that the Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors' rights and to general principles of equity and such other matters as counsel may specify therein. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee or an Authenticating Agent by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.10 together with a written statement (which need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. 32 SECTION 3.03. Temporary Securities Pending the preparation of the definitive Securities, the Company may execute, and upon compliance by the Company with Section 3.02, the Trustee or the Authenticating Agent shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form or, if authorized, in bearer form, and with such appropriate insertions, omissions, substitutions and other variations as the Officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder except as provided in Section 3.04 (if in connection with a transfer). Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee or the Authenticating Agent shall authenticate and deliver in exchange therefor one or more definitive Securities of any authorized denominations and of a like aggregate principal amount and tenor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. Upon any exchange of a portion of a temporary Global Security for a definitive Global Security for the individual Securities represented thereby pursuant to this Section 3.03 or Section 3.04, the temporary Global Security shall be endorsed by the Trustee to reflect the reduction of the principal amount of such temporary Global Security, and such principal amount shall be reduced for all purposes by the amount so exchanged and endorsed. SECTION 3.04. Registrar and Paying Agent; Registration, Registration of Transfer and Exchange The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration, transfers and exchanges of the Securities. The Company shall maintain an office or agency of the Paying Agent in any Place of Payment where the Securities may be presented for payment. The Company may have one or more co-registrars and one or more additional paying agents, and the terms "Security Exchange Agent/Registrar" and "Paying Agent" shall include any additional co-registrars and paying agents, respectively. The Company shall enter into an appropriate agency agreement with any Securities Exchange Agent/Registrar, Paying Agent or additional co-registrars or paying agents not a party to this Indenture, which shall incorporate the terms of the Trust Indenture Act and the 33 provisions of this Indenture that relate to such agent. The Company shall notify the Trustee in writing of the name and address of any such agent. If the Company fails to maintain a Security Exchange Agent/Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 6.07. The Company may act as Security Exchange Agent/Registrar or Paying Agent. The Company hereby initially appoints the Trustee as Registrar for the purpose of registering Securities and transfers of Securities, and for the purpose of exchanging Securities, and as Paying Agent, all as herein provided. The Company may change the Paying Agent or Registrar. Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee or the Authenticating Agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. At the option of the Holder, any Security or Securities may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and upon receipt of a Company Order the Trustee or the Authenticating Agent shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities as provided in this Indenture shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Exchange Agent/Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to the Holder for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 3.03, 9.06 or 11.07 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption under Section 11.04 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so 34 selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part, provided that such Security shall be immediately surrendered for redemption with written instructions for payment consistent with the provisions of this Indenture. The provisions of this Section 3.04 are, with respect to any Global Security, subject to Section 3.06 hereof. SECTION 3.05. Restricted Securities (a) Transfer and Exchange. Every Restricted Security shall be subject to the restrictions on transfer provided in the applicable legend(s) required to be set forth on the face of each Restricted Security pursuant to Section 2.01, unless such restrictions on transfer shall be waived or modified, in accordance with applicable laws, by the written consent of the Company. Each of the Holder of each Restricted Security, by its acceptance thereof, agrees to be bound by such restrictions on transfer. (b) Removal of Transfer Restrictions. Unless with respect to the whole or any portion of any Restricted Security the Company determines otherwise in accordance with applicable law, transfer restrictions and any restrictive legend(s) with respect to Restricted Securities of any series shall be removed by the Company (i) in the case of Rule 144A Securities upon presentation of such Security by the Holder at any time on or after the expiration of the Holding Period, or (ii) in the case of Regulation S Securities, upon presentation of such Security by the Holder at any time on or after the expiration of the Restricted Period. Thereafter, upon registration of transfer of or exchange of such Securities, the Company shall execute, and the Trustee shall authenticate and deliver, an Unrestricted Security. The Company shall deliver to the Trustee an Officer's Certificate setting forth the expiration date of the Holding Period and the Restricted Period. Except as otherwise provided in the preceding paragraph, if the Securities are issued upon the registration of transfer, exchange or replacement of Securities bearing a legend or legends setting forth restrictions on transfer, or if a request is made to remove such legend(s) from a Security, the Securities so issued shall bear such legend(s), or such legend(s) shall not be removed, as the case may be, unless there is delivered to the Company such satisfactory evidence (which may include an opinion, reasonably satisfactory to the Company, of independent counsel experienced in matters of United States securities law) as may be reasonably required by the Company that neither such legend(s) nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 or Regulation S under the Securities Act or that such Securities are not "restricted securities" within the meaning of Rule 144 under the Securities Act. Upon provision of such satisfactory evidence to the Company, the Trustee, at the written direction of the Company, shall authenticate and 35 deliver a Security that does not bear such legend(s). In the absence of bad faith on its part, the Trustee may conclusively rely upon such direction of the Company in authenticating and delivering a Security that does not bear such legend(s). As used in this Section 3.05, the term "transfer" encompasses any sale, pledge or other transfer of any Securities referred to herein. Notwithstanding anything else in this Indenture to the contrary, after a transfer of any Initial Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities, all requirements pertaining to legends on such Initial Security will cease to apply, the requirements requiring that any such Initial Security issued to certain Holders be issued in global form will cease to apply, and a certificated Initial Security without legends will be available to the transferee of the Holder of such Initial Securities or upon receipt of directions to transfer such Holder's interest in the Global Security, as applicable. Notwithstanding anything else in this Indenture to the contrary, upon the consummation of the Registered Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will cease to apply and certificated Initial Securities with the restricted securities legend set forth in Section 3.01(h) will be available to Holders of such Initial Securities, that do not exchange their Initial Securities and Exchange Securities in certificated form will be available to Holders that exchange such Initial Securities in the Registered Exchange Offer. SECTION 3.06. Global Securities (a) Form and Legend. The Company shall execute and the Trustee shall, in accordance with Section 3.02, authenticate and deliver, a Global Security or Securities which (i) shall represent, and shall be denominated in an aggregate amount equal to the aggregate principal amount of, all of the Securities of such series to be so represented, (ii) shall be registered in the name of the Depositary or its nominee, (iii) shall be delivered by the Trustee to the Depositary for such series or pursuant to the Depositary's instruction and (iv) shall bear a legend substantially to the effect of the first two paragraphs of the legend set forth in Section 3.01(h)(A). (b) Transfer and Exchange. (i) Transfers of Global Notes as such. Except as otherwise expressly provided in this Indenture or any supplement thereto, a Global Security representing all or a portion of the Securities may not be transferred in global form, except as a whole (i) by the Depositary for such series to a nominee of such Depositary; (ii) by a nominee of such Depositary to such Depositary or another 36 nominee of such Depositary; or (iii) by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. (ii) Exchanges of Global Securities for Definitive Securities. A Global Security shall be exchangeable, in whole but not in part, for definitive Securities of such series if: (a) DTC notifies the Company and the Depositary that it is unwilling or unable to continue to hold book-entry interests in such Global Security or DTC at any time ceases to be a "clearing agency" registered as such under the Exchange Act, and, in either case, a successor is not appointed by the Company within 90 days; (b) while a Global Security is a Restricted Security the book-entry interests in such Global Security cease to be eligible for DTC services because the Securities of such series are neither (i) rated in one of the top four categories by a nationally recognized statistical rating organization nor (ii) included within a Self-Regulatory Organization system approved by the Commission for the reporting of quotation and trade information of securities eligible for transfer pursuant to Rule 144A, such as the PORTAL system; (c) the Depositary for Securities of such series notifies the Company that it is unwilling or unable to continue as Depositary with respect to such Global Security and no successor is appointed within 90 days; (d) the Company in its sole discretion executes and delivers to the Trustee an Officers' Certificate providing that such Global Security shall be so exchangeable. Securities so issued in exchange for any such Global Security shall be of the same series, having the same interest rate, if any, and maturity and having the same terms as such Global Security, in authorized denominations and in the aggregate having the same principal amount as such Global Security and registered in such names as the Depositary for such Global Security shall direct based on the instructions of DTC; or (e) if there shall have occurred and be continuing an Event of Default with respect to the Securities of such series and the Registrar has received a request from the Depositary that the Global Security of such series be exchanged for one or more Definitive Securities. Upon such exchange, the surrendered Global Security shall be canceled by the Trustee. Upon any such surrender, (i) the Company shall execute and the Trustee shall authenticate and deliver without charge to each Person specified by DTC, in exchange for such Person's beneficial interest in the Global Security, a new Security or Securities of the same series in definitive registered form having the same interest rate, if any, and maturity and having the same terms as such Global 37 Security, in any authorized denomination requested by such Person and of an aggregate principal amount equal to such Person's beneficial interest in the Global Security and bearing the applicable legend regarding transfer restrictions applicable to such Security set forth in Section 3.01(h); and (ii) if the Global Security is being exchanged (x) as a whole, then the surrendered Global Security shall be canceled by the Trustee, or (y) in part, then the principal amount of the surrendered Global Security shall be reduced by an endorsement on Schedule A thereto in the appropriate amount. Definitive Securities issued in exchange for a Global Security pursuant to this Section 3.06(b)(ii) shall be issued only in registered form and shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from DTC and its Participants or Indirect Participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities to the Persons in whose names such Securities are so registered. (c) Beneficial Interests. Subject to Section 3.05 and Section 3.06, beneficial interests in a Global Security may be transferred in any manner consistent with the Applicable Procedures. (d) Special Provisions Regarding Transfer of Beneficial Interests in a Regulation S Global Security. The transfer of beneficial interests in a Regulation S Global Security shall be effected in a manner not inconsistent with the following provisions: (i) Transfer Through a Rule 144A Global Security. If the holder of a beneficial interest in a Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Rule 144A Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.06(d)(i). Upon receipt by the Security Exchange Agent/Registrar at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be credited to a specified Participant's account a beneficial interest in the Rule 144A Global Security equal to that of the beneficial interest in the Regulation S Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Participant to be credited with, and the account of the Participant held for Euroclear or Cedel (as the case may be) to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Section 3.12(a) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Regulation S Global Security, and increase the principal amount of the Rule 144A Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and 38 (B) instruct DTC (x) to make corresponding reductions and increases in the amounts represented by the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security having a principal amount equal to the amount by which the principal amount of the Regulation S Global Security was reduced upon such transfer. Delivery of a beneficial interest in the Regulation S Global Security of any series may not be taken in the form of a beneficial interest in the Rule 144A Global Security if immediately prior to the contemplated transfer no Rule 144A Global Security of the same series is then Outstanding. (ii) Interests in Regulation S Global Security Initially to be Held Through Euroclear or Cedel. Until the termination of the Restricted Period with respect to Securities of a series, beneficial interests in a Regulation S Global Security of such series may be held only through Participants acting for and on behalf of Euroclear and Cedel; provided that this Section 3.06(d)(ii) shall not prohibit any transfer otherwise permissible under Section 3.06(d)(i). (e) Special Provisions Regarding Transfer of Beneficial Interests in a Rule 144A Global Security. The transfer of beneficial interests in a Rule 144A Global Security shall be effected in a manner not inconsistent with the following provisions: (i) Transfer Through a Regulation S Global Security. If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.06(e)(i). Upon receipt by the Security Exchange Agent/Registrar at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be credited to a specified Participant's account a beneficial interest in the Regulation S Global Security equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Participant held for Euroclear or Cedel (as the case may be) to be credited with, and the account of the Participant to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Section 3.12(b) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Rule 144A Global Security, and increase the principal amount of the Regulation S Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate 39 endorsements on Schedule A of the respective Global Securities and (B) instruct DTC (x) to make corresponding reductions and increases to the amounts represented by the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Regulation S Global Security having a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer. Delivery of a beneficial interest in the Rule 144A Global Security of any series may not be taken in the form of a beneficial interest in the Regulation S Global Security if immediately prior to the contemplated transfer no Regulation S Global Security of the same series is then Outstanding. (ii) Transfer Through an Unrestricted Global Security. If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.06(e)(ii). Upon receipt by the Security Exchange Agent/Registrar at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be credited to a specified Participant's account a beneficial interest in the Unrestricted Global Security equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Participant (and, in the case of any such transfer pursuant to Regulation S, the Euroclear or Cedel account for which such Participant's account is held) to be credited with, and the account of the Participant to be debited for, such beneficial interest, (3) a certificate substantially in the form set forth in or contemplated by Section 3.12(c) given by the transferor of such beneficial interest, and (4) if requested by the Company or the Trustee, an opinion of counsel satisfactory to each of them, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Rule 144A Global Security, and increase the principal amount of the Unrestricted Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and (B) instruct DTC (x) to make corresponding reductions and increases to the transferor's beneficial interests in the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Unrestricted Global Security having a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer. 40 SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Securities If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such Security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security, in each such case without premium or penalty. Upon the issuance of any new Security under this Section 3.07, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section 3.07 in exchange for any mutilated Security or in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section 3.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.08. Payment of Interest; Interest Rights Reserved Interest on any Security which is payable and is punctually paid or duly provided for on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Payment of interest, if any, in respect of the Securities will be made at the office or agency of the Paying Agent and Registrar within the City of New York unless the Company 41 elects to make interest payments by check mailed to the address of the Person entitled thereto at such person's address appearing in the Security Register. Payment of interest, if any, in respect of the Securities may also be made, in the case of a Holder of at least U.S. $50,000,000 aggregate principal amount of Securities, and payment of interest, if any, in respect of a Permanent Global Security shall be made, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or a Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment. Any interest on any Security of any series which is payable but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. Unless the Trustee is acting as the Security Exchange Agent/Registrar, promptly after such Special Record Date, the Company shall furnish the Trustee with a list, or shall make arrangements satisfactory to the Trustee with respect thereto, of the names and addresses of, and respective principal amounts of such Securities held by, the Holders appearing on the Security Register at the close of business on such Special Record Date. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at the Holder's address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). 42 (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any Securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange. Subject to the foregoing provisions of this Section 3.08, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security, shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.09. Persons Deemed Owners Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.08) interest, if any, on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. All such payments so made to any such person, or upon such person's order, shall be valid, and, to the extent of the sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Security. Holders of beneficial interests in a Global Security of any series will not be entitled to receive certificates therefor, except in the limited circumstances set forth in Section 3.06(b)(ii). No holder of any beneficial interest in a Global Security shall have any rights under this Indenture with respect to such Global Security. The Trustee shall not deem requests or directions from, or votes by, the Depositary for a Global Security of any series to be inconsistent if made on behalf of different holders of beneficial interests. SECTION 3.10. Cancellation All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 3.10, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be returned to the Company upon written request. 43 SECTION 3.11. Computation of Interest Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.12. Certification Form (a) Whenever any certification is to be given by an owner of a beneficial interest in a Regulation S Global Security pursuant to Section 3.06(d)(i) of this Indenture, in connection with the transfer of a beneficial interest therein to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Rule 144A Global Security, such certification shall be provided substantially in the form of the following certificate (which may be attached to or set forth on the Security), including or omitting bracketed language as appropriate, but otherwise with only such changes as may be approved in writing by the Company: 44 FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM REGULATION S GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY (TRANSFERS PURSUANT TO SECTION 3.06(d)(i) OF THE INDENTURE) The Bank of New York, as Trustee 101 Barclay Street New York, NY 10286 Attn: Corporate Trust Administration Re : CILCORP INC.'s [Title of Securities] Reference is hereby made to the Indenture, dated as of October 18, 1999 (the "Indenture"), between CILCORP INC. and THE BANK OF NEW YORK, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S. $___________ principal amount of Securities which are evidenced by one or more Regulation S Global Securities in fully registered form (ISIN No. _____) and held with the Depositary by means of a book-entry interest through [Euroclear] [Cedel] in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Regulation S Global Security to a Person that will take delivery thereof (the "Transferee") in the form of any equal principal amount of Securities evidenced by one or more Rule 144A Global Securities (CUSIP No. ______). In connection with such request and in respect of such Securities, the Transferor does hereby certify that the interests in the Regulation S Global Security are being transferred pursuant to and in accordance with Rule 144A under the Securities Act of 1933, and, accordingly, the Transferor does hereby further certify that the interests in the Regulation S Global Security are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States. 45 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters or initial purchasers, if any, of the initial offering of such Securities being transferred. [Insert Name of Transferor] By: -------------------------------- Name: Title: Dated: ---------------------- cc: CILCORP INC. Signature Guarantee: --------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. (b) For Securities of any series, whenever any certification is to be given by an owner of a beneficial interest in a Rule 144A Global Security pursuant to Section 3.06(e)(i) of this Indenture in connection with the transfer of a beneficial interest therein to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security, such certification shall be provided substantially in the form of the following certificate (which may be attached to or set forth on the Security), with only such changes as shall be approved in writing by the Company: 46 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY (TRANSFERS PURSUANT TO SECTION 3.06(e)(i) OF THE INDENTURE) The Bank of New York, as Trustee 101 Barclay Street New York, NY 10286 Attn: Corporate Trust Administration Re: CILCORP INC.'s [Title of Securities] Reference is hereby made to the Indenture, dated as of October 18, 1999 (the "Indenture"), between CILCORP INC. and THE BANK OF NEW YORK, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to US$___________ principal amount of Securities which are evidenced by one or more Rule 144A Global Securities (CUSIP No._______) and held through DTC in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a non-U.S. Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more Regulation S Global Securities (CUSIP No. ________), which amount, immediately after such transfer, is to be held with DTC through Euroclear or Cedel or both (Common Code _________). In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with Rule 903 or Rule 904 under the United States Securities Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor does hereby further certify that: (1) the offer of the Securities was not made to a person in the United States; (2) either: (A) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or (B) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; 47 (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) upon completion of the transaction, the beneficial interest being transferred as described above is to be held with DTC through Euroclear or Cedel or both (Common Code ____________). This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters or initial purchasers, if any, of the initial offering of such Securities being transferred. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act. [Insert Name of Transferor] By: --------------------------------- Name: Title: Dated: ------------------ cc: CILCORP INC. Signature Guarantee: ---------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 48 (c) Whenever any certification is to be given by an owner of a beneficial interest in a Rule 144A Global Security pursuant to Section 3.06(e)(ii) of this Indenture in connection with the transfer of a beneficial interest in the Rule 144A Global Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security, such certification shall be provided substantially in the form of the following certificate, with only such changes as shall be approved in writing by the Company: FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL SECURITY TO UNRESTRICTED GLOBAL SECURITY (TRANSFERS PURSUANT TO SECTION 3.06(e)(ii) OF THE INDENTURE) The Bank of New York, as Trustee 101 Barclay Street New York, NY 10286 Attn: Corporate Trust Administration Re: CILCORP INC.'s [Title of Securities] Reference is hereby made to the Indenture, dated as of October __, 1999 (the "Indenture"), between CILCORP INC. and THE BANK OF NEW YORK, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to US$_______ principal amount of Securities which are evidenced by one or more Rule 144A Global Securities (CUSIP No.______) and held through DTC in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more Unrestricted Global Securities (CUSIP No.______). In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with either Rule 903, Rule 904 or Rule 144 under the United States Securities Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor does hereby further certify that: (1) if the transfer has been effected pursuant to Rule 903 or Rule 904: (A) the offer of the Securities was not made to a Person in the United States; 49 (B) either: (i) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or (ii) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (C) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (D) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; or (2) if the transfer has been effected pursuant to Rule 144, the Securities have been transferred in a transaction permitted by Rule 144. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers, if any, of the initial offering of Securities being transferred. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act. [Insert Name of Transferor] By: ---------------------------------- Name: Title: Dated: ------------------ cc: CILCORP INC. Signature Guarantee: --------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 50 SECTION 3.13. CUSIP and ISIN Numbers The Company in issuing the Securities may use "CUSIP" numbers or "ISIN" numbers (in either case, if then generally in use), and, if so, the Trustee shall use "CUSIP" or "ISIN" numbers, as applicable, in notices of redemption as a convenience to Holders; provided that the Trustee shall assume no responsibility for the accuracy of such numbers and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE IV SATISFACTION, DISCHARGE AND DEFEASANCE SECTION 4.01. Satisfaction and Discharge of Indenture This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of the Securities herein expressly provided for and any rights to receive payments of any principal, premium or interest in respect thereof as provided in Section 10.01), and the Trustee shall execute instruments in form and substance satisfactory to itself and to the Company acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all the Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.07 and (ii) Securities for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, or (iv) are deemed paid and discharged pursuant to Section 4.02, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount 51 of (a) money or (b) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the Stated Maturity or Redemption Date, as the case may be, money, or (c) a combination of money and such U.S. Government Obligations, in each case, sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, premium, if any, and interest, if any, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid, caused to be paid or made provision satisfactory to the Trustee for payment of all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the following rights and obligations shall survive: (i) the obligations of the Company to the Trustee under Section 6.07 and 6.14,(ii) if money or U.S. Government Obligations shall have been deposited with or received by the Trustee pursuant to Section 4.01(1)(B) or Section 4.02, the obligations of the Trustee under Section 4.03 and the last paragraph of Section 10.03 and (iii) any rights of registration of transfer, exchange or replacement of Securities provided in Article III and Sections 9.06, 10.02 and 11.07. SECTION 4.02. Defeasance, Discharge and Covenant Defeasance (a) Defeasance and Discharge of a Series of Securities. The Company shall be deemed to have been discharged from its obligations with respect to Outstanding Securities of any series, as provided in this Section 4.02(a) on and after the date the applicable conditions set forth in subsection (c) hereof are satisfied (hereinafter called "Defeasance") with respect to such Securities. For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness representing the Outstanding Securities of such series and to have satisfied all of its other respective obligations under the Securities of such series and this Indenture insofar as the Securities of such series are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of Securities of such series to receive, solely from the trust fund described in Section 4.03 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities of such series when payments are due, (ii) the Company's obligations with respect to the Securities of such series under Article III and Sections 10.02 and 10.03, (iii) the rights (including without limitation, the rights set forth in Section 6.07), powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Article. Subject to compliance with this Article, the Company may defease any Securities 52 pursuant to this Section notwithstanding the prior Covenant Defeasance of such Series pursuant to subsection (b) hereof. (b) Covenant Defeasance. On and after the date the applicable conditions set forth in subsection (c) hereof are satisfied (hereinafter called "Covenant Defeasance") with respect to the Outstanding Securities of any series, (i) the Company shall be released from its obligations under Sections 8.01, 10.04, 10.05, 10.06, 10.07, 10.08 and Article XIII (other than Section 13.08), and any covenants adopted by indenture supplemental hereto under Section 9.01(2) for the benefit of the Holders of such Securities and (ii) the occurrence of any event specified in Sections 5.01(3), 5.01(4), 5.01(5), 5.01(6) or 5.01(7) with respect to any obligations referred to in clause (i) shall be deemed not to be or result in an Event of Default, in each case with respect to the Outstanding Securities of such series as provided in this Section. For this purpose, such Covenant Defeasance means that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section, whether directly or indirectly by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document, but the remainder of this Indenture and the Securities of such series shall be unaffected thereby. (c) Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to the Defeasance or the Covenant Defeasance pursuant to this Section 4.02 of the Outstanding Securities of any series: (1) The Company shall elect by Board Resolution to effect a Defeasance or a Covenant Defeasance pursuant to this Section 4.02 with respect to the Outstanding Securities of any series specified in such Board Resolution; (2) The Company shall irrevocably have deposited or caused to be deposited (except as provided in Section 6.07, Section 4.03(c) and the last paragraph of Section 10.03) with the Trustee (specifying that each such deposit is pursuant to this Section 4.02) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Outstanding Securities of such series, (a) money, or (b) U.S. Government Obligations which through the payment of principal and interest in respect thereof in accordance with their terms will provide money, not later than one day before the due date of any payment, or (c) a combination thereof, in each case in an amount sufficient, in the opinion of a nationally recognized firm of independent accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee to pay and discharge the principal of and any premium and interest on the Securities of such series on the respective Stated Maturities (or if the Company has designated a Redemption Date pursuant to the next sentence of this clause (2), to and including the Redemption Date so designated by the Company), in accordance with the terms of this Indenture and the Securities of such series. If the Company shall wish to deposit or cause to be deposited money or U.S. Government Obligations to pay or discharge the principal of (and premium, if any) and interest, if any, on the outstanding Securities of such series to and including a Redemption Date on which 53 all of the outstanding Securities of such series are to be redeemed, such Redemption Date shall be irrevocably designated by a Board Resolution delivered to the Trustee on or prior to the date of deposit of such money or U.S. Government Obligations, and such Board Resolution shall be accompanied by an irrevocable Company Request that the Trustee give notice of such redemption in the name and at the expense of the Company not less than 30 nor more than 60 days prior to such Redemption Date in accordance with this Indenture; (3) In the event of a Defeasance pursuant to Section 4.02(a), the Company shall have delivered to the Trustee an opinion of independent counsel of recognized standing stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date of this instrument, there has been a change in the applicable U.S. federal income tax law, in either case (x) or (y) to the effect that, and based thereon such opinion shall confirm that, the Holders of such series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the deposit; (4) In the event of a Covenant Defeasance pursuant to Section 4.02(b), the Company shall have delivered to the Trustee an opinion of independent counsel of recognized standing to the effect that the Holders and any owners of beneficial interests in Outstanding Securities of such series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the deposit; (5) The Securities, if then listed on any securities exchange, will not be delisted as a result of such deposit; (6) No event which is, or after notice or lapse of time or both would become, an Event of Default (including by reason of such deposit) with respect to the Outstanding Securities of such series shall have occurred and be continuing at the time of such deposit; (7) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which the Company is a party or by which it is bound; and (8) The Company shall have delivered to the Trustee an Officers' Certificate and Opinion of Counsel, stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. SECTION 4.03. Application of Trust Money (a) Subject to the provisions of the last paragraph of Section 10.03, all money or U.S. Government Obligations deposited with the Trustee pursuant to Sections 4.01 or 4.02 and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Sections 4.01 or 4.02, shall be held in trust and applied by it, in accordance 54 with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the persons entitled thereto, of the principal of (and premium, if any) and interest, if any, on the Securities for whose payment such money has been deposited with or received by the Trustee. (b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Trustee or the trust created hereby with respect to U.S. Government Obligations deposited pursuant to Sections 4.01 or 4.02 or the interest and principal received in respect thereof other than any such tax, fee or other charge which by law is payable by or on behalf of Holders. (c) The Trustee shall deliver or pay to the Company from time to time upon Company Request any monies or U.S. Government Obligations held by it as provided in Sections 4.01 or 4.02 which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which, at the time of such certification, would have been required to be deposited to effect the discharge of the Indenture or of any series of Securities, or the Defeasance or Covenant Defeasance of the Securities of any series, as the case may be. This paragraph (c) shall not authorize the sale by the Trustee of any U.S. Government Obligations held under this Indenture. SECTION 4.04. Reinstatement If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to the Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations under this Indenture and such Securities from which the Company has been discharged or released pursuant to Section 4.01 or 4.02 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 4.03 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in Trust. ARTICLE V REMEDIES SECTION 5.01. Events of Default An "Event of Default" shall occur with respect to the Securities of any series if: 55 (1) default for a period of 30 days in the payment of any interest upon any Security of that series when it becomes due and payable and continuance of such default; or (2) default in the payment of the principal of (or any premium on) any Security of that series at its Maturity upon redemption, upon required purchase, upon acceleration or otherwise; or (3) default in the performance, or breach, of any other covenant or obligation of the Company in this Indenture for a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% aggregate principal amount of the Outstanding Securities of that series a written notice specifying such default and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (4) default in the payment of the principal of any bond, debenture, note or other evidence of indebtedness, in each case for money borrowed by the Company, or in the payment of principal under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for Borrowed Money of the Company or any Significant Subsidiary, if such Indebtedness for Borrowed Money is not Project Finance Debt and provides for recourse generally to the Company which default for payment of principal is in an aggregate principal amount exceeding $25 million (or its equivalent in any other currency or currencies) when such indebtedness becomes due and payable (whether at maturity, upon redemption or acceleration or otherwise), if such default shall continue unremedied or unwaived for more than 30 Business Days and the time for payment of such amount has not been expressly extended by the holders of such indebtedness, provided that at the time such payment default is remedied, cured or waived the Event of Default hereunder by reason thereof shall be deemed likewise to have been remedied, cured or waived without further action upon the part of the Trustee or any of the Holders; or (5) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Significant Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its Significant Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Subsidiaries or ordering the winding up or liquidation of the affairs of the Company or any of its Significant Subsidiaries, and in each case such decree or order shall remain unstayed and in effect for a period of 180 consecutive days; or (6) the Company or any of its Significant Subsidiaries (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its 56 Significant Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Subsidiaries or (C) effects any general assignment for the benefit of creditors; or (7) from and after the Pledge Effective Date, the Trustee fails to have perfected a security interest in the pledged capital stock of CILCO for a period of 10 days in accordance with the terms of the Pledge Agreement. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment (a) If an Event of Default other than as described in clauses (5) or (6) of Section 5.01 with respect to the Securities of any series then outstanding occurs and is continuing, then, and in each and every such case, except for any series of Securities the principal of which shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of any such affected series then outstanding hereunder (each such series treated as a separate class) by notice in writing to the Company (and to the Trustee if given by Securityholders), may declare the entire principal of all Securities of such affected series, and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. (b) If an Event of Default described in clause (5) or (6) of Section 5.01 occurs and is continuing, then the principal amount of all the Securities then outstanding, premium, if any, and interest accrued thereon, shall be and become immediately due and payable, without any notice or other action by any Holder or the Trustee, to the full extent permitted by applicable law. The foregoing provisions, however, are subject to the condition that if, at any time after the principal of the Securities of any series shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, if any and all Events of Default under the Indenture, other than the non-payment of the principal of Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the Holders of a majority in aggregate principal amount of all the then outstanding Securities of all such series that have been accelerated (voting as a single class), by written notice to the Company and to the Trustee, may waive all defaults with respect to all such series and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. SECTION 5.03. Other Remedies If an Event of Default with respect to the Securities of any series occurs and is continuing, the Trustee may pursue, in its own name or as trustee of an express trust, any available remedy by proceeding at law or in equity to collect the payment of principal of and 57 interest on the Securities of such series or to enforce the performance of any provision of the Securities of such series or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. SECTION 5.04. Waiver of Past Defaults Subject to Sections 5.02, 5.07 and 9.02, the Holders of at least a majority in the aggregate principal amount of the Outstanding Securities of each series affected, by notice to the Trustee, may waive an existing default or Event of Default with respect to the Securities of such series and its consequences, except a default in the payment of principal of or interest on any Security as specified in clauses (1) or (2) of Section 5.01 or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of the Holder of each outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default with respect to the Securities of such series arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereto. SECTION 5.05. Control by Majority Subject to Sections 6.01 and 6.03, the Holders of at least a majority in aggregate principal amount of the Outstanding Securities of all series affected may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series by this Indenture; provided, that the Trustee may refuse to follow any direction that conflicts with law or this Indenture, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders not joining in the giving of such direction; and provided further, that the Trustee may take any other action it deems proper that is not inconsistent with any directions received from Holders of Securities pursuant to this Section 5.05. 58 SECTION 5.06. Limitation on Suits No Holder of any Security of any series may institute any proceeding, judicial or otherwise, with respect to this Indenture or the Securities of such series, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given to a Responsible Officer of the Trustee written notice of a continuing Event of Default with respect to the Securities of such series; (2) the Holders of at least 25% in aggregate principal amount of outstanding Securities of all such series affected shall have made written request to a Responsible Officer of the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Securities of all such affected series have not given the Trustee a direction that is inconsistent with such written request. Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 5.07. Rights of Holders to Receive Payments Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of or interest, if any, on such Holder's Security on or after the respective due dates expressed on such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 5.08. Collection Suit by Trustee If an Event of Default with respect to the Securities of any series in payment of principal or interest specified in clause (1) or (2) of Section 5.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, and accrued interest remaining unpaid on, together with interest on overdue principal of, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest on, the Securities of such series, in each case 59 at the rate specified in such Securities, and such further amount as shall be sufficient to cover all amounts owing the Trustee under Section 6.07. SECTION 5.09. Trustee May File Proofs of Claim The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for amounts due the Trustee under Section 6.07) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor on the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any moneys, securities or other property payable or deliverable upon conversion or exchange of the Securities or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it under Section 6.07. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.10. Application of Proceeds Any moneys collected by the Trustee pursuant to this Article in respect of the Securities of any series shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal (or premium, if any) or interest, upon presentation of the several Securities and noting thereon the payment, if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07 applicable to the Securities of such series in respect of which moneys have been collected; SECOND: In case the principal and premium, if any, of the Securities of such series in respect of which moneys have been collected shall not have become and be then due and payable, to the payment of interest on the Securities of such series in default in the order of the maturity of the installments of such interest, with interest (to the extent permitted by law) upon the overdue installments of interest at the same rate as the rate of interest specified in such Securities, such payments to be made ratably to the persons entitled thereto, without discrimination or preference; THIRD: In case the principal and premium, if any, of the Securities of such series in respect of which moneys have been collected shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities of such series for principal and premium, if any, and interest, if any, with interest upon the overdue 60 principal, and (to the extent permitted by law) upon overdue installments of interest at the same rate as the rate of interest specified in the Securities of such series; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of such series, then to the payment of such principal and interest, without preference or priority of principal over interest, or of interest over principal or premium, if any, or of any installment of interest over any other installment of interest, or of any Security of such series over any other Security of such series, ratably to the aggregate of such principal and accrued and unpaid interest; and FOURTH: To the payment of the remainder, if any, to the Company. SECTION 5.11. Restoration of Rights and Remedies If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.12. Undertaking for Costs In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, in either case in respect to the Securities of any series, a court may require any party litigant in such suit (other than the Trustee) to file an undertaking to pay the costs of such suit, and the court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant (other than the Trustee) in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 5.12 does not apply to a suit by a Holder pursuant to Section 5.07 or a suit by Holders of more than 10% in principal amount of the outstanding Securities of such series. SECTION 5.13. Rights and Remedies Cumulative Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Securities in Section 3.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 61 SECTION 5.14. Delay or Omission Not Waiver No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE VI THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities (a) Except during the continuance of a default with respect to the Securities of any series, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case a default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this subsection shall not be construed to limit the effect of subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; 62 (3) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if repayment of such funds or adequate indemnity against such risk or liability satisfactory to the Trustee has not been assured to it; and (4) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Outstanding Securities of any series, determined as provided in Section 5.05, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct of, or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.01. SECTION 6.02. Notice of Defaults Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series notice of such default hereunder actually known to a Responsible Officer of the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest, if any, on any Security of such series, the Trustee shall be fully protected in withholding such notice if and so long as a trust committee or a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of Securities of such series; and provided, further, that in the case of any default of the character specified in Section 5.01(3) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section 6.02, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 6.03. Certain Rights of Trustee Subject to the provisions of Section 6.01: (a) the Trustee may rely conclusively and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; 63 (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order or as otherwise expressly provided herein and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection, and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to expend or risk its own funds or to exercise, at the request or direction of any of the Holders, any of the rights or powers vested in it by this Indenture pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled upon reasonable prior request and during normal business hours to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees and shall not be liable for the actions or omissions of such agents, attorneys, custodians or nominees appointed by it with due care; and (h) The Trustee shall not be charged with knowledge of any default or Event of Default, as the case may be, with respect to the Securities of any series unless either (1) a Responsible Officer of the Trustee shall have actual knowledge of the default or an Event of Default, as the case may be, or (2) written notice of such default or Event of Default, as the case may be, shall have been given to the Trustee by the Company pursuant to Section 10.08 hereof, by any other obligor on such Securities or by any Holder of such Securities. SECTION 6.04. Not Responsible for Recitals or Issuance of Securities 64 The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent nor any party hereto (other than the Company) assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent nor any party hereto (other than the Company) shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. May Hold Securities The Trustee, any Authenticating Agent, any Paying Agent, any Security Exchange Agent/Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Exchange Agent/Registrar or such other agent. SECTION 6.06. Money Held in Trust Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 6.07. Compensation and Reimbursement The Company agrees (1) to pay to the Trustee from time to time such compensation as is agreed upon in writing, which compensation shall not be limited by any provision of law regarding compensation of the trustee of an express trust; (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel, which compensation, expenses and disbursements shall be set forth in sufficient written detail to the satisfaction of the Company), except any such expense, disbursement or advance as may be attributable to its or their negligence or willful misconduct; and (3) to indemnify each of the Trustee, its officers, directors, agents and employees for, and to hold it harmless against, any loss, liability or expense incurred without negligence, bad faith, or willful misconduct on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. Obligations under this 65 Section 6.07(3) will survive the satisfaction and discharge of this Indenture pursuant to Section 4.01 hereof or the earlier resignation or removal of the Trustee. SECTION 6.08. Disqualification; Conflicting Interests If the Trust Indenture Act shall be applicable to a series of Securities issued hereunder and if the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, then the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.09. Corporate Trustee Required; Eligibility There shall at all times be a Trustee hereunder which shall be eligible to act as trustee under the Trust Indenture Act and which shall have a combined capital and surplus of at least $50,000,000. If the Trustee does not have an office in The City of New York, the Trustee may appoint an agent in The City of New York reasonably acceptable to the Company to conduct any activities which the Trustee may be required under this Indenture to conduct in The City of New York. If the Trustee does not have an office in The City of New York or has not appointed an agent in The City of New York, the Trustee shall be a Participant in DTC and in the FAST distribution systems. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of a United States federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 6.09, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.09, the Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. Resignation and Removal; Appointment of Successor Trustee (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee with respect to the Securities of such series, subject to Section 6.09. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If the instrument of acceptance by a 66 successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days of such removal, the Trustee subject to such removal may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee with respect to the Securities of such series, subject to Section 6.09. (d) If at any time: (1) the Trustee shall fail to comply with section 310(b) of the Trust Indenture Act pursuant to Section 6.08, with respect to any series of Securities to which the Trust Indenture Act may be applicable, after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all the Securities, or (ii) subject to Section 5.12, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of either series) and shall comply with the applicable requirements of Section 6.11. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by giving notice in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. 67 SECTION 6.11. Acceptance of Appointment by Successor (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that series to which the appointment of such successor Trustee relates; but on request of the Company or any successor trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section 6.11, as the case may be. 68 (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13. Preferential Collecting of Claims Against Company The Trustee shall comply with Trust Indenture Act Section 311(a), excluding any creditor relationship listed in Trust Indenture Act Section 311(b). A Trustee who has resigned or been removed shall be subject to Trust Indenture Act Section 311(a) to the extent indicated. SECTION 6.14. Authenticating Agents From time to time the Trustee, with the prior written approval of the Company, may appoint one or more Authenticating Agents with respect to one or more series of Securities with power to act on the Trustee's behalf and subject to its direction in the authentication and delivery of Securities of such series issued upon original issuance and upon exchange, registration of transfer or partial redemption thereof or in connection with transfers and exchanges under Sections 3.03, 3.04, 3.05, 3.06, 3.07 and 11.07 as fully to all intents and purposes as though the Authenticating Agent had been expressly authorized by those Sections of this Indenture to authenticate and deliver Securities of such series. For all purposes of this Indenture, the authentication and delivery of Securities by an Authenticating Agent pursuant to this Section 6.14 shall be deemed to be authentication and delivery of such Securities "by the Trustee". Each such Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal, State or District of Columbia authority. If such corporation publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this Section 6.14 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of 69 condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.14. Any corporation into which any Authenticating Agent may be merged or with which it may be consolidated, or any corporation resulting from, any merger or consolidation or to which any Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of any Authenticating Agent, shall be the successor of the Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section 6.14, without the execution or filing of any paper or any further act on the part of the parties hereto or the Authenticating Agent or such successor corporation. An Authenticating Agent may resign at any time by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 6.14, the Trustee may appoint a successor Authenticating Agent with the prior written approval of the Company and shall mail notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as the names and addresses of such Holders appear on the Security Register. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 6.14. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.14 as may be agreed in a separate writing among the Company, the Trustee and such Authenticating Agent. If an appointment with respect to one or more series of Securities is made pursuant to this Section 6.14, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This is one of the Securities of the series designated herein referred to in the within mentioned Indenture. THE BANK OF NEW YORK, as Trustee as Authenticating Agent Dated: By: ------------ -------------------------------- 70 Authorized Signatory ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders The Company will furnish or cause to be furnished to the Trustee with respect to the Registered Securities of each series (a) semi-annually, not later than 15 days after each Regular Record Date, or, in the case of any series of Registered Securities on which semi-annual interest is not payable, not more than 15 days after such semi-annual dates as may be specified by the Trustee, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date or semi-annual date, as the case may be, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee is Security Exchange Agent/Registrar for any series of Registered Securities, no such list shall be required to be furnished with respect to any such series. SECTION 7.02. Preservation of Information; Communications to Holders The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Exchange Agent/Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. SECTION 7.03. Reports by Trustee (a) As promptly as practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Holder a brief report dated as of such May 15 that complies with Trust Indenture Act Section 313(a). The Trustee also shall comply with Trust Indenture Act Section 313(b). The Trustee shall also transmit by mail all reports required by Trust Indenture Act Section 313(c). (b) A copy of each report at the time of its mailing to Holders shall be filed with the Commission and each U.S. stock exchange (if any) on which the Securities are listed. 71 The Company agrees to notify promptly the Trustee whenever the Securities become listed on any U.S. stock exchange and of any delisting thereof. SECTION 7.04. Reports by Company The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act. ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms The Company shall not consolidate with or merge with or into any Person (other than CILCORP in the Merger), or convey, transfer or lease its consolidated properties and assets substantially as an entirety (in one transaction or in a series of related transactions) to any Person, or permit any Person to merge into or consolidate with the Company, unless (i)(x) the Company will be the surviving or continuing Person or (y) if other than the Company, the surviving or continuing Person or purchaser or lessee will be an entity organized under the laws of the United States, one of the States thereof or the District of Columbia and expressly assumes by supplemental indenture, substantially in the form of Annex I hereto, the Company's obligations under each series of the Securities under the Indenture, (ii) immediately after giving effect to such transaction, (x) no Event of Default shall have occurred and be continuing, and (y) the Company obtains written confirmation from the Rating Agencies that such transaction will not result in a Ratings Downgrade below such Rating Agency's Initial Rating, and (iii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that such consolidation, merger, transfer or lease and such supplemental indenture (if any) complies with this Indenture. SECTION 8.02. Successor Corporation to be Substituted Upon any consolidation by the Company with or merger by the Company into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 8.01, and upon the effectiveness of the Merger, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made (which, in the case of the Merger, shall be CILCORP) shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter the predecessor entity shall be relieved of all obligations and covenants under this Indenture and the Securities. In the case of the Merger, CILCORP shall immediately following the effective time of the Merger, by supplemental indenture expressly assume the Company's obligations under each series of the Securities under 72 the Indenture. Such supplemental indenture shall be entered into by CILCORP and the Trustee without the consent of any Holder of either series of Securities or any other action on the part of any Person. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indenture without Consent of Holders Without the consent of any Holders, the Company and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another entity to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; (3) to add any additional Events of Default (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); (4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to facilitate the issuance of Securities in uncertificated form, or to permit or facilitate the issuance of extendible Securities; (5) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only as to the Securities of any series created by such supplemental indenture and Securities of any series subsequently created to which such change or elimination is made applicable by the subsequent supplemental indenture creating such series; (6) to secure the Securities pursuant to the requirements of Section 10.04 or otherwise; (7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or 73 facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); (8) to provide for any rights of the Holders of Securities of any series to require the repurchase of Securities of such series by the Company; (9) to modify the restrictive legends set forth on the face of the form of Security, or modify the form of certificate set forth in Section 3.12; provided, however, that any such modification shall not materially and adversely affect the interest of the Holders of the Securities; (10) to amend this Indenture to conform to the provisions of the Trust Indenture Act as in effect at the time of the execution of such supplemental indenture; (11) to cure any ambiguity, omission or defect, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not materially and adversely affect the interests of the Holders of Securities of any series; or (12) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to Holders, which does not involve a change described in clauses (1), (2),(3) or (4) of Section 9.02 hereof and which, in the judgment of the Trustee, is not to the prejudice of the Trustee, or in order to provide for the duties, responsibilities and compensation of the Trustee as a transfer agent in the event one registered Security of any series is issued in the aggregate principal amount of all outstanding Securities of such series in which Holders will hold an interest. SECTION 9.02. Supplemental Indentures with Consent of Holders With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of the principal of, or any installment of principal of or interest, if any, on, any Security, or reduce the principal amount thereof or the rate of interest thereon, or reduce any premium payable upon the redemption thereof, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the 74 enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture, or (3) modify any of the provisions of this Section 9.02, Section 5.04 or Section 10.09, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section 9.02, or the deletion of this proviso, in accordance with the requirements of Sections 6.11(b) and 9.01(7), or (4) except in accordance with the terms thereof, (i) release any collateral from the Lien created by the Pledge Agreement, (ii) amend such terms, (iii) terminate the Lien created by the Pledge Agreement or (iv) deprive the holders of the security afforded by the Lien created by the Pledge Agreement. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, other than the supplemental indenture referenced in the last sentence of Section 8.02, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. 75 SECTION 9.04. Effect of Supplemental Indentures Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act Every supplemental indenture executed pursuant to this Article shall, if so required by the Trust Indenture Act, conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.06. Reference in Securities to Supplemental Indentures Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. SECTION 9.07. Amendments to the Pledge Agreement The Company shall not amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, the Pledge Agreement in any way that would be adverse to the Holders of the Securities. ARTICLE X COVENANTS SECTION 10.01. Payment of Principal, Premium, if any, and Interest The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. An installment of principal of or interest on the Securities of a series shall be considered paid on the date it is due if the Trustee or Paying Agent holds at 11:00 a.m. New York City Time on that date money deposited by the Company in immediately available funds and designated for, and sufficient to pay, the installment in full. 76 Neither the Company nor any agent of the Company (including but not limited to the Paying Agent) will have any responsibility or liability for any aspect relating to payments made or to be made by the Depositary to DTC in respect of the Global Securities of a series or the beneficial interests therein, subject only to limited indemnification rights of the Depository. None of the Company, the Trustee, the Paying Agent, the Depositary or any agent of any of the foregoing will have any responsibility or liability for any aspect relating to payments made or to be made by DTC on account of a Participant's or Indirect Participant's ownership of a beneficial interest in a Global Security or for maintaining, supervising or reviewing any records relating to a Participant's interests in such Global Security. SECTION 10.02. Maintenance of Office or Agency The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities of any series may be presented or surrendered for payment, and where notices and demands to or upon the Company in respect of the Securities of such series and this Indenture may be served and an office or agency of a Security Exchange Agent/Registrar in such Place of Payment where Securities may be surrendered for registration of transfer or exchange. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, all such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee and the Company hereby appoints the Paying Agent as its agent to receive all such presentations, surrenders, notices and demands. In the event any such notice or demands are so made or served on the Paying Agent, the Paying Agent shall promptly forward copies thereof to the Company and the Trustee. The Company may also from time to time designate one or more other offices or agencies (in or outside of such Place of Payment) where the Securities of one or more series and any appurtenant coupon may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for any series of Securities for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such other office or agency. SECTION 10.03. Money for Securities Payments to Be Held in Trust If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest, if any, on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest, if any, so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee in writing of its action or failure so to act. 77 Whenever the Company shall have one or more Paying Agents for any series of the Securities, it will, no later than 10:00 a.m. New York City Time, on each due date of the principal of (and premium, if any) or interest, if any, on any Securities of that series, deposit with a Paying Agent a sum in immediately available funds sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto. The Company will cause each Paying Agent for any series of the Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.03, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest, if any, on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest, if any, on the Securities of that series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by the Company or by any Paying Agent to the Trustee, the Company or such Paying Agent, as the case may be, shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest, if any, on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. 78 SECTION 10.04. Limitation on Liens (i) Immediately upon the effectiveness of the Merger, CILCORP will not secure any Indebtedness by CILCORP or any other Person by a Lien upon any capital stock of CILCO without effectively providing that the outstanding Securities (together with, if CILCORP so determines, any other indebtedness or obligation then existing or thereafter created ranking equally with the Securities) will be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness is so secured. The limitation on Liens pursuant to this Section 10.04(i) will not, however, apply to: (a) any Lien securing amounts not more than 180 days overdue or otherwise being contested in good faith; (b) (1) any Lien incurred or deposits made in the ordinary course of business, including, but not limited to, (x) any mechanics', materialmen's, carriers', workmen's, vendors' and other like Liens and (y) any Liens securing amounts in connection with workers' compensation, unemployment insurance and other types of social security; and (2) any Lien incurred or deposits made securing the performance of tenders, bids, leases, trade contracts (other than for borrowed money), statutory obligations, surety bonds, appeal bonds, government contracts, performance bonds, return-of-money bonds, letters of credit not securing borrowings and other obligations of like nature incurred in the ordinary course of business; (3) any Lien securing reimbursement obligations under letters of credit, guaranties and other forms of credit enhancement given in connection with the purchase of goods and equipment in the ordinary course of business; (c) (1) Liens required by any contract, statute or regulation in order to permit CILCORP or a Significant Subsidiary to perform any contract or subcontract made by it with or at the request of a governmental entity or any governmental department, agency or instrumentality, or to secure partial, progress, advance or any other payments by CILCORP or a Significant Subsidiary to such governmental unit under the provisions of any contract, statute or regulation; and (2) any Lien securing taxes or assessments or other applicable governmental charges or levies; 79 (d) any Lien which arises under any order of attachment, restraint or similar legal process arising in connection with court proceedings and any Lien which secures the reimbursement obligation for any bond obtained in connection with an appeal taken in any court proceeding, so long as the execution or other enforcement of such Lien arising under such legal process is effectively stayed and the claims secured by that Lien are being contested in good faith and, if appropriate, by appropriate legal proceedings, and any Lien in favor of a plaintiff or defendant in any action before a court or tribunal as security for costs and/or expenses; and (e) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses, for amounts not exceeding the principal amount of the Indebtedness secured by the Lien so extended, renewed or replaced, provided that such extension, renewal or replacement Lien is limited to all or a part of the capital stock of CILCO that was covered by the Lien extended, renewed or replaced. (ii) Each of the Company and any Significant Subsidiary will not issue, assume or guarantee any Indebtedness secured by a Lien upon any property or assets (other than any capital stock of CILCO or cash or cash equivalents) of the Company or such Significant Subsidiary, as applicable, without effectively providing that the Outstanding Securities (together with, if the Company so determines, any other indebtedness or obligation then existing or thereafter created ranking equally with such Securities) shall be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness shall be so secured. The foregoing limitation on Liens will not, however, apply to: (a) Liens in existence on the date of original issue of the Securities; (b) any Lien created or arising over any property which is acquired, constructed or created by the Company or any of its Significant Subsidiaries, but only if (i) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto or a guarantee given in respect thereof, (ii) such Lien is created or arises on or before 180 days after the completion of such acquisition, construction or creation and (iii) such Lien is confined solely to the property so acquired, constructed or created; (c) any Lien securing amounts not more than 180 days overdue or otherwise being contested in good faith; (d) (i) rights of financial institutions to offset credit balances in connection with the operation of cash management programs established for the benefit of the Company and/or a Significant Subsidiary or in connection with the issuance of letters of credit for the benefit of the Company and/or a Significant Subsidiary; (ii) any Lien on 80 accounts receivable securing indebtedness of the Company and/or a Significant Subsidiary incurred in connection with the financing of such accounts receivable; (iii) any Lien incurred or deposits made in the ordinary course of business, including, but not limited to, (A) any mechanics', materialmen's, carriers', workmen's, vendors' or other like Liens and (B) any Liens securing amounts in connection with workers' compensation, unemployment insurance and other types of social security; (iv) any Lien upon specific items of inventory or other goods and proceeds of the Company and/or a Significant Subsidiary securing obligations of the Company and/or a Significant Subsidiary in respect of bankers' acceptances issued or created for the account of such person to facilitate the purchase, shipment or storage of such inventory or other goods; (v) any Lien incurred or deposits made securing the performance of tenders, bids, leases, trade contracts (other than for borrowed money), statutory obligations, surety bonds, appeal bonds, government contracts, performance bonds, return-of-money bonds, letters of credit not securing borrowings and other obligations of like nature incurred in the ordinary course of business; (vi) any Lien created by the Company or a Significant Subsidiary under or in connection with or arising out of a Currency, Interest Rate or Commodity Agreement or any transactions or arrangements entered into in connection with the hedging or management of risks relating to the electricity or natural gas distribution industry, including by a right of set off or right over a margin call account or any form of cash or cash collateral or any similar arrangement for obligations incurred in respect of Currency, Interest Rate or Commodity Agreements; (vii) any Lien arising out of title retention or like provisions in connection with the purchase of goods and equipment in the ordinary course of business; and (viii) any Lien securing reimbursement obligations under letters of credit, guaranties and other forms of credit enhancement given in connection with the purchase of goods and equipment in the ordinary course of business; (e) Liens in favor of the Company or a Subsidiary; (f) (i) Liens on any property or assets acquired from an entity which is merged with or into the Company or a Significant Subsidiary or any Liens on the property or assets of any entity existing at the time such entity becomes a Subsidiary of the Company and, in either case, is not created in anticipation of the transaction (unless such Lien is created to secure or provide for the payment of any part of the purchase price of such entity); (ii) any Lien on any property or assets existing at the time of acquisition thereof and which is not created in anticipation of such acquisition (unless such Lien was created to secure or provide for the payment of any part of the purchase price of such property or assets) and (iii) any Lien created or outstanding on or over any asset of any entity which becomes a Significant Subsidiary on or after the date of the issuance of the Securities, where such Lien is created prior to the date on which such entity becomes a Significant Subsidiary; (g) (i) Liens required by any contract, statute or regulation in order to permit the Company or a Significant Subsidiary to perform any contract or subcontract made by it with or at the request of a governmental entity or any department, agency or 81 instrumentality thereof, or to secure partial, progress, advance or any other payments by the Company or a Significant Subsidiary to such governmental unit pursuant to the provisions of any contract, statute or regulation; (ii) any Lien securing industrial revenue, development, pollution control or similar bonds issued by or for the benefit of the Company or a Significant Subsidiary, provided that such industrial revenue, development, pollution control or similar bonds do not provide recourse generally to the Company and/or such Significant Subsidiary; and (iii) any Lien securing taxes or assessments or other applicable governmental charges or levies; (h) any Lien which arises pursuant to any order of attachment, restraint or similar legal process arising in connection with court proceedings and any Lien which secures the reimbursement obligation for any bond obtained in connection with an appeal taken in any court proceeding, so long as the execution or other enforcement of such Lien arising pursuant to such legal process is effectively stayed and the claims secured thereby are being contested in good faith and, if appropriate, by appropriate legal proceedings, and any Lien in favor of a plaintiff or defendant in any action before a court or tribunal as security for costs and/or expenses; (i) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses, for amounts not exceeding the principal amount of the Indebtedness secured by the Lien so extended, renewed or replaced, provided that such extension, renewal or replacement Lien is limited to all or a part of the same property or assets that were covered by the Lien extended, renewed or replaced (plus improvements on such property or assets); (j) any Lien created in connection with Project Finance Debt; (k) any Lien created by CILCO that is then permitted to be created under the term of its then existing mortgages and indentures on the terms in effect at the time of creation of the Lien; (l) any Lien created in connection with the securitization of some or all of the assets of CILCO and the associated issuance of Indebtedness as authorized by applicable state or federal law in connection with the restructuring of jurisdictional electric or gas businesses; and (m) any Lien on stock created in connection with a mandatorily convertible or exchangeable stock or debt financing, provided that any such financing may not be secured by or otherwise involve the creation of a Lien on any capital stock of CILCO or any successor thereto. Notwithstanding the foregoing, the Company and its Significant Subsidiaries may create Liens over any of their respective property or assets, so long as the aggregate amount of Indebtedness secured by all such Liens (excluding therefrom the amount of Indebtedness secured by Liens set forth in clauses (a) through (m), inclusive, above) does not exceed 10% of 82 Consolidated Net Tangible Assets in the aggregate calculated as of the date of creation of such Liens (based upon the Consolidated Net Tangible Assets appearing on the most recently available balance sheet for the most recently concluded calendar quarter). SECTION 10.05. Limitation on Distributions and Intercompany Loans The Company shall not (1) declare, recommend, make or pay any Distribution to any of its shareholders or (2) make any intercompany loan to AES or any of its affiliates (other than CILCORP or any of its direct or indirect subsidiaries) unless there exists no Event of Default and no such Event of Default will result from the making of such Distribution or intercompany loan and either: (a) at the time and as a result of such Distribution or intercompany loan, the Company's Leverage Ratio does not exceed 0.67:1, and the Company's Interest Coverage Ratio is not less than 2.0:1 during fiscal years 1999 and 2000 and not less than 2.2:1 thereafter; or (b) if the Company is not in compliance with the foregoing ratios at such time its senior long-term debt rating from the Rating Agencies is at least BB+ (or its then equivalent) with S&P, Baa2 (or its then equivalent) with Moody's and BBB (or its then equivalent) with Duff & Phelps. Prior to making any Distribution or intercompany loan described in this Section 10.05, an independent director of the CILCORP Board of Directors shall confirm that such Distribution or intercompany loan complies with the terms of this Section 10.05, provided that, in the case of a Distribution or intercompany loan to be made under the circumstances described Section 10.05(a), such independent director shall have first obtained (1) a compliance certificate from an officer of CILCORP that, at the time and after giving effect to such Distribution or intercompany loan, CILCORP is in compliance with the Leverage Ratio and the Interest Coverage Ratio set forth in Section 10.05(a) and (2) a written confirmation by a nationally recognized accounting firm as to their agreement with the calculations specified in the compliance certificate; provided further that the foregoing independent director approval will not be required in the case of intercompany loans if the aggregate amount of intercompany loans outstanding at any one time does not exceed $20 million. The foregoing limitation on Distributions and intercompany loans shall cease to be in effect if the Rating Agencies confirm that without the limitations contained in this Section 10.05 the Company's senior long term debt would still be rated at least the initial ratings (or its then equivalent) received from S&P, the initial ratings (or its then equivalent) received from Moody's, and the initial ratings (or its then equivalent) received from Duff & Phelps (collectively, the "Initial Ratings"). If the limitation on Distributions and intercompany loans set forth in this Section 10.05 ceases to be in effect, the Company will be under no obligation to reinstate such limitation or otherwise observe its terms in the event such ratings are thereafter lowered or withdrawn. 83 In order to obtain the release of the limitation on Distributions and intercompany loans, the Company shall deliver to a Responsible Officer of the Trustee written confirmation from each Rating Agency of the ratings conditions as described in the preceding paragraph. Securities of any series which are entitled to the benefit of this Section 10.05 and are authenticated and delivered after the release of the limitation on Distributions and intercompany loans may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to the current inapplicability of such limitation. SECTION 10.06. Limitation on Indebtedness of the Company The Company shall not incur any Indebtedness other than (i) as part of the Company's permitted businesses and activities that are described in Section 10.07 hereof, (ii) Indebtedness outstanding on the date of original issue of the Securities under CILCORP's agreements then in existence and extensions of such Indebtedness, or (iii) other Indebtedness (including Permitted Debt) incurred subsequent to receipt of written confirmation from the Rating Agencies that such incurrence would not result in a Ratings Downgrade. The foregoing limitation on Indebtedness shall cease to be in effect if the Rating Agencies confirm that without the limitations contained in this Section 10.06 the Company's senior long term debt would still be rated at least the Initial Ratings. If the limitation on Indebtedness set forth in this Section 10.06 ceases to be in effect, the Company will be under no obligation to reinstate such limitation or otherwise observe its terms in the event such ratings are thereafter lowered or withdrawn. In order to obtain the release of the limitation on Indebtedness, the Company shall deliver to a Responsible Officer of the Trustee written confirmation from each Rating Agency of the ratings conditions as described in the preceding paragraph. Securities of any series which are entitled to the benefit of this Section 10.06 and are authenticated and delivered after the release of the limitation on Distributions may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to the current inapplicability of such limitation. SECTION 10.07. Limitation on Business Activities (a) The Company shall, and shall cause its Significant Subsidiaries to, engage only in (x) those types of businesses and other activities in which CILCORP or any of its direct or indirect subsidiaries or controlled partnerships or joint ventures are engaged on the date hereof (including, without limitation, any geographic or other expansion of such businesses or activities) and (y) any other business or activity which is deemed necessary, useful or desirable in connection with such existing businesses and activities or any such permitted additional geographic or other expansions of such businesses and activities provided, that CILCORP may enter into additional business operations from time to time in the future if, prior to doing so, it shall have obtained written confirmation from the Rating Agencies that the entering into of such new businesses will not result in a Ratings Downgrade. SECTION 10.08. Statement by Officers as to Default 84 The Company will give a Responsible Officer of the Trustee notice, in the form of an Officers' Certificate, of any Event of Default relating to the Company or of any condition or event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default relating to the Company within five (5) days after the occurrence of such Event of Default becomes known to the Company, and of the measures it is taking to remedy such Event of Default. The Company will deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate, stating that in the course of the performance by the signers thereof of their duties as Officers of the Company they would normally have knowledge of any default by the Company in the performance and observance of any of the covenants contained in the Indenture, and stating whether or not the signers have knowledge of any such default without regard to any period of grace or requirement of notice and, if so, specifying each such default of which such signer has knowledge and the nature thereof; provided, however, that a failure by the Company to deliver such notice of a default shall not constitute a default of the Indenture if the Company has remedied such default within any applicable cure period. SECTION 10.09. Modification or Waiver of Certain Covenants The Company may omit in any particular instance to comply with any term, provision or condition set forth in this Indenture with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in aggregate principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either modify the covenant or waive such compliance in such instance or generally waive compliance with such term, provision or condition, provided that no such modification shall without the consent of each Holder of Securities of such series (a) change the stated maturity upon which the principal of or the interest on the Securities of such series is due and payable, (b) reduce the principal amount or redemption price thereof or the rate of interest thereon, (c) change any place of payment or the currency in which the Securities of such series or any premium or the interest thereon is payable, (d) impair the right to institute suit for the enforcement of any such payment on or after the stated maturity thereof (or, in the case of redemption, on or after Redemption Date), (e) except in accordance with the terms thereof, (i) release any collateral from the Lien created by the Pledge Agreement, (ii) or amend such terms, (iii) or terminate the Lien created by the Pledge Agreement or (iv) deprive the Holders of the Security afforded by the Lien created by the Pledge Agreement, or (f) reduce the percentage in principal amount of the outstanding Securities of such series, the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture. The Securities owned by the Company or any of its affiliates shall be deemed not to be Outstanding for, among other purposes, consenting to any such modification. 85 SECTION 10.10. Further Assurances The Company and the Trustee shall execute and deliver all such other documents, instruments and agreements and do all such other acts and things as may be reasonably required to enable the Trustee to exercise and enforce its rights under this Indenture and under the documents, instruments and agreements required under this Indenture and to carry out the intent of this Indenture. SECTION 10.11. Copies Available to Holders Copies of this Indenture shall be furnished only to Holders upon the written request of such holder, without change, provided that such written request is made to the Company in accordance with Section 1.05. SECTION 10.12. Reports by Company Notwithstanding that the Company may not be required to be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, from and after the date of effectiveness of any registration statement required to be filed by the Company pursuant to the Registration Rights Agreement or otherwise relating to a particular series of Securities, the Company shall file with the Commission or cause to be filed with the Commission and provide copies to the Trustee (and, if the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the Holders of the Securities) with the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is (or would be if it were still so subject) required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Prior to the date on which the Company becomes subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, the Company will provide, without charge, upon the written request of (x) a Holder of any Securities or (y) a prospective Holder of any of the Securities who is a QIB and is designated by an existing Holder of any of the Securities (in each case, with a copy to the Trustee), with the information with respect to the Company required to be delivered under Rule 144A(d)(4) under the Securities Act to enable resales of the Securities to be made pursuant to Rule 144A. The Company shall also comply with the other provisions of Section 314(a) of the Trust Indenture Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). 86 ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.01. Optional Redemption The Securities may be redeemed, in whole or in part, at the option of the Company pursuant to the terms set forth in paragraph 2 of the series of Securities to be redeemed, in accordance with the provisions of this Article XI. SECTION 11.02. Election to Redeem; Notice to Trustee The election of the Company to redeem any Securities shall be authorized by a Board Resolution and evidenced by an Officers' Certificate. In case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, not less than 30 days nor more than 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, the terms and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, or pursuant to an election by the Company which is subject to a condition specified in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition. SECTION 11.03. Selection by Trustee of Securities to Be Redeemed If less than all the Securities of any series are to be redeemed, the particular securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate (and which method the Company and the Trustee agree shall be selection by lot, on a pro rata basis, or such other method as agreed to) and which may provide for the selection for redemption of portions equal to the minimum authorized denomination for Securities of that series (or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. Securities shall be excluded from eligibility for selection for redemption if they are identified by certificate number in a written statement signed by an authorized officer of the Company and delivered to the Security Exchange Agent/Registrar at least 45 days prior to the Redemption Date as being owned of record and beneficially by, and not pledged or hypothecated by either (a) the Company or (b) an entity specifically identified in such written statement which is an Affiliate of the Company. 87 The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.04. Notice of Redemption Notice of redemption shall be given not less than 30 days nor more than 60 days prior to the Redemption Date to each Holder of Securities to be redeemed in accordance with Section 1.06. All notices of redemption shall include the description of the issue and the CUSIP number and shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, and (5) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.05. Deposit of Redemption Price By 11:00 a.m. New York time on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money in same day funds sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that 88 date (to the extent that such amounts are not already on deposit at such time in accordance with the provisions of Sections 4.01, 4.02 or 10.09). SECTION 11.06. Securities Payable on Redemption Date Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued and unpaid interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued and unpaid interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, and in the case of Registered Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.05. If any Security called for redemption shall not be so paid upon surrender thereof for redemption due to the failure of the Company to pay the Redemption Price, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 11.07. Securities Redeemed in Part Any Security (including any Global Security) which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee upon written direction shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the security so surrendered; provided, that if a Global Security is surrendered for partial redemption, no new Global Security shall be issued but instead the principal amount of the surrendered Global Security shall be reduced by an endorsement to Schedule A to such Global Security by the Security Exchange Agent/Registrar equal to the redeemed portion of the principal of the Global Security so surrendered, whereupon such Global Security shall be delivered to the Depositary; and provided further that following any such partial redemption the Securities selected for redemption and any beneficial interests therein shall not have had their principal amount reduced below the minimum authorized denomination for Securities of such series and for any beneficial interests therein. In the case of a partial redemption of the Global Securities, DTC (and, in turn, its Participants) shall have the responsibility to select the interests in such Global Securities to be redeemed in accordance with Applicable Procedures. 89 ARTICLE XII MEETINGS OF HOLDERS OF SECURITIES SECTION 12.01. Purposes of Meeting A meeting of the Holders may be called at any time from time to time pursuant to this Article XII for any of the following purposes: (1) to give any notice to the Company and to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to Article IX hereof; (2) to remove the Trustee and appoint a successor trustee pursuant to Article VI hereof; (3) to consent to the execution of an indenture supplemental hereto pursuant to Section 9.02 hereof. SECTION 12.02. Place of Meetings (a) The Trustee may at any time (upon not less than 21 days' notice) call a meeting of Holders to be held at such time and at such place in the location determined by the Trustee pursuant to this Section 12.02. Notice of every meeting of Holders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to each Holder and published in the manner contemplated by Section 1.06 hereof. (b) In case at any time the Company or the Holders of at least an aggregate principal amount of the Securities sufficient to take action requested in such notice, shall have requested the Trustee to call a meeting of the Holders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first giving of the notice of such meeting within 20 days after receipt of such request, then the Company or the Holders in the amount above specified may determine the time (not less than 21 days after notice is given) and the place in the location determined by the Company or the Holders pursuant to this Section 12.02 for such meeting and may call such meeting to take any action authorized in Section 12.01 hereof by giving notice thereof as provided in Section 12.02(a) hereof. SECTION 12.03. Voting at Meetings To be entitled to vote at any meeting of Holders, a Person shall be (i) a Holder or (ii) a Person appointed by an instrument in writing as proxy for a Holder or Holders by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons so entitled to vote at such meeting and their counsel, any 90 representatives of the Trustee and its counsel, and any representatives of the Company and its counsel. SECTION 12.04. Voting Rights, Conducts and Adjournment (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders in regard to proof of the holding of Securities of a series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities of a series shall be proved in the manner specified in Article II hereof and the appointment of any proxy shall be proved in such manner as is deemed appropriate by the Trustee or by having the signature of the person executing the proxy witnessed or guaranteed by any bank, banker or trust company customarily authorized to certify to the holding of a security such as a Global Note. (b) At any meeting of Holders, the representative of Persons holding or representing Securities of a series in an aggregate principal amount sufficient under the appropriate provision of this Indenture to take action upon the business for the transaction of which such meeting was called shall constitute a quorum. Any meetings of Holders duly called pursuant to Section 12.03 hereof may be adjourned from time to time by vote of the Holders (or proxies for the Holders) of a majority of the Securities of a series represented at the meeting and entitled to vote, whether or not a quorum shall be present; and the meeting may be held as so adjourned without further notice. No action at a meeting of Holders shall be effective unless approved by Persons holding or representing Securities of a series in the aggregate principal amount required by the provision of this Indenture pursuant to which such action is being taken. (c) At any meeting of Holders, each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of outstanding Securities of a series held or represented. SECTION 12.05. Revocation of Consent by Holders At any time prior to (but not after) the evidencing to the Trustee of the taking of any action at a meeting of Holders by the Holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action, any Holder of a Security the serial number of which is included in the Securities the Holders of which have consented to such action may, by filing written notice with the Trustee at its principal corporate trust office and upon proof of holding as provided herein, revoke such consent so far as concerns such Securities. Except as aforesaid any such consent given by the Holder of any Securities shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Securities and of any Securities issued in exchange therefore, in lieu thereof or upon transfer thereof, irrespective of whether or not any notation in regard thereto is made upon such Securities. Any action taken by the Holders of the percentage in aggregate principal amount of 91 the Holders specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the Holders of all the Securities. ARTICLE XIII SECURITY AND COLLATERAL SECTION 13.01. Pledge Agreement The full and punctual payment when due and the full and punctual performance of all of the obligations of the Company under the Securities and this Indenture to the Holders and the Trustee, according to the provisions of this Indenture or the Securities (the "Obligations"), shall be secured as of the Pledge Effective Date, as provided in the Pledge Agreement. Each Holder of the Securities, by its acceptance thereof, consents and agrees to the terms of the Pledge Agreement (including, without limitation, the provisions providing for foreclosure and release of Collateral) as the same may be in effect or may be amended from time to time in accordance with its terms and authorizes and directs the Collateral Agent to enter into the Pledge Agreement and to perform its obligations and exercise its rights thereunder in accordance therewith. The Company shall cause CILCORP to deliver to the Trustee copies of all documents delivered to the Collateral Agent pursuant to the Pledge Agreement, and shall cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Pledge Agreement, to assure and confirm to the Trustee and the Collateral Agent that the security interest in the Collateral contemplated hereby, by the Pledge Agreement or any parts thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and the Securities, secured hereby, according to the intent and purposes herein expressed. The Company shall cause to be taken any and all actions reasonably required to cause the Pledge Agreement to create and maintain, as security for the Obligations of the Company, hereunder, a valid and enforceable perfected first priority Lien in and on all the Collateral, in favor of the Collateral Agent for the benefit of the Trustee and Holders and other Secured Parties (as defined in the Pledge Agreement), if any, superior to and prior to the rights of all third Persons and subject to no other Liens than Permitted Liens. SECTION 13.02. Recording and Opinions (a) The Company shall furnish to the Collateral Agent and the Trustee upon the Pledge Effective Date an Opinion of Counsel either (i) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of this Indenture, financing statements or other instruments necessary to make effective the Lien intended to be created by the Pledge Agreement, and reciting with respect to the security interests in the Collateral, the details of such action, or (ii) stating that, in the opinion of such counsel, no such action is necessary to make such Lien effective. 92 (b) The Company shall furnish to the Collateral Agent and the Trustee within 3 months after each anniversary of the Pledge Effective Date, an Opinion of Counsel, dated as of such date, either (i) (A) stating that, in the opinion of such counsel, action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of the Pledge Agreement and reciting with respect to the security interests in the Collateral the details of such action or referring to prior Opinions of Counsel in which such details are given, (B) stating that, based on relevant laws as in effect on the date of such Opinion of Counsel, all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding 12 months fully to preserve and protect, to the extent such protection and preservation are possible by filing, the rights of the Holders and the Collateral Agent and the Trustee hereunder and under the Pledge Agreement with respect to the security interests in the Collateral, or (ii) stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien and assignment. (c) The Company shall otherwise comply with the provisions of TIA Section 314(b). SECTION 13.03. Release of Collateral (a) Subject to subsections (b), (c) and (d) of this Section 13.03 and the terms of the Pledge Agreement, Collateral may be released from the Lien and security interest created by the Pledge Agreement at any time or from time to time in accordance with the provisions of the Pledge Agreement. In addition, subject to the terms of the Pledge Agreement, upon the request of the Company pursuant to an Officers' Certificate certifying that all conditions precedent hereunder have been met and (at the sole cost and expense of the Company) the Collateral Agent shall release the Collateral that is sold, conveyed or disposed of in compliance with the provisions of the Pledge Agreement and this Indenture. Upon receipt of such Officers' Certificate, the Collateral Agent shall execute, deliver or acknowledge any necessary or proper instruments of termination, satisfaction or release to evidence the release of any Collateral permitted to be released pursuant to this Indenture or the Pledge Agreement, as prepared by the Company. (b) No Collateral shall be released from the Lien and security interest created by the Pledge Agreement pursuant to the provisions of the Pledge Agreement unless there shall have been delivered to the Collateral Agent the certificate required by this Section 13.03. (c) At any time when a Default or Event of Default shall have occurred and be continuing and the maturity of the Securities shall have been accelerated (whether by declaration or otherwise) and the Trustee shall have delivered a notice of acceleration to the Collateral Agent, no release of Collateral pursuant to the provisions of the Pledge Agreement shall be effective as against the Holders of Securities. 93 (d) The release of any Collateral from the terms of this Indenture and the Pledge Agreement shall not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Collateral is released pursuant to the terms of this Indenture or the terms of the Pledge Agreement. To the extent applicable, the Company shall cause TIA Section 313(b), relating to reports, and TIA Section 314(d), relating to the release of property or securities from the Lien and security interest of the Pledge Agreement and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Pledge Agreement, to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person shall be an independent engineer, appraiser or other expert selected by the Company in a manner consistent with the requirements of the TIA. SECTION 13.04. Certificates of the Company The Company shall furnish to the Trustee and the Collateral Agent, prior to each proposed release of Collateral pursuant to the Pledge Agreement, (i) all documents required by TIA Section 314(d) and (ii) an Opinion of Counsel, which may be rendered by internal counsel to the Company to the effect that such accompanying documents constitute all documents required by TIA Section 314(d). SECTION 13.05. Certificates of the Trustee In the event that the Company wishes to release Collateral in accordance with the Pledge Agreement and has delivered the certificates and documents required by the Pledge Agreement and Sections 13.03 and 13.04 hereof and the Trustee has received, all documentation required by TIA Section 314(d) in connection with such release, and (ii) the Opinion of Counsel delivered pursuant to Section 13.04(b), the Trustee shall deliver a certificate to the Collateral Agent setting forth that it has received all such documentation. SECTION 13.06. Authorization of Actions to be Taken by the Collateral Agent Under the Pledge Agreement Subject to the provisions of Sections 6.01 and 6.03 hereof and the Pledge Agreement, the Trustee may, with the consent of the Holders of a majority in principal amount of the Securities, direct the Collateral Agent to take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Pledge Agreement and (b) collect and receive any and all amounts payable in respect of the Obligations of the Company hereunder. SECTION 13.07. Authorization of Receipt of Refunds by the Trustee Under the Pledge Agreement The Trustee is authorized to receive any funds for the benefit of the Holders distributed under the Pledge Agreement, and to make further distributions of such funds to the Holders of Securities according to the provisions of this Indenture. 94 SECTION 13.08. Termination of Security Interest Upon the payment in full of all Obligations of the Company, under this Indenture and the Securities, or upon Defeasance or Covenant Defeasance, the Trustee shall, upon receipt of an Officer's Certificate, deliver a certificate to the Collateral Agent stating that such Obligations have been paid in full, and, subject to the terms of the Pledge Agreement, instruct the Collateral Agent to release the Liens pursuant to this Indenture and the Pledge Agreement. ARTICLE XIV MISCELLANEOUS SECTION 14.01. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process (a) The Company irrevocably consents and agrees, for the benefit of the Holders from time to time of the Securities and the Trustee, that any legal action, suit or proceeding against it with respect to its obligations, liabilities or any other matter arising out of or in connection with this Indenture or the Securities may be brought in the United States District Court for the Southern District of New York or in the Supreme Court of New York in New York County, and, until amounts due and to become due in respect of the Securities have been paid, hereby irrevocably consents and submits to the nonexclusive jurisdiction of each such court and any appellate court of either of them in personam, generally and unconditionally with respect to any action, suit or proceeding for itself and in respect of its properties, assets and revenues. (b) The Company hereby designates, appoints, and empowers CT Corporation System, acting through its office at 111 8th Avenue, 13th Floor, New York, New York 10011, as the Company's designee, appointee and agent (the "Authorized Agent") to receive, accept and acknowledge for and on its behalf, and its properties, assets and revenues, service of any and all legal process, summons, notices and documents which may be served in any action, suit or proceeding brought against the Company pursuant to paragraph (a) of this Section. Such appointment shall be irrevocable until all amounts in respect of the principal of and any premium and interest due and to become due on or in respect of all the Securities issued under this Indenture have been paid by the Company to the Trustee pursuant to the terms hereof and of the Securities. Notwithstanding the foregoing, the Company reserves the right to appoint another Person and located or with an office in the Borough of Manhattan, The City of New York, as a successor Authorized Agent, and upon acceptance of such appointment by such a successor the appointment of the prior Authorized Agent shall terminate. The Company shall give notice to the Trustee and all Holders of the appointment by it of a successor Authorized Agent. If for any reason CT Corporation System ceases to be able to act as the Authorized Agent or to have an address in the Borough of Manhattan, The City of New York, the Company will appoint a successor Authorized Agent in accordance with the two preceding sentences. The Company further agrees to take any and all action, including the filing of any and all documents and instruments as may be necessary to continue such designation and appointment of such agent in 95 full force and effect until this Indenture has been satisfied and discharged in accordance with Article IV hereof. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any action, suit or proceeding against the Company by serving a copy thereof upon the relevant agent for service of process referred to in this Section 14.01 (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or by mailing copies thereof by registered or certified air mail, postage prepaid, to the Company at its address specified in or designated pursuant to this Indenture. The Company agrees that the failure of any such designee, appointee and agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. Nothing herein shall in any way be deemed to limit the ability of the holders of the Securities and the Trustee, to serve any such legal process, summons, notices and documents in any other manner permitted by applicable law or to obtain jurisdiction over the Company or bring actions, suits or proceedings against the Company in such other jurisdictions, and in such manner, as may be permitted by applicable law. The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Indenture brought in the United States District Court for the Southern District of New York or in the Supreme Court of New York in New York County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 96 SECTION 14.02. Counterparts This instrument may be executed in any number of Counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 97 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers or directors duly authorized thereto, all as of the day and year first above written. MIDWEST ENERGY, INC. By: /s/ Paul D. Stinson --------------------------------- Name: Paul D. Stinson Title: Vice President THE BANK OF NEW YORK, as Trustee By: /s/ MaryBeth Lewicki --------------------------------- Name: MaryBeth Lewicki Title: Vice President EX-4.2 6 EXHIBIT 4.2 ================================================================================ CILCORP INC., and THE BANK OF NEW YORK, as Trustee ------------------- FIRST SUPPLEMENTAL INDENTURE Dated as of October 18, 1999 $225,000,000 8.700% Senior Notes due 2009 $250,000,000 9.375% Senior Bonds due 2029 ================================================================================ 1 FIRST SUPPLEMENTAL INDENTURE, dated as of October 18, 1999, between CILCORP Inc., an Illinois corporation ("CILCORP"), and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). Terms not defined herein shall have the meanings assigned to them in the Indenture (as defined below). W I T N E S S E T H: WHEREAS, Midwest Energy, Inc., an Illinois corporation (the "Company") and the Trustee are parties to an Indenture, dated as of October 18, 1999 (the "Indenture"), relating to the Company's 8.700% Senior Notes due 2009 (the "Notes") and the Company's 9.375% Senior Bonds due 2029 (the "Bonds", and together with the Notes, the "Securities"); WHEREAS, on October 18, 1999, the Company was merged with and into CILCORP (the "Merger"), with CILCORP being the surviving corporation in the Merger; WHEREAS, CILCORP, as the successor corporation to the Company pursuant to the Merger is liable for and shall assume all of the Obligations of the Company under the Indenture and each series of the Securities; WHEREAS, Section 8.02 of the Indenture requires that CILCORP and the Trustee enter into a supplemental indenture, without the consent of any Holder of either series of Securities, immediately following the effective time of the Merger in order for CILCORP to expressly assume the obligations of the Company in the Indenture and each series of Securities; and NOW, THEREFORE, for and in consideration of the premises, it is mutually covenanted and agreed, for the equal and ratable benefit of the Holders, as follows: ARTICLE 1 ASSUMPTION OF OBLIGATIONS SECTION 1.1. Assumption. CILCORP hereby unconditionally assumes liability, on and after the effective time of the Merger, for all of the Obligations of the Company under the Indenture and each series of the Securities, including the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the principal of, premium, if any, and interest on the Securities according to the terms of the Securities and as more fully described in the Indenture. ARTICLE 2 GENERAL PROVISIONS SECTION 2.1. Incorporation of Indenture. All the provisions of this First Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the Indenture; and the Indenture, as supplemented and amended by this First Supplemental Indenture, shall be read, taken and construed as one and the same instrument. 2 SECTION 2.2. Headings. The headings of the Articles and Sections of this First Supplemental Indenture are inserted for convenience of reference and shall not be deemed to be a part thereof. SECTION 2.3. Counterparts. This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 2.4. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this First Supplemental Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. SECTION 2.5. Successors. All covenants and agreements in this First Supplemental Indenture by CILCORP shall be binding upon and accrue to the benefit of its respective successors. All covenants and agreements in this First Supplemental Indenture by the Trustee shall be binding upon and accrue to the benefit of its successors. SECTION 2.6. Separability Clause. In case any provision in this First Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 2.7. Benefits of First Supplemental Indenture. Nothing in this First Supplemental Indenture, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this First Supplemental Indenture. SECTION 2.8. Governing Law. This First Supplemental Indenture shall be governed by, and in accordance with, the laws of the State of New York. 3 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this First Supplemental Indenture, as of the date first above written. CILCORP INC. /s/ Paul D. Stinson ------------------------------------- By: Paul D. Stinson Title: President THE BANK OF NEW YORK, as Trustee /s/ MaryBeth Lewicki ------------------------------------- By: MaryBeth Lewicki Title: Vice President EX-4.3 7 EXHIBIT 4.3 - -------------------------------------------------------------------------------- $225,000,000 8.700% Senior Notes due 2009 $250,000,000 9.375% Senior Bonds due 2029 REGISTRATION RIGHTS AGREEMENT Dated as of October 18, 1999 Among MIDWEST ENERGY, INC. AND LEHMAN BROTHERS INC. AND J.P. MORGAN SECURITIES INC. AND MORGAN STANLEY DEAN WITTER - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- 1. Definitions..............................................................................................1 2. Exchange Offer...........................................................................................4 3. Shelf Registration Statement.............................................................................7 (a) Shelf Registration Statement....................................................................7 (b) Withdrawal of Stop Orders.......................................................................8 (c) Supplements and Amendments......................................................................8 4. Liquidated Damages.......................................................................................8 5. Registration Procedures.................................................................................10 6. Registration Expenses...................................................................................17 7. Indemnification and Contribution........................................................................18 8. Underwritten Registrations..............................................................................22 9. Miscellaneous...........................................................................................22 (a) No Inconsistent Agreements.....................................................................22 (b) Amendments and Waivers.........................................................................22 (c) Notices........................................................................................23 (d) Successors and Assigns.........................................................................24 (e) Counterparts...................................................................................24 (f) Headings.......................................................................................24 (g) Governing Law..................................................................................24 (h) Severability...................................................................................25 (i) Securities Held by the Company, or Its Affiliates..............................................25 (j) Entire Agreement...............................................................................25
i REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of October 18, 1999, by and among Midwest Energy, Inc., a Delaware Corporation (the "Company"), and Lehman Brothers Inc., J.P. Morgan Securities Inc. and Morgan Stanley Dean Witter (the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated as of October 13, 1999, by and among the Company and the Initial Purchasers (the "Purchase Agreement") which provides for the sale by the Company to the Initial Purchasers of its $225,000,000 8.700% Senior Notes due 2009 (the "Notes") and its $250,000,000 9.375% Senior Bonds due 2029 (the "Bonds" and together with the Notes, the "Securities"). The Securities are to be issued under an indenture, dated as of October 18, 1999 (the "Indenture"), by and between the Company and The Bank of New York, as Trustee. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and their direct and indirect transferees and assigns. The parties hereby agree as follows: 1. Definitions Unless otherwise defined herein, terms defined in the Indenture shall be used herein as defined therein. As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 5 hereof. Agreement: See the first introductory paragraph hereto. Applicable Period: See Section 2(b) hereof. Authenticating Agent: The Authenticating Agent as defined in the Indenture. Company: See the first introductory paragraph hereto. Effectiveness Period: See Section 3(a) hereof. Effectiveness Target Date: In the case of the Exchange Offer Registration Statement, the 180th day after the effective date of the Merger. In the case of the Shelf Registration Statement, the 180th day after the obligation to file the Shelf Registration Statement first arises in accordance with clause (i), (ii), (iii), (iv) or (v) of Section 2(c). Event Date: See Section 4(b) hereof. 2 Exchange Act: The U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Offer: See Section 2(a) hereof. Exchange Offer Registration Statement: See Section 2(a) hereof. Filing Date: In the case of the Exchange Offer Registration Statement, the 90th day after the effective date of the Merger. In the case of the Shelf Registration Statement, the 60th day after the obligation to file the Shelf Registration Statement first arises in accordance with clause (i), (ii), (iii), (iv) or (v) of Section 2(c). Holder: Any holder of Transfer Restricted Securities. Indenture: See the second introductory paragraph hereto. Initial Purchasers: See the first introductory paragraph hereto. Inspectors: See Section 5(m) hereof. Issuance Date: The date of the issuance of the Securities under the Indenture. Liquidated Damages: See Section 4(a) hereof. Merger: The merger of the Company with and into CILCORP Inc., pursuant to the Merger Agreement dated as of November 22, 1998. NASD: See Section 5(p) hereof. Exchange Securities: See Section 2(a) hereof. Securities: See the second introductory paragraph hereto. Participant: See Section 7(a) hereof. Participating Broker-Dealer: See Section 2(b) hereof. Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or 3 supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph hereto. Records: See Section 5(m) hereof. Registration Statement: Any registration statement of the Company, including, but not limited to, the Exchange Offer Registration Statement or the Shelf Registration Statement, filed with the SEC pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The U.S. Securities and Exchange Commission. Securities Act: The U.S. Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c) hereof. Shelf Registration Statement: See Section 3(a) hereof. Transfer Restricted Securities: Each Security until the earliest to occur of (i) the date on which such Security has been exchanged by a Person (other than a Participating Broker-Dealer) for one or more Exchange Securities in the Exchange Offer, (ii) following the exchange by a Participating Broker-Dealer in the Exchange Offer of such Security for one or more Exchange Securities, the date on which such Exchange Securities are sold to a purchaser who receives from such Participating Broker-Dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such 4 Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act. Trust Indenture Act: The U.S. Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Securities. underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Exchange Offer (a) The Company agrees to use its best efforts to file at its sole cost and expense with the SEC no later than the Filing Date, unless prohibited by applicable law or SEC policy, an offer to exchange (the "Exchange Offer") any and all of the Transfer Restricted Securities for a like aggregate principal amount of senior notes or senior bonds, as appropriate, of the Company, which are substantially identical in all material respects to the Notes and Bonds, respectively (collectively, the "Exchange Securities") (and which are entitled to the benefits of the Indenture or a trust indenture which is substantially identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the Trust Indenture Act) and which, in either case, has been qualified under the Trust Indenture Act), except that the Exchange Securities shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Exchange Offer shall be registered under the Securities Act on the appropriate form (the "Exchange Offer Registration Statement") and shall comply with all applicable tender offer rules and regulations under the Exchange Act. The Company agrees to (i) use its reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Target Date; (ii) keep the Exchange Offer open for at least 20 business days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; (iii) (A) file all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, (B) file, if applicable, a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Securities Act and (C) cause all necessary filings in connection with the registration and qualifications of the Exchange Securities to be made under the blue sky laws of such jurisdictions as are necessary to permit consummation of the Exchange Offer; and (iv) use its reasonable best efforts to consummate the Exchange Offer on or prior to 30 days after the date on which the Exchange Offer Registration Statement is declared effective by the SEC; provided, however, that the Company shall not be required to (1) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where they would not otherwise be required to qualify, (2) file any general consent to service of process or (3) subject themselves to taxation in any such jurisdiction if they are not so subject. Upon the Exchange Offer Registration Statement being declared effective, the Company will 5 offer the Exchange Securities in exchange for surrender of the Securities. If after such Exchange Offer Registration Statement is declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Exchange Offer Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who participates in the Exchange Offer will be required to represent that (i) any Exchange Securities received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities, (iii) it is not a broker-dealer that acquired Securities directly from the Company, (iv) it is not an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company or, if it is such an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable and (v) it is not acting on behalf of any Person who could not truthfully make the foregoing representations. If such Holder is not a broker-dealer, such Holder will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities. If such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Upon consummation of the Exchange Offer in accordance with this Section 2, the Company shall not have any further obligation to register Transfer Restricted Securities pursuant to Section 2 hereof. No securities other than the Exchange Securities shall be included in the Exchange Offer Registration Statement. (b) The Company shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution", reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff of the SEC or such positions or policies, in the judgment of the Initial Purchasers, represent the prevailing views of the Staff of the SEC. Such "Plan of Distribution" section shall also expressly permit the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers (unless such Participating Broker-Dealer will be reselling an unsold allotment from the original sale of the Securities), and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities. Upon written request after the consummation of the Exchange Offer, the Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein, in order to permit such Prospectus to be lawfully delivered by any Participating Broker-Dealer subject to the prospectus delivery requirements of the Securities Act and other Persons, if any, with similar prospectus delivery requirements for such period of time as is necessary to comply with applicable law in 6 connection with any resale of the Exchange Securities; provided, however, that such period shall not exceed 180 days after the consummation of the Exchange Offer (or such longer period if extended pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period"). Interest on the Exchange Securities will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issuance Date. In connection with the Exchange Offer, the Company shall: (1) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (3) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (4) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the Exchange Offer the Company shall: (1) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Exchange Offer; (2) deliver to the Trustee or Authenticating Agent for cancellation all Securities so accepted for exchange; and (3) cause the Trustee promptly to authenticate and deliver to each Holder of the canceled Securities or Exchange Securities, in global form in aggregate principal amount equal to the respective Securities so accepted for exchange, as further set forth in the Indenture. The Exchange Securities may be issued under (i) the Indenture or (ii) an indenture substantially identical in all material respects to the Indenture, which in either event shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Indenture. (c) If (i) the Company is not permitted to file the Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by 7 applicable law or SEC policy, (ii) any Holder of Transfer Restricted Securities that is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) notifies the Company on or before the 20th business day following the consummation of the Exchange Offer that (a) applicable law or SEC policy prohibits the Holder from participating in the Exchange Offer, (b) such Holder may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (c) such Holder is a broker-dealer and holds Securities acquired directly from the Company or an affiliate of the Company, (iii) the Exchange Offer Registration Statement is not for any other reason declared effective within 180 days after the effective date of the Merger, (iv) any Holder (other than a Participating Broker-Dealer) is not eligible to participate in the Exchange Offer, or in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Securities on the date of the exchange that may be sold without restriction under U.S. Federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act or due to the requirement that such Holder deliver a Prospectus in connection with any resale of the Exchange Securities) or (v) the Exchange Offer has been completed and in the opinion of counsel for the Initial Purchasers a Registration Statement must be filed and a prospectus must be delivered by the Initial Purchasers in connection with any offering or sale of Transfer Restricted Securities, then the Company shall promptly deliver written notice thereof (the "Shelf Notice") to the Trustee and in the case of clauses (i) and (iii), all Holders and in the case of clauses (ii), (iv) and (v), the affected Holders, and shall at its own cost file a Shelf Registration Statement pursuant to Section 3 hereof. Following the delivery of a Shelf Notice in accordance with this Section 2(c) and compliance with Section 3(a), the Company shall not have any further obligations under this Section 2. 3. Shelf Registration Statement If a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration Statement. The Company will: (A) use its best efforts to file with the SEC a Registration Statement (which filing may be a confidential filing) for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Transfer Restricted Securities (the "Shelf Registration Statement"), within 60 days of the earliest to occur of clauses (i) through (v) in Section 2(c) above and (B) use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective by the SEC on or prior to the 180th day after such obligation arises. No Holder shall be entitled to the benefits of Section 4 of this Agreement unless and until such Holder shall have provided all information reasonably requested by the Company (after conferring with counsel), and such Holder shall not be entitled to such benefits with respect to any period during which such information was not provided. Each Holder to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading; provided, further, that if the Company files a Shelf Registration Statement pursuant to this Section 3(a), it need not abandon the attempt to cause the SEC to declare the Exchange Offer Registration Statement effective, and it may satisfy its obligations to register the Securities pursuant to this 8 Agreement either by complying with Section 2 and/or Section 3. The Shelf Registration Statement shall be on Form S-3 or another appropriate form permitting registration of such Transfer Restricted Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings), or may be an amendment to the Exchange Offer Registration Statement. The Company shall not permit any securities other than the Transfer Restricted Securities to be included in the Shelf Registration Statement. The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended to ensure that it is available for resales of Securities by the holders of Transfer Restricted Securities entitled to this benefit and to ensure that such Shelf Registration Statement conforms and continues to conform with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the SEC, as announced from time to time, until the second anniversary of the Issuance Date, subject to extension pursuant to the last paragraph of Section 5 hereof (the "Effectiveness Period"), or such shorter period ending when all Transfer Restricted Securities covered by the Shelf Registration Statement have been sold in the manner set forth and as contemplated in the Shelf Registration Statement or when the Transfer Restricted Securities become eligible for resale pursuant to Rule 144 under the Securities Act without volume restrictions, if any. (b) Withdrawal of Stop Orders. If the Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof. (c) Supplements and Amendments. The Company shall promptly supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration Statement, if required by the Securities Act, or during the shortest of such periods set forth in the second paragraph of Section 3(a) hereof if reasonably requested by the Holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Registration Statement or by any underwriter of such Transfer Restricted Securities based on a reasonable belief that such supplement or amendment is required by law. 4. Liquidated Damages (a) The Company and the Initial Purchasers agree that the Holders of Securities will suffer damages if the Company fails to fulfill its obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, additional interest on the Securities ("Liquidated Damages") under the circumstances and to the extent set forth below (each of which shall be given independent effect and shall not be duplicative): (i) if neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed on or prior to the applicable Filing Date, then, 9 commencing on the 1st day after the applicable Filing Date, Liquidated Damages shall accrue on the Securities over and above the stated interest at a rate of 0.50% per annum; (ii) if neither the Exchange Offer Registration Statement nor the Shelf Registration Statement is declared effective by the SEC on or prior to the applicable Effectiveness Target Date, then, commencing on the 1st day after the applicable Effectiveness Target Date, Liquidated Damages shall accrue on the Securities included or which should have been included in such Registration Statement over and above the stated interest at a rate of 0.50% per annum; (iii) if the Exchange Offer has not been consummated within 30 days after the Effectiveness Target Date with respect to the Exchange Offer Registration Statement, then, commencing on the 31st day after such Effectiveness Target Date, Liquidated Damages shall accrue on the Securities over and above the stated interest at a rate of 0.50% per annum; or (iv) (A) the Exchange Offer Registration Statement is filed and declared effective but thereafter ceases to be effective or fails to be usable for its intended purpose at any time during the Applicable Period and is not declared effective again within five business days thereafter or (B) the Shelf Registration Statement is filed and declared effective but thereafter ceases to be effective or fails to be usable for its intended purpose at any time during the Effectiveness Period and is not declared effective again within five business days thereafter, Liquidated Damages shall accrue on the Securities over and above the stated interest rate at a rate of 0.50% per annum (it being understood and agreed that, notwithstanding any provision to the contrary, so long as any Security which is the subject of a Shelf Notice is then covered by an effective Shelf Registration Statement, no Liquidated Damages shall accrue on such Security); provided, however, that in no event shall the Liquidated Damages exceed 0.50% per annum; and provided further that (1) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement as required hereunder (in the case of clause (i) of this Section 4(a)), (2) upon the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4(a)), (3) upon the consummation of the Exchange Offer (in the case of clause (iii) of this Section 4(a)), and (4) upon the effectiveness or usability of the Exchange Offer Registration Statement which had ceased to remain effective or be usable (in the case of clause (iv)(A) of this Section 4(a)), or upon the effectiveness or usability of the Shelf Registration Statement which had ceased to remain effective or be usable (in the case of clause (iv)(B) of this Section 4(a)), Liquidated Damages on the affected Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Company shall notify the Trustee within five business days after each and every date on which an event first occurs in respect of which Liquidated Damages is required to be paid (an "Event Date"). Any amounts of Liquidated Damages due pursuant to (a)(i), (a)(ii), (a)(iii) or (a)(iv) of this Section 4 will be payable to DTC or its nominee in its capacity as the 10 registered holder of affected Securities in cash semi-annually on each April 15 and October 15 (to the holders of record on the April 1 and October 1 immediately preceding such dates), commencing with the first such date occurring after any such Liquidated Damages commences to accrue. The amount of Liquidated Damages will be determined by multiplying the Liquidated Damages rate by the principal amount of the affected Securities of such Holders, multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. The Company shall notify the Trustee within five business days of the cessation of any requirement to pay Liquidated Damages hereunder. (c) Notwithstanding the foregoing, the Company shall not be required to pay the additional interest described in clause (a) of this Section 4 to a Holder with respect to the Securities held by such Holder if the applicable event pursuant to clause (a) of this Section 4 arises by reason of the failure of such Holder to provide such information (i) the Company may reasonably request, with reasonable prior written notice, for use in the Shelf Registration Statement or any Prospectus included therein to the extent the Company reasonably determines that such information is required to be included therein by applicable law, (ii) the NASD or the Commission may request in connection with such Shelf Registration Statement, or (iii) that is required to comply with the agreements of such Holder contained in clause (a) of Section 3 to the extent compliance thereof is necessary for the Shelf Registration Statement to be declared effective. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall use its reasonable best efforts to effect such registration(s) to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder, the Company shall: (a) Prepare and file with the SEC prior to the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that (i) the Company shall afford any Holder of Transfer Restricted Securities covered by such Registration Statement or any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, or their counsel, upon such Holder's written request to the Company, an opportunity to review copies of all such documents proposed to be filed, and (ii) if such filing is pursuant to Section 3, before filing any Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated therein by reference after the initial filing of the Registration Statement), the Company shall afford the counsel for the Holders of the Transfer Restricted Securities covered by such Registration Statement or any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period an opportunity to review copies of all such documents proposed to be filed. 11 (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to them with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that it is in the best interests of the Company not to disclose the existence of or facts surrounding any proposed or pending material event or transaction involving the Company, the Company may (i) in the event a Shelf Registration Statement has been filed, allow the Shelf Registration Statement to fail to be effective or usable as a result of such nondisclosure for up to 60 days during the Effectiveness Period, but in no event for any period in excess of 30 consecutive days, and (ii) in the event the Exchange Offer is consummated, allow the Exchange Offer Registration Statement to fail to be effective or usable as a result of such non-disclosure for up to 15 days during the Applicable Period. (c) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, notify the Holders of Transfer Restricted Securities, or each such Participating Broker-Dealer, as the case may be, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Transfer Restricted Securities or resales of Exchange Securities by Participating Broker-Dealers the representations and warranties of the Company contained in any agreement (including any underwriting agreement), contemplated by Section 5(l) hereof, cease to be true and correct, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Transfer Restricted Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any fact known to the Company that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or 12 that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the determination by the Company that a post-effective amendment to a Registration Statement would be appropriate. (d) Use its reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Transfer Restricted Securities or the Exchange Securities for sale in any jurisdiction, and, if any such order is issued, to use its reasonable efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If (l) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, furnish to each selling Holder of Transfer Restricted Securities and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, at the sole expense of the Company, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (f) If (l) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, deliver to each Holder of Transfer Restricted Securities, or each such Participating Broker-Dealer, as the case may be, at the sole expense of the Company, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Holders of Transfer Restricted Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Transfer Restricted Securities covered by, or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to, such Prospectus and any amendment or supplement thereto. (g) Prior to any public offering of Transfer Restricted Securities or Exchange Securities or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Securities during the 13 Applicable Period, use its reasonable best efforts to register or qualify (and to cooperate with selling Holders of Transfer Restricted Securities or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Transfer Restricted Securities) for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Securities held by Participating Broker-Dealers or Transfer Restricted Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform necessary Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(g); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Securities held by Participating Broker-Dealers or the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction where it is not then so subject. (h) If a Shelf Registration Statement is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Transfer Restricted Securities to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with DTC, and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders may reasonably request at least three business days prior to any such sale. (i) If (l) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by Section 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(b) hereof) file with the SEC a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Transfer Restricted Securities being sold thereunder or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company so notifies the Holders to suspend the use of the Prospectus after the occurrence of such an event, the Holders shall suspend use of the Prospectus, and not communicate such material non-public information to any third party, and 14 not sell or purchase, or offer to sell or purchase, any securities of the Company, until the Company has amended or supplemented the Prospectus to correct such misstatement or omission. (j) Use its reasonable best efforts to cause the offered securities covered by the Registration Statement to continue to be rated by the rating agencies that initially rated the Securities during the period that the Registration Statement is required hereunder to remain effective (it being acknowledged, however, that the foregoing shall not be deemed to require the Company to maintain the rating of such offered securities at the rating given the Securities). (k) Prior to the effective date of the first Registration Statement relating to the Transfer Restricted Securities, provide a CUSIP number, and ISIN Code for Transfer Restricted Securities or Exchange Securities, as the case may be. (l) In connection with any underwritten offering of Transfer Restricted Securities pursuant to a Shelf Registration Statement, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Securities and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to facilitate the registration or the disposition of such Transfer Restricted Securities and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Company, CILCORP and CILCORP's subsidiaries (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Securities, and confirm the same in writing if and when requested; (ii) obtain the written opinion of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of debt similar to the Securities; (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt similar to the Securities; and (iv) if an underwriting agreement is entered into, it shall provide that Holders of Transfer Restricted Securities that are sold pursuant to such underwriting agreement shall pay all underwriting discounts, if any, and commissions and transfer taxes, if any, relating to the sale or dispositions of such Securities, and the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said provisions and procedures, including, without limitation, the 15 Holders of Transfer Restricted Securities and the underwriters. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (m) If (1) a Shelf Registration Statement is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make available for inspection by a representative of the selling Holders of a majority in aggregate principal amount of such Transfer Restricted Securities being sold, or each such Participating Broker-Dealer, as the case may be, and any underwriter participating in any such disposition of Transfer Restricted Securities, if any (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (collectively, the "Records") and cause the officers, directors and employees of the Company and its subsidiaries to supply all information as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities. As a condition to supplying such information, the Company shall receive an agreement in writing from the Inspectors agreeing that records which the Company determines, in good faith, to be confidential and notifies Inspectors of such confidentiality shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is in the reasonable opinion of counsel to the Company necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such information is, in the reasonable opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement, or any transactions contemplated hereby or arising hereunder, or (iv) the information in such Records has been made generally available to the public other than as a result of a disclosure by any Inspector in violation of this Section 5(m). Each selling Holder of such Transfer Restricted Securities and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such information is generally available to the public other than as a result of a disclosure by any Inspector in violation of this Section 5(m). Each selling Holder of such Transfer Restricted Securities and each such Participating Broker-Dealer or underwriter, as the case may be, will be required further to agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its sole expense to undertake appropriate action to prevent disclosure of the Records deemed confidential. (n) Provide an indenture trustee for the Transfer Restricted Securities or the Exchange Securities, as the case may be, and use its best efforts to cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the Trust Indenture Act not later than the effective date of the first Registration Statement relating to the Transfer Restricted Securities; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Transfer Restricted Securities, to effect such changes 16 to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and execute, and use its reasonable best efforts to cause such trustee to execute all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (o) Use its reasonable best efforts to comply with all applicable rules and regulations of the SEC. (p) Cooperate with each seller of Transfer Restricted Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Transfer Restricted Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). The Company may require each seller of Transfer Restricted Securities as to which any Shelf Registration Statement is being effected to (i) furnish to the Company in writing such information specified in Item 507 and Item 508, as applicable, of Regulation S-K under the Securities Act or any other information required by the Securities Act or applicable United States state securities laws for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein and (ii) make such representations, in each case as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Transfer Restricted Securities of any seller who unreasonably fails to furnish such information or make such representations within a reasonable time after receiving such request. Each seller as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. Each Holder of Transfer Restricted Securities and each Participating Broker-Dealer agrees by acquisition of such Transfer Restricted Securities or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Transfer Restricted Securities covered by such Registration Statement or Prospectus or Exchange Securities to be sold by such Holder or Participating Broker-Dealer, as the case may be, until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto and, if so directed by the Company, such holder will deliver to the Company (at its expense) all copies in its possession, other than permanent file copies then in such holder's possession, of the prospectus covering such Securities current at the time of receipt of such notice, or certify in writing as to the destruction thereof. In the event the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, shall 17 have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(i) hereof or (y) the Advice. 6. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Exchange Offer Registration Statement or a Shelf Registration Statement is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Transfer Restricted Securities or Exchange Securities and determination of the eligibility of the Transfer Restricted Securities or Exchange Securities for investment under the laws of such jurisdictions (x) where the holders of Transfer Restricted Securities are located, in the case of the Exchange Securities, or (y) as provided in Section 5(g) hereof, in the case of Transfer Restricted Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period)); (ii) printing expenses, including, without limitation, the printing of prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in any Registration Statement or by any Participating Broker-Dealer, as the case may be, (iii) reasonable fees and disbursements of counsel for the Company and reasonable fees and disbursements of special counsel for the sellers of Transfer Restricted Securities (subject to the provisions of Section 6(b) hereof), however, such fees of counsel for the sellers shall be limited to not more than one counsel for sellers; (iv) reasonable fees and disbursements of all independent certified public accountants referred to in Section 5(l)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (v) rating agency fees, if any, and any fees associated with making the Exchange Securities eligible for trading through DTC, (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) reasonable fees and expenses of all other Persons retained by the Company, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) the reasonable fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. (b) The Company shall reimburse the Holders of the Transfer Restricted Securities being registered in a Shelf Registration Statement for the reasonable fees and disbursements of not more than one counsel chosen by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities to be included in such Registration Statement (which counsel shall be Simpson Thacher & Bartlett unless otherwise affirmatively stated by the Holders) provided, further, however, that if the Company permits an Underwritten 18 Offering, the Company shall not be responsible for any fees and expenses of any underwriter including any underwriting discounts and commissions or any legal fees and expenses of counsel to the underwriters (except for the reasonable fees and disbursements of counsel in connection with state securities or Blue Sky qualification of any of the Registrable Securities or the Exchange Securities). (c) The Company shall not be responsible for any fees and expenses of the Initial Purchaser, except for such fees related to state securities or Blue Sky qualification described in Section 6(a) above. 7. Indemnification and Contribution (a) The Company shall indemnify and hold harmless each Holder of Transfer Restricted Securities offered pursuant to a Shelf Registration Statement, each Participating Broker-Dealer selling Exchange Securities during the Applicable Period and the Initial Purchasers and the officers and employees, each agent of each such person and each Person, if any, who controls any such Person within the meaning of the Securities Act (each a "Participant") from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to the exchange of or sales of the Transfer Restricted Securities), to which that Participant may become subject, under the Securities Act, Exchange Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus, (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any act or failure to act, or any alleged act or failure to act, by any Participant in connection with, or relating in any manner to, the Transfer Restricted Securities or the registration contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company not shall be liable in the case of any matter covered by this clause (iii) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such act or failure to act undertaken or omitted to be taken by such Participant through its negligence or wilful misconduct), and shall reimburse each Participant promptly upon demand for any legal or other expenses reasonably incurred by that Participant in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred in each and every case; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement or Prospectus, or in any such amendment or supplement, or in any Blue Sky Application in reliance upon and in conformity with the written information furnished to the Company by or on behalf of any Participant specifically for inclusion therein; provided, further, that with respect to any such untrue statement in or omission from any preliminary prospectus, the indemnity agreement contained in this Section 7(a) shall not inure to the benefit of any such Participant to the extent that the sale to the Person asserting any such loss, claim, damage, liability or action was an initial 19 resale by such Participant and any such loss, claim, damage, liability or action of or with respect to such Participant results from the fact that both (A) to the extent required by applicable law, a copy of the Prospectus was not sent or given to such Person at or prior to the written confirmation of the sale of such securities to such Person and (B) the untrue statement in or omission from such preliminary prospectus was corrected in the Prospectus unless, in either case, such failure to deliver the Prospectus was a result of non-compliance by the Company with Section 5(f) of this Agreement. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Participant. (b) Each Holder of Transfer Restricted Securities offered pursuant to a Shelf Registration Statement, each Participating Broker-Dealer selling Exchange Securities during the Applicable Period and the Initial Purchasers (each a "Participant Indemnifying Party"), severally and not jointly, shall indemnify and hold harmless the Company, its officers and employees, each of its directors or agent of each such person and each Person, if any, who controls the Company within the meaning of the Securities Act from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer, employee, agent or controlling Person may become subject, under the Securities Act, Exchange Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any preliminary prospectus or the Registration Statement or Prospectus, or in any amendment or supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with the written information furnished to the Company by that Participant Indemnifying Party, and shall reimburse the Company and any such director, officer, employee, agent or controlling Person for any legal or other expenses reasonably incurred by the Company or any such director, officer, employee, agent or controlling Person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred in each and every case. The foregoing indemnity agreement is in addition to any liability which any Participant Indemnifying Party may otherwise have to the Company or any such director, officer or controlling Person. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent it did not otherwise learn of such action and such omission results in the forfeiture by the indemnifying party or material impairment of substantial rights and defenses and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 7. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly 20 notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgement of such counsel it is advisable for such indemnified party to employ separate counsel or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties, which firm shall be designated in writing by the Participants, if the indemnified parties under this Section 7 consist of any Participants, or by the Company, if the indemnified parties under this Section 7 consist of the Company or any of its respective directors, officers, employees, agents of such persons or controlling Persons. Each indemnified party, as a condition of the indemnity agreements contained in Sections 7(a) and 7(b), shall use its reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld) settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent (a) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and (b) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 7 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 7(a) or 7(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, contribute to the aggregate loss, claim, damage or liability, or 21 action in respect thereof, in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Participants on the other from the offering of the Securities and the relative fault of the Company on the one hand and the Participants on the other with respect to the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Participants on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses underwriting discounts and commissions) received by the Company on the one hand, and the total underwriting discounts and commissions received by the Participants with respect to the Securities purchased under the Purchase Agreement, on the other hand, bear to the total gross proceeds from the offering of the Securities under the Purchase Agreement. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand, or the Participants on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Participants agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. Notwithstanding the provisions of this Section 7(d), no Participant shall be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it were resold exceeds the amount of any damages which such has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Participant's obligations to contribute as provided in this Section 7(d) are several in proportion to their respective purchase obligations and not joint. 8. Underwritten Registrations No Holder of Transfer Restricted Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 9. Miscellaneous (a) No Inconsistent Agreements. The Company has not, as of the date hereof, nor will it, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise conflicts with the provisions hereof. 22 (b) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (A) the Company and the Initial Purchasers and, in circumstances that would adversely affect the Holders of then outstanding Transfer Restricted Securities, the Holders of not less than a majority in aggregate principal amount of any series of the then outstanding Transfer Restricted Securities with respect to such series of Transfer Restricted Securities and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Securities held by all Participating Broker-Dealers with respect to Exchange Securities; provided, however, that Section 7 and this Section 9(b) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any Person who was a Holder or Participating Broker-Dealer of Transfer Restricted Securities or Exchange Securities, as the case may be, disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Transfer Restricted Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Transfer Restricted Securities may be given by Holders of at least a majority in aggregate principal amount of the Transfer Restricted Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (c) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: (1) if to a Holder of the Transfer Restricted Securities or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows: Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Facsimile No: 212-528-8822 Attention: Syndicate Department with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Facsimile No: 212-455-2502 Attention: Andrew Keller, Esq. 23 (2) if to the Initial Purchasers, at the addresses specified in Section 9(c)(1); (3) if to the Company, as follows: Midwest Energy, Inc. 1001 North 19th Street 20th Floor Arlington, Virginia 22209 Facsimile No: 703-528-4510 Attention: President with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, NW Washington, D.C. 20005 Facsimile No: 202-393-5760 Attention: Stephen W. Hamilton, Esq. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in the Indenture. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto and the Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Transfer Restricted Securities. (e) Counterparts. This Agreement may be executed in any number of counterparts and by the 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. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 24 (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Each of the parties hereto hereby submits to the non-exclusive jurisdiction of the Federal and State Courts of the Borough of Manhattan in the City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. The Company hereby irrevocably waives, to the extent permitted by law, any immunity to jurisdiction to which it may otherwise be entitled (including, without limitation, immunity to pre-judgment attachment, post-judgment attachment and execution) in any legal suit, action or proceeding against it arising out of or based on this Agreement or the transactions contemplated hereby. The provisions of this Section 9(g) are intended to be effective upon the execution of this Agreement without any further action by the Company or the Initial Purchasers and the introduction of a true copy of this Agreement into evidence shall be conclusive and final evidence as to such matters. (h) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (i) Securities Held by the Company, or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or its "affiliates" (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (j) Entire Agreement. This Agreement, together with the Purchase Agreement, the Indenture and the Pledge Agreement, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchasers on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. MIDWEST ENERGY, INC. By: /s/ Paul D. Stinson -------------------------------- Name: Paul D. Stinson Title: Vice President LEHMAN BROTHERS INC., for itself and on behalf of the several Initial Purchasers By: /s/ David Schwarzbach -------------------------------- Authorized Representative EX-5.1 8 EXHIBIT 5.1 Exhibit 5.1 [SASM&F Letterhead] November 5, 1999 CILCORP Inc. 300 Liberty Street Peoria, Illinois 61602 Re: CILCORP Inc. Registration Statement on Form S-4 Ladies and Gentlemen: We have acted as special counsel to CILCORP Inc., an Illinois corporation (the "Company"), in connection with the public offering of up to $225,000,000 aggregate principal amount of the Company's 8.700% Senior Notes due 2009 (the "Exchange Notes") and up to $250,000,000 aggregate principal amount of the Company's 9.375% Senior Bonds due 2029 (the "Exchange Bonds" and, together with the Exchange Notes, the "Exchange Securities"). The Exchange Securities are to be issued pursuant to an exchange offer (the "Exchange Offer") in which an aggregate principal amount of up to (i) $225,000,000 of the Exchange Notes will be exchanged for a like principal amount of the Company's issued and outstanding 8.700% Senior Notes due 2009 (the "Old Notes") and (ii) $250,000,000 of the Exchange Bonds will be exchanged for a like principal amount of the Company's issued and outstanding 9.375% Senior Bonds due 2029 (the "Old Bonds" and, together with the Old Notes, the "Old Securities"), in each case under the Indenture, dated as of October 18, 1999, between Midwest Energy, Inc. and the Bank of New York, as Trustee (the "Trustee"), as supplemented by the First Supplemental Indenture, dated as of October 18, 1999, between the Company and the Trustee (as so supplemented, the "Indenture"), as contemplated by the Registration Rights Agreement, dated as of October 18, 1999 (the "Registration Rights Agreement"), by and among Midwest Energy, Inc., Lehman Brothers Inc., J.P. Morgan & Co. and Morgan Stanley Dean Witter. This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the "Securities Act"). In connection with rendering this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Registration Statement on Form S-4 relating to the Exchange Offer to be filed with the Securities and Exchange Commission (the "Commission") on the date hereof under the Securities Act (the "Registration Statement"); (ii) an executed copy of the Registration Rights Agreement; (iii) an executed copy of the Indenture; (iv) the Certificate of Incorporation of the Company, as amended to date; (v) the Amended and Restated By-Laws of the Company, as amended to CILCORP Inc. November 5, 1999 Page 2 date; (vi) certain resolutions adopted by the Board of Directors of the Company relating to the Old Securities and the Exchange Offer, the issuance of the Exchange Securities and related matters; (vii) the Form T-1 of the Trustee filed as an exhibit to the Registration Statement; and (viii) the form of the Exchange Securities filed as an exhibit to the Registration Statement and incorporated by reference therein. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Company and such agreements, certificates of public officials, certificates of officers or other representatives of the Company and others, and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of executed documents or documents to be executed by parties other than the Company, we have assumed that such parties had or will have the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect of such documents. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Company and others. Our opinions set forth herein are limited to the Business Corporation Act of the State of Illinois and those laws of the State of New York which are normally applicable to the transactions of the type contemplated by the Exchange Offer and to the extent that judicial or regulatory orders or decrees or consents, approvals, licenses, authorizations, validations, filings, recordings or registrations with governmental authorities are relevant, to those required under such laws (all of the foregoing being referred to as "Opined on Law"). We do not express any opinion with respect to the law of any jurisdiction other than Opined on Law or as to the effect of any such non-opined law on the opinions herein stated. We have relied, with your consent, as to matters of Illinois law on the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois). Based upon and subject to the foregoing and the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that when (i) the Registration Statement becomes effective and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended, and (ii) the Exchange Securities (in the form examined by us) have been duly executed by the Company, authenticated by the Trustee in accordance with the provisions of the Indenture and delivered upon consummation of the 2 CILCORP Inc. November 5, 1999 Page 3 Exchange Offer against receipt of Old Securities surrendered in exchange therefor in accordance with the terms of the Exchange Offer, the Registration Rights Agreement and the Indenture, the Exchange Securities will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). In rendering the opinion set forth above, we have assumed that the execution and delivery by the Company of the Indenture and the Exchange Securities and the performance of the Company of its obligations thereunder do not and will not violate, conflict with or constitute a default under any agreement or instrument to which the Company or its properties is subject, except for those agreements and instruments which have been identified to us by the Company as being material to it and which are listed as material contracts in part II of the Registration Statement. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. Very truly yours, /s/ Skadden, Arps, Slate, Meagher & Flom LLP 3 EX-12.1 9 EXHIBIT 12.1 Exhibit 12.1 CILCORP INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 31, Six Months Ended June 30, ------------------------------------------------------------------- -------------------------------- Historical Pro Forma Historical Pro Forma ------------------------------------------------------------------- -------------------------------- 1994 1995 1996 1997 1998 1998 1998 1999 1999 -------- -------- ---------- -------- -------- ---------- ------ ------ --------- (In thousands, except ratios) (in thousands, except ratios) Earnings as defined: Net Income (loss) from continuing operations 30,762 38,469 37,940 43,709 38,218 (1,283) 19,051 13,691 (6,059) Provision (benefit) for income taxes 16,922 22,427 20,702 22,349 19,699 3,168 8,769 7,115 (1,149) Interest expense 23,341 29,681 28,964 27,462 29,473 70,866 14,625 14,340 35,036 Interest expense on COLI 2,028 2,349 2,731 3,491 3,624 3,624 1,701 1,920 1,920 Interest portion of rentals 1,979 2,020 1,726 1,877 1,903 1,903 951 962 962 Preferred dividends of subsidiary 2,980 3,299 3,188 3,216 3,194 3,194 1,599 1,570 1,570 ------ ------ ------- ------- ------ ------ ------ ------ ------ Total earnings, as defined 81,012 98,425 95,251 102,104 96,111 81,472 46,696 39,598 32,280 ====== ====== ======= ======= ====== ====== ====== ====== ====== Fixed charges, as defined: Interest expense 26,341 29,861 28,964 27,462 29,473 70,866 14,625 14,340 35,036 Interest expense on COLI 2,028 2,349 2,731 3,491 3,624 3,624 1,701 1,920 1,920 Interest portion on rentals 1,979 2,020 1,726 1,877 1,903 1,903 951 962 962 Tax effected preferred dividends of subsidiary 4,939 5,468 5,284 5,331 5,294 5,294 2,650 2,602 2,602 ------ ------ ------- ------- ------ ------ ------ ------ ------ Total fixed charges, as defined 35,287 39,698 38,705 38,161 40,294 81,687 19,927 19,824 40,520 ====== ====== ======= ======= ====== ====== ====== ====== ====== Ratio of earnings to fixed charges 2.3 2.5 2.5 2.7 2.4 1.0 2.3 2.0 0.8 ====== ====== ======= ======= ====== ====== ====== ====== ======
EX-23.1 10 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report included in this Form S-4 Registration Statement covering $225,000,000 Senior Notes and $250,000,000 Senior Bonds and to the incorporation by reference in this Registration Statement of our reports dated January 27, 1999, included or incorporated by reference in CILCORP Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 and to all references to our Firm included in this Registration Statement. /s/ Arthur Andersen LLP Chicago, Illinois, November 5, 1999 EX-25.1 11 EXHIBIT 25.1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code)
CILCORP Inc. (Exact name of obligor as specified in its charter) Illinois 37-1169387 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 300 Liberty Street Peoria, Illinois 61602 (Address of principal executive offices) (Zip code)
------------- 8.70% Senior Notes due 2009 9.375% Senior Bonds due 2029 (Title of the indenture securities) ================================================================================ 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject.
- ------------------------------------------------------------------------------------------------------------- Name Address - ------------------------------------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 28th day of October, 1999. THE BANK OF NEW YORK By: /s/ MARYBETH LEWICKI --------------------------------- Name: MARYBETH LEWICKI Title: VICE PRESIDENT -4- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1999, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands - ------ ------------ Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin......... $5,597,807 Interest-bearing balances.................................. 4,075,775 Securities: Held-to-maturity securities................................ 785,167 Available-for-sale securities.............................. 4,159,891 Federal funds sold and Securities purchased under agreements to resell....................................... 2,476,963 Loans and lease financing receivables: Loans and leases, net of unearned income................................................... 38,028,772 LESS: Allowance for loan and lease losses............................................. 568,617 LESS: Allocated transfer risk reserve.................................................. 16,352 Loans and leases, net of unearned income, allowance, and reserve.............................................. 37,443,803 Trading Assets................................................ 1,563,671 Premises and fixed assets (including capitalized leases)...... 683,587 Other real estate owned....................................... 10,995 Investments in unconsolidated subsidiaries and associated companies.................................................. 184,661 Customers' liability to this bank on acceptances outstanding................................................ 812,015 Intangible assets............................................. 1,135,572 Other assets.................................................. 5,607,019 Total assets.................................................. $64,536,926
-4- LIABILITIES Deposits: In domestic offices........................................ $26,488,980 Noninterest-bearing........................................ 10,626,811 Interest-bearing........................................... 15,862,169 In foreign offices, Edge and Agreement subsidiaries, and IBFs................................................. 20,655,414 Noninterest-bearing........................................ 156,471 Interest-bearing........................................... 20,498,943 Federal funds purchased and Securities sold under agreements to repurchase................................... 3,729,439 Demand notes issued to the U.S.Treasury....................... 257,860 Trading liabilities........................................... 1,987,450 Other borrowed money: With remaining maturity of one year or less................ 496,235 With remaining maturity of more than one year through three years...................................... 465 With remaining maturity of more than three years........... 31,080 Bank's liability on acceptances executed and outstanding...... 822,455 Subordinated notes and debentures............................. 1,308,000 Other liabilities............................................. 2,846,649 Total liabilities............................................. 58,624,027 EQUITY CAPITAL Common stock.................................................. 1,135,284 Surplus....................................................... 815,314 Undivided profits and capital reserves........................ 4,001,767 Net unrealized holding gains (losses) on available-for-sale securities................................................. (7,956) Cumulative foreign currency translation adjustments........... (31,510) Total equity capital.......................................... 5,912,899 Total liabilities and equity capital........................ $64,536,926
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Reyni Directors Alan R. Griffith Gerald L. Hassell EX-99.1 12 EXHIBIT 99.1 EXHIBIT 99.1 LETTER OF TRANSMITTAL CILCORP INC. OFFER TO EXCHANGE ALL 8.700% SENIOR NOTES DUE 2009 FOR 8.700% SENIOR NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND 9.375% SENIOR BONDS DUE 2029 FOR 9.375% SENIOR BONDS DUE 2029 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED PURSUANT TO THE PROSPECTUS, DATED [ ], 1999 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON [ ], 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. - -------------------------------------------------------------------------------- DELIVERY TO: THE BANK OF NEW YORK, EXCHANGE AGENT BY REGISTERED OR CERTIFIED MAIL OR OVERNIGHT COURIER: BY FACSIMILE TRANSMISSION: BY HAND: The Bank of New York (FOR ELIGIBLE INSTITUTIONS ONLY) The Bank of New York 101 Barclay Street (212) [ ] 101 Barclay Street, 7E Corporate Trust Services Window New York, New York 10286 Ground Level Attention: Reorganization Section New York, New York 10286 CONFIRM BY TELEPHONE: Attention: Reorganization Section (212) [ ] FOR INFORMATION CALL: (212) [ ]
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges receipt of the Prospectus, dated [ ], 1999 (the "Prospectus"), of CILCORP Inc., an Illinois corporation (the "Company" or "CILCORP"), and this Letter of Transmittal (this "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange an aggregate principal amount of up to $225,000,000 of the Company's 8.700% Senior Notes due 2009 (the "New Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act") for a like principal amount of the Company's issued and outstanding 8.700% Senior Notes due 2009 (the "Old Notes") and to exchange an aggregate principal amount of up to $250,000,000 of the Company's 9.375% Senior Bonds due 2029 (the "New Bonds" and together with the New Notes the "New Securities") which have been registered under the Securities Act for a like principal amount of the Company's issued and outstanding 9.375% Senior Bonds due 2029 (the "Old Bonds" and together with the Old Notes the "Old Securities"), in each case from the registered holders thereof (the "Holders"). For each Old Security accepted for exchange, the Holder of such Old Security will receive a New Security having a principal amount equal to that of the surrendered Old Security. The New Securities will bear interest from the most recent date to which interest has been paid on the Old Securities or, if no interest has been paid on the Old Securities, from October 18, 1999. Accordingly, registered Holders of New Securities on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from October 18, 1999. Old Securities accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Securities whose Old Securities are accepted for exchange will not receive any payment in respect of accrued interest on such Old Securities otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. This Letter is to be completed by a holder of Old Securities if certificates are to be forwarded herewith. If tenders of Old Securities held in book-entry form are to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer -- Book-Entry Transfers" section of the Prospectus and in accordance with the Automated Tender Offer Program ("ATOP") established by DTC, a tendering holder will become bound by the terms and conditions hereof in accordance with the procedures established by ATOP. Holders of Old Securities whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Old Securities into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter to the Exchange Agent on or before the Expiration Date, must tender their Old Securities according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to , and received by, the Exchange Agent and forming a part of the Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgement from the tendering Holder that such Holder agrees to be bound by the Letter and that the Company may enforce the Letter against that Holder. The undersigned has completed the appropriate boxes below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. List below the Old Securities to which this Letter relates. If the space provided below is inadequate, the certificate numbers and principal amount of Old Securities should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD SECURITIES NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (1) (2) (3) (4) (PLEASE FILL IN, IF BLANK) CERTIFICATE NUMBER(S)* AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL AMOUNT AMOUNT AT PRINCIPAL AMOUNT AT MATURITY MATURITY OF AT MATURITY TENDERED** OLD NOTE(S) OF OLD BOND(S) Total
* Need not be completed if Old Securities are being tendered by book-entry transfer. ** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Securities represented by the Old Securities indicated in column 2 and 3. See Instruction 2. Old Securities tendered hereby must be in denominations of principal amount at maturity of $1,000 and any integral multiple thereof. See Instruction 1. [ ] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution -------------------------------------------------- Account Number Transaction Code Number ----------------------------------------- [ ] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ------------------------------------------------ Window Ticket Number (if any) -------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ----------------------------- Name of Institution which guaranteed delivery ---------------------------------- If Delivered by Book-Entry Transfer, Complete the Following: Account Number Transaction Code Number ---------------------- -------------------- CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: ------------------------ ------------------------ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Securities. If the undersigned is a broker-dealer that will receive New Securities for its own account in exchange for Old Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities; however, by so acknowledging and by delivering such a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a broker-dealer that will receive New Securities, it represents that the Old Securities to be exchanged for the New Securities were acquired as a result of market-making activities or other trading activities. 2 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Old Securities indicated above. Subject to, and effective upon, the acceptance for exchange of the Old Securities tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Securities as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned's true and lawful agent and attorney-in-fact with respect to such tendered Old Securities, with full power of substitution, among other things, to cause the Old Securities to be assigned, transferred and exchanged. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Old Securities, and to acquire New Securities issuable upon the exchange of such tendered Old Securities, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned hereby further represents that any New Securities acquired in exchange for Old Securities tendered hereby will have been acquired in the ordinary course of business of the person receiving such New Securities, whether or not such person is the undersigned, that neither the Holder of such Old Securities, other than a broker-dealer, nor any such other person is participating in, intends to participate in or has an arrangement or understanding with any person to participate in the distribution of such New Securities, and that neither the holder of such Old Securities nor any such other person is an "affiliate", as defined in Rule 405 under the Securities Act, of the Company. The undersigned hereby further represents that it is not a broker-dealer that acquired Old Securities directly from Midwest Energy, Inc. or the Company and that it is not acting on behalf of any person who could not truthfully make all of the representations of the undersigned set forth in this paragraph. The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), that the New Securities issued pursuant to the Exchange Offer in exchange for the Old Securities may be offered for resale, resold and otherwise transferred by Holders thereof (other than a broker-dealer who acquires such New Securities directly from the Company for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act or any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Securities are acquired in the ordinary course of such Holders' business and such Holders have no arrangement with any person to participate in the distribution of such New Securities. However, the SEC has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Securities and has no arrangement or understanding to participate in a distribution of New Securities. If any Holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Securities to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. If the undersigned is a broker-dealer that will receive New Securities for its own account in exchange for Old Securities, it represents that the Old Securities to be exchanged for the New Securities were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities; however, by so acknowledging and by delivering a prospectus meeting the requirements of the Securities Act, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Old Securities tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section of the Prospectus. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please deliver the New Securities (and, if applicable, substitute certificates representing Old Securities for any Old Securities not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Old Securities, please credit the account indicated above maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the New Securities (and, if applicable, substitute certificates representing Old Securities for any Old Securities not exchanged) to the undersigned at the address shown above in the box entitled "Description of Old Securities". THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD SECURITIES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD SECURITIES AS SET FORTH IN SUCH BOX ABOVE. 3 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Old Securities not exchanged and/or New Securities are to be issued in the name of and sent to someone other than the person(s) whose signature(s) appear(s) on this Letter above, or if Old Securities delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than in the account indicated above. Issue New Securities and/or Old Securities not tendered to: Name(s) ------------------------------------------------------------------------ (Please Type or Print) - -------------------------------------------------------------------------------- (Please Type or Print) Address: ----------------------------------------------------------------------- (Include Zip Code) (Complete accompanying Substitute Form W-9) Credit unexchanged Old Securities delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below. - -------------------------------------------------------------------------------- (Book-Entry Transfer Facility Account Number, if applicable) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Old Securities not exchanged and/or New Securities are to be sent to someone other than the person(s) whose signature(s) appear(s) on this Letter above or to such person(s) at an address other than shown in the box entitled "Description of Old Securities" on this Letter above. Mail New Securities and/or Old Securities not tendered Name(s) ------------------------------------------------------------------------ (Please Type or Print) - -------------------------------------------------------------------------------- (Please Type or Print) Address: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD SECURITIES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. PLEASE READ THIS LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE. 4 PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9) Dated: , 1999 ------------------------------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (Signature(s) of Owner(s) (Date) Area Code and Telephone Number: ------------------------------------------------ If a holder is tendering any Old Securities, this Letter must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old Securities or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Name(s): ----------------------------------------------------------------------- (Please Print) Capacity: ----------------------------------------------------------------------- Address: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Including Zip Code) SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution: ---------------------------- (Authorized Signature) Title: -------------------------------------------------------------------------- Name of Firm: ------------------------------------------------------------------- Dated: --------------------------------------------------------------------, 1999 5 INSTRUCTIONS CILCORP INC. Forming Part of the Terms and Conditions of the Offer to Exchange 8.700% Senior Notes Due 2009 for 8.700% Senior Notes Due 2009 which have been registered under the Securities Act of 1933, as amended, and 9.375% Senior Bonds Due 2029 for 9.375% Senior Bonds Due 2029 which have been registered under the Securities Act of 1933, as amended. 1. Delivery of This Letter and Old Securities; Guaranteed Delivery Procedures. This Letter of Transmittal is to be completed by a holder of Old Securities if certificates are to be forwarded herewith. If tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer -- Book-Entry Transfers" section of the Prospectus and in accordance with ATOP established by DTC, a tendering holder will become bound by the terms and conditions hereof in accordance with the procedures established under ATOP. Certificates for all physically tendered Old Securities, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof) or an Agent's Message and any other documents required by this Letter must be received by the Exchange Agent at the address set forth herein on or before the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Old Securities tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. Holders whose certificates for Old Securities are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or before the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Old Securities pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution, (ii) before 5:00 p.m., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution (as defined below) a properly completed and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Securities and the amount of Old Securities tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Securities, in proper form for transfer, or a Book-Entry Confirmation and Agent's Message, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Securities, in proper form for transfer, or a Book-Entry Confirmation and Agent's Message, as the case may be, and all other documents required by this Letter, must be received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The method of delivery of this Letter, the Old Securities and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Old Securities are sent by mail, it is suggested that the mailing be registered mail, properly insured, with return receipt requested, made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent before 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer" section of the Prospectus. 2. Partial Tenders (Not Applicable to Securityholders Who Tender by Book-Entry Transfer). If less than all of the Old Securities evidenced by a submitted certificate are to be tendered, the tendering holder(s) should fill in the aggregate principal amount of Old Securities to be tendered in the box above entitled "Description of Old Securities -- Principal Amount Tendered." A reissued certificate (or separate certificates in the event the holder tenders both senior notes and senior bonds) representing the balance of nontendered Old Securities will be sent to such tendering holder, unless otherwise provided in the appropriate box on this Letter, promptly after the Expiration Date. ALL OF THE OLD SECURITIES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. 3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of Signatures. If this Letter is signed by the registered holder of the Old Securities tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any tendered Old Securities are owned of record by two or more joint owners, all of such owners must sign this Letter. If any tendered Old Securities are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations of certificates. When this Letter is signed by the registered holder or holders of the Old Securities specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required. If, however, the New Securities are to be issued, or any untendered Old Securities are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the certificate(s) and signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. 6 Endorsements on certificates for Old Securities or signatures on bond powers required by this Instruction 3 must be guaranteed by a firm that is a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program (each an "Eligible Institution"). Signatures on this letter need not be guaranteed by an Eligible Institution, provided the Old Securities are tendered: (i) by a registered holder of Old Securities (which term, for purposes of the Exchange Offer, includes any participant in the Book-Entry Transfer Facility System whose name appears on a security position listing as the holder of such Old Securities) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this letter, or (ii) for the account of an Eligible Institution. 4. Special Issuance and Delivery Instructions. Tendering holders of Old Securities should indicate in the applicable box the name and address to which New Securities issued pursuant to the Exchange Offer and/or substitute certificates evidencing Old Securities not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Securityholders tendering Old Securities by book-entry transfer may request that Old Securities not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such securityholder may designate hereon. If no such instructions are given such Old Securities not exchanged will be returned to the name and address of the person signing this Letter. 5. Taxpayer Identification Number. Federal income tax law generally requires that a tendering holder whose Old Securities are accepted for exchange must provide the Company (as payor) with such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 below, which in the case of a tendering holder who is an individual, is his or her social security number. If the Company is not provided with the current TIN or an adequate basis for an exemption from back-up withholding, such tendering holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, the Exchange Agent may be required to withhold 31% of the amount of any reportable payments made after the exchange to such tendering holder of New Securities. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders of Old Securities (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines of Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. To prevent backup withholding, each tendering holder of Old Securities must provide its correct TIN by completing the Substitute Form W-9 set forth below, certifying, under penalties of perjury, that the TIN provided is correct (or that such holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, or (ii) the holder has not been notified by the Internal Revenue Service that such holder is subject to back-up withholding as a result of a failure to report all interest or dividends or (iii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the tendering holder of Old Securities is a nonresident alien or foreign entity not subject to backup withholding, such holder must give the Exchange Agent a completed Form W-8, Certificate of Foreign Status. These forms may be obtained from the Exchange Agent. If the Old Securities are in more than one name or are not in the name of the actual owner, such holder should consult the W-9 Guidelines for information on which TIN to report. If such holder does not have a TIN, such holder should consult the W-9 Guidelines for instructions on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking this box and writing "applied for" on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. If the box in Part 2 of the Substitute Form W-9 is checked, the Exchange Agent will retain 31% of reportable payments made to a holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with his or her TIN within sixty (60) days of the Substitute Form W-9, the Exchange Agent will remit such amounts retained during such sixty (60) day period to such holder and no further amounts will be retained or withheld from payments made to the holder thereafter. If, however, such holder does not provide its TIN to the Exchange Agent within such sixty (60) day period, the Exchange Agent will remit such previously withheld amounts to the Internal Revenue Service as backup withholding and will withhold 31% of all reportable payments to the holder thereafter until such holder furnishes its TIN to the Exchange Agent. 6. Transfer Taxes. The Company will pay all transfer taxes, if any, applicable to the transfer of Old Securities to it or its order pursuant to the Exchange Offer. If, however, New Securities and/or substitute Old Securities not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Securities tendered hereby, or if tendered Old Securities are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Old Securities to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Old Securities specified in this letter. 7. Waiver of Conditions. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 8. No Conditional Tenders. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Old Securities, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Old Securities for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Old Securities nor shall any of them incur any liability for failure to give any such notice. 7 9. Mutilated, Lost, Stolen or Destroyed Old Securities. Any holder whose Old Securities have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. Withdrawal Rights. Tenders of Old Securities may be withdrawn at any time before 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal of a tender of Old Securities to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth above before 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Securities to be withdrawn (the "Depositor"), (ii) identify the Old Securities to be withdrawn (including certificate number or numbers and the principal amount of such Old Securities), (iii) contain a statement that such holder is withdrawing his election to have such Old Securities exchanged, (iv) be signed by the holder in the same manner as the original signature on the Letter by which such Old Securities were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee with respect to the Old Securities register the transfer of such Old Securities in the name of the person withdrawing the tender and (v) specify the name in which such Old Securities are registered, if different from that of the Depositor. If Old Securities have been tendered pursuant to the procedure for book-entry transfer set forth in "The Exchange Offer -- Book-Entry Transfers" section of the Prospectus, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Securities and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Securities so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no New Securities will be issued with respect thereto unless the Old Securities so withdrawn are validly retendered. Any Old Securities that have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or, in the case of Old Securities tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set forth in "The Exchange Offer -- Book-Entry Transfers" section of the Prospectus, such Old Securities will be credited to an account maintained with the Book-Entry Transfer Facility for the Old Securities) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Securities may be retendered by following the procedures described above at any time on or before 5:00 p.m., New York City time, on the Expiration Date. 11. Request for Assistance or Additional Copies. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, and requests for Notices of Guaranteed Delivery and other related documents may be directed to the Exchange Agent, at the address and telephone number indicated above. 8 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5) PAYOR'S NAME: CILCORP INC. - -------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 Department of the Treasury Internal Revenue Service PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFICATION - -------------------------------------------------------------------------------- PART 1 -- Please provide your TIN in the box at right and certify by Number signing and dating below. - -------------------------------------------------------------------------------- PART 2 -- TIN Applied For - -------------------------------------------------------------------------------- - ----------------------------- Social Security Number OR - ----------------------------- Employer Identification Number - -------------------------------------------------------------------------------- Certification: Under the penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me) (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and (3) any other information provided on this form is true and correct. You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding. - -------------------------------------------------------------------------------- SIGNATURE DATE ------------------------------- -------------------------------- - -------------------------------------------------------------------------------- YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of the exchange, 31 percent of all reportable payments made to me thereafter will be withheld until I provide a number. SIGNATURE DATE ------------------------------- --------------------------------- - -------------------------------------------------------------------------------- EX-99.2 13 EXHIBIT 99.2 EXHIBIT 99.2 FORM OF NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY FOR CILCORP INC. THIS FORM OR ONE SUBSTANTIALLY EQUIVALENT HERETO MUST BE USED TO ACCEPT THE EXCHANGE OFFER OF CILCORP INC. (THE "COMPANY") MADE PURSUANT TO THE PROSPECTUS, DATED [ ], 1999 (THE "PROSPECTUS"), IF CERTIFICATES FOR THE OUTSTANDING 8.700% SENIOR NOTES DUE 2009 OF THE COMPANY (THE "OLD NOTES") OR 9.375% SENIOR BONDS DUE 2029 OF THE COMPANY (THE "OLD BONDS" AND, TOGETHER WITH THE OLD NOTES, THE "OLD SECURITIES") ARE NOT IMMEDIATELY AVAILABLE OR IF THE PROCEDURE FOR BOOK-ENTRY TRANSFER CANNOT BE COMPLETED ON A TIMELY BASIS OR TIME WILL NOT PERMIT ALL REQUIRED DOCUMENTS TO REACH THE BANK OF NEW YORK, AS EXCHANGE AGENT (THE "EXCHANGE AGENT") BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE OF THE EXCHANGE OFFER. SUCH FORM MAY BE DELIVERED OR TRANSMITTED BY FACSIMILE TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT AS SET FORTH BELOW. IN ADDITION, IN ORDER TO UTILIZE THE GUARANTEED DELIVERY PROCEDURE TO TENDER OLD SECURITIES PURSUANT TO THE EXCHANGE OFFER, A COMPLETED, SIGNED AND DATED LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) OR AN AGENT'S MESSAGE MUST ALSO BE RECEIVED BY THE EXCHANGE AGENT BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. CAPITALIZED TERMS NOT DEFINED HEREIN ARE DEFINED IN THE LETTER OF TRANSMITTAL. DELIVERY TO: THE BANK OF NEW YORK, EXCHANGE AGENT
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY: The Bank of New York The Bank of New York 101 Barclay Street, 7E 101 Barclay Street New York, New York 10286 Corporate Trust Services Window Attention: Reorganization Section Ground Level New York, New York 10286 Attention: Reorganization Section
FOR INFORMATION CALL: (212) [ ] BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (212) [ ] CONFIRM BY TELEPHONE: (212) [ ] DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: Upon the terms and conditions set forth in the Prospectus and the accompanying Letter of Transmittal, the undersigned hereby tenders to the Company the principal amount of Old Securities set forth below pursuant to the guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus. Principal Amount of Old Notes Tendered:* $ -------------------------------------- Certificate Nos. (if available): ----------------------------------------------- Total Principal Amount Represented by Old Notes Certificate(s): $ --------------- Principal Amount of Old Bonds Tendered:* $ -------------------------------------- Certificate Nos. (if available): ------------------------------------------------ Total Principal Amount Represented by Old Bonds Certificate(s): $ --------------- If Old Securities will be delivered by book-entry transfer to The Depository Trust Company, provide account number. Account Number - ------------------------------------- ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED. PLEASE SIGN HERE - ------------------------------------ ------------------------------------ - ------------------------------------ ------------------------------------ SIGNATURE(S) OF OWNER(S) OR DATE AUTHORIZED SIGNATORY Area Code and Telephone Number: - ------------------------------------
Must be signed by the holder(s) of Old Securities as their name(s) appear(s) on certificates for Old Securities or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. 2 PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): - ------------------------------------ - ------------------------------------ Capacity: - ------------------------------------ Address(es): - ------------------------------------ - ------------------------------------ - ------------------------------------ * Must be in denominations of principal amount of $1,000 and any integral multiple thereof. - -------------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program, hereby guarantees that the certificates representing the principal amount of Old Securities tendered hereby in proper form for transfer, or timely confirmation of the book-entry transfer of such Old Securities into the Exchange Agent's account at The Depository Trust Company pursuant to the procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus, together with a properly completed and duly executed Letter(s) of Transmittal (or manually signed facsimile(s) thereof), with any required signature guarantee, or an Agent's Message and any other required documents, will be received by the Exchange Agent at the address set forth above, no later than three New York Stock Exchange trading days after the date hereof. --------------------------------- ---------------------------------- Name of Firm Authorized Signature --------------------------------- Title: Address ----------------------------- --------------------------------- Name: Zip Code ---------------------------- (Please type or print) --------------------------------- Dated: Area Code and Tel. No. --------------------------- NOTE: DO NOT SEND CERTIFICATES FOR OLD SECURITIES WITH THIS FORM. CERTIFICATES FOR OLD SECURITIES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. - -------------------------------------------------------------------------------- 3 EX-99.3 14 EXHIBIT 99.3 EXHIBIT 99.3 FORM OF CLIENT LETTER CILCORP INC. OFFER TO EXCHANGE ALL 8.700% SENIOR NOTES DUE 2009 FOR 8.700% SENIOR NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND 9.375% SENIOR BONDS DUE 2029 FOR 9.375% SENIOR BONDS DUE 2029 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED PURSUANT TO THE PROSPECTUS, DATED [ ], 1999 TO OUR CLIENTS: Enclosed for your consideration is a Prospectus, dated [ ], 1999 (the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "Exchange Offer") of CILCORP Inc. (the "Company") to exchange its outstanding 8.700% Senior Notes due 2009 (the "Old Notes") for 8.700% Senior Notes due 2009 which have been registered under the Securities Act of 1933, as amended (the "New Notes"), and to exchange its outstanding 9.375% Senior Bonds due 2029 (the "Old Bonds" and together with the Old Notes the "Old Securities") for 9.375% Senior Bonds due 2029 which have been registered under the Securities Act of 1933, as amended (the "New Bonds" and together with the New Notes the "New Securities"), upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated as of October 18, 1999, by and among Midwest Energy, Inc. and the initial purchasers referred to therein, which agreement the Company has assumed as the surviving entity in its merger with Midwest Energy. This material is being forwarded to you as the beneficial owner of the Old Securities held by us for your account but not registered in your name. A TENDER OF SUCH OLD SECURITIES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request instructions as to whether you wish us to tender on your behalf the Old Securities held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal. Your instructions should be forwarded to us as promptly as possible in order to permit us to tender the Old Securities on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York City time, on [ ], 1999, unless extended by the Company. Any Old Securities tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for any and all Old Securities. 2. The Exchange Offer is subject to certain conditions set forth in the Prospectus in the section captioned "The Exchange Offer -- Conditions to the Exchange Offer." 3. Any transfer taxes incident to the transfer of Old Securities from the holder to the Company will be paid by the Company, except as otherwise provided in the Instructions in the Letter of Transmittal. 4. The Exchange Offer expires at 5:00 p.m., New York City time, on [ ], 1999, unless extended by the Company. If you wish to have us tender your Old Securities, please so instruct us by completing, executing and returning to us the instruction form on the back of this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD SECURITIES. INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer made by CILCORP Inc. with respect to its Old Securities. This will instruct you to tender the Old Securities held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the Prospectus and the related Letter of Transmittal. Please tender the Old Securities held by you for my account as indicated below:
(AGGREGATE PRINCIPAL AMOUNT OF OLD SECURITIES) 8.700% Senior Notes due 2009 $ 9.375% Senior Bonds due 2029 $ [ ] Please do not tender any Old Securities held by you for my account. Dated:
Signature(s): - --------------------------------------------------------------- Print Name(s) here: - --------------------------------------------------------------- (Print Address(es)): - --------------------------------------------------------------- (Area Code and Telephone Number(s)): - -------------------------------------------- (Tax Identification or Social Security Number(s)): - -------------------------------------------- None of the Old Securities held by us for your account will be tendered unless we receive written instructions from you to do so. Unless a specific contrary instruction is given in the space provided, your signature(s) hereon shall constitute an instruction to us to tender all the Old Securities held by us for your account. 2 EX-99.4 15 EXHIBIT 99.4 EXHIBIT 99.4 FORM OF BROKER, DEALER, ETC. LETTER CILCORP INC. OFFER TO EXCHANGE ALL 8.700% SENIOR NOTES DUE 2009 FOR 8.700% SENIOR NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND 9.375% SENIOR BONDS DUE 2029 FOR 9.375% SENIOR BONDS DUE 2029 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED PURSUANT TO THE PROSPECTUS, DATED [ ], 1999 TO: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES: CILCORP Inc. (the "Company") is offering, upon and subject to the terms and conditions set forth in the Prospectus, dated [ ], 1999 (the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of Transmittal"), to exchange (the "Exchange Offer") its outstanding 8.700% Senior Notes due 2009 (the "Old Notes") for 8.700% Senior Notes due 2009 which have been registered under the Securities Act of 1933, as amended (the "New Notes"), and to exchange its outstanding 9.375% Senior Bonds due 2029 (the "Old Bonds" and together with the Old Notes the "Old Securities") for 9.375% Senior Bonds due 2029 which have been registered under the Securities Act of 1933, as amended (the "New Bonds" and together with the New Notes the "New Securities"). The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated October 18, 1999, by and among Midwest Energy, Inc. and the initial purchasers referred to therein, which agreement the Company has assumed as the surviving entity in its merger with Midwest Energy. We are requesting that you contact your clients for whom you hold Old Securities regarding the Exchange Offer. For your information and for forwarding to your clients for whom you hold Old Securities registered in your name or in the name of your nominee, or who hold Old Securities registered in their own names, we are enclosing the following documents: 1. Prospectus dated [ ], 1999; 2. The Letter of Transmittal for your use and for the information of your clients; 3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if certificates for Old Securities are not immediately available or time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date (as defined below) or if the procedure for book-entry transfer cannot be completed on a timely basis; 4. A form of letter which may be sent to your clients for whose account you hold Old Securities registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. Return envelopes addressed to The Bank of New York, the Exchange Agent for the Exchange Offer. YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1999, UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). OLD SECURITIES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE. To participate in the Exchange Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Letter of Transmittal) and any other required documents should be sent to the Exchange Agent. Certificates representing the Old Securities should be delivered to the Exchange Agent, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus. If a registered holder of Old Securities desires to tender, but such Old Securities are not immediately available, or time will not permit such holder's Old Securities or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Prospectus and the related documents to the beneficial owners of Old Securities held by them as nominee or in a fiduciary capacity. The Company will pay or cause to be paid all stock transfer taxes applicable to the exchange of Old Securities pursuant to the Exchange Offer, except as set forth in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to The Bank of New York, the Exchange Agent for the Exchange Offer, at its address and telephone number set forth on the front of the Letter of Transmittal. Very truly yours, CILCORP INC. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. Enclosures 2 EX-99.5 16 EXHIBIT 99.5 EXCHANGE AGENT AGREEMENT [ ], 1999 The Bank of New York Corporate Trust Administration 101 Barclay Street - 21st Floor New York, New York 10286 Ladies and Gentlemen: CILCORP Inc. (the "Company") proposes to make an offer (the "Exchange Offer") to exchange its 8.700% Senior Notes due 2009 (the "Old Notes") for its 8.700% Senior Notes due 2009 which have been registered under the Securities Act of 1933, as amended (the "New Notes") and 9.375% Senior Bonds due 2029 (the "Old Bonds" and together with the Old Notes, the "Old Securities") for its 9.375% Senior Bonds due 2029 which have been registered under the Securities Act of 1933, as amended (the "New Bonds" and together with the New Notes, the "New Securi ties"). The terms and conditions of the Exchange Offer as currently contemplated are set forth in a prospectus, dated [ ], 1999 (the "Prospectus") to be distributed to all record holders of the Old Securities. The Old Securities and the New Securities are collectively referred to herein as the "Securities". The Company hereby appoints The Bank of New York to act as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. References hereinafter to "you" shall refer to The Bank of New York. The Exchange Offer is expected to be commenced by the Company on or about [ ], 1999. The Letter of Transmittal accompanying the Prospectus (or in the case of book-entry securities, the Automated Tender Offer Program (ATOP) of the Book-Entry Transfer Facility referred to in paragraph 2 below) is to be used by the holders of the Old Securities to accept the Exchange Offer, and contains instructions with respect to the (i) delivery of certificates for Old Securities tendered in connection therewith and (ii) the book-entry transfer of Securities to the Exchange Agent's account. The Exchange Offer shall expire at 5:00 p.m., New York City time, on [ ], 1999, or on such later date or time to which the Company may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set forth in the Prospectus, the Company expressly reserves the right to extend the Exchange Offer from time to time and may extend the Exchange Offer by giving oral (confirmed in writing) or written notice to you before 9:00 a.m., New York City time, on the business day following the previously scheduled Expiration Date. The Company reserves the right to amend or terminate the Exchange Offer and not to accept for exchange any Old Securities not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified in the Prospectus under the caption "The Exchange Offer - Conditions to the Exchange Offer." The Company will give oral (confirmed in writing) or written notice of any amendment or termination of the Exchange 1 Offer or nonacceptance of Old Securities to you promptly after any amendment, termination or nonacceptance. In carrying out your duties as Exchange Agent, you are to act in accordance with the following instructions: 1. You will perform such duties and only such duties as are specifically set forth herein; provided, however, that in no way will your general duty to act in good faith be discharged by the foregoing. 2. You will establish an account with respect to the Old Securities at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after the date of the Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of the Old Securities by causing the Book-Entry Transfer Facility to transfer such Old Securities into the account in accordance with the Book-Entry Transfer Facility's procedure for such transfer. You will maintain, during the Exchange Offer, an address in the Borough of Manhattan, The City of New York, in which tenders of the Old Securities may be made. 3. You are to examine each of the Letters of Transmittal and certificates for Old Securities (or confirmation of book-entry transfer into your account at the Book-Entry Transfer Facility) and any other documents delivered or mailed to you by or for holders of the Old Securities to ascertain whether: (i) the Letters of Trans mittal and any such other documents are executed and properly completed in accordance with the instructions set forth therein and (ii) the Old Securities have otherwise been properly tendered, provided, however, that you shall be entitled to rely conclusively in good faith on the DTC electronic messages sent regarding ATOP delivery of the Old Securities to the Exchange Agent's account at DTC from the DTC participants listed on the DTC position listing provided to the Exchange Agent. In each case where the Letter of Transmittal or any other document has been improperly completed or executed or any of the certificates for Old Securities are not in proper form for transfer or some other irregularity in connection with the acceptance of the Exchange Offer exists, you will endeavor to inform the presenters of the need for fulfillment of all requirements and to take any other action as may be reasonably necessary or advisable to cause such irregularity to be corrected. 4. With the approval of the President, Chief Financial Officer, Chief Legal Officer, Treasurer, Controller or any Vice President each a "Designated Officer") of the Company, or of counsel to the Company, (such approval, if given orally, to be confirmed in writing) or any other party designated by any Designated Officer in writing, you are authorized to waive any irregularities in connection with any tender of Old Securities pursuant to the Exchange Offer. 5. Tenders of Old Securities may be made only as set forth in the Letter of Transmittal and in the section of the Prospectus captioned "The Exchange Offer -- How to Tender Old Securities for Exchange," and Old Securities shall be considered properly tendered to you only when tendered in accordance with the procedures set forth therein. Notwithstanding the provisions of this paragraph 5, Old Securities which a Designated Officer, or of counsel to the Company, shall approve as having been properly tendered 2 shall be considered to be properly tendered (such approval, if given orally, shall be confirmed in writing). 6. You shall advise the Company with respect to any Old Securities received subsequent to the Expiration Date and accept its written instructions with respect to disposition of such Old Securities. 7. Subject to paragraphs 4 and 5, you shall accept tenders: (a) in cases where the Old Securities are registered in two or more names, only if signed by all named holders; (b) in cases where the signing person (as indicated on the Letter of Transmittal) is acting in a fiduciary or a representative capacity, only when proper evidence of his or her authority so to act is submitted; and (c) from persons other than the registered holder of Old Securities provided that customary transfer requirements, including any applicable transfer taxes, are fulfilled. You shall accept partial tenders of Old Securities where so indicated and as permitted in the Letter of Transmittal and deliver certificates for Old Securi ties to the transfer agent for split-up and return any untendered Old Securities to the holder (or such other person as may be designated in the Letter of Transmittal) as promptly as practicable after expiration or termination of the Exchange Offer. 8. Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will notify you (such notice if given orally, to be confirmed in writing) of its acceptance, promptly after the Expiration Date, of all Old Securities properly tendered and you, on behalf of the Company, will exchange such Old Securities for New Securities and cause such Old Securities to be cancelled. Deliv ery of New Securities will be made on behalf of the Company by you at the rate of $1,000 principal amount at maturity of New Notes for each $1,000 principal amount of Old Notes, and at the rate of $1,000 principal amount at maturity of New Bonds for each $1,000 principal amount of Old Bonds, in each case tendered promptly after notice (such notice if given orally, to be confirmed in writing) of acceptance of said Old Securities by the Company; provided, however, that in all cases, Old Securities tendered pursuant to the Exchange Offer will be exchanged only after timely receipt by you of certificates for such Old Securities (or confirmation of book-entry transfer into the account at the Book-Entry Transfer Facility), a properly completed and executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and any other required documents. You shall issue New Securities only in denominations of $1,000 or any integral multiple thereof. 9. Tenders pursuant to the Exchange Offer are irrevocable, except that, subject to the terms and upon the conditions set forth in the Prospectus and the Letter of Transmittal, Old Securities tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. 3 10. The Company shall not be required to exchange any Old Securities tendered if any of the conditions set forth in the Exchange Offer are not met. Notice of any decision by the Company not to exchange any Old Securities tendered shall be given (and confirmed in writing) by the Company to you. 11. If, pursuant to the Exchange Offer, the Company does not accept for exchange all or part of the Old Securities tendered because of an invalid tender, the occurrence of certain other events set forth in the Prospectus under the caption "The Exchange Offer -- Conditions to the Exchange Offer" or otherwise, you shall as soon as practicable after the expiration or termination of the Exchange Offer return those certificates for unaccepted Old Securities (or effect appropriate book-entry transfer), together with any related required documents and the Letters of Transmittal relating thereto that are in your possession, to the persons who deposited them. 12. All certificates for reissued Old Securities, unaccepted Old Securities or for New Securities shall be forwarded by first-class mail or appropriate book-entry transfer. 13. You are not authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other persons or to engage or utilize any person to solicit tenders. 14. As Exchange Agent hereunder you: (a) shall not be liable for any action or omission to act unless the same constitutes your own gross negligence, willful misconduct or bad faith, and in no event shall you be liable to a security holder, the Company or any third party for special, indirect or consequential damages, or lost profits, arising in connection with this Agreement. (b) shall have no duties or obligations other than those specifically set forth herein or as may be subsequently agreed to in writing by you and the Company; (c) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any of the certificates for the Old Securities represented thereby deposited with you pursuant to the Exchange Offer, and will not be required to and will make no representation as to the validity, sufficiency, value or genuineness of the Exchange Offer; provided, however, that in no way will your general duty to act in good faith be discharged by the foregoing; (d) shall not be obligated to take any legal action hereunder which might in your judgment involve any expense or liability, unless you shall have been furnished with indemnity satisfactory to you; (e) may conclusively rely on and shall be fully protected in acting in reliance upon any instruction, certificate, instrument, opinion, notice, letter, telegram or other document whether in its original or facsimile form or security delivered to you and believed by you to be genuine and to have been signed by the proper party or parties; (f) may reasonably act upon any tender, statement, request, comment, agreement or other instrument whatsoever not only as to its due execution and validity and 4 effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein, which you shall in good faith believe to be genuine or to have been signed or represented by a proper person or persons; (g) may conclusively rely on and shall be fully protected in acting upon written or oral instructions from any Designated Officer of the Company; (h) may consult with counsel with respect to any questions relating to your duties and responsibilities and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by you hereunder in good faith and in accordance with the advice or opinion of such counsel; and (i) shall not advise any person tendering Old Securities pursuant to the Exchange Offer as to the wisdom of making such tender or as to the market value or decline or appreciation in market value of any Old Securities. 15. You shall take such action as may from time to time be requested by the Company or its counsel or any Designated Officer in writing (and such other action as you may reasonably deem appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery accompanying the Prospectus or such other forms as may be approved from time to time by the Com pany, to all persons requesting such documents and to accept and comply with reasonable telephone requests for information relating to the Exchange Offer, provided that such information shall relate only to the procedures for accepting (or withdrawing from) the Exchange Offer. The Company will furnish you with copies of such documents at your request. All other requests for information relating to the Exchange Offer shall be directed to the Company, Attention: Thomas Hutchinson, Chief Financial Officer. 16. You shall advise by facsimile transmission or telephone, and promptly thereafter confirm in writing to Thomas Hutchinson, Chief Financial Officer of the Company, and such other person or persons as it may request in writing, daily (and more frequently during the week immediately preceding the Expiration Date and if otherwise requested in writing) up to and including the Expiration Date, as to the number of Old Securities which have been tendered pursuant to the Exchange Offer and the items received by you pursuant to this Agreement, separately reporting and giving cumulative totals as to items properly received and items improperly received. In addition, you will also inform, and cooperate in making available to, the Company or any such other person or persons upon written request made from time to time prior to the Expiration Date of such other information as it or he or she reasonably requests. Such cooperation shall include, without limitation, the granting by you to the Company and such person as the Company may request of access to those persons on your staff who are responsible for receiving tenders, in order to ensure that immediately prior to the Expiration Date, the Company shall have received information in sufficient detail to enable it to decide whether to extend the Exchange Offer. You shall prepare a final list of all persons whose tenders were accepted, the aggregate principal amount of Old Securities tendered, the aggregate principal amount of Old Securities accepted and deliver said list to the Company. 5 17. Letters of Transmittal and Notices of Guaranteed Delivery shall be stamped by you as to the date and the time of receipt thereof and shall be preserved by you for a period of time at least equal to the period of time you preserve other records pertaining to the transfer of securities. You shall dispose of unused Letters of Transmittal and other surplus materials by returning them to the Company. 18. For services rendered as Exchange Agent hereunder, you shall be entitled to compensation as set forth on Schedule I attached hereto. The provisions of this section shall survive the termination of this agreement or the earlier resigna tion or removal of the Exchange Agent. 19. You hereby acknowledge receipt of the Prospectus and the Letter of Transmittal and further acknowledge that you have examined each of them. Any inconsistency between this Agreement, on the one hand, and the Prospectus and the Letter of Transmittal (as they may be amended from time to time), on the other hand, shall be resolved in favor of the latter two documents, except with respect to the duties, liabilities and indemnification of you as Exchange Agent, which shall be controlled by this Agreement. 20. The Company covenants and agrees to fully indemnify and hold you and your officers, directors, employees and agents harmless in your capacity as Exchange Agent, hereunder against any and all loss, liability, cost or expense, including reasonable attorneys' fees and expenses, arising out of or in connection with any act, omission, delay or refusal made by you in reliance upon any signature, endorsement, assignment, certificate, order, request, notice, instruction or other instrument or document (whether in its original or facsimile form) reasonably believed by you to be valid, genuine and sufficient and in accepting any tender or effecting any transfer of Old Securities reasonably believed by you in good faith to be authorized, and in delaying or refusing in good faith to accept any tenders or effect any transfer of Old Securities. In each case, the Company shall be notified by you, by letter or by facsimile confirmed by letter, of the written assertion of a claim or notice of commencement of an action against you, promptly after you shall have received any such written assertion or notice of commencement of an action. The Company shall be entitled to participate at its own expense in the defense of any such claim or other action, and, if the Company so elects, the Company shall assume the defense of any suit brought to enforce any such claim. In the event that the Company shall assume the defense of any such suit or threatened action in respect of which indemnification may be sought hereunder, the Company shall not be liable for the fees and expenses of any additional counsel retained by you so long as the Company shall retain counsel reasonably satisfactory to you to defend such suit, and so long as you have not determined, in your reasonable judgment, that a conflict of interest exists between you and the Company. 21. You shall arrange to comply with all requirements under the tax laws of the United States, including those relating to missing Tax Identification Numbers, and shall file any appropriate reports with the Internal Revenue Service. The Company understands that you are required to deduct 31% on payments to holders who have not supplied their correct Taxpayer Identification Number or required certification. Such funds will be turned over to the Internal Revenue Service in accordance with applicable regulations. 22. At the Company's written direction, you shall deliver or cause to be delivered, in a timely manner to each governmental authority to which any transfer taxes are payable, if 6 any, in respect of the exchange of Old Securities, your check in the amount of all transfer taxes so payable, and the Company shall reimburse you for the amount of any and all transfer taxes payable in respect of the exchange of Old Securities; provided, however, that you shall reimburse the Company for amounts refunded to you in respect of your payment of any such transfer taxes, at such time as such refund is received by you. 23. This Agreement and your appointment as Exchange Agent hereunder shall be construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, and without regard to conflicts of law principles, and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of each of the parties hereto. 24. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 25. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 26. This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by duly authorized representatives of the parties. This Agreement may not be modified orally. 27. Unless otherwise provided herein, all notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below: If to the Company: CILCORP Inc. 300 Liberty Street Peoria, Illinois 61602 Facsimile: (309) 677-5590 Attention: Thomas D. Hutchinson With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C. 20005 Facsimile: (202) 393-5760 Attention: Stephen W. Hamilton, Esq. If to the Exchange Agent: The Bank of New York 7 101 Barclay Street Floor 21 West New York, New York 10286 Facsimile: (212) 815-5915 Attention: Corporate Trust Administration 28. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Notwithstanding the foregoing, Paragraphs 19 and 21 shall survive the termination of this Agreement or the earlier resignation or removal of the Exchange Agent. Upon any termination of this Agreement, you shall promptly deliver to the Company any certificates for Securi ties, funds or property then held by you as Exchange Agent under this Agreement. 29. This Agreement shall be binding and effective as of the date hereof. 8 Please acknowledge receipt of this Agreement and confirm the arrangements herein provided by signing and returning the enclosed copy. CILCORP INC. By: ------------------------------ Name: Thomas D. Hutchinson Title: Chief Financial Officer Accepted as of the date first above written: THE BANK OF NEW YORK, as Exchange Agent By: ------------------------------- Name: MaryBeth A. Lewicki Title: Vice President 9 SCHEDULE I FEES Exchange Agent Fee: $5,000.00 Out of Pocket Expenses: Fees quoted do not include any out-of-pocket expenses including but not limited to facsimile, stationery, postage, telephone, overnight courier and messenger costs. These expenses will be billed at cost when incurred. Outside Counsel Fees and Expenses: Fees quoted do not include the fees and expenses for services rendered by outside counsel. 10 EX-99.6 17 EXHIBIT 99.6
- ---------------------------------------------------------------------------------------------------------------- PAYER'S NAME: [PAYING AGENT] - ---------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. --------------------------- FORM W-9 Social Security Number DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE OR --------------------------- Employer Identification Number (If awaiting TIN write "Applied For") ---------------------------------------------------------------------------------- PAYER'S REQUEST FOR TAXPAYER PART II-- For Payees Exempt from Backup Withholding, see the enclosed IDENTIFICATION NUMBER (TIN) Guidelines and complete as instructed therein. AND CERTIFICATION FOR PAYEE EXEMPT FROM BACKUP CERTIFICATION -- Under penalties of perjury, I certify that: WITHHOLDING (1) The number shown on this form is my correct Taxpayer Identification Number (or a Taxpayer Identification Number has not been issued to me and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service ("IRS") or Social Security Administration office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number), and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, (b) I have not been notified by the IRS that I am subject to backup withholding as a result of failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. ---------------------------------------------------------------------------------- Certificate Instructions -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.) ---------------------------------------------------------------------------------- Signature: Date: --------------------------------------- -------------------,------ Name: ----------------------------------------------------------------------------- Address: -------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
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