-----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, AGwQhW/MPpVnyQNGdoahMUdoOPQ88GY2nWmVh/gFXp+1M4czFKR/nR2PqG4kU7GZ ZSEwP8ADkw9SIupKdEXfdw== 0000823392-98-000008.txt : 19981111 0000823392-98-000008.hdr.sgml : 19981111 ACCESSION NUMBER: 0000823392-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIPSCO INDUSTRIES INC CENTRAL INDEX KEY: 0000823392 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 351719974 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09779 FILM NUMBER: 98741169 BUSINESS ADDRESS: STREET 1: 5265 HOHMAN AVE CITY: HAMMOND STATE: IN ZIP: 46320 BUSINESS PHONE: 2198535200 MAIL ADDRESS: STREET 1: 5265 HOHMAN AVENUE CITY: HAMMOND STATE: IN ZIP: 46320-1775 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number 1-9779 NIPSCO INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Indiana 35-1719974 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 801 East 86th Avenue, Merrillville, Indiana 46410 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (219) 853-5200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- As of October 31, 1998, 117,525,257 common shares were outstanding. NIPSCO INDUSTRIES, INC. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of NIPSCO Industries, Inc.: We have audited the accompanying consolidated balance sheet of NIPSCO Industries, Inc. (an Indiana corporation) and subsidiaries as of September 30, 1998, and December 31, 1997, and the related consolidated statements of income, common shareholders' equity and cash flows for the three, nine and twelve month periods ended September 30, 1998 and 1997. These consolidated financial statements are the responsibility of Industries' management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of NIPSCO Industries, Inc. and subsidiaries as of September 30, 1998, and December 31, 1997, and the results of their operations and their cash flows for the three, nine and twelve month periods ended September 30, 1998 and 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Chicago, Illinois October 28, 1998
Consolidated Balance Sheet September 30, December 31, Assets 1998 1997 ========== ========== (In thousands) Property, Plant and Equipment: Utility Plant, (Note 2)(including Construction Work in Progress of $233,714 and $184,110, respectively) Electric $4,129,914 $4,066,568 Gas 1,432,982 1,395,140 Water 646,250 604,018 Common 352,846 351,350 ---------- ---------- 6,561,992 6,417,076 Less -Accumulated provision for depreciation and amortization 2,913,430 2,759,945 ---------- ---------- Total Utility Plant 3,648,562 3,657,131 ---------- ---------- Other property, at cost, net of accumulated provision for depreciation 83,108 96,028 ---------- ---------- Total Property, Plant and Equipment 3,731,670 3,753,159 ---------- ---------- Investments: Investments, at equity (Note 2) 103,572 82,855 Investments, at cost 53,766 31,771 Other investments 25,897 24,499 ---------- ---------- Total Investments 183,235 139,125 ---------- ---------- Current Assets: Cash and cash equivalents 32,490 30,780 Accounts receivable, less reserve of $8,339 and $7,401 respectively (Note 2) 195,003 231,580 Other receivables (Note 24) 36,809 107,231 Fuel adjustment clause (Note 2) -- 2,679 Gas cost adjustment clause (Note 2) 33,336 89,991 Materials and supplies, at average cost 61,671 60,085 Electric production fuel, at average cost 17,540 18,837 Natural gas in storage (Note 2) 72,043 61,436 Prepayments and other 33,292 28,089 ---------- ---------- Total Current Assets 482,184 630,708 ---------- ---------- Other Assets: Regulatory assets (Note 2) 201,833 211,513 Intangible assets, net of accumulated amortization (Note 2) 65,765 68,175 Prepayments and other (Note 9) 172,543 134,353 ---------- ---------- Total Other Assets 440,141 414,041 ---------- ---------- $4,837,230 $4,937,033 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Balance Sheet September 30, December 31, Capitalization and Liabilities 1998 1997 =========== =========== (In thousands) Capitalization: Common shareholders' equity (See accompanying statement) $1,134,718 $1,264,788 Cumulative preferred stocks (Note 11) - Series without mandatory redemption provisions (Note 12) 85,614 85,620 Series with mandatory redemption provisions (Note 13) 56,991 58,841 Long-term debt excluding amounts due within one year (Note 19) 1,669,850 1,667,925 ---------- ---------- Total Capitalization 2,947,173 3,077,174 ---------- ---------- Current Liabilities: Current portion of long-term debt (Note 20) 20,718 54,621 Short-term borrowings (Note 21) 363,054 212,639 Accounts payable 189,891 226,751 Dividends declared on common and preferred stocks 29,475 30,784 Customer deposits 20,897 22,091 Taxes accrued 62,773 77,573 Interest accrued 24,104 19,124 Fuel adjustment clause 3,053 -- Accrued employment costs 46,069 58,799 Other accruals 35,653 47,930 ---------- ---------- Total Current Liabilities 795,687 750,312 ---------- ---------- Other: Deferred income taxes (Note 8) 628,893 651,815 Deferred investment tax credits, being amortized over life of related property (Note 8) 100,074 105,538 Deferred credits 72,166 73,715 Customer advances and contributions in aid of construction (Note 2) 111,141 110,145 Accrued liability for postretirement benefits (Note 10) 141,071 132,919 Other noncurrent liabilities 41,025 35,415 ---------- ---------- Total Other 1,094,370 1,109,547 ---------- ---------- Commitments and Contingencies (Notes 5, 7, 22, 23 and 24) $4,837,230 $4,937,033 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Statement of Income (Dollars in thousands, except for per share amounts) Three Months Nine Months Ended September 30, Ended September 30, ---------------------- ------------------------ 1998 1997 1998 1997 ========= ========= ========= ========= Operating Revenues: (Notes 2, 6 and 26) Gas $ 80,953 $ 90,258 $ 434,033 $ 544,668 Electric 469,119 342,030 1,138,592 874,344 Water 24,374 23,577 62,940 42,372 Products and Services 173,346 140,450 543,979 318,068 --------- --------- --------- --------- 747,792 596,315 2,179,544 1,779,452 --------- --------- --------- --------- Cost of Sales: (Note 2) Gas costs 43,504 53,841 242,686 330,642 Fuel for electric generation 72,246 65,008 193,263 178,025 Power purchased 179,627 74,198 365,915 136,489 Products and Services 145,541 113,412 469,017 249,708 --------- --------- --------- --------- 440,918 306,459 1,270,881 894,864 --------- --------- --------- --------- Operating Margin 306,874 289,856 908,663 884,588 --------- --------- --------- --------- Operating Expenses and Taxes (except income): Operation 104,365 101,194 298,584 290,348 Maintenance (Note 2) 19,100 17,854 59,058 56,182 Depreciation and amortization (Note 2) 64,417 64,712 191,334 187,471 Taxes (except income) 22,044 19,686 66,582 61,643 --------- --------- --------- --------- 209,926 203,446 615,558 595,644 --------- --------- --------- --------- Operating Income 96,948 86,410 293,105 288,944 --------- --------- --------- --------- Other Income (Deductions) (Note 2) 2,870 3,764 10,387 17,475 --------- --------- --------- --------- Interest and Other Charges: Interest on long-term debt 28,301 28,266 83,324 75,220 Other interest 3,632 2,435 7,762 10,480 Amortization of premium, reacquisition premium, discount and expense on debt, net 1,144 1,209 3,436 3,542 Dividend requirements on preferred stock of subsidiaries 2,122 2,174 6,417 6,520 --------- --------- --------- --------- 35,199 34,084 100,939 95,762 --------- --------- --------- --------- Income before income taxes 64,619 56,090 202,553 210,657 --------- --------- --------- --------- Income taxes 21,492 20,221 69,259 75,714 --------- --------- --------- --------- Net Income $ 43,127 $ 35,869 $ 133,294 $ 134,943 ========= ========= ========= ========= Average common shares outstanding - basic 119,494,531 125,495,862 121,833,316 123,445,964 Basic Earnings per average common share $ 0.36 $ 0.28 $ 1.09 $ 1.09 ========= ========= ========= ======== Diluted Earnings per average common share $ 0.35 $ 0.28 $ 1.08 $ 1.09 ========= ========= ========= ======== Dividends declared per common share $ 0.240 $ 0.225 $ 0.720 $ 0.675 ========= ========= ========= ========
The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Statement of Income (Dollars in thousands, except for per share amounts) Twelve Months Ended September 30, ---------------------------- 1998 1997 ======== ======== Operating Revenues: (Notes 2, 6 and 26) Gas $ 696,604 $ 816,223 Electric 1,450,579 1,127,143 Water 81,311 42,372 Products and Services 758,139 373,787 ------------ ------------ 2,986,633 2,359,525 ------------ ------------ Cost of Sales: (Note 2) Gas costs 407,331 504,939 Fuel for electric generation 253,786 238,508 Power purchased 434,457 148,601 Products and Services 656,057 292,174 ------------ ------------ 1,751,631 1,184,222 ------------ ------------ Operating Margin 1,235,002 1,175,303 ------------ ------------ Operating Expenses and Taxes (except income): Operation 398,489 376,005 Maintenance (Note 2) 79,428 72,818 Depreciation and amortization (Note 2) 253,667 247,901 Taxes (except income) 88,704 81,365 ------------ ------------ 820,288 778,089 ------------ ------------ Operating Income 414,714 397,214 ------------ ------------ Other Income (Deductions) (Note 2) 8,680 20,858 ------------ ------------ Interest and Other Charges: Interest on long-term debt 110,946 95,736 Other interest 10,329 15,793 Amortization of premium, reacquisition premium, discount and expense on debt, net 4,612 4,679 Dividend requirements on preferred stock of subsidiaries 8,588 8,681 ------------ ------------ 134,475 124,889 ------------ ------------ Income before income taxes 288,919 293,183 ------------ ------------ Income taxes 99,719 106,831 ------------ ------------ Net Income $ 189,200 $ 186,352 ============ ============ Average common shares outstanding - basic 122,644,571 122,785,466 Basic Earnings per average common share $ 1.54 $ 1.51 ============ ============ Diluted Earnings per average common share $ 1.53 $ 1.51 ============ ============ Dividends declared per common share $ 0.960 $ 0.900 ============ ============ The accompanying notes to consolidated financial statements are an integral part of this statement.
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY Additional (Dollars in thousands) Common Treasury Paid-in Retained Three Months Ended Shares Shares Capital Earnings Other ======================== ========== ========== ========== ========== ========== Balance, July 1, 1997 $ 870,930 $ (336,416) $ 89,556 $ 634,083 $ (3,741) Comprehensive Income: Net income 35,869 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $1 Realized Gain (loss) on foreign currency translation: Unrealized Realized Total Comprehensive Income Dividends: Common shares (28,244) Treasury shares acquired (1,211) Issued: IWC Resources Corporation acquisition NEM Acquisition Employee stock purchase plan 67 107 Long-term incentive plan 1,412 Amortization of unearned compensation 531 Unrealized gain (loss) on available securities Other ----------- ----------- ---------- ---------- ---------- Balance, September 30, 1997 $ 870,930 $ (336,148) $ 89,663 $ 641,708 $ (3,210) ========== =========== =========== ========== ========== ========== Balance, July 1, 1998 $ 870,930 $ (456,018) $ 90,704 $ 698,633 $ (2,962) Comprehensive Income: Net income 43,127 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $621) Realized (net of income tax of $720) Gain (loss) on foreign currency translation: Unrealized Realized Total Comprehensive Income Dividends: Common shares (28,144) Treasury shares acquired (84,520) Issued: IWC Resources Corporation acquisition NEM Acquisition Employee stock purchase plan 100 251 Long-term incentive plan 2,210 46 Amortization of unearned compensation 591 Other (55) ----------- ----------- ---------- ---------- ---------- Balance, September 30, 1998 $ 870,930 $ (538,228) $ 90,955 $ 713,561 $ (2,325) =========== =========== ========== ========== ==========
Accumulated Shares Other ------------------------ Three Months Ended Comprehensive Comprehensive Common Treasury (continued) Income Total Income Shares Shares ======================== ========== ========== ========== =========== ========== Balance, July 1, 1997 $ 4,005 $ 1,258,417$ - 147,784,218 (22,316,984) Comprehensive Income: Net income 35,869 35,869 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $1) 1 1 1 Realized Gain (loss) on foreign currency translation: Unrealized (244) (244) (244) Realized - ---------- Total Comprehensive Income $ 35,626 Dividends: ========== Common shares (28,244) Treasury shares acquired (1,211) (60,444) Issued: IWC Resources Corporation acquisition NEM Acquisition Employee stock purchase plan 174 8,402 Long-term incentive plan 1,412 92,600 Amortization of unearned compensation 531 Other ----------- ----------- ----------- ------------ Balance, September 30, 1997$ $ 3,762 $ 1,266,705 147,784,218 (22,276,426) =========== =========== =========== ============ Balance, July 1, 1998 $ 2,602 $ 1,203,889 $ - 147,784,218 (26,750,149) Comprehensive Income: Net income 43,127 43,127 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $621) (1,017) (1,017) (1,017) Realized (net of income tax of $720) (1,180) (1,180) (1,180) Gain (loss) on foreign currency translation: Unrealized (766) (766) (766) Realized 186 186 186 ---------- Total Comprehensive Income $ 40,350 Dividends: ========== Common shares (28,144) Treasury shares acquired (84,520) (2,992,986) Issued: IWC Resources Corporation acquisition NEM acquisition Employee stock purchase plan 351 12,524 Long-term incentive plan 2,256 123,500 Amortization of unearned compensation 591 Other (55) ----------- ----------- ----------- ------------ Balance, September 30, 1998$ $ (175) $ 1,134,718 147,784,218 (29,607,111) =========== =========== =========== ============
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY Additional (Dollars in thousands) Common Treasury Paid-in Retained Nine Months Ended Shares Shares Capital Earnings Other ======================== ========== ========== ========== ========== ========== Balance, January 1, 1997 $ 870,930 $ (392,995) $ 32,868 $ 591,370 $ (4,280) Comprehensive Income: Net income 134,943 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $1,033) Realized Gain (loss) on foreign currency translation: Unrealized Realized Total Comprehensive Income Dividends: Common shares (84,479) Treasury shares acquired (103,732) 2 Issued: IWC Resources Corporation acquisition 152,405 55,007 NEM Acquisition 4,118 1,351 Employee stock purchase plan 209 318 Long-term incentive plan 3,847 116 (443) Amortization of unearned compensation 1,513 Other 1 (126) ----------- ----------- ---------- ----------- ------------ Balance, September 30, 1997 $ 870,930 $ (336,148) $ 89,663 $ 641,708 $ (3,210) =========== =========== ========== =========== ============ Balance, January 1, 1998 $ 870,930 $ (363,943) $ 89,768 $ 667,790 $ (2,624) Comprehensive Income: Net income 133,294 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $761) Realized gain (net of income tax of $620) Gain (loss) on foreign currency translation: Unrealized Realized Total Comprehensive Income Dividends: Common shares (86,781) Treasury shares acquired (182,502) 2 Issued: IWC Resources Corporation acquisition NEM Acquisition Employee stock purchase plan 251 608 Long-term incentive plan 7,966 575 (1,084) Amortization of unearned compensation 1,383 Other 2 (742) ----------- ----------- ---------- ----------- ------------ Balance, September 30, 1998 $ 870,930 $ (538,228) $ 90,955 $ 713,561 $ (2,325) ========== =========== =========== ========== =========== ============
Accumulated Shares Other ------------------------------------- Nine Months Ended Comprehensive Comprehensive Common Treasury (continued) Income Total Income Shares Shares ======================== ========== ========== ========== ========== ========== Balance, January 1, 1997 $ 2,608 $ 1,100,501 $ - 147,784,218 (28,172,896) Comprehensive Income: Net income 134,943 134,943 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $794) 1,298 1,298 1,298 Realized Gain (loss) on foreign currency translation: Unrealized (144) (144) (144) Realized - ----------------- Total Comprehensive Income $ 136,097 Dividends: =========== Common shares (84,479) Treasury shares acquired (103,730) (5,237,750) Issued: IWC Resources Corporation acquisition 207,412 10,580,764 NEM Acquisition 5,469 270,064 Employee stock purchase plan 527 26,326 Long-term incentive plan 3,520 257,066 Amortization of unearned compensation 1,513 Other (125) ---------- --------- ----------- ----------- Balance, September 30, 1997$ 3 ,762 $ 1,266,705 147,784,218 (22,276,426) ========== =========== =========== =========== Balance, January 1, 1998 $ 2,867 $ 1,264,788 $ - 147,784,218 (23,471,554) Comprehensive Income: Net income 133,294 133,294 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $140) 232 232 232 Realized (net of income tax of $1,340) (2,196) (2,196) (2,196) Gain (loss) on foreign currency translation: Unrealized (1,264) (1,264) (1,264) Realized 186 186 186 ----------- Total Comprehensive Income $ 130,252 Dividends: =========== Common shares (86,781) Treasury shares acquired (182,500) (6,620,413) Issued: IWC Resources Corporation acquisition NEM Acquisition Employee stock purchase plan 859 31,512 Long-term incentive plan 7,457 453,344 Amortization of unearned compensation 1,383 Other (740) --------------- --------- ----------------- -------- Balance, September 30, 1998$ (175) $ 1,134,718 147,784,218 (29,607,111) ========== ============== ========== ==============
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY Additional (Dollars in thousands) Common Treasury Paid-in Retained Twelve Months Ended Shares Shares Capital Earnings Other ======================== ========== ========== ========== ========== ========== Balance, October 1, 1996 $ 870,930 $ (352,807) $ 2,774 $ 566,903 $ (5,102) Comprehensive Income: Net income 186,352 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $1,187) Realized Gain (loss) on foreign currency translation: Unrealized Realized Total Comprehensive Income Dividends: Common shares (111,421) Treasury shares acquired (147,290) 2 Issued: IWC Resources Corporation acquisition 152,405 55,007 NEM Acquisition 4,118 1,351 Employee stock purchase plan 284 411 Long-term incentive plan 7,142 116 (443) Amortization of unearned compensation 2,335 Other 2 (126) ---------- ----------- ---------- ----------- ----------- Balance, September 30, 1997 $ 870,930 $ (336,148) $ 89,663 $ 641,708 $ (3,210) ---------- ----------- ---------- ----------- ----------- Net income 189,200 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $1,001) Realized (net income tax of $620) Gain (loss) on foreign currency translation: Unrealized Realized Total Comprehensive Income Dividends: Common shares (116,605) Treasury shares acquired (211,843) 1 Issued: IWC Resources Corporation acquisition NEM Acquisition Employee stock purchase plan 315 714 Long-term incentive plan 9,448 575 (1,084) Amortization of unearned compensation 1,969 Other 2 (742) ---------- ----------- ---------- ----------- ------------ Balance, September 30, 1998 $ 870,930 $ (538,228) $ 90,955 $ 713,561 $ (2,325) ========== =========== ========== =========== ===========
Accumulated Shares Other ------------------------------------- Twelve Months Ended Comprehensive Comprehensive Common Treasury (continued) Income Total Income Shares Shares ======================== ========== =========== ========== =========== =========== Balance, October 1,1996 $ 244 $ 1,112,942 $ - 147,784,218 (26,168,332) Comprehensive Income: Net income 186,352 186,352 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $1,187) 1,942 1,942 1,942 Realized Gain (loss) on foreign currency translation: Unrealized 1,576 1,576 1,576 Realized - ---------- Total Comprehensive Income $ 189,870 Dividends: ========== Common shares (111,421) Treasury shares acquired (147,288) (7,491,422) Issued: IWC Resources Corporation acquisition 207,412 10,580,764 NEM Acquisition 5,469 270,064 Employee stock purchase plan 695 35,734 Long-term incentive plan 6,815 496,766 Amortization of unearned compensation 2,335 Other (124) ---------- ----------- ----------- ----------- Balance, September 30, 1997 $ 3 7625 $ 1,266,705 147,784,218 (22,276,426) ---------- ----------- ----------- ----------- Net income 189,200 $ 189,200 Other comprehensive income, net of tax: Gain (loss) on available for sale securities: Unrealized gain (net of income tax of $1,001) 622 622 622 Realized (net income tax of $620) (2,195) (2,195) (2,195) Gain (loss) on foreign currency translation: Unrealized (2,550) (2,550) (2,550) Realized 186 186 186 ---------- Total Comprehensive Income $ 185,263 Dividends: ========== Common shares (116,605) Treasury shares acquired (211,842) (7,919,591) Issued: IWC Resources Corporation acquisition NEM Acquisition Employee stock purchase plan 1,029 39,562 Long-term incentive plan 8,939 549,344 Amortization of unearned compensation 1,969 Other (740) ---------- ----------- ----------- ----------- Balance, September 30, 1998 $ (175) $ 1,134,718 147,784,218 (29,607,111) ========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Statement of Cash Flows (In thousands) Three Months Nine Months Ended September 30, Ended September 30, ------------------------------ ------------------------------- 1998 1997 1998 1997 ======== ======== ======== ======== Cash flows from operating activities: Net income $ 43,127 $ 35,869 $ 133,294 $ 134,943 Adjustments to reconcile net income to net cash: Depreciation and amortization 64,417 64,712 191,334 187,471 Deferred federal and state income taxes, net (6,991) (411) (49,641) (33,506) Deferred investment tax credits, net (1,821) (1,832) (5,463) (5,467) Advance contract payment 475 475 1,425 1,425 Change in certain assets and liabilities -* Accounts receivable, net 31,696 3,896 39,726 22,959 Other receivables (3,644) 29,916 70,422 (39,436) Electric production fuel (1,041) 11,484 1,297 9,335 Materials and supplies (1,046) 744 (1,586) 727 Natural gas in storage (34,467) (36,897) (10,607) (6,931) Accounts payable (6,067) 5,171 (23,697) (54,980) Taxes accrued 2,571 (4,664) 15,048 30,585 Fuel adjustment clause 2,428 4,451 5,732 5,343 Gas cost adjustment clause (6,511) (13,436) 56,655 39,723 Accrued employment costs 5,215 3,284 (12,730) 1,359 Other accruals (3,684) (1,635) (12,277) 11,264 Other, net (14,411) 15,641 (22,300) 24,470 ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities 70,246 116,768 376,632 329,284 ---------- ---------- ---------- ---------- Cash flows provided by (used in) investing activities: Utilities construction expenditures (56,395) (51,833) (176,196) (160,504) Acquisition of IWC Resources Corporation, net of cash acquired -- -- -- (288,932) Acquisition of minority interest -- -- -- (5,641) Proceeds from disposition of assets 24 186 10,443 29,961 Proceeds from settlement of litigation -- 41,069 -- 41,069 Other, net (14,964) 1,128 (63,631) (18,649) ----------- ----------- ----------- ----------- Net cash used in investing activities (71,335) (9,450) (229,384) (402,696) ----------- ----------- ----------- ----------- Cash flows provided by (used in) financing activities: Issuance of long-term debt 40,503 42,669 46,878 450,931 Issuance of short-term debt 774,540 203,400 1,661,869 778,495 Net change in commercial paper 42,800 19,850 63,400 (235,705) Retirement of long-term debt (41,631) (116,909) (79,204) (118,416) Retirement of short-term debt (707,999) (228,807) (1,575,695) (827,302) Retirement of preferred shares (600) (600) (1,856) (1,853) Issuance of common shares 2,561 1,586 9,400 216,919 Acquisition of treasury shares (84,520) (1,211) (182,500) (103,740) Cash dividends paid on common shares (28,871) (28,247) (88,180) (83,342) Cash dividends paid on preferred shares -- -- -- -- Other, net 112 (155) 350 (623) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities (3,105) (108,424) (145,538) 75,364 ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents (4,194) (1,106) 1,710 1,952 Cash and cash equivalents at Beginning of period 36,684 29,391 30,780 26,333 ---------- ---------- ---------- ---------- Cash and cash equivalents at End of period $ 32,490 $ 28,285 $ 32,490 $ 28,285 ========== ========== ========== ========== *Net of effect from purchase of IWC Resources Corporation The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Statement of Cash Flows (In thousands) Twelve Months Ended September 30, ---------------------------------- 1998 1997 ======== ======== Cash flows from operating activities: Net income $ 189,200 $ 186,352 Adjustments to reconcile net income to net cash: Depreciation and amortization 253,667 247,902 Deferred federal and state income taxes, net (17,784) (26,790) Deferred investment tax credits, net (7,372) (7,553) Advance contract payment 1,900 1,900 Change in certain assets and liabilities -* Accounts receivable, net (20,602) (82,883) Other receivables 44,811 (52,397) Electric production fuel (392) 14,050 Materials and supplies 252 666 Natural gas in storage (19) 10,529 Accounts payable 12,716 26,159 Taxes accrued (12,148) 57,233 Fuel adjustment clause 6,859 6,001 Gas cost adjustment clause 27,155 (782) Accrued employment costs (1,954) 7,082 Other accruals (14,112) 8,793 Other, net 13,628 13,812 ----------- ----------- Net cash provided by (used in) operating activitis 475,805 410,074 ----------- ----------- Cash flows provided by (used in) investing activities: Utilities construction expenditures (234,623) (217,903) Acquisition of IWC Resources Corporation, net of cash acquired -- (288,932) Acquisition of minority interest -- (5,641) Proceeds from disposition of assets 16,475 29,961 Proceeds from settlement of litigation -- 41,069 Other, net (99,802) (22,809) ----------- ----------- Net cash used in investing activities (317,950) (464,255) ----------- ----------- Cash flows provided by (used in) financing activities: Issuance of long-term debt 254,179 451,847 Issuance of short-term debt 1,912,882 1,243,247 Net change in commercial paper 74,460 (102,500) Retirement of long-term debt (285,392) (119,037) Retirement of short-term debt (1,790,617) (1,414,651) Retirement of preferred shares (2,411) (2,411) Issuance of common shares 11,047 220,368 Acquisition of treasury shares (211,837) (147,298) Cash dividends paid on common shares (116,431) (108,847) Cash dividends paid on preferred shares -- (647) Other, net 470 (510) ----------- ----------- Net cash provided by (used in) financing activities (153,650) 19,561 ----------- ----------- Net increase (decrease) in cash and cash equivalents 4,205 (34,620) Cash and cash equivalents at Beginning of period 28,285 62,905 ----------- ----------- Cash and cash equivalents at End of period $ 32,490 $ 28,285 =========== =========== *Net of effect from purchase of IWC Resources Corporation.
The accompanying notes to consolidated financial statements are an integral part of this statement. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) HOLDING COMPANY STRUCTURE: NIPSCO Industries, Inc. (Industries) is an energy/utility-based holding company providing electric energy, natural gas and water to the public through its six wholly-owned regulated subsidiaries (Utilities): Northern Indiana Public Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo Gas); Northern Indiana Fuel and Light Company, Inc. (NIFL); Crossroads Pipeline Company (Crossroads); Indianapolis Water Company (IWC); and Harbour Water Corporation (Harbour). Industries' regulated gas and electric subsidiaries (Northern Indiana, Kokomo Gas, NIFL and Crossroads) are referred to as "Energy Utilities"; and regulated water subsidiaries (IWC, and Harbour) are referred to as "Water Utilities." Industries also provides non-regulated energy/utility-related services including gas marketing and trading; wholesale power marketing; power generation; gas transmission, supply and storage; installation, repair and maintenance of underground pipelines; utility line locating and marking; and related products targeted at customer segments principally through the following wholly-owned subsidiaries: NIPSCO Development Company, Inc. (Development); NI Energy Services, Inc. (Services); Primary Energy, Inc. (Primary); Miller Pipeline Corporation (Miller); and SM&P Utility Resources, Inc. (SM&P). NIPSCO Capital Markets, Inc. (Capital Markets) handles financing for Industries and its subsidiaries, other than Northern Indiana and IWCR. These subsidiaries, other than the wholesale power marketing operations of Services, are referred to collectively as "Products and Services." On March 25, 1997, Industries acquired IWC Resources Corporation (IWCR). IWCR's subsidiaries include two regulated water utilities (IWC, and Harbour) and five non-utility companies including Miller and SM&P. On December 16, 1997, the Board of Directors authorized a two-for-one split of Industries' common stock. The stock split was paid February 20, 1998, to shareholders of record at the close of business January 30, 1998. All references to number of shares reported for the period including per share amounts and stock option data of Industries' common stock reflect the two-for-one stock split as if it had occurred at the beginning of the earliest period. On December 18, 1997, Industries and Bay State Gas Company signed a definitive merger agreement under which Industries will acquire all of the common stock of Bay State Gas Company in a stock-for-stock transaction. Refer to "Purchase of Bay State Gas Company" in Note 4 to Consolidated Financial Statements for a more detailed discussion of the proposed acquisition. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION. The consolidated financial statements include the accounts of majority-owned subsidiaries of Industries after the elimination of significant intercompany accounts and transactions. Investments for which Industries has at least a 20% interest and certain joint ventures are accounted for under the equity method. Investments with less than a 20% interest are accounted for under the cost method. Certain reclassifications were made to conform the prior years' financial statements to the current presentation. USE OF ESTIMATES. 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 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. OPERATING REVENUES. Utility revenues are recorded based on estimated service rendered, but are billed to customers monthly on a cycle basis. Electric and gas marketing revenues are recognized as the related commodity is delivered to customers. Construction revenues are recognized on the percentage of completion method whereby revenues are recognized in proportion to costs incurred over the life of each project. Industries records provisions for losses on construction contracts, if any, in the period in which such losses become probable. DEPRECIATION AND MAINTENANCE. The Utilities provide depreciation on a straight-line method over the remaining service lives of the electric, gas, water and common properties. The approximate weighted average remaining lives for major components of electric, gas, and water plant are as follows: Electric: Electric generation plant 24 years Transmission plant 26 years Distribution plant 25 years Other electric plant 24 years
The depreciation provision for electric utility plant, as a percentage of the original cost, was 3.8% for the three-month period, 3.7% for the nine-month period, and 3.6% for the twelve-month period, ended September 30,1998, and was 3.6% for the three-month and nine-month periods, and 3.7% for the twelve-month period ended September 30, 1997. Gas: Gas storage plant 18 years Transmission plant 34 years Distribution plant 27 years Other gas plant 24 years
The depreciation provision for gas utility plant, as a percentage of the original cost, was 5.1% for the three-month, nine-month, and twelve-month periods ended September 30, 1998, and was 5.2% for the three-month, 5.1% for the nine-month, and 5.0% for the twelve-month period ended September 30, 1997. Water: Water source and treatment plant 34 years Distribution plant 68 years Other water plant 13 years
The depreciation provision for water utility plant, as a percentage of the original cost, was 2.2% for the three-month, and 2.1% for the nine-month and twelve-month periods ended September 30, 1998, and was 2.0% for the three-month, 2.1% for the nine-month, and 2.0% for the twelve-month period ended September 30, 1997. The Utilities follow the practice of charging maintenance and repairs, including the cost of renewals of minor items of property, to maintenance expense accounts, except for repairs of transportation and service equipment which are charged to clearing accounts and redistributed to operating expense and other accounts. When property which represents a retired unit is replaced or removed, the cost of such property is credited to utility plant, and such cost, together with the cost of removal less salvage, is charged to the accumulated provision for depreciation. PLANT ACQUISITION ADJUSTMENTS. Utility plant includes amounts representing the excess of purchase price over underlying book values associated with the acquisitions of Kokomo Gas, NIFL, IWC and Harbour. These amounts are being amortized over a forty-year period from the respective dates of acquisition. The plant acquisition adjustments net of accumulated amortization were $186.7 million and $190.4 million at September 30, 1998 and December 31, 1997, respectively. AMORTIZATION OF SOFTWARE COSTS. Industries has capitalized software relating to various technology functions. At the date of installation, Industries estimates that the specific software will have a useful life between five and ten years. The Federal Energy Regulatory Commission (FERC) prescribes certain amortization periods, and Industries' management has determined that, on average, these are reasonable useful life estimates for the portfolio of capitalized software. The Energy Utilities include these amortization estimates, based on useful life, in their quarterly filings with the Indiana Utility Regulatory Commission (Commission). INTANGIBLE ASSETS. The excess of cost over the fair value of the net assets of non-utility subsidiaries acquired is reported as goodwill and is being amortized on a straight-line basis over a weighted average period of 34 years. Other intangible assets approximating $7.7 million are being amortized over a period of eight years. Industries assesses the recoverability of its intangible assets on a periodic basis to confirm that expected future cash flows will be sufficient to support the recorded intangible assets. Accumulated amortization of intangibles at September 30, 1998 and December 31, 1997, was approximately $4.0 million and $1.6 million, respectively. COAL RESERVES. Northern Indiana has a long-term mining contract to mine its coal reserves through the year 2001. The costs of these reserves are being recovered through the ratemaking process as such coal reserves are used to produce electricity. POWER PURCHASED. Power purchases and net interchange power with other electric utilities under interconnection agreements and wholesale power purchases are included in Cost of Sales under the caption "Power purchased." ACCOUNTS RECEIVABLE. At September 30, 1998, Northern Indiana had sold $100 million of its accounts receivable under a sales agreement which expires May 31, 2002. CUSTOMER ADVANCES AND CONTRIBUTIONS IN AID OF CONSTRUCTION. IWC allows developers to install and provide for the installation of water main extensions, which are to be transferred to IWC upon completion. The cost of the main extensions and the amount of any funds advanced for the cost of water mains installed are included in customer advances for construction and are generally refundable to the customer over a period of ten years. Advances not refunded within ten years are permanently transferred to contributions in aid of construction. Comprehensive Income. Industries adopted SFAS No. 130, "Reporting Comprehensive Income" effective January 1, 1998. The objective of the statement is to report comprehensive income which is a measure of all changes in equity of an enterprise which result from transactions or other economic events during the period other than transactions with shareholders. This information is reported in Industries' Consolidated Statement of Common Shareholders' Equity. Industries' components of accumulated other comprehensive income includes unrealized gains (losses) on available for sale securities and unrealized gains (losses) on foreign currency translation adjustments. The accumulated amounts for these components, respectively, were $4.0 million and $(0.04) million as of July 1, 1997; $4.7 million and $(2.1) million as of July 1, 1998; $2.7 million and $(0.1) million as of January 1, 1997; $4.4 million and $(1.5) million as of January 1, 1998; $2.1 million and $(1.9) million, as of October 1, 1996: and $4.0 million and $(0.3) million as of October 1, 1997. STATEMENT OF CASH FLOWS. For the purposes of the Consolidated Statement of Cash Flows, Industries considers temporary cash investments with an original maturity of three months or less to be cash equivalents. Cash paid during the periods reported for income taxes and interest was as follows:
Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, --------------------- ------------------------ ------------------- (In thousands) 1998 1997 1998 1997 1998 1997 ======= ======= ======= ======= ======= ======= Income taxes $ 19,313 $ 19,000 $ 95,413 $ 80,700 $ 131,562 $ 80,700 Interest, net of amounts capitalized $ 27,351 $ 24,059 $ 83,537 $ 68,714 $ 117,184 $ 99,906
FUEL ADJUSTMENT CLAUSE. All metered electric rates contain a provision for adjustment in charges for electric energy to reflect increases and decreases in the cost of fuel and the fuel cost of purchased power through operation of a fuel adjustment clause. As prescribed by order of the Commission applicable to metered retail rates, the adjustment factor has been calculated based on the estimated cost of fuel and the fuel cost of purchased power in a future three-month period. If two statutory requirements relating to expense and return levels are satisfied, any under-recovery or over-recovery caused by variances between estimated and actual cost in a given three-month period will be included in a future filing. Northern Indiana records any under-recovery or over-recovery as a current asset or current liability until such time as it is billed or refunded to its customers. The fuel adjustment factor is subject to a quarterly hearing by the Commission and remains in effect for a three-month period. GAS COST ADJUSTMENT CLAUSE. All metered gas sales rates contain an adjustment factor, which reflects the increases and decreases in the cost of purchased gas, contracted gas storage and storage transportation charges. The Energy Utilities record any under-recovery or over-recovery as a current asset or current liability until such time it is billed or refunded to customers. The gas cost adjustment factor for Northern Indiana is subject to a quarterly hearing by the Commission and remains in effect for a three-month period. The gas cost adjustment factor for each of Kokomo Gas and NIFL is subject to semi-annual hearings by the Commission and remains in effect for a six-month period. If the statutory requirement relating to the level of return is satisfied, any under-recovery or over-recovery caused by variances between estimated and actual cost in a given three-month or six-month period will be included in a future filing. The Northern Indiana gas cost adjustment factor includes a gas cost incentive mechanism (GCIM) which allows Northern Indiana to share any cost savings or cost increases with customers based on a comparison of Northern Indiana's actual gas supply portfolio costs to a market based benchmark price. See note 6, FERC Order No. 636 for a discussion of gas transition cost charges. NATURAL GAS IN STORAGE. Northern Indiana's natural gas in storage is valued using the last-in, first-out (LIFO) inventory methodology. Based on the average cost of gas purchased in September 1998 and December 1997 the estimated replacement cost of gas in storage (current and non-current) at September 30, 1998 and December 31, 1997 exceeded the stated LIFO cost by approximately $15 million and $42 million, respectively. Certain other subsidiaries of Industries have natural gas in storage valued at average cost. HEDGING ACTIVITIES. Industries utilizes a variety of commodity-based derivative financial instruments to reduce the price risk inherent in its natural gas and electric power marketing activities. The gains and losses on these derivative financial instruments are deferred (Other Current Assets or Other Current Liabilities) pursuant to an identified risk reduction strategy. Such deferrals are recognized in income concurrent with the disposition of the underlying physical commodity. In certain circumstances, a derivative financial instrument will serve to hedge the acquisition cost of gas injected into storage. In this situation, the gain or loss on the derivative financial instrument is deferred as part of the cost basis of gas in storage and recognized upon the ultimate disposition of the natural gas. If a derivative financial instrument contract is terminated early because it is probable that a transaction or anticipated transaction will not occur, any gain or loss as of such date is immediately recognized in earnings. 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 when the associated transaction or anticipated transaction affects earnings. Industries uses commodity futures contracts, options and swaps to hedge the impact of natural gas price fluctuations related to its business activities, including price risk related to the physical location of the natural gas (basis risk). As of September 30, 1998, Industries had open derivative financial instruments representing hedges of natural gas sales of 23.6 billion cubic feet (Bcf), natural gas purchases of 14.1 Bcf and net basis differentials of 18.8 Bcf. The net deferred gain on these derivative financial instruments as of September 30, 1998 was not material. Industries utilizes options to hedge price risk associated with a portion of its fixed price purchase and sale commitments related to electricity. The deferred premiums on these options as of September 30, 1998 were not material. IMPACT OF ACCOUNTING STANDARDS. During June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities". This statement standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that a company recognize those items as assets or liabilities in the balance sheet and measure them at fair value. This Statement generally provides for matching of the timing of gain or loss recognition of derivatives instruments designated as a hedge with the recognition of changes in the fair value of the hedged asset or liability through earnings. This Statement also provides that the effective portion of a hedging instrument's gain or loss on a forecasted transaction be initially reported in other comprehensive income and subsequently reclassified into earnings when the hedged forecasted transaction affects earnings. Industries expects to adopt this Statement on January 1, 2000, and is currently assessing the impact of adoption on its financial position and results of operations. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP provides guidance for the capitalization of certain costs related to computer software developed or obtained for internal use. Industries expects to adopt SOP 98-1 on January 1, 1999 and estimates that adoption will not have a significant impact on its financial position or results of operations. REGULATORY ASSETS. The Utilities' operations are subject to the regulation of the Commission and, in the case of the Energy Utilities, the FERC. Accordingly, the Utilities' accounting policies are subject to the provisions of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." The Utilities monitor changes in market and regulatory conditions and the resulting impact of such changes in order to continue to apply the provisions of SFAS No. 71 to some or all of their operations. As of September 30, 1998 and December 31, 1997, the regulatory assets identified below represent probable future revenue to the Utilities associated with certain incurred costs as these costs are recovered through the rate-making process. If a portion of the Utilities' operations becomes no longer subject to the provisions of SFAS No. 71, a write-off of certain regulatory assets might be required, unless some form of transition cost recovery is established by the appropriate regulatory body which would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. Regulatory assets were comprised of the following items:
September 30, December 31, (In thousands) 1998 1997 =========== ========== Unamortized reacquisition premium on debt (Note 19) $ 44,112 $ 46,748 Unamortized R.M. Schahfer Unit 17 and Unit 18 carrying charges and deferred depreciation (See below) 63,383 66,546 Bailly scrubber carrying charges and deferred depreciation (See below) 9,179 9,880 Deferred SFAS No. 106 expense not recovered (Note 10) 83,253 87,653 FERC Order No. 636 transition costs (Note 6) 23,126 28,744 Regulatory income tax asset, net (Note 8) 7,398 6,941 Other 5,025 4,261 ----------- ----------- 235,476 250,773 Less: Current portion of regulatory assets 33,643 39,260 ----------- ----------- $ 201,833 $ 211,513 ========== ==========
CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion of R. M. Schahfer Units 17 and 18, Northern Indiana capitalized the carrying charges and deferred depreciation in accordance with orders of the Commission until the cost of each unit was allowed in rates. Such carrying charges and deferred depreciation are being amortized over the remaining life of each unit. Northern Indiana has capitalized carrying charges and deferred depreciation and certain operating expenses relating to its scrubber service agreement for its Bailly Generating Station in accordance with an order of the Commission. The accumulated balance of the deferred costs and related carrying charges is being amortized over the remaining life of the scrubber service agreement. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Allowance for funds used during construction (AFUDC) is charged to construction work in progress during the period of construction and represents the net cost of borrowed funds used for construction purposes and a reasonable rate upon other (equity) funds. Under established regulatory rate practices, after the construction project is placed in service, Northern Indiana is permitted to include in the rates charged for utility services (a) a fair return on and (b) depreciation of such AFUDC included in plant in service. At January 1, 1996, a pre-tax rate of 5.5% for all construction was being used; effective January 1, 1997 the rate remained at 5.5%; and effective January 1, 1998, the rate increased to 6.0%. FOREIGN CURRENCY TRANSLATION. Translation gains or losses are based upon the end-of-period exchange rate and are recorded as a separate component of other comprehensive income reflected in the Consolidated Statement of Shareholders' Equity. INVESTMENTS IN REAL ESTATE. Development invests in a series of affordable housing projects within the Utilities' service territories. These investments include certain tax benefits, including low-income housing tax credits and tax deductions for operating losses of the housing projects. Development accounts for these investments using the equity method. Investments, at equity, include $34.8 million and $30.1 million relating to affordable housing projects at September 30, 1998 and December 31, 1997, respectively. INCOME TAXES. Deferred income taxes are recognized as costs in the ratemaking process by the commissions having jurisdiction over the rates charged by the Utilities. Deferred income taxes are provided as a result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. These taxes are reversed by a debit or credit to deferred income tax expense as the temporary differences reverse. Investment tax credits have been deferred and are being amortized to income over the life of the related property. (3) PURCHASE OF IWC RESOURCES CORPORATION: On March 25, 1997, Industries acquired all the outstanding common stock of IWCR for $290.5 million. Industries financed this transaction with debt of approximately $83.0 million and issuance of approximately 10.6 million Industries' common shares. Industries accounted for the acquisition as a purchase. The purchase price was allocated to the assets and liabilities acquired based on their fair values. (4) PURCHASE OF BAY STATE GAS COMPANY: On December 18, 1997, Industries and Bay State Gas Company (Bay State) signed a definitive merger agreement under which Industries will acquire all of the common stock of Bay State in a stock-for-stock transaction valued at $40 per Bay State share. The transaction is valued at approximately $551 million. Bay State shareholders will have the option of taking up to 50 percent of the total purchase price in cash. Consummation of the merger is subject to certain closing conditions, including the approval by the Securities and Exchange Commission, FERC and state regulatory agencies in Massachusetts, New Hampshire and Maine. The shareholders of Bay State approved the merger on May 27, 1998, and the state regulatory agencies in Massachusetts, New Hampshire, and Maine have also approved the merger. The transaction is expected to be completed in late 1998. Bay State, one of the largest natural gas utilities in New England, provides natural gas distribution service to more than 300,000 customers in Massachusetts, New Hampshire and Maine. The combined company will be one of the 10 largest natural gas distribution systems in the nation, servicing more than 1 million gas customers. In addition, Industries and Bay State have entered into joint marketing agreements to expand the operation of Bay State's non-regulated energy service companies. (5) NESI ENERGY MARKETING CANADA LTD. LITIGATION: On October 31, 1996, Services' wholly-owned subsidiary NIPSCO Energy Services Canada Ltd. (NESI Canada) acquired 70% of the outstanding shares of Chandler Energy Inc., a gas marketing and trading company located in Calgary, Alberta, and subsequently renamed it NESI Energy Marketing Canada Ltd. (NEMC). Between November 1 and November 27, 1996, gas prices in the Calgary market increased dramatically. As a result, NEMC was selling gas, pursuant to contracts entered into prior to the acquisition date, at prices substantially below its costs to acquire such gas. On November 27, 1996, NEMC ceased doing business and sought protection from its creditors under the Companies' Creditors Arrangement Act, a Canadian corporate reorganization statute. NEMC was declared bankrupt as of December 12, 1996. Certain creditors of NEMC have filed claims in the Canadian courts against Industries, Services, Capital Markets and NESI Canada, alleging certain misrepresentations relating to NEMC's financial condition and claiming damages. Industries and its affiliates intend to vigorously defend against such claims and any other claims seeking to assert that any party other than NEMC is responsible for NEMC's liabilities. Industries has fully reserved its investment in NEMC. Management believes that any additional loss relating to NEMC would not be material to the results of operations or financial position of Industries. (6) FERC ORDER NO. 636: Since December 1993, the Energy Utilities have paid approximately $140.5 million of interstate pipeline transition costs to pipeline suppliers to reflect the impact of FERC Order No. 636. The Energy Utilities expect that additional transition costs will not be significant. The Commission has approved the recovery of these FERC-allowed transition costs on a volumetric basis from sales and transportation customers. Regulatory assets, in amounts corresponding to the costs recorded but not yet collected, have been recorded to reflect the ultimate recovery of these costs. (7) ENVIRONMENTAL MATTERS: The Utilities have an ongoing program to remain aware of laws and regulations involved with hazardous waste and other environmental matters. The Utilities intend to continue to evaluate their facilities and properties with respect to these rules and identify any sites that would require corrective action. The Utilities have recorded a reserve of approximately $16 million to cover probable corrective actions as of September 30, 1998; however, environmental regulations and remediation techniques are subject to future change. The ultimate cost could be significant, depending on the extent of corrective actions required. Based upon investigations and management's understanding of current laws and regulations, the Utilities believe that any corrective actions required, after consideration of insurance coverages and contributions from other potentially responsible parties, will not have a significant impact on the results of operations or financial position of Industries. Because of major investments made in modern environmental control facilities and the use of low-sulfur coal, all of Northern Indiana's electric production facilities now comply with the sulfur dioxide limitations contained in the acid deposition provisions of the Clean Air Act Amendments of 1990 (CAAA). Reflecting this compliance, on December 31, 1997, the Indiana Department of Environmental Management (IDEM) issued the Phase II Acid Rain permits for all four of Northern Indiana's electric generating stations. As discussed below, however, other provisions of the CAAA impose additional requirements on Northern Indiana. On December 19, 1996, the Environmental Protection Agency (EPA) promulgated rules for Phase II of the Acid Rain nitrogen oxides (NOx) reduction program. For Phase I, during the summer of 1997, the EPA formally approved the Acid Rain Early Election permits for the pulverized coal units at D. H. Mitchell and R. M. Schahfer stations. The permits establish the Phase I limits for the NOx emissions on these units until 2007. On December 23, 1997, Northern Indiana submitted an Acid Rain Phase II NOx Compliance Plan to IDEM which included additional controls for two cyclone fired boilers and a plan for emission averaging to achieve the NOx limits for the system by 2000. Northern Indiana is conducting tests to demonstrate a cost effective combustion control technique on the Unit 12 cyclone fired boiler at Michigan City during 1998. The CAAA also contain other provisions that could lead to limitations on emissions of hazardous air pollutants and other air pollutants as discussed below, which may require significant capital expenditures for control of these emissions. Northern Indiana cannot predict what these requirements will be or the costs of complying with these potential requirements. On September 24, 1998, the EPA Administrator signed the final rulemaking requiring certain states to reduce NOx levels to lower regional transport of ozone under the non-attainment provisions of the CAAA. Because NOx, along with other factors, contributes to ozone formation the EPA requires significant NOx reductions for 22 states, including Indiana, to address the ozone transport issue. According to the rule, the state of Indiana now has one year to develop an ozone control plan. Any resulting NOx emission limitations could be more restrictive than those imposed on electric utilities under the Acid Rain NOx reduction program. The EPA has encouraged states to achieve the reductions by requiring controls on electric utilities and large boilers. Northern Indiana is evaluating the EPA's final rule and evaluating potential requirements that could result from the final rule. The EPA issued final rules on July 18, 1997, revising the National Ambient Air Quality Standards for ozone and particulate matter. The revised standards begin a regulatory process that may lead to reductions in particulate, NOx emissions and possibly sulfur dioxide emissions from many sources including Northern Indiana's coal-fired boilers at its generating stations, beyond current CAAA requirements. Northern Indiana cannot predict the costs of complying with future control requirements to meet these new standards. Northern Indiana will continue to closely monitor developments in this area and anticipates the exact nature of the impact of the new standards on its operations will not be known for some time. The EPA has notified Northern Indiana that it is a Apotentially responsible party" (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and may be required to share in the cost of cleanup of several waste disposal sites identified by the EPA. The sites are in various stages of investigation, analysis and remediation. At each of the sites, Northern Indiana is one of several PRPs, and it is expected that remedial costs, as provided under CERCLA, will be shared among them. At some sites Northern Indiana and/or the other named PRPs are presently working with the EPA to clean up the sites and avoid the imposition of fines or added costs. In December 1997, at the Summit on Climate Change in Kyoto, Japan, 159 nations formally agreed to targets reducing worldwide levels of greenhouse gases. If the U.S. Senate ratifies the agreement, the Kyoto Protocol would impose an obligation on the United States to reduce its emissions of greenhouse gas to a level seven percent below 1990 levels during the period of 2008 to 2012. The impact of this agreement on Northern Indiana is uncertain. Northern Indiana, as a charter member of the Department of Energy's Climate Challenge Program, the electric industries' voluntary reduction effort, has already implemented over 21 projects to voluntarily reduce greenhouse gases emissions. Northern Indiana continues to investigate methods to address reduction in carbon dioxide emissions and will monitor the development of U. S. climate change policy. The Energy Utilities have instituted a program to investigate former manufactured-gas plants where one of them is the current or former owner. The Energy Utilities have identified twenty-eight of these sites and made visual inspections of these sites. Initial samplings have been conducted at twenty sites. Follow-up investigations have been conducted at thirteen sites and remedial measures have been selected at six sites. The Energy Utilities will continue their program to assess and cleanup sites. During the course of various investigations, the Energy Utilities have identified impacts to soil, groundwater, sediment and surface water from former manufactured-gas plants. At three sites where residues were noted seeping into rivers, Northern Indiana notified IDEM and the EPA and immediately took steps to contain the material. The Energy Utilities have worked with IDEM or the EPA on investigation or remedial activities at several sites. Six of the sites have been enrolled in the IDEM Voluntary Remediation Program (VRP). The goal of placing these sites in the VRP is to obtain IDEM approval of the selection and implementation of whatever remedial measures, if any, may be required. The Energy Utilities anticipate placing additional sites in the VRP after remedial measures have been selected. Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have entered into an agreement covering cost sharing and management of investigation and remediation programs at five former manufactured-gas plant sites at which both companies or their predecessors were former operators or owners. One of these sites is the Lafayette site which Indiana Gas had previously notified Northern Indiana is being investigated and remediated pursuant to an administrative order with IDEM. Northern Indiana also notified Cinergy Services, Inc. (Cinergy) (formerly PSI Energy, Inc.) that it was a former owner or operator of seven former manufactured-gas plants at which Northern Indiana had conducted or was planning investigation or remediation activities. In December 1996, Northern Indiana sent a written demand to Cinergy related to one of these sites, Goshen. Northern Indiana demanded that Cinergy pay Northern Indiana for costs Northern Indiana has already incurred and to be incurred to implement the needed remedy at the Goshen site. In August 1997, Northern Indiana filed suit in federal court against Cinergy seeking recovery of those costs. Northern Indiana and Cinergy are discussing settlement of that litigation. In 1994, the Energy Utilities approached various companies that provided insurance coverage which the Energy Utilities believe covers costs related to actions taken at former manufactured-gas plants. There has been litigation between Northern Indiana and various insurance companies over covered costs. Northern Indiana has filed claims in state court against various insurance companies, seeking coverage for costs associated with several former manufactured-gas plants and damages for alleged misconduct by some of the insurance companies. The state court action is now proceeding. Northern Indiana has received cash settlements from several of the insurance companies. The possibility that exposure to electric and magnetic fields (EMF) emanating from power lines, household appliances and other electric sources may result in adverse health effects has been the subject of public, governmental and media attention. Recently, researchers from the National Cancer Institute and the Childhood Cancer Group reported they found no evidence that magnetic fields in homes increase the risk of childhood leukemia. This study follows an EMF report released in 1997 by the U.S. National Research Council of the National Academy of Sciences, which concluded, after examining more than 500 EMF studies spanning 17 years, that, among other things, there was insufficient evidence to consider EMF a threat to human health. A new report in June 1998 from a National Institutes of Health panel accepted the position that EMF should be regarded as a "possible human carcinogen". Further panel comments also stated that the risk "is possibly quite small compared to many other public health risks." The Water Utilities are subject to pollution control and water quality control regulations, including those issued by the EPA, IDEM, the Indiana Water Pollution Control Board and the Indiana Department of Natural Resources. Under the Federal Clean Water Act and Indiana's regulations, IWC must obtain National Pollutant Discharge Elimination System (NPDES) permits for discharges from its water treatment stations. Applications for renewal of any expiring permits have been filed and are the subject of ongoing discussions with, but have not been finalized by, IDEM. These permits continue in effect pending review of the current applications. Under the Federal Safe Drinking Water Act (SDWA), the Water Utilities are subject to regulation by the EPA for the quality of water sold and treatment techniques used to make the water potable. The EPA promulgates nationally applicable maximum contaminant levels (MCLs) for contaminants found in drinking water. Management believes the Water Utilities are currently in compliance with all MCLs promulgated to date. The EPA has continuing authority, however, to issue additional regulations under the SDWA. In August 1996, Congress amended the SDWA to allow the EPA more authority to weigh the costs and benefits of regulations being considered in some, but not all, cases. The 1996 amendments do not, however, reduce the number of new standards previously required. Such standards promulgated could be costly and require substantial changes in the Water Utilities' operations. The Water Utilities would expect to recover the costs of such changes through their water rates; however, such recovery may not necessarily be timely. Under a 1991 law enacted by the Indiana Legislature, a water utility may petition the Commission for prior approval of its plans and estimated expenditures required to comply with provisions of, and regulations under, the Federal Clean Water Act and SDWA. Upon obtaining such approval, a water utility may include, to the extent of its estimated costs as approved by the Commission, such costs in its rate base for rate-making purposes and recover its costs of developing and implementing the approved plans if statutory standards are met. The capital costs for such new systems, equipment or facilities or modifications of existing facilities may be included in a water utility's rate base upon completion of construction of the project or any part thereof. While use of this statute is voluntary on the part of a water utility, if utilized, it should allow water utilities a greater degree of confidence in recovering major costs incurred to comply with environmentally related laws on a timely basis. (8) INCOME TAXES: Industries uses the liability method of accounting for income taxes under which deferred income taxes are recognized, at currently enacted income tax rates, to reflect the tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. To the extent certain deferred income taxes of the Utilities are recoverable or payable through future rates, regulatory assets and liabilities have been established. Regulatory assets are primarily attributable to undepreciated AFUDC-equity and the cumulative net amount of other income tax timing differences for which deferred taxes had not been provided in the past, when regulators did not recognize such taxes as costs in the rate-making process. Regulatory liabilities are primarily attributable to the Utilities' obligation to credit to ratepayers deferred income taxes provided at rates higher than the current federal tax rate currently being credited to ratepayers using the average rate assumption method and unamortized deferred investment tax credits. The components of the net deferred income tax liability at September 30, 1998 and December 31, 1997, are as follows:
September 30, December 31, (In thousands) 1998 1997 ============ =========== Deferred tax liabilities - Accelerated depreciation and other property differences $ 788,970 $ 779,223 AFUDC-equity 33,460 35,282 Adjustment clauses 11,485 35,253 Other regulatory assets 30,270 31,862 Reacquisition premium on debt 17,658 18,335 Deferred tax assets - Deferred investment tax credits (37,924) (40,017) Removal costs (153,405) (144,111) Other postretirement/postemployment benefits (49,200) (45,298) Other, net (28,071) (3,069) ----------- ----------- 613,243 667,460 Less: Deferred income taxes related to current assets and liabilities (15,650) 15,645 ----------- ----------- Deferred income taxes -noncurrent $ 628,893 $ 651,815 =========== ===========
Federal and state income taxes as set forth in the Consolidated Statement of Income are comprised of the following:
Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, ---------------------- ---------------------- ---------------------- (In thousands) 1998 1997 1998 1997 1998 1997 ========= ========= ========= ========= ========= ========= Current income taxes - Federal $ 26,063 $ 19,259 $ 107,974 $ 99,532 $ 106,568 $ 122,724 State 4,241 3,205 16,389 15,155 18,307 18,450 --------- --------- --------- --------- --------- --------- 30,304 22,464 124,363 114,687 124,875 141,174 --------- --------- --------- --------- --------- --------- Deferred income taxes, net - Federal (6,520) (434) (46,020) (31,088) (16,704) (24,929) State (471) 23 (3,621) (2,418) (1,080) (1,861) --------- --------- --------- --------- --------- --------- (6,991) (411) (49,641) (33,506) (17,784) (26,790) --------- --------- --------- --------- --------- --------- Deferred investment tax credits, net (1,821) (1,832) (5,463) (5,467) (7,372) (7,553) --------- --------- --------- --------- --------- --------- Total income taxes $ 21,492 $ 20,221 $ 69,259 $ 75,714 $ 99,719 $ 106,831 ========= ========= ========= ========= ========= =========
A reconciliation of total income tax expense to an amount computed by applying the statutory federal income tax rate to pre-tax income is as follows:
Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, ---------------------- ---------------------- ---------------------- (In thousands) 1998 1997 1998 1997 1998 1997 ========= ========= ========= ========= ========= ========= Net income $ 43,127 $ 35,869 $ 133,294 $ 134,943 $ 189,200 $ 186,352 Add-Income taxes 21,492 20,221 69,259 75,714 99,719 106,831 Dividend requirements on preferred stocks of subsidiaries 2,122 2,174 6,417 6,520 8,588 8,681 --------- --------- --------- --------- --------- --------- Income before preferred dividend requirements of subsidiaries and income taxes $ 66,741 $ 58,264 $ 208,970 $ 217,177 $ 297,507 $ 301,864 ========= ========= ========= ========= ========= ========= Amount derived by multiplying pre-tax income by the statutory rate $ 23,360 $ 20,391 $ 73,140 $ 76,012 $ 104,127 $ 105,651 Reconciling items multiplied by the statutory rate: Book depreciation over related tax depreciation 1,996 1,021 3,992 3,109 4,955 4,710 Amortization of deferred investment tax credits (1,821) (1,832) (5,463) (5,467) (7,372) (7,553) State income taxes, net of federal income tax benefit 2,286 2,106 7,032 7,433 10,820 10,132 Reversal of deferred taxes provided at rates in excess of the current federal income tax rate (2,543) (1,033) (5,085) (4,069) (5,079) (6,485) Low-income housing credits (960) (764) (2,880) (2,292) (3,644) (2,868) Nondeductible amounts related to amortization of intangible assets and plant acquisition adjustments 629 515 1,887 1,126 2,401 1,222 Other, net (1,455) (183) (3,364) (138) (6,489) 2,022 --------- --------- --------- --------- --------- --------- Total income taxes $ 21,492 $ 20,221 $ 69,259 $ 75,714 $ 99,719 $ 106,831 ========= ========= ========= ========= ========= =========
(9) PENSION PLANS: Industries and its subsidiaries have four noncontributory, defined benefit retirement plans covering the majority of their employees. Benefits under the plans reflect the employees' compensation, years of service and age at retirement. The change in the benefit obligation for 1997 and 1996 is as follows:
(In thousands) 1997 1996 ========= ========= Benefit obligation at beginning of year (January 1,) $ 743,634 $ 759,557 Service cost 14,714 16,300 Interest cost 57,938 53,477 Plan amendments 25,096 -- Actuarial (gain) loss 73,818 (39,024) Acquisition of IWCR 15,722 -- Benefits paid (55,166) (46,676) --------- --------- Benefit obligation at end of the year (December 31,) $ 875,756 $ 743,634 ========= ==========
The change in the fair value of the plans' assets for the years 1997 and 1996 is as follows:
(In thousands) 1997 1996 ========= ========= year(January 1,) $ 790,978 $ 705,541 Actual return on plans' assets 126,695 87,407 Employer contributions 46,440 44,706 Acquisition of IWCR 15,910 -- Benefits paid (55,166) (46,676) --------- --------- Plan assets at fair value at end of the year (December 31,) $ 924,857 $ 790,978 ========= =========
The plans' assets are invested primarily in common stocks, bonds and notes. The plans' funded status as of January 1, 1998 and January 1, 1997 is as follows:
January 1, January 1, (In thousands) 1998 1997 ========= ========= Plan assets in excess of benefit obligation $ 49,101 $ 47,344 Unrecognized net actuarial loss (46,960) (66,976) Unrecognized prior service cost 47,114 25,172 Unrecognized transition amount 32,107 38,062 --------- --------- Prepaid pension costs $ 81,362 $ 43,602 ========= =========
The benefit obligation is the present value of future pension benefit payments and is based on a plan benefit formula which considers expected future salary increases. Discount rates of 7.00% and 7.75% and rates of increase in compensation levels of 4.5% and 5.5% were used to determine the benefit obligation at January 1, 1998 and 1997, respectively. The increase in the benefit obligation at January 1, 1998 was impacted by the decrease in the discount rate from 7.75% to 7.00%. Prepaid pension costs were $114.7 million as of September 30, 1998. The following items are the components of provisions for pensions for the three-month, nine-month and twelve-month periods ended September 30, 1998 and September 30, 1997:
Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, ----------------------- ---------------------- --------------------- (In thousands) 1998 1997 1998 1997 1998 1997 ======= ======= ======= ======= ======= ======= Service costs $ 4,850 $ 6,641 $ 17,886 $ 16,023 $ 16,301 $ 17,240 Interest costs 15,712 31,651 59,280 65,003 51,922 68,869 Expected return on plan assets (19,619) (40,486) (78,125) (81,966) (68,412) (110,396) Amortization of transition obligation 1,262 3,216 4,928 6,569 3,685 6,937 Amortization of prior service costs 96 -- 4,279 -- 3,869 -- Other net amortization and deferral -- 2,011 -- 3,911 -- 27,975 --------- --------- --------- --------- --------- --------- $ 2,301 $ 3,033 $ 8,248 $ 9,540 $ 7,365 $ 10,625 ========= ========= ========= ========= ========= =========
Assumptions used in the valuation and determination of 1998 and 1997 pension expense were as follows:
1998 1997 ====== ====== Discount rate 7.00% 7.75% Rate of increase in compensation levels 4.50% 5.50% Expected long-term rate of return on assets 9.00% 9.00%
The plans' assets are invested primarily in common stocks, bonds, and notes. A substantial portion of the plans' domestic equity investments are hedged against significant movements in the S&P 500 Index. The hedge will expire on December 31, 1998. IWCR participates in several industry-wide, multi-employer pension plans for certain of its union employees at Miller. These plans provide for monthly benefits based on length of service. Specified amounts per compensated hour for each employee are contributed to the trustees of these plans. Contributions of $0.6 million, $1.1 million and $1.4 million were made to these plans for the three-month, nine-month and twelve-month periods ended September 30, 1998, respectively. The relative position of each employer participating in these plans with respect to the actuarial present value of accumulated plan benefits and net assets available for benefits is not available. (10) POSTRETIREMENT BENEFITS: Industries provides certain health care and life insurance benefits for retired employees. The majority of Industries' employees may become eligible for those benefits if they reach retirement age while working for Industries. The expected cost of such benefits is accrued during the employees' years of service. Northern Indiana's rate-making had historically included the cost of providing these benefits based on the related insurance premiums. On December 30, 1992, the Commission authorized the accrual method of accounting for postretirement benefits for rate-making purposes consistent with SFAS No. 106 AEmployers' Accounting for Postretirement Benefits Other Than Pensions," and authorized the deferral of the differences between the net periodic postretirement benefit costs and the insurance premiums paid for such benefits as a regulatory asset. On June 11, 1997, the Commission issued an order approving the inclusion of accrual-based postretirement benefit costs in the rate-making process to be effective February 1, 1997 for electric rates and March 1, 1997 for gas rates. These costs include an amortization of the existing regulatory asset consistent with the remaining amortization period for the transition obligation. Northern Indiana discontinued its cost deferral and began amortizing its regulatory asset concurrent with these dates. IWC's current rates include postretirement benefit costs on an accrual basis, including amortization of the regulatory asset that arose prior to inclusion of these costs in the rates. IWC currently remits to a grantor trust amounts collected in rates. The following table sets forth the change in the plans' accumulated postretirement benefit obligation (APBO) for the years 1997 and 1996:
(In thousands) 1997 1996 ========= ========= Accumulated postretirement benefit obligation at beginning of year (January 1,) $ 200,790 $ 257,915 Service cost 5,034 7,352 Interest cost 16,215 18,310 Plan amendments 4,015 (10,482) Actuarial (gain) (10,242) (65,718) Acquisition of IWCR 18,505 -- Benefits paid (10,409) (6,587) --------- --------- Accumulated postretirement benefit obligation at end of the year (December 31,) $ 223,908 $ 200,790 ========= =========
The change in the fair value of the plans' assets for the years 1997 and 1996 is as follows:
(In thousands) 1997 1996 ======== ======== Fair value of plan assets at beginning of year (January 1,) $ -- $ -- Employer contributions 12,809 6,587 Benefits paid (10,409) (6,587) -------- -------- Plan assets at fair value at end of the year (December 31,) $ 2,400 $ -- ======== ========
Following is the funded status for postretirement benefits as of January 1, 1998 and January 1, 1997:
January 1, January 1, (In thousands) 1998 1997 ========= ========= Funded status $(221,508) $(200,790) Unrecognized net actuarial gain (99,117) (89,547) Unrecognized prior service cost 4,195 -- Unrecognized transition amount 176,464 175,012 --------- --------- Accrued liability for postretirement benefits $(139,966) $(115,325) ========= =========
A discount rate of 7.00%, a pre-Medicare medical trend rate of 8% declining to a long-term rate of 5%, a discount rate of 7.75% and a pre-Medicare medical trend rate of 9% declining to a long-term rate of 6%, were used to determine the APBO at January 1, 1998 and 1997, respectively. The increase in the APBO at January 1, 1998 was primarily attributable to the inclusion of IWCR's APBO and the decrease in the discount rate from 7.75% to 7.00%. The accrued liability for postretirement benefits was $146.2 million at September 30, 1998. Net periodic postretirement benefits costs, before consideration of the rate-making discussed previously, for the three-month, nine-month and twelve-month periods ended September 30, 1998 and September 30, 1997 include the following components:
Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, ---------------------- ---------------------- --------------------- (In thousands) 1998 1997 1998 1997 1998 1997 ======== ======== ======== ======== ======== ======== Service costs $ 1,488 $ 1,589 $ 4,162 $ 4,638 $ 4,428 $ 7,129 Interest costs 4,073 4,798 12,219 14,056 14,041 17,129 Expected return on plan assets (50) -- (150) -- (150) -- Amortization of transition obligation 2,929 2,970 8,788 8,704 11,642 11,012 Amortization of prior service cost 75 -- 225 -- 504 -- Amortization of (gain) loss (1,394) (1,014) (4,180) (3,036) (6,988) (1,842) -------- -------- -------- -------- -------- -------- $ 7,121 $ 8,343 $ 21,064 $ 24,362 $ 23,477 $ 33,428 ======== ======== ======== ======== ======== ========
Assumptions used in the determination of 1998 and 1997 net periodic postretirement benefit costs were as follows:
1998 1997 ====== ====== Discount rate 7.00% 7.75% Rate of increase in compensation levels 4.50% 5.50%
The pre-Medicare medical trend rates used for 1998 and 1997 were 8% declining to a long-term rate of 5% and 9% declining to a long-term rate of 6%, respectively. The effect of a 1% increase in the assumed health care cost trend rates for each future year would increase the accumulated postretirement benefit obligation at January 1, 1998 by approximately $27.1 million, and increase the aggregate of the service and interest cost components of plan costs by approximately $0.7 million and $2.2 million for the three-month and nine-month periods ended September 30, 1998. The effect of a 1% decrease in the assumed health care cost trend rates for each future year would decrease the accumulated postretirement benefit obligation at January 1, 1998 by approximately $22.2 million, and decrease the aggregate of the service and interest cost components of plan costs by approximately $0.6 million and $1.8 million for the three-month and nine-month periods ended September 30, 1998. Amounts disclosed above could be changed significantly in the future by changes in health care costs, work force demographics, interest rates, or plan changes. (11) AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS: INDUSTRIES - 20,000,000 shares -Preferred -without par value 4,000,000 of Industries' Series A Junior Participating Preferred Shares are reserved for issuance pursuant to the Share Purchase Rights Plan described in Note 17, Common Shares. NORTHERN INDIANA - 2,400,000 shares -Cumulative Preferred -$100 par value 3,000,000 shares -Cumulative Preferred -no par value 2,000,000 shares -Cumulative Preference -$50 par value (none outstanding) 3,000,000 shares -Cumulative Preference -no par value (none issued) INDIANAPOLIS WATER COMPANY - 300,000 shares -Cumulative Preferred -$100 par value Note 12 sets forth the preferred stocks which are redeemable solely at the option of the issuer, and Note 13 sets forth the preferred stocks which are subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. The Preferred shareholders of Northern Indiana and IWC have no voting rights, except in the event of default on the payment of four consecutive quarterly dividends, or as required by Indiana law to authorize additional preferred shares, or by the Articles of Incorporation in the event of certain merger transactions. (12) Preferred Stocks, Redeemable Solely at the Option of the Issuer, Outstanding at September 30, 1998 and December 31, 1997 :
Redemption Price at September 30, December 31, September 30, (Dollars in thousands) 1998 1997 1998 =========== =========== =========== Northern Indiana Public Service Company: Cumulative preferred stock - $100 par value - 4-1/4% series - 209,056 and 209,118 shares outstanding, respectively $ 20,906 $ 20,912 $101.20 4-1/2% series - 79,996 shares outstanding 8,000 8,000 $100.00 4.22% series - 106,198 shares outstanding 10,620 10,620 $101.60 4.88% series - 100,000 shares outstanding 10,000 10,000 $102.00 7.44% series - 41,890 shares outstanding 4,189 4,189 $101.00 7.50% series - 34,842 shares outstanding 3,484 3,484 $101.00 Premium on preferred stock 254 254 N/A Cumulative preferred stock - no par value - Adjustable rate (6.00% at September 30, 1998), Series A (stated value $50 per share) 473,285 shares outstanding 23,664 23,664 $50.00 Indianapolis Water Company: Cumulative preferred stock - $100 par value - Rates ranging from 4.00% to 5.00%, 44,966 shares outstanding 4,497 4,497 $100 - $105 ------------ ----------- $ 85,614 $ 85,620 ============ ==========
During the period October 1, 1997 to September 30, 1998, there were no additional issuances of the above preferred stocks. The foregoing preferred stocks are redeemable in whole or in part at any time upon thirty days' notice at the option of the issuer at the redemption prices shown. (13) REDEEMABLE PREFERRED STOCKS OUTSTANDING AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 : Preferred stocks subject to mandatory redemption requirements or whose redemption is outside the control of issuer, excluding sinking fund payments due within one year are as follows:
September 30, December 31, (Dollars in thousands) 1998 1997 ========== ========== Northern Indiana Public Service Company: Cumulative preferred stock -$100 par value - 8.85% series - 50,000 and 62,500 shares outstanding, respectively $ 5,000 $ 6,250 7-3/4% series - 38,906 shares outstanding 3,891 3,891 8.35% series - 51,000 and 57,000 shares outstanding, respectively 5,100 5,700 Cumulative preferred stock -no par value - 6.50% series - 430,000 shares outstanding 43,000 43,000 ---------- ---------- $ 56,991 $ 58,841 ========== ==========
The redemption prices at September 30, 1998, as well as sinking fund provisions for the cumulative preferred stocks subject to mandatory redemption requirements, or whose redemption is outside the control of Northern Indiana, are as follows:
Sinking Fund or Series Redemption Price Per Share Mandatory Redemption Provisions === ======== ====================== ====================================== Cumulative preferred stock -$100 par value - 8.85% $101.11, reduced periodically 12,500 shares on or before April 1. 8.35% $103.44, reduced periodically 3,000 shares on or before July 1; increasing to 6,000 shares beginning in 2004; noncumulative option to double amount each year. 7-3/4% $104.23, reduced periodically 2,777 shares on or before December 1; noncumulative option to double amount each year. Cumulative preferred stock -no par value - 6.50% $100.00 on October 14, 2002 430,000 shares on October 14, 2002.
Sinking fund requirements with respect to redeemable preferred stocks outstanding at September 30, 1998 for each of the twelve-month periods subsequent to September 30, 1999 are as follows:
Twelve Months Ended September 30,* ================================ 2000 $1,827,700 2001 $1,827,700 2002 $1,827,700 2003 $1,827,700
* Table does not reflect redemptions made after September 30, 1998. (14) STOCK SPLIT: On December 16, 1997, the Board of Directors authorized a two-for-one split of Industries' common stock. The stock split was paid February 20, 1998, to shareholders of record at the close of business January 30, 1998. All references to number of shares reported for the period including per share amounts and stock option data of Industries' common stock reflect the two-for-one stock split as if it had occurred at the beginning of the earliest period. (15) COMMON SHARE DIVIDEND: During the next few years, Industries expects that the majority of earnings available for distribution of dividends will depend upon dividends paid to Industries by Northern Indiana. Northern Indiana's Indenture dated August 1, 1939, as amended and supplemented (Indenture), provides that it will not declare or pay any dividends on any class of capital stock (other than preferred or preference stock) except out of earned surplus or net profits of Northern Indiana. At September 30, 1998, Northern Indiana had approximately $146.8 million of retained earnings (earned surplus) available for the payment of dividends. Future dividends will depend upon adequate retained earnings, adequate future earnings and the absence of adverse developments. (16) EARNINGS PER SHARE: At December 31, 1997, Industries adopted SFAS No. 128 "Earnings per Share." The adoption of this statement required Industries to present basic earnings per share and diluted earnings per share in place of primary earnings per share. Basic earnings per share was computed by dividing net income, reduced for preferred dividends, by the average number of common shares outstanding during the period. The diluted earnings per share calculation assumes conversion of nonqualified stock options into common shares. As a result of adopting the statement, previously reported earnings per share information was restated. The effect of this accounting change on previously reported earnings per share data was insignificant. The net income, preferred dividends and shares used to compute basic and diluted earnings per share is presented in the following table:
Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, -------------------- -------------------- -------------------- (Dollars in thousands, except per share amounts) 1998 1997 1998 1997 1998 1997 (Shares outstanding in thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Basic Weighted Average Number of Shares: Average Common Shares Outstanding 119,495 125,496 121,833 123,446 122,645 122,785 ======= ======= ======= ======= ======= ======= Net Income to be Used to Compute Basic Earnings per Share: Net Income $ 43,128 $ 35,869 $133,294 $134,943 $189,201 $186,352 ======= ======= ======= ======= ======= ======= Basic Earnings per Average Common Share $ 0.36 $ 0.28 $ 1.09 $ 1.09 $ 1.54 $ 1.51 ======= ======= ======= ======= ======= ======= Diluted Weighted Average Number of Shares: Average Common Shares Outstanding 119,495 125,496 121,833 123,446 122,785 122,645 Dilutive effect for Nonqualified Stock Options 566 351 555 339 522 558 ------- ------- ------- ------- ------- ------- Weighted Average Shares 120,061 125,847 122,388 123,784 123,166 123,344 ======= ======= ======= ======= ======= ======= Net Income to be Used to Compute Diluted Earnings per Share: Net Income $ 43,128 $ 35,869 $133,294 $134,943 $189,201 $186,352 ======= ======= ======= ======= ======= ======= Diluted Earnings per Average Common Share $ 0.35 $ 0.28 $ 1.08 $ 1.09 $ 1.53 $ 1.51 ======= ======= ======= ======= ======= =======
(17) COMMON SHARES: On April 8, 1998, shareholders approved an increase in the number of authorized common shares without par value from 200,000,000 shares to 400,000,000 shares. SHARE PURCHASE RIGHTS PLAN. On February 27, 1990, the Board of Directors of Industries (Board) declared a dividend distribution of one Right for each outstanding common share of Industries to shareholders of record on March 12, 1990. The Rights are not currently exercisable. Each Right, when exercisable, would initially entitle the holder to purchase from Industries one two-hundredth of a Series A Junior Participating Preferred Share, without par value, of Industries at a price of $30 per one two-hundredth of a share. In certain circumstances, if an acquirer obtained 25% of Industries' outstanding shares, or merged into Industries or merged Industries into the acquirer, the Rights would entitle the holders to purchase Industries' or the acquirer's common shares for one-half of the market price. The Rights will not dilute Industries' common shares nor affect earnings per share unless they become exercisable for common shares. The Plan was not adopted in response to any specific attempt to acquire control of Industries. COMMON SHARE REPURCHASES. The Board has authorized the repurchase of Industries' common shares. At September 30, 1998, Industries had purchased approximately 50.7 million shares since 1989 at an average price of $15.91 per share. Approximately 11.4 million additional common shares may be repurchased under the Board's authorization. (18) LONG-TERM INCENTIVE PLAN: Industries has two long-term incentive plans for key management employees that were approved by shareholders on April 13, 1988 (1988 Plan) and April 13, 1994 (1994 Plan), each of which provides for the issuance of up to 5.0 million of Industries' common shares to key employees through April 1998 and April 2004, respectively. At September 30, 1998, there were 3,242,700 shares reserved for future awards under the 1994 Plan. The 1994 Plan permits the following types of grants, separately or in combination: nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights and performance units. No incentive stock options or performance units were outstanding at September 30, 1998. Under this Plan, the exercise price of each option equals the market price of Industries' stock on the date of grant. Each option has a maximum term of ten years and vests one year from the date of grant. The stock appreciation rights (SARs) may be exercised only in tandem with stock options on a one-for-one basis and are payable in cash, Industries' common shares or a combination thereof. There were no SARs outstanding at September 30, 1998 and 11,200 SARs outstanding at September 30, 1997. Restricted stock awards are restricted as to transfer and are subject to forfeiture for specific periods from the date of grant. Restrictions on shares awarded in 1995 lapse five years from date of grant and vesting is variable from 0% to 200% of the number awarded, subject to specific earnings per share and stock appreciation goals. Restrictions on shares awarded in 1997 and 1998 lapse two years from date of grant and vesting is variable from 0% to 100% of the number awarded, subject to specific performance goals. If a participant's employment is terminated prior to vesting other than by reason of death, disability or retirement, restricted shares are forfeited. There were 534,666 and 542,666 restricted shares outstanding at September 30, 1998 and December 31, 1997, respectively. The Industries Nonemployee Director Stock Incentive Plan, which was approved by shareholders, provides for the issuance of up to 200,000 of Industries' common shares to nonemployee directors of Industries. The Plan provides for awards of common shares, which vest in 20% per year increments, with full vesting after five years. The Plan also allows the award of nonqualified stock options. If a director's service on the Board is terminated for any reason other than death or disability, any common shares not vested as of the date of termination are forfeited. As of September 30, 1998, 71,500 shares had been issued under the Plan. Industries accounts for these plans under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized for non-qualified stock options. The compensation cost that has been charged against income for restricted stock awards was $0.7, $2.1, and $2.6 million and $0.5, $1.4 and $1.9 million for the three-month, nine-month and twelve-month periods ending September 30, 1998 and September 30, 1997, respectively. Had compensation cost for non-qualified stock options been determined consistent with SFAS No. 123 "Accounting for Stock-Based Compensation," Industries' net income and earnings per share would have been reduced to the following pro forma amounts:
Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, --------------------- --------------------- --------------------- 1998 1997 1998 1997 1998 1997 ====== ====== ====== ====== ===== ====== (Dollars in thousands, except per share data) Net Income: As reported $ 43,127 $ 35,869 $ 133,294 $ 134,943 $ 189,200 $186,352 Pro forma 42,839 35,661 132,580 134,321 188,273 185,520 Earnings Per Average Common Share: Basic: As reported $ 0.36 $ 0.28 $ 1.09 $ 1.09 $ 1.54 $ 1.51 Pro forma 0.35 0.28 1.08 1.08 1.53 1.51 Diluted: As reported $ 0.35 $ 0.28 $ 1.08 $ 1.09 $ 1.53 $ 1.51 Pro forma 0.35 0.28 1.08 1.08 1.52 1.50
The fair value of each option granted used to determine pro forma net income is estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the three-month, nine-month and twelve-month periods ended September 30, 1998 and September 30, 1997: risk-free interest rate of 5.70% and 6.29%, respectively; expected dividend yield per share of $0.67and $0.87, respectively; expected option term of five and one-quarter years and five years, respectively; and expected volatilities of 12.7% for both periods. Changes in outstanding shares under option for the three-month, nine-month and twelve-month periods ended September 30, 1998 and September 30, 1997 are as follows:
NONQUALIFIED STOCK OPTIONS -------------------------------------------- Weighted Weighted Average Average Option Option Three Months Ended September 30, 1998 Price 1997 Price ============================ ========= ======== ========= ======== Balance, beginning of period 2,193,600 $ 16.79 2,195,400 $ 15.37 Granted 607,000 29.21 533,600 20.64 Exercised 115,500 17.76 92,600 15.81 Canceled -- -- --------- --------- Balance, end of period 2,685,100 19.56 2,636,400 16.42 ========= ========= Shares exercisable 2,078,100 16.74 2,102,800 15.35 ========= =========
NONQUALIFIED STOCK OPTIONS -------------------------------------------- Weighted Weighted Average Average Option Option Nine Months Ended September 30, 1998 Price 1997 Price ============================ ========= ========= ========= ========= Balance, beginning of period 2,535,400 $ 16.41 2,360,900 $ 15.33 Granted 607,000 29.21 533,600 20.64 Exercised 437,100 14.65 234,400 14.76 Canceled 20,200 20.64 23,700 18.90 --------- --------- Balance, end of period 2,685,100 19.56 2,636,400 16.42 ========= ========= Shares exercisable 2,078,100 16.74 2,102,800 15.35 ========= =========
NONQUALIFIED STOCK OPTIONS -------------------------------------------- Weighted Weighted Average Average Option Option Twelve Months Ended September 30, 1998 Price 1997 Price ============================ ========= ========= ========= ========= Balance, beginning of period 2,633,400 $ 16.42 2,612,400 $ 15.33 Granted 607,000 29.21 533,600 20.64 Exercised 530,100 14.97 474,100 14.99 Canceled 25,200 20.64 35,500 18.54 --------- --------- Balance, end of period 2,685,100 19.56 2,636,400 16.42 ========= ========= Shares exercisable 2,078,100 16.74 2,102,800 15.35 ========= ========= Weighted average fair value of options granted $ 4.28 $ 2.66 ========= =========
The following table summarizes information about non-qualified stock options at September 30, 1998:
OPTIONS OUTSTANDING ------------------------------------------------------------ Number Weighted Average Range of Outstanding at Remaining Weighted Average Option Price September 30, 1998 Contractual Life Option Price ============== =============== =============== =============== $ 8.66 to $ 8.97 91,000 1.50 years $ 8.63 $11.47 to $18.91 1,511,600 7.91 years $ 18.91 $20.64 to $29.22 1,082,500 7.27 years $ 25.45 - ---------------- --------- ---------- --------- $ 8.66 to $29.22 2,685,100 7.27 years $ 19.56 =========
OPTIONS EXERCISABLE ------------------------------------------------------------ Number Range of Exercisable at Weighted Average Option Price September 30, 1998 Option Price ============= ================ ============== $ 8.66 to $ 8.97 91,000 $ 8.63 $11.47 to $18.91 1,511,600 $18.91 $20.64 to $29.22 475,000 $20.64 - ---------------- --------- ------ $ 8.66 to $29.22 2,078,100 $16.74 =========
(19) Long-Term Debt: At September 30, 1998 and December 31, 1997, Industries' outstanding long-term debt, excluding amounts due within one year, issued and not retired or canceled was as follows:
September30, December 31, (Dollars in thousands) 1998 1997 ========== ========== First mortgage bonds - Interest rates between 5.05% and 9.83% with a weighted average interest rate of 6.62% and various maturities between May 1, 2001 and September 1, 2025 $ 186,600 $ 187,100 Pollution control notes and bonds- Interest rates between 3.50% and 5.70% with a weighted average interest rate of 3.82% and various maturities between October 1, 2003 and April 1, 2019 241,000 241,000 Medium-term notes - Interest rates between 6.10% and 7.99% with a weighted average interest rate of 7.19% and various maturities between March 20, 2000 and August 4, 2027 1,048,025 1,048,025 Subordinated Debentures - 7-3/4%, due March 31, 2026 75,000 75,000 Senior Notes Payable - 6.78%, due December 1, 2027 75,000 75,000 Notes payable - Interest rates between 6.31% and 9.00% with a weighted average interest rate of 7.44% and various maturities between October 1, 1999 and January 1, 2008 42,304 40,229 Variable bank loan - 6.63% -due August, 2003 5,600 5,600 Unamortized premium and discount on long-term debt, net (3,679) (4,029) ----------- ----------- Total long-term debt, excluding amounts due in one year $ 1,669,850 $ 1,667,925 =========== ===========
In July 1998, IWC refinanced $40 million of first mortgage bonds lowering the interest rate from 7.875% to 5.05% The sinking fund requirements of long-term debt outstanding at September 30, 1998 (including the maturity of Northern Indiana's first mortgage bonds: Series T, 7.50%, due April 1, 2002; Northern Indiana's medium-term notes due from March 20, 2000 to July 8,2003; NDC Douglas Properties, Inc.'s notes payable due October 1,1999 through September 1, 2003; IWC's first mortgage bonds: Series 5.20%, due May 1, 2001 and Series 8.00%, due December 15,2001; and IWCR's senior notes payable, due March 15, 2001), for each of the twelve-month periods subsequent to September 30, 1999 are as follows:
Twelve Months Ended September 30, ================================ 2000 $163,657,346 2001 49,716,021 2002 66,985,975 2003 133,810,223
Unamortized debt expense, premium and discount on long-term debt applicable to outstanding bonds are being amortized over the lives of such bonds. Reacquisition premiums are being deferred and amortized. These premiums are not earning a return during the recovery period. Northern Indiana's Indenture, securing the first mortgage bonds issued by Northern Indiana, constitutes a direct first mortgage lien upon substantially all property and franchises, other than expressly excepted property, owned by Northern Indiana. On May 28, 1997, Northern Indiana was authorized to issue and sell up to $217.7 million of its Medium-Term Notes, Series E, with various maturities, for purposes of refinancing certain first mortgage bonds and medium-term notes. As of September 30, 1998, $139.0 million of the medium-term notes had been issued with various interest rates and maturities. The proceeds from these issuances were used to pay short-term debt incurred to redeem its First Mortgage Bonds, Series N, and to pay at maturity various issues of Medium-Term Notes, Series D. IWC's first mortgage bonds are secured by its utility plant. Provisions of trust indentures related to the 8% Series Bonds require annual sinking fund or improvement fund payments amounting to 1/2% of the maximum aggregate amount outstanding. As permitted, this requirement has been satisfied by substituting a portion of permanent additions to utility plant. On July 15, 1998, IWC issued Refunding Revenue Bonds, Series 1998 in the aggregate principal amount of $40 million. The proceeds from the Series 1998 Bonds were used to redeem the City of Indianapolis, Indiana 7-7/8% Economic Development Water Facilities Revenue Bonds and the Town of Fishers, Indiana 7-7/8% Economic Development Water Facilities Revenue Bonds. The Series 1998 bonds will bear interest from July 15, 1998, at the rate of 5.05% per annum and will mature on July 15, 2028. Between March 27, 1997 and May 7, 1997, Capital Markets issued and sold $300 million of medium-term notes with various interest rates and maturities. The proceeds from these issuances were used for the purchase of IWCR and to pay other outstanding short-term obligations of Capital Markets. In December 1997, Capital Markets issued and sold $75 million of 6.78% senior notes payable which mature December 1, 2027. The holders of the notes have the right to require Capital Markets to repurchase all or a portion of the notes on December 1, 2007 at a purchase price of the principal amount plus accrued interest thereon. The proceeds from these issuances were primarily used for the payment of Capital Markets Zero Coupon Notes which matured December 1, 1997. The remaining net proceeds were used for general corporate purposes. The obligations of Capital Markets are subject to a Support Agreement between Industries and Capital Markets, under which Industries has committed to make payments of interest and principal on Capital Markets' obligations in the event of a failure to pay by Capital Markets. Restrictions in the Support Agreement prohibit recourse on the part of Capital Markets' creditors against the stock and assets of Northern Indiana which are owned by Industries. Under the terms of the Support Agreement, in addition to the cash flow of cash dividends paid to Industries by any of its consolidated subsidiaries, the assets of Industries, other than the stock and assets of Northern Indiana, are available as recourse for the benefit of Capital Markets' creditors. The carrying value of the assets of Industries, other than the assets of Northern Indiana, reflected in the consolidated financial statements of Industries, was approximately $1.3 billion at September 30, 1998. (20) CURRENT PORTION OF LONG-TERM DEBT: At September 30, 1998 and December 31, 1997, Industries' current portion of long-term debt due within one year was as follows:
September 30, December 31, (Dollars in thousands) 1998 1997 =========== ========== First Mortgage Bonds $ 14,509 $ 14,509 Medium-term notes - Interest rates of 5.83% and 5.95% with a weighted average interest rate of 5.86% and various maturities between April 6, 1998 and April 13, 1998 -- 35,000 Notes payable - Interest rates of 6.72% and 9.00% with a weighted average interest rate of 7.87% and various maturities between October 1, 1998 and September 1, 1999 4,709 3,612 Sinking funds due within one year 1,500 1,500 ----------- ---------- Total current portion of long-term debt $ 20,718 $ 54,621 =========== ==========
(21) SHORT-TERM BORROWINGS: Northern Indiana and Capital Markets make use of commercial paper to fund short-term working capital requirements. As of September 30, 1998 and December 31, 1997, Northern Indiana had $67.9 million and $71.5 million of commercial paper outstanding, respectively. At September 30, 1998, the weighted average interest rate of commercial paper outstanding was 5.58%. As of September 30, 1998 and December 31, 1997, Capital Markets had $84.0 million and $17.0 million of commercial paper outstanding. At September 30, 1998, the weighted average interest rate of commercial paper outstanding was 5.90%. In September 1998, Northern Indiana entered into a five-year $100 million revolving credit agreement and a 364-day $100 million revolving credit agreement with several banks. These agreements terminate on September 23, 2003 and September 23, 1999, respectively. The 364-day agreement may be extended at expiration for additional periods of 364 days upon the request of Northern Indiana and agreement by the banks. Under these agreements, Northern Indiana may borrow funds at a floating rate of interest or, at Northern Indiana's request under certain circumstances, a fixed rate of interest for a short term period. These agreements provide financing flexibility to Northern Indiana and may be used to support the issuance of commercial paper. At September 30, 1998, there were no borrowings outstanding under either of these agreements. Concurrently with entering into such agreements, Northern Indiana terminated its then existing revolving credit agreement which would otherwise have terminated on August 19, 1999. . In addition, Northern Indiana has $14.2 million in lines of credit which run to May 31, 1999. The credit pricing of each of the lines varies from either the lending banks' commercial prime or market rates. Northern Indiana has agreed to compensate the participating banks with arrangements that vary from no commitment fees to a combination of fees which are mutually satisfactory to both parties. As of September 30, 1998, there were no borrowings under these lines of credit. The lines of credit are also available to support the issuance of commercial paper. Northern Indiana also has $273.5 million of money market lines of credit. As of September 30, 1998, there was $25.5 million outstanding under these lines of credit. At December 31, 1997, there was $47.5 million outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At September 30, 1998, there were no borrowings outstanding under this facility. In September, 1998, Capital Markets entered into a five-year $100 million revolving credit agreement and a 364-day $100 million revolving credit agreement with several banks. These agreements terminate on September 23, 2003 and September 23, 1999, respectively. The 364-day agreement may be extended at expiration for additional periods of 364 days upon the request of Capital Markets and agreement by the banks. Under these agreements, Capital Markets may borrow funds at a floating rate of interest or, at Capital Market's request under certain circumstances, a fixed rate of interest for a short term period. These agreements provide financing flexibility to Capital Markets and may be used to support the issuance of commercial paper. At September 30, 1998, there were no borrowings outstanding under either of these agreements. Concurrently with entering into such agreements, Capital Markets terminated its then existing revolving credit agreement which would otherwise have terminated on August 19, 1999. Capital Markets also has $130 million of money market lines of credit. As of September 30, 1998 and December, 1997, $94.5 million and $20.1 million, respectively, were outstanding under these lines of credit. IWCR and its subsidiaries have lines of credit with banks aggregating $93.7 million. As of September 30, 1998 and December 31, 1997, $85.1 million and $48.9 million, respectively, were outstanding under these lines of credit. At September 30, 1998 and December 31, 1997, Industries' short-term borrowings were as follows:
September 30, December 31, (In thousands) 1998 1997 =========== =========== Commercial paper $151,900 $ 88,500 Notes payable 211,154 116,469 Revolving loan facility -- 7,670 -------- -------- Total short-term borrowings $363,054 $212,639 ======== ========
(22) OPERATING LEASES: On April 1, 1990, Northern Indiana entered into a twenty-year agreement for the rental of office facilities from Development at a current annual rental payment of approximately $3.4 million. The following is a schedule, by years, of future minimum rental payments, excluding those to associated companies, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 1998:
Twelve Months Ended September 30, =========================================== (In thousands) 1999 $ 28,738 2000 29,596 2001 29,203 2002 60,473 2003 25,620 Later years 293,600 -------- Total minimum payments required $467,230 =======
The consolidated financial statements include rental expense for all operating leases as follows:
September 30, September 30, (In thousands) 1998 1997 =========== =========== Three months ended $ 6,167 $ 2,112 Nine months ended 17,699 6,652 Twelve months ended 19,886 9,287
(23) COMMITMENTS: The Utilities estimate that approximately $1.019 billion will be expended for construction purposes for the period from January 1, 1998 to December 31, 2002. Substantial commitments have been made by the Utilities in connection with their programs. Northern Indiana has entered into a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and Mitsubishi Heavy Industries America, Inc., under which Pure Air provides scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly Generating Station. Services under this contract commenced on September 15, 1992 with annual charges approximating $20 million. The agreement provides that, assuming various performance standards are met by Pure Air, a termination payment would be due if Northern Indiana terminates the agreement prior to the end of the twenty-year contract period. During the fourth quarter of 1995, Northern Indiana entered into a ten year agreement with IBM to perform all data center, application development and maintenance, and desktop management. Annual fees under the agreement are estimated at $20.6 million. (24) PRIMARY ENERGY: Primary arranges energy-related projects for large energy-intensive facilities and has entered into certain commitments in connection with these projects. Primary offers large energy customers, nationwide, expertise in managing the engineering, construction, operation and maintenance of energy-related projects. Primary is the parent of the following subsidiaries: Harbor Coal Company (Harbor Coal); North Lake Energy Corporation (North Lake); Lakeside Energy Corporation (LEC); Portside Energy Corporation (Portside); and Cokenergy, Inc. (CE). Harbor Coal has invested in a partnership to finance, construct, own and operate a $65 million pulverized coal injection facility which began commercial operation in August 1993. The facility receives raw coal, pulverizes it and delivers it to Inland Steel Company (Inland Steel) for use in the operation of its blast furnaces. Harbor Coal is a 50% partner in the project with an Inland Steel affiliate. Industries has guaranteed the payment and performance of the partnership's obligations under a sale and leaseback of a 50% undivided interest in the facility. North Lake has entered into a lease for the use of a 75-megawatt energy facility located at Inland Steel. The facility uses steam generated by Inland Steel to produce electricity which is delivered to Inland Steel. The facility began commercial operation in May 1996. Industries has guaranteed North Lake's obligations relative to the lease and certain obligations to Inland Steel relative to the project. LEC has entered into a lease for the use of a 161-megawatt energy facility located at USS Gary Works. The facility processes high-pressure steam into electricity and low-pressure steam for delivery to USX Corporation-US Steel Group. The fifteen-year tolling agreement with US Steel commenced on April 16, 1997 when the facility was placed in commercial operation. Capital Markets guarantees LEC's security deposit obligations relative to the lease and certain limited LEC obligations to the lessor. Portside has entered into an agreement with National Steel Corporation (National) to utilize a 63-megawatt energy facility at National's Midwest Division to process natural gas into electricity, process steam and heated water for a fifteen-year period. Portside has entered into a lease with a third-party lessor for use of the facility. Capital Markets has guaranteed certain Portside obligations to the lessor. Construction of the project began in June 1996 and the facility began commercial operation on September 26, 1997. CE has entered into a fifteen-year service agreement with Inland Steel and the Indiana Harbor Coke Company, LP (Harbor Coke), a subsidiary of Sun Company, Inc. This agreement provides that CE will utilize a new energy facility at Inland Steel's Indiana Harbor Works to scrub flue gases and recover waste heat from Harbor Coke's coke facility and produce process steam and electricity from the recovered heat which will be delivered to Inland Steel. CE has entered into a lease for the use of these facilities with a third party lessor. Capital Markets guarantees certain CE obligations relative to the lease. Construction of the project began in January 1997. The facility is now conducting startup operations with commercial operation being anticipated before December 31, 1998. Primary has advanced approximately $36.8 million and $107 million, at September 30, 1998 and December 31, 1997, respectively, to the lessors of the energy related projects discussed above. These net advances are included in "Other Receivables" in the Consolidated Balance Sheet and as a component of operating activities in the Consolidated Statement of Cash Flows. Primary is evaluating other potential projects with Northern Indiana customers as well as with potential customers outside of Northern Indiana's service territory. Projects under consideration include those which use industrial by-product fuels and natural gas to produce electricity . (25) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents: The carrying amount approximates fair value because of the short maturity of those instruments. Investments: The fair value of the majority of investments is based on market prices for those or similar investments. Long-term debt/Preferred stock: The fair value of long-term debt and preferred stock is estimated based on the quoted market prices for the same or similar issues or on the rates offered to Industries for securities of the same remaining maturities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. The carrying values and estimated fair values of Industries' financial instruments (excluding derivatives) are as follows:
September 30, 1998 December 31, 1997 -------------------------- --------------------------- Carrying Estimated Carrying Estimated (In thousands) Amount Fair Value Amount Fair Value ======== ======== ======== ======== Cash and cash equivalents $ 32,490 $ 32,490 $ 30,780 $ 30,780 Investments 43,608 42,497 32,625 32,886 Long-term debt (including current portion) 1,690,568 1,776,050 1,722,546 1,718,897 Preferred stock 144,433 138,158 146,289 139,814
The majority of the long-term debt relates to utility operations. The Utilities are subject to regulation, and gains or losses may be included in rates over a prescribed amortization period, if in fact settled at amounts approximating those above. (26) CUSTOMER CONCENTRATIONS: Industries' utility subsidiaries supply natural gas, electric energy and water. Natural gas and electric energy are supplied to the northern third of Indiana. The water utilities serve Indianapolis, Indiana and surrounding areas. Although the Energy Utilities have a diversified base of residential and commercial customers, a substantial portion of their electric and gas industrial deliveries are dependent upon the basic steel industry. The basic steel industry accounted for 3% and 4% of gas revenue (including transportation services) and 13% and 19% of electric revenue for the twelve months ended September 30, 1998 and September 30, 1997, respectively. (27) BUSINESS SEGMENTS: Industries adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" during the first quarter of 1998. SFAS No. 131 establishes standards for reporting information about operating segments in financial statements and disclosures about products and services, and geographic areas. Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Industries has four reportable operating segments: Gas, Electric, Water and Gas Marketing. The Gas segment includes regulated gas utilities which provide natural gas distribution and transportation services. The Electric segment is comprised principally of Northern Indiana, a regulated electric utility, which generates, transmits and distributes electricity. In addition, the Electric segment includes a wholesale power marketing operation which markets wholesale power to other utilities and electric power marketers. The Water segment includes regulated water utilities which provide distribution of water supply to the public. The Gas Marketing segment provides natural gas marketing and sales to wholesale and industrial customers. The Other Products and Services category includes a variety of energy-related businesses, such as installation, repair and maintenance of underground pipelines; utility line locating and marking; transmission of natural gas through pipelines; the arrangement of energy-related projects for large energy-intensive facilities; and other energy-related products. Industries' reportable segments are operations that are managed separately and meet the quantitative thresholds required by SFAS No. 131. Revenues for each of Industries' segments are principally attributable to customers in the United States. Additional revenues, which are insignificant to Industries' consolidated revenues, are attributable to customers in Canada and the United Kingdom. The following tables provides information about Industries' business segments. Industries uses income before interest and other charges and income taxes as its primary measurement for each of the reported segments. Adjustments have been made to the segment information to arrive at information included in the results of operations and financial position of Industries. Such adjustments include unallocated corporate revenues and expenses and the elimination of intercompany transactions, a majority of which are intercompany receivables and payables. The accounting policies of the operating segments are the same as those described in Note 2, "Summary of Significant Accounting Policies."
(In thousands) Other For the three months ended Gas Products September 30, 1998 Gas Electric Water Marketing & Services Adjustments Total - ------------------------------------------------------------------------------------------------------------------------------------ Operating revenues $ 80,953 $ 469,119 $ 24,374 $ 136,746 $ 67,985 $ (31,385) $ 747,792 Other Income (Deductions) $ 153 $ 181 $ 355 $ 417 $ 159 $ 1,605 $ 2,870 Depreciation and amortization $ 18,868 $ 39,438 $ 2,968 $ 77 $ 3,012 $ 54 $ 64,417 Income before Interest and Other Charges and Income Taxes $ (15,338) $ 108,107 $ 9,163 $ 1,555 $ 10,119 $ (13,788) $ 99,818 Assets $ 918,549 $2,509,137 $ $604,971 $ 74,549 $1,461,588 $ (731,564) $4,837,230 (In thousands) Other For the three months ended Gas Products September 30, 1997 Gas Electric Water Marketing & Services Adjustments Total - ----------------------------------------------------------------------------------------------------------------------------------- Operating revenues $ 90,258 $ 342,030 $ 23,577 $ 108,068 $ 64,108 $ (31,726) $ 596,315 Other Income (Deductions) $ (26) $ 108 $ 414 $ 475 $ 3,783 $ (990) $ 3,764 Depreciation and amortization $ 18,414 $ 39,084 $ 2,584 $ 58 $ 3,066 $ 1,506 $ 64,712 Income before Interest and Other Charges and Income Taxes $ (18,113) $ 94,419 $ 9,815 $ 732 $ 17,638 $ (14,317) $ 90,174 Assets $ 956,110 $2,536,672 $ 547,581 $ 72,908 $1,098,615 $ (415,973) $4,795,913 (In thousands) Other For the nine months ended Gas Products September 30, 1998 Gas Electric Water Marketing & Services Adjustments Total - ----------------------------------------------------------------------------------------------------------------------------------- Operating revenues $ 434,033 $1,138,592 $ 62,940 $ 451,543 $ 187,142 $ (94,706) $2,179,544 Other Income (Deductions) $ 1,065 $ 354 $ 575 $ 1,588 $ 4,719 $ 2,086 $ 10,387 Depreciation and amortization $ 56,390 $ 117,162 $ 8,616 $ 193 $ 8,813 $ 160 $ 191,334 Income before Interest and Other Charges and Income Taxes $ 30,590 $ 258,885 $ 21,022 $ 3,711 $ 29,196 $ (39,912) $ 303,492 Assets $ 918,549 $2,509,137 $ 604,971 $ 74,549 $1,461,588 $ (731,564) $4,837,230 (In thousands) Other For the nine months ended Gas Products& September 30, 1997 Gas Electric Water Marketing & Services Adjustments Total - ------------------------------------------------------------------------------------------------------------------------------------ Operating revenues $ 544,668 $ 874,344 $ 42,372 $ 278,441 $ 151,818 $ (112,191) $1,779,452 Other Income (Deductions) $ 53 $ 359 $ 872 $ 2,828 $ 14,602 $ (1,725) $ 17,475 Depreciation and amortization $ 54,616 $ 116,188 $ 5,151 $ 173 $ 8,617 $ 2,726 $ 187,471 Income before Interest and Other Charges and Income Taxes $ 43,989 $ 232,422 $ 15,959 $ 6,912 $ 42,244 $ (35,107) $ 306,419 Assets $ 956,110 $2,536,672 $ 547,581 $ 72,908 $1,098,615 $ (415,973) $4,795,913 (In thousands) Other For the twelve months ended Gas Products& September 30, 1998 Gas Electric Water Marketing & Services Adjustments Total - -------------------------------------------------------------------------------------------------------------------------- Operating revenues $ 696,604 $1,450,579 $ 81,311 $ 654,088 $ 247,408 $ (143,357) $2,986,633 Other Income (Deductions) $ 1,348 $ 632 $ 1,167 $ 2,109 $ 1,054 $ 2,370 $ 8,680 Depreciation and amortization $ 74,621 $ 154,818 $ 11,101 $ 253 $ 11,910 $ 964 $ 253,667 Income before Interest and Other Charges and Income Taxes $ 75,551 $ 338,706 $ 27,665 $ 3,884 $ 35,936 $ (58,348) $ 423,394 Assets $ 918,54 $2,509,137 $ 604,971 $ 74,549 $1,461,588 $ (731,564) $4,837,230 (In thousands) Other For the twelve months ended Gas Products September 30, 1997 Gas Electric Water Marketing & Services Adjustments Total - ------------------------------------------------------------------------------------------------------------------------------------ Operating revenues $ 816,223 $1,127,143 $ 42,372 $ 354,315 $ 179,295$ (159,823) $2,359,525 Other Income (Deductions) $ 911 $ 614 $ 872 $ 3,643 $ 16,498$ (1,680) $ 20,858 Depreciation and amortization $ 71,670 $ 151,414 $ 5,151 $ 183 $ 16,715$ 2,768 $ 247,901 Income before Interest and Other Charges and Income Taxes $ 87,067 $ 309,368 $ 15,959 $ 9,938 $ 39,210$ (43,470) $ 418,072 Assets $ 956,110 $2,536,672 $ 547,581 $ 72,908 $1,098,615 $ (415,973) $4,795,913
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS HOLDING COMPANY - NIPSCO Industries, Inc. (Industries) is an energy/utility-based holding company providing electric energy, natural gas and water to the public through its six wholly-owned regulated subsidiaries (Utilities): Northern Indiana Public Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo Gas); Northern Indiana Fuel and Light Company, Inc. (NIFL); Crossroads Pipeline Company (Crossroads); Indianapolis Water Company (IWC); and Harbour Water Corporation (Harbour). Industries' regulated gas and electric subsidiaries (Northern Indiana, Kokomo Gas, NIFL and Crossroads) are referred to as "Energy Utilities"; and regulated water subsidiaries (IWC, and Harbour,) are referred to as "Water Utilities." Industries also provides non-regulated energy/utility-related products and services including gas marketing and trading; wholesale electric marketing; power generation; gas transmission, supply and storage; installation, repair and maintenance of underground pipelines; utility line locating and marking; and related products targeted at customer segments principally through the following wholly-owned subsidiaries: NIPSCO Development Company, Inc. (Development); NI Energy Services, Inc. (Services); Primary Energy, Inc. (Primary); Miller Pipeline Corporation (Miller); and SM&P Utility Resources, Inc. (SM&P). NIPSCO Capital Markets, Inc. (Capital Markets) handles financing for Industries and its subsidiaries, other than Northern Indiana and IWCR. These subsidiaries, other than the wholesale power marketing operations of Services, are referred to collectively as "Products and Services." On March 25, 1997, Industries acquired IWC Resources Corporation (IWCR). IWCR's subsidiaries include two regulated water utilities (IWC, and Harbour) and five non-utility companies providing utility-related products and services including installation, repair and maintenance of underground pipelines and utility line locating and marking. The two primary non-utility subsidiaries are Miller and SM&P. Industries' results of operations include three, nine and twelve months of operating results from IWCR for the three-month, nine-month and twelve-month periods ended September 30, 1998, and three months for the three month period and six months for the nine-month, and twelve-month periods ended September 30, 1997. REVENUES - Total operating revenues for the twelve months ended September 30, 1998 increased $627.1 million as compared to the twelve months ended September 30, 1997. The increase includes $100.6 million reflecting twelve months of operating revenues from IWCR for the period. Gas revenues decreased $119.6 million, electric revenues increased $323.4 million and Products and Services revenues, excluding Pipeline construction, Locate and marking, increased $322.7 million, as compared to the same period in 1997. The decrease in gas revenues was mainly due to decreased sales to residential and commercial customers reflecting unusually warm weather during the first quarter of 1998, decreased industrial sales, decreased gas transition costs and decreased gas cost per dekatherm (dth), partially offset by increased wholesale sales and increased deliveries of gas transported for others. The increase in electric revenues was mainly attributable to increased sales to residential and commercial customers due to warmer weather during the second and third quarter of 1998, and increased wholesale transactions, partially offset by decreased sales to industrial customers and decreased fuel costs per kilowatt-hour (kwh). Increased volumes in gas marketing to existing and new customers resulted in an increase of $315.5 million in Products and Services revenues for the twelve-month period ended September 30, 1998. For the twelve months ended September 30, 1998, volumes in gas marketing were 249.4 million dth, an increase of 137.2 million dth over the same period in 1997. Total operating revenues for the nine months ended September 30, 1998 increased $400.1 million as compared to the nine months ended September 30, 1997. The increase includes $51.0 million reflecting nine months of operating revenues from IWCR for the period. Gas revenues decreased $110.6 million, electric revenues increased $264.2 million and Products and Services revenues, excluding Pipeline construction, Locate and marking, increased $195.5 million, as compared to the same period in 1997. The decrease in gas revenues was largely attributable to decreased sales to residential and commercial customers due to unusually warm weather during the first quarter of 1998, decreased gas costs per dekatherm (dth), decreased sales to industrial customers and decreased gas transition costs which were partially offset by increased wholesale sales and increased deliveries of gas transported for others. The increase in electric revenues was mainly attributable to increased sales to residential and commercial customers due to warmer weather during the second and third quarter of 1998 and increased wholesale transactions. Increased volumes in gas marketing to existing and new customers resulted in an increase of $194.2 million in the Products and Services revenues for the nine-month period ended September 30, 1998. For the nine months ended September 30, 1998, volumes in gas marketing were 193.4 million dth, an increase of 100.7 million dth over the same period in 1997. Total operating revenues for the three months ended September 30, 1998 increased $151.5 million as compared to the three months ended September 30, 1997. Gas revenues decreased $9.3 million, electric revenues increased $127.1 million, water revenues increased $0.8 million, and Products and Services revenues, increased $32.9 million compared to the same period in 1997. The decrease in gas revenues was mainly attributable to decreased sales to residential and commercial customers as a result of warmer weather during the third quarter, decreased gas cost per dth and decreased gas transition costs partially offset by increased sales to wholesale customers. The increase in electric revenues was mainly attributable to increased sales to residential and commercial customers due to warmer weather and increased wholesale transactions, partially offset by decreased industrial sales and decreased fuel cost per kwh. Increased volumes in gas marketing resulted in an increase of $29.2 million in Products and Services revenues for the three-month period ended September 30, 1998. For the three-months ended September 30, 1998, gas marketing volumes were 66.5 million dth, an increase of 25.0 million dth compared to the three months ended September 30, 1997. The basic steel industry accounted for 35% of natural gas delivered (including volumes transported) and 16% of electric sales for the Energy Utilities for the twelve months ended September 30, 1998. The components of the variations in gas, electric, water and Products and Services revenues are shown in the following table:
Variations from Prior Periods --------------------------------------------------------------------- September 30,1998 Compared to September 30, 1997 --------------------------------------------------------------------- Three Nine Twelve (In thousands) Months Months Months ======= ======== ======= Gas Revenue - Pass through of net changes in purchased gas costs, gas storage, and storage transportation costs $ (4,985) $ (29,874) $ (38,189) Gas transition costs (5,109) (18,695) (22,659) Changes in sales levels 479 (63,824) (61,283) Gas transported 310 1,758 2,512 --------- --------- --------- Gas Revenue Change (9,305) (110,635) (119,619) --------- --------- --------- Electric Revenue -- Pass through of net changes in fuel costs (4,033) (5,094) (6,458) Changes in sales levels 36,324 59,304 55,853 Wholesale electric marketing 94,798 210,038 274,041 --------- --------- --------- Electric Revenue Change 127,089 264,248 323,436 --------- --------- --------- Water Revenue Change 797 20,568 38,939 --------- --------- --------- Products and Services Revenues - Gas marketing 29,183 194,163 315,494 Pipeline construction 1,466 12,059 27,404 Locate and marking 2,219 15,483 29,917 Other 28 4,206 11,537 --------- --------- --------- Products and Services Revenue Change 32,896 225,911 384,352 --------- --------- --------- Total Revenue Change $ 151,477 $ 400,092 $ 627,108 ========= ========= =========
See "Summary of Significant Accounting Policies - Gas Cost Adjustment Clause" in the Notes to Consolidated Financial Statements for a discussion of gas cost incentive mechanism. Also, see Note 6 to Notes to Consolidated Financial Statements regarding FERC Order No. 636 transition costs. GAS COSTS - The Energy Utilities' gas costs decreased $10.3 million, $88.0 million and $97.6 million for the three-month, nine-month, and twelve-month periods ended September 30, 1998, respectively. Gas costs decreased for the three-month, nine-month, and twelve-month periods due to decreased gas purchases, decreased gas transition costs and decreased gas costs per dth. The average cost for the Energy Utilities' purchased gas for the three-month, nine-month, and twelve-month periods ended September 30, 1998, after adjustment for gas transition costs billed to transport customers, was $2.56, $2.67 and $2.87 per dth, respectively, as compared to $3.09, $3.10 and $3.22 per dth for the same periods in 1997. FUEL AND PURCHASED POWER - The cost of fuel for electric generation increased $7.2 million, $15.2 million and $15.3 million for the three-month, nine-month and twelve-month periods ended September 30, 1998, compared to the 1997 periods, mainly as a result of increased production of electricity. Power purchased increased for the three-month, nine-month and twelve-month periods ended September 30, 1998 reflecting increased wholesale power marketing activities. COST OF PRODUCTS AND SERVICES - The cost of sales for Products and Services increased $363.9 million for the twelve months ended September 30, 1998. The increase includes $44.8 million reflecting twelve months of cost of sales from IWCR for the period. Increased volumes in gas marketing activities increased cost of sales $327.5 million for the twelve months ended September 30, 1998, compared to the twelve months ended September 30, 1997. The cost of sales for Products and Services increased $219.3 million for the nine months ended September 30, 1998, compared to the 1997 period. The increase includes $23.4 million related to the cost of sales for IWCR in the current period. Increased volumes in gas marketing activities increased cost of sales $203.1 million for the nine months ended September 30, 1998, compared to the nine months ended September 30, 1997. The cost of sales for Products and Services increased $32.1 million for the three months ended September 30, 1998, compared to the 1997 period mainly due to increased volumes in gas marketing activities, which increased cost of sales $31.4 million for the three months ended September 30, 1998, compared to the three months ended September 30, 1997. OPERATING MARGINS - Operating margins for the twelve months ended September 30, 1998 increased $59.7 million from the same period a year ago. The increase in operating margins includes $55.7 million related to twelve months of IWCR operations in the period. The operating margin from gas deliveries decreased $22.0 million due to decreased sales to residential and commercial customers reflecting unusually warm weather in the first quarter of 1998 and decreased industrial sales which were partially offset by increased sales to wholesale customers, and increased deliveries of gas transported for others. Electric operating margin increased $22.3 million mainly as a result of increased sales to residential and commercial customers due to warmer weather and increased wholesale transactions, which were partially offset by additional wholesale power marketing costs. The operating margin for Products and Services, excluding Pipeline construction, Locate and marking, increased $3.7 primarily due to increased margin at Primary Energy. Operating margins for the nine months ended September 30, 1998 increased $24.1 million from the same period a year ago. The increase in operating margins includes $27.5 million related to nine months of IWCR operations in the current period. Gas operating margin decreased $22.7 million due to decreased sales to residential and commercial customers reflecting unusually warm weather during the first half of 1998 and decreased industrial sales, partially offset by increased wholesale sales and increased deliveries of gas transported for others. Electric operating margin increased $19.6 million mainly as a result of increased sales to residential and commercial customers due to warmer weather and increased wholesale transactions, which were partially offset by additional wholesale power marketing costs. The operating margin for Products and Services, excluding Pipeline construction, Locate and marking, decreased $0.3 million. Operating margins for the three months ended September 30, 1998 increased $17.0 million from the same period a year ago. Gas operating margin increased $1.0 million due to increased sales to wholesale customers and increased deliveries of gas transported for others partially offset by decreased sales to residential and commercial customers reflecting milder weather during the period and decreased industrial sales. Electric operating margin increased $14.4 million mainly as a result of warmer weather and increased wholesale transactions. Water operating margin increased $0.8 million in the current period due to increased volumes sold and increased water rates for Indianapolis Water Company effective April 8, 1998. The operating margin for Products and Services increased $0.8 million, primarily reflecting increased operating margin from locate activity. OPERATING EXPENSES AND TAXES - Operation expenses increased $22.5 million for the twelve-month period ended September 30, 1998. Operation expense includes an increase of $35.8 million reflecting a full year of operations of IWCR for the twelve-month period ended September 30, 1998. New operations at Primary Energy subsidiaries increased lease expenses by approximately $19.4 million. This increase was partially offset by decreased operation expenses at Northern Indiana of $28.3 million for the twelve-month period ended September 30, 1998, mainly as a result of decreased employee related costs of $11.1 million, decreased marketing activity of $10.3 million, and decreased property insurance cost of $1.8 million. Operation expenses, excluding IWCR, for the nine months ended September 30, 1998 decreased $10.9 million. Operation expenses at Northern Indiana decreased $20.9 million for the nine months ended September 30, 1998 mainly reflecting decreased employee related costs of $9.4 million and decreased marketing activity of $6.9 million, and decreased property insurance costs of $1.3 million partially offset by increased operating expenses of Primary Energy subsidiaries. Operation expenses increased $3.2 million for the three-month period ended September 30, 1998 compared to the same period in 1997 primarily due to increased lease expenses at Primary Energy and increased operation expenses at Services. Maintenance expenses increased $6.6.and $2.9 million for the twelve and nine month periods ended September 30, 1998, mainly reflecting maintenance expenses of the Water Utilities and increased maintenance activity at Northern Indiana. Maintenance expenses increased $1.2 million for the three-month period ended September 30, 1998 mainly reflecting increased electric production maintenance activity at Northern Indiana. Depreciation and amortization expenses increased $3.9 million and $5.8 million for the nine-month and twelve-month periods ended September 30, 1998, respectively, primarily reflecting depreciation and amortization at IWCR. OTHER INCOME (DEDUCTIONS) - Other Income (Deductions) decreased $0.9 million, $7.1 million and $12.2 million for the three-month, nine-month and twelve-month periods ended September 30, 1998, respectively. Other Income (Deductions) for the three-month and nine-month periods decreased primarily as a result of lower equity earnings in certain oil and gas investments. Additionally, Other Income (Deductions) for the twelve-month period ended September 30, 1998 reflects a loss on the disposition of property as compared to gains on disposition of properties in the same period a year ago. INTEREST AND OTHER CHARGES - Interest and other charges increased for the three-month, nine-month and twelve-month periods ended September 30, 1998 reflecting the issuance of $300 million of Capital Markets' medium-term notes, $75 million of Capital Markets' Junior Subordinated Deferrable Interest Debentures, Series A and interest expense at IWCR. NET INCOME - Industries' net income for the twelve-month period ended September 30, 1998 was $189.2 million compared to $186.4 million for the twelve-month period ended September 30, 1997. Net income for the nine months ended September 30, 1998 was $133.3 million compared to $134.9 million for the nine months ended September 30, 1997. Net income for the three months ended September 30, 1998 was $43.1 million compared to $35.9 million for the three months ended September 30, 1997. ENVIRONMENTAL MATTERS - The Utilities have an ongoing program to remain aware of laws and regulations involved with hazardous waste and other environmental matters. It is the Utilities' intent to continue to evaluate their facilities and properties with respect to these rules and identify any sites that would require corrective action. The Utilities have recorded a reserve of approximately $16 million to cover probable corrective actions as of September 30, 1998; however, environmental regulations and remediation techniques are subject to future change. The ultimate cost could be significant, depending on the extent of corrective actions required. Based upon investigations and management's understanding of current laws and regulations, the Utilities believe that any corrective actions required, after consideration of insurance coverages and contributions from other potentially responsible parties, will not have a significant impact on the results of operations or financial position of Industries. The EPA has notified Northern Indiana that it is a "potentially responsible party" (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and may be required to share in the cost of cleanup of several waste disposal sites identified by the EPA. The sites are in various stages of investigation, analysis and remediation. At each of the sites, Northern Indiana is one of several PRPs, and it is expected that remedial costs, as provided under CERCLA, will be shared among them. At some sites Northern Indiana and/or the other named PRPs are presently working with the EPA to clean up the sites and avoid the imposition of fines or added costs. Refer to Note 7 "Environmental Matters" of notes to consolidated financial statements for a more detailed discussion of the status of certain environmental issues. LIQUIDITY AND CAPITAL RESOURCES - During the next few years, it is anticipated that the majority of earnings available for distribution of dividends will depend upon dividends paid to Industries by Northern Indiana. See Note 15 of Notes to Consolidated Financial Statements for a discussion of the Common Share dividend. Cash flow from operations has provided sufficient liquidity to meet current operating requirements. Because of the seasonal nature of the utility business and the construction program, Northern Indiana makes use of commercial paper intermittently as short-term financing. As of September 30, 1998 and December 31, 1997, Northern Indiana had $67.9 million and $71.5 million of commercial paper outstanding, respectively. At September 30, 1998, the weighted average interest rate of commercial paper outstanding was 5.58%. In September 1998, Northern Indiana entered into a five-year $100 million revolving credit agreement and a 364-day $100 million revolving credit agreement with several banks. These agreements terminate on September 23, 2003 and September 23, 1999, respectively. The 364-day agreement may be extended at expiration for additional periods of 364-days upon the request of Northern Indiana and agreement by the banks. Under these agreements, Northern Indiana may borrow funds at a floating rate of interest or, at Northern Indiana's request under certain circumstances, a fixed rate of interest for a short term period. These agreements provide financing flexibility to Northern Indiana and may be used to support the issuance of commercial paper. At September 30, 1998, there were no borrowings outstanding under either of these agreements. Concurrently with entering into such agreements, Northern Indiana terminated its then existing revolving credit agreement which would otherwise have terminated on August 19, 1999. In addition, Northern Indiana has $14.2 million in lines of credit. The credit pricing of each of the lines varies from either the lending banks' commercial prime or market rates. Northern Indiana has agreed to compensate the participating banks with arrangements that vary from no commitment fees to a combination of fees which are mutually satisfactory to both parties. As of September 30, 1998, there were no borrowings under these lines of credit. The Credit Agreement and lines of credit are also available to support the issuance of commercial paper. Northern Indiana also has $273.5 million of money market lines of credit. As of September 30, 1998 there was $25.5 million outstanding under these lines of credit At December 31, 1997, there was $47.5 million outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At September 30, 1998, there were no borrowings outstanding under this facility. During recent years, Northern Indiana has been able to finance its construction program with internally generated funds and expects to be able to meet future commitments through such funds. As of September 30, 1998 and December 31, 1997, Capital Markets had $84.0 million and $17.0 million, respectively, of commercial paper outstanding. At September 30, 1998, the weighted average interest rate of commercial paper outstanding was 5.90%. In September, 1998, Capital Markets entered into a five-year $100 million revolving credit agreement and a 364-day $100 million revolving credit agreement with several banks. These agreements terminate on September 23, 2003 and September 23, 1999, respectively. The 364-day agreement may be extended at expiration for additional periods of 364-days upon the request of Capital Markets and agreement by the banks. Under these agreements, Capital Markets may borrow, repay and reborrow funds at a floating rate of interest or, at Capital Market's request under certain circumstances, at a fixed rate of interest for a short term period. These agreements provide financing flexibility to Capital Markets and may be used to support the issuance of commercial paper. At September 30, 1998, there were no borrowings outstanding under either of these agreements. Concurrently with entering into such agreements, Capital Markets terminated its then existing revolving credit agreement which would otherwise have terminated on August 19, 1999. Capital Markets also has $130 million of money market lines of credit. As of September 30, 1998 and December 31, 1997, $94.5 million and $20.1 million of borrowings were outstanding, respectively, under these lines of credit. The financial obligations of Capital Markets are subject to a Support Agreement between Industries and Capital Markets, under which Industries has committed to make payments of interest and principal on Capital Markets' obligations in the event of a failure to pay by Capital Markets. Restrictions in the Support Agreement prohibit recourse on the part of Capital Markets' creditors against the stock and assets of Northern Indiana which are owned by Industries. Under the terms of the Support Agreement, in addition to the cash flow of cash dividends paid to Industries by any of its consolidated subsidiaries, the assets of Industries, other than the stock and assets of Northern Indiana, are available as recourse for the benefit of Capital Markets' creditors. The carrying value of the assets of Industries, other than the assets of Northern Indiana, reflected in the consolidated financial statements of Industries, was approximately $1.3 billion at September 30, 1998. On March 25, 1997, Industries acquired all the outstanding common stock of IWCR for $290.5 million. Industries financed this transaction with debt of approximately $83.0 million and the issuance of approximately 10.6 million Industries' common shares. Industries accounted for the acquisition as a purchase and the purchase price was allocated to the assets and liabilities acquired based on their fair values. IWCR and its subsidiaries have lines of credit with banks aggregating $93.7 million. At September 30, 1998, and December 31, 1997, $85.1 million and $48.9 million were outstanding under these lines of credit, respectively. Industries does not expect the effects of inflation at current levels to have a significant impact on its results of operations, ability to contain cost increases, or the Utilities' need to seek timely and adequate rate relief. The Energy Utilities do not anticipate the need to file for gas and electric base rate increases in the near future. YEAR 2000- Risks. Year 2000 issues address the ability of electronic processing equipment to process date sensitive information and recognize the last two digits of a date as occurring in or after the year 2000. Any failure in one of Industries' systems may result in material operational and financial risks. Possible scenarios include a system failure in one Industries' generating plants, an operating disruption or delay in transmission or distribution, or an inability to interconnect with the systems of other utilities. In addition, while Industries currently anticipates that its own mission-critical systems will be year 2000 compliant in a timely fashion, it cannot guarantee the compliance of systems operated by other companies upon which it depends. For example, the ability of an electric company to provide electricity to its customers depends upon a regional electric transmission grid, which connects the systems of neighboring utilities to support the reliability of electric power within the region. If one company's system is not year 2000 compliant, then such a failure will affect the reliability of all providers within the grid, including Industries. Similarly, Industries' gas operations depend on natural gas pipelines that it does not own or control, and any non- compliance by a company owning or controlling those pipelines may affect Industries' ability to provide gas to its customers. Failure to achieve year 2000 readiness could have a material adverse affect on Industries' results of operations, financial position and cash flows. Industries is continuing its program to address risks associated with the year 2000. Industries' year 2000 program focuses on both its information technology (IT) and non-IT systems, and Industries has been making substantial progress in preparing these systems for proper functioning in the year 2000. State of Readiness. Industries' year 2000 program consists of four phases: inventory (identifying systems potentially affected by the year 2000), assessment (testing identified systems), remediations (correcting or replacing non-compliant systems) and validation (evaluating and testing remediated systems to confirm compliance). By second quarter 1997, Industries had completed the inventory and assessment phases for all of its mission-critical IT systems. Industries also has completed the remediation and validation phases for four of its six major IT components. The remediation and validation phases for the remaining two components are expected to be completed within the next few months, so that Industries expects to conclude the year 2000 program for its mission-critical systems by first quarter 1999. Industries completed the inventory and assessment phases for all of its non-IT systems in April 1998. Industries has scheduled remediation (including replacement ) and validation for its non-IT systems throughout 1999. Industries expects to conclude the year 2000 program for its non-IT systems by fourth quarter 1999. Because Industries depends on outside suppliers and vendors with similar year 2000 issues, Industries is assessing the ability of those suppliers and vendors to provide it with an uninterrupted supply of goods and services. Industries has contacted its critical vendors and suppliers in order to investigate their year 2000 efforts. In addition, Industries is working with electricity and gas industry groups such as North American Electric Reliability Council, Electric Power Research Institute, and the American Gas Association to discuss and evaluate the potential impact of year 2000 problems upon the electric grid systems and pipeline networks that interconnect within each of those industries. Costs. Industries currently estimates that the total cost of its year 2000 program will be between $17 million and $26 million. These costs have been, and will continue to be, funded through operating cash flows. Costs related to the maintenance or modification of Industries' existing systems are expensed as incurred. Costs related to the acquisition of replacement systems are capitalized in accordance with Industries' accounting policies. Industries does not anticipate these costs to have a material impact on its results of operations. Contingency Plans. Industries currently is in the process of structuring its contingency plans to address the possibility that any mission-critical system upon which it depends, including those controlled by outside parties, will be non-compliant. This includes identifying alternate suppliers and vendors, conducting staff training and developing communication plans. In addition, Industries is evaluating both its ability to maintain or restore service in the event of a power failure or operating disruption or delay, and its limited ability to mitigate the effects of a network failure by isolating its own network from the non-compliant segments of the greater network. The company expects to complete these contingency plans by second quarter 1999. COMPETITION - The Energy Policy Act of 1992 (Energy Act) allows FERC to order electric utilities to grant access to transmission systems by third-party power producers. The Energy Act specifically prohibits federally mandated wheeling of power for retail customers. On April 24, 1996, FERC issued its Order No. 888-A which opens wholesale power sales to competition and requires public utilities owning, controlling, or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission service they provide themselves. Northern Indiana filed its tariff as did virtually all other transmission owners subject to FERC jurisdiction. Order No. 888-A also provides for the recovery of stranded costs - that is, costs that were prudently incurred to serve wholesale power customers and that could go unrecovered if these customers use open access to move to another supplier. FERC expects this rule will accelerate competition and bring lower prices and more choices to wholesale energy customers. On November 25, 1997, FERC issued Order No. 888-B on rehearing, affirming in all important respects its earlier Order No. 888-A. Although wholesale customers represent a relatively small portion of Northern Indiana's sales, Northern Indiana will continue its efforts to retain and add customers by offering competitive rates. In January 1997 and January 1998, legislation was introduced in the Indiana General Assembly addressing electric utility competition and deregulation. Neither bill was passed. Northern Indiana is participating in discussions with other utilities and its largest customers on the technical and economic aspects of possible legislation to allow customer choice. If Industries believes that consensus legislation is possible, Industries would support a deregulation bill in the January 1999 Indiana General Assembly. Operating in a competitive environment will place added pressures on utility profit margins and credit quality. Increasing competition in the electric utility industry has already led the credit rating agencies to apply more stringent guidelines in making credit rating determinations. Competition within the electric utility industry will create opportunities to compete for new customers and revenues, as well as increase the risk of the loss of customers. Industries' management has taken steps to make the company more competitive and profitable in the changing utility environment, including partnering on energy projects with major industrial customers and conversions of some of its generating units to allow use of lower cost, low sulfur coal. FERC Order No. 636 shifted primary responsibility for gas acquisition, transportation and peak days' supply from pipelines to local gas distribution companies such as the Energy Utilities. Although pipelines continue to transport gas, they no longer provide sales service. The Energy Utilities believe they have taken appropriate steps to ensure the continued acquisition of adequate gas supplies at reasonable prices. The mix of gas revenues from retail sales, interruptible retail sales, firm transportation service and interruptible transportation services has changed significantly over the past several years. The deregulation of the gas industry, since the mid-1980s, allows large industrial and commercial customers to purchase their gas supplies directly from producers and use the Energy Utilities' facilities to transport the gas. Transportation customers pay the Energy Utilities only for transporting their gas from the pipeline to the customers' premises. The Commission has approved Northern Indiana's Alternative Regulatory Plan (ARP) which implements new rates and services that include, among other things, further unbundling of services for additional customer classes, increased customer choice for sources of natural gas supply, negotiated services and prices, a gas cost incentive mechanism and a price protection program. The gas cost incentive mechanism allows Northern Indiana to share any gas cost savings or cost increases with its customers based on a comparison of Northern Indiana's actual gas supply portfolio costs to a market based benchmark price. The first pilot program was launched in January 1998 and the first gas volumes flowed under this program in April 1998. The Commission order allows the natural gas marketing affiliate of Northern Indiana to participate as a supplier of choice to customers on the Northern Indiana system. Northern Indiana offers customers a price protection service (PPS) which allows residential customers to purchase gas at a fixed price or capped price for a specific period of time. To date, the Energy Utilities' system has not been materially affected by competition, and management does not foresee substantial adverse effects in the near future, unless the current regulatory structure is substantially altered. The Energy Utilities believe the steps they are taking to deal with increased competition will have significant, positive effects in the next few years. FORWARD LOOKING STATEMENTS - This report contains forward looking statements within the meaning of the securities laws. Forward looking statements include terms such as "may", "will", "expect", "believe", "plan" and other similar terms. Industries cautions that, while it believes such statements to be based on reasonable assumptions and makes such statements in good faith, there can be no assurance that the actual results will not differ materially from such assumptions or that the expectations set forth in the forward looking statements derived from such assumptions will be realized. Investors should be aware of important factors that could have a material impact on future results. These factors include, but are not limited to, weather, the federal and state regulatory environment, year 2000 issues, the economic climate, regional, commercial, industrial and residential growth in the service territories served by Industries' subsidiaries, customers' usage patterns and preferences, the speed and degree to which competition enters the utility industry, the timing and extent of changes in commodity prices, changing conditions in the capital and equity markets and other uncertainties, all of which are difficult to predict, and many of which are beyond the control of Industries. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risks to which Industries is exposed and in connection with which Industries uses market risk sensitive instruments are commodity price risk and interest rate risk. Industries engages in price risk management activities related to electricity and natural gas. Price risk arises from fluctuations in energy commodity prices due to changes in supply and demand. Industries actively monitors and limits its exposure to commodity price risk. Industries' price risk management policy allows the use of derivative financial and commodity instruments to reduce (hedge) exposure to price risk of its commodity supplies and related purchase and sales commitments of energy, as well as related anticipated transactions. Industries utilitizes contracts for the forward purchase and sale of natural gas and electricity and natural gas futures and options to manage its power and gas marketing businesses. As part of its commodity price risk, Industries is exposed to geographic price differentials due primarily to transportation costs and local supply-demand factors. Industries uses basis swaps to hedge a portion of this exposure. For economic reasons or otherwise, Industries does not hedge all of its basis exposure. Industries enters into certain sales contracts with customers based upon a fixed commodity sales price and varying volumes which are ultimately dependent upon the customer's supply requirements. Industries utilizes financial instruments to reduce the commodity price risk based on modeling techniques that anticipate these future supply requirements. Industries continues to be exposed to commodity price risk for the difference between the ultimate supply requirements and those modeled. Although the Energy Utilities are subject to commodity price risk as part of their traditional operations, the current regulatory framework within which the Energy Utilities operate allows for collection of fuel and gas costs in rate-making. Consequently, there is limited commodity price risk for the Energy Utilities after consideration of the related rate-making. However, as the utility industry deregulates, the Energy Utilities will be providing services without the benefit of the traditional rate-making allowances and will therefore be more exposed to commodity price risk. Because the commodities covered by Industries' derivative financial and commodity instruments are substantially the same commodities that Industries buys and sells in the physical market, no special correlation studies are deemed necessary other than monitoring the degree of convergence between the derivative and cash markets. Industries' daily net commodity position consists of natural gas inventories, natural gas and power purchase and sales contracts and derivative financial and commodity instruments. The fair value of such positions is a summation of the fair values calculated for each commodity by valuing each net position at quotes from exchanges and over-the-counter counterparties and includes location differentials. Based on Industries' net commodity position at fair value at September 30, 1998, a 10% adverse movement in electric and natural gas market prices would have reduced net income by approximately $2.0 million. However, any such movement in prices is not indicative of actual results and is subject to change. Refer to Summary of Significant Accounting Policies-Hedging Activities for further discussion of Industries' hedging policies. Industries utilizes long-term debt as a primary source of capital in its business. A significant portion of the total debt portfolio includes a medium-term note program, the interest component of which resets on a periodic basis to reflect current market conditions. The Energy Utilities utilize longer term fixed price debt instruments which have been and will be refinanced at lower interest rates if Industries deems it to be economical. Refer to Notes to Consolidated Financial Statements for detailed information related to Industries' long-term debt outstanding and the fair value of financial instruments for the current market valuation of long-term debt. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Industries and its subsidiaries are parties to various pending proceedings, including suits and claims against them for personal injury, death and property damage. Such proceedings and suits, and the amounts involved are routine litigation and proceedings for the kinds of businesses conducted by Industries and its subsidiaries, except as described under Note 5 (NESI Energy Marketing Canada Ltd. Litigation) and Note 7 (Environmental Matters) in the Notes to Consolidated Financial Statements under Part I, Item 1 of this report on Form 10-Q, which notes are incorporated by reference. No other material legal proceedings against Industries or its subsidiaries are pending or, to the knowledge of Industries, contemplated by governmental authorities or other parties. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. Any shareholder proposal submitted outside the processes of Rule 14a-8 under the Securities Exchange Act of 1934 for presentation to Industries' 1999 Annual Meeting of Shareholders will be considered untimely for purposes of Rules 14a-4 and 14a-5 if notice thereof is received by Industries after November 9, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit 4.1- Indenture of Trust of Town of Fishers and Indiana Water Company to National City Bank of Indiana, As Trustee, dated as of July 15, 1998 (including Form of $30,000,000 Town of Fishers, Indiana Economic Development Water Facilities Refunding Revenue Bond, Series 1998 (Indianapolis Water Company Project). Exhibit 4.2- Indenture of Trust of City of Indianapolis, Indiana and Indiana Water Company to National City Bank of Indiana, As Trustee, dated as of July 15, 1998 (including Form of $10,000,000 City of Indianapolis, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project). Exhibit 23- Consent of Arthur Andersen LLP Exhibit 27- Financial Data Schedule Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Industries hereby agrees to furnish the Commission, upon request, any instrument defining the rights of holders of long-term debt of Industries not filed as an exhibit herein. No such instrument authorizes long-term debt securities in excess of 10% of the total assets of Industries and its subsidiaries on a consolidated basis. . (b) Reports on Form 8-K. None INDENTURE OF TRUST TOWN OF FISHERS, INDIANA AND INDIANAPOLIS WATER COMPANY TO National City Bank of Indiana, As Trustee DATED AS OF JULY 15, 1998 $30,000,000 Town of Fishers, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project)
Table of Contents RECITALS 1 GRANTING CLAUSES 2 ARTICLE I Definitions and Exhibits 3 Section 101. Terms Defined. 3 Section 102. Rules of Interpretation. 6 Section 103. Exhibits. 7 ARTICLE II The Bonds 7 Section 201. Terms of Bonds. 7 Section 202. Issuance of Bonds; Denominations. 7 Section 203. Payments on Bonds. 8 Section 204. Execution; Limited Obligation. 8 Section 205. Authentication. 8 Section 206. Delivery of Bonds. 9 Section 207. Mutilated, Lost, Stolen or Destroyed Bonds. 9 Section 208. Registration and Exchange of Bonds; Persons Treated as Owners. 10 Section 209. Form of Bonds. 10 Section 210. Book Entry. 10 Section 211. Payment Procedure Pursuant to Municipal Bond Insurance Policy. 11 ARTICLE III Application of Bond Proceeds; Redemption Fund 12 Section 301. Deposit of Funds. 12 Section 302. Redemption Fund. 12 ARTICLE IV Revenues and Funds 12 Section 401. Source of Payment of Bonds. 12 Section 402. Creation of Bond Fund. 12 Section 403. Payments into Bond Fund. 12 Section 404. Use of Moneys in Bond Fund. 13 Section 405. Investment of Funds. 13 Section 406. Trust Funds. 13 Section 407. Nonpresentment of Bonds. 13 ARTICLE V Redemption of Bonds Before Maturity 14 Section 501. Determination of Taxability Redemption. 14 Section 502. Redemption in the Event of Death of a Bondholder 14 Section 503. Optional Redemption. 15 Section 504. Notice of Redemption. 16 Section 505. Cancellation. 17 ARTICLE VI General Covenants 17 Section 601. Payment of Principal, Premium, if any, and Interest. 17 Section 602. Performance of Covenants. 18 Section 603. Ownership; Instruments of Further Assurance. 18 Section 604. Rights under Loan Agreement and Note. 18 Section 605. Designation of Additional Paying Agents. 18 Section 606. Recordation; Application of Uniform Commercial Code. 18 Section 607. List of Bondholders. 19 ARTICLE VII Possession and Use of the Project Financed with the 1989 Bonds 19 Section 701. Subordination to Rights of Company. 19 ARTICLE VIII Remedies 19 Section 801. Events of Default. 19 Section 802. Acceleration Rights. 20 Section 803. Other Remedies; Rights of Bondholders. 20 Section 804. Right of Bondholders to Direct Proceedings. 21 Section 805. Appointment of Receivers. 21 Section 806. Application of Moneys. 21 Section 807. Remedies Vested in Trustee. 22 Section 808. Rights and Remedies of Bondholders. 23 Section 809. Termination of Proceedings. 23 Section 810. Waivers of Events of Default. 23 Section 811. Cooperation of Municipality. 23 Section 812. Consent of MBIA Upon Default 23 ARTICLE IX The Trustee 24 Section 901. Acceptance of Trusts. 24 Section 902. Certain Rights of Trustee. 24 Section 903. Fees, Charges and Expenses of Trustee and Paying Agent. 26 Section 904. Notice to Bondholders if Default Occurs. 26 Section 905. Intervention by Trustee. 26 Section 906. Successor Trustee. 26 Section 907. Resignation by Trustee. 26 Section 908. Removal of Trustee. 27 Section 909. Appointment of Successor Trustee by Bondholders; Temporary Trustee. 27 Section 910. Concerning Any Successor Trustees. 27 Section 911. Trustee Protected in Relying upon Resolution, etc. 27 Section 912. Successor Trustee as Trustee of Funds, Paying Agent and Bond Registrar. 28 ARTICLE X Continuing Disclosure 28 Section 1001. Continuing Disclosure. 28 ARTICLE XI Supplemental Indentures 28 Section 1101. Supplemental Indentures Not Requiring Consent of Bondholders. 28 Section 1102. Supplemental Indentures Requiring Consent of Bondholders. 29 ARTICLE XII Amendments to the Loan Agreement 29 Section 1201. Amendments, etc., to Loan Agreement or the Guaranty Not Requiring Consent of Bondholders. 29 Section 1202. Amendments, etc., to Loan Agreement or the Guaranty Requiring Consent of Bondholders. 29 Section 1203. No Amendment May Alter Note. 30 ARTICLE XIII Miscellaneous 30 Section 1301. Satisfaction and Discharge. 30 Section 1302. Application of Trust Money. 31 Section 1303. Consents, etc., of Bondholders. 31 Section 1304. Parties Interested Herein. 31 Section 1305. Severability. 31 Section 1306. Notices. 32 Section 1307. Trustee as Paying Agent and Registrar. 32 Section 1308. Counterparts. 32 Section 1309. Applicable Law. 32 Section 1310. Holidays. 32 Section 1311. Captions and Table of Contents. 32 ARTICLE XIV Municipal Bond Insurance Provisions 32 Section 1401. Notices. 32 Section 1402. Consent of MBIA. 35 Section 1403. Effectiveness of Rights of MBIA to Consent or Direct Actions. 35 Section 1404. Trustee to Consider Effect on Bondholders of Actions Taken Pursuant to Indenture as if There Were No Municipal Bond Insurance. 35 Section 1405. MBIA as Third-Party Beneficiary. 35
INDENTURE OF TRUST This INDENTURE OF TRUST has been executed as of July 15, 1998, by and among the TOWN OF FISHERS, INDIANA (the "Municipality"), INDIANAPOLIS WATER COMPANY, an Indiana corporation (the "Company"), and National City Bank of Indiana, a national banking association authorized to accept trusts of this character with its principal office located in Indianapolis, Indiana, as Trustee (the "Trustee"). RECITALS 1. Definitions of certain of the terms used in these Recitals are set out in Article I hereof and Article I of the Loan Agreement. 2. IC 5-1-5, IC 36-7-11.9 and IC 36-7-12 authorize municipalities in the State of Indiana to issue revenue bonds to finance the cost of providing economic development facilities and also authorize the municipalities to issue revenue bonds to refund such bonds. 3. In 1989, the Company financed a portion of its capital expansion program in Indianapolis through the issuance and sale of the Town of Fishers, Indiana 7-7/8% Economic Development Water Facilities Revenue Bonds, Series 1989 (Indianapolis Water Company Project) (the "1989 Bonds"). 4. The Company borrowed from the Municipality funds derived from the sale of the 1989 Bonds, and the Company, as evidence of its obligation to repay the funds, issued and delivered to the Municipality its First Mortgage Bonds, Economic Development Series C in the principal amount of $30,000,000. 5. The Company has determined that the 1989 Bonds can be refinanced at a net savings to the Company and has further determined that such refinancing will result in other benefits to the Company. 6. Pursuant to IC 5-1-5, IC 36-7-11.9 and IC 36-7-12, the Municipality is authorized and empowered to issue revenue bonds to refund and refinance revenue bonds previously issued by it. The Municipality is obtaining funds to loan to the Company to assist with the refunding and refinancing of the 1989 Bonds through the sale of its $30,000,000 aggregate principal amount of Town of Fishers, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project). 7. Under the Loan Agreement and pursuant to this Indenture, the Municipality will issue $30,000,000 of its Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project), will sell the Bonds to the Purchaser and will lend the proceeds from the sale of the Bonds to the Company. The Bonds will be payable solely out of the revenues and other amounts derived from the Note and under the Loan Agreement, and pursuant to the Guaranty Agreement under which the principal of, premium, if any, and interest on the Bonds will be guaranteed by IWC Resources Corporation, an Indiana corporation (the "Guarantor") and will be further secured under and pursuant to the Municipal Bond Insurance Policy. The Bonds shall not in any respect be a general obligation of, an indebtedness of, or constitute a charge against the general credit of the Municipality, the State of Indiana or any political subdivision thereof. 8. To evidence its obligation to repay the Loan, the Company will deliver its Note to the Municipality. 9. This Indenture provides for the issuance of the Bonds, the assignment by the Municipality of the Note and its rights under the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities, the right to receive notices and its rights relating to any amendments to the Loan Agreement) to the Trustee. 10. The Bonds and the Trustee's Certificate of Authentication for the Bonds will be substantially in the form set forth in Exhibit A hereto. 11. All things necessary to make the Bonds, when authenticated by the Trustee and issued as provided in this Indenture, the valid, binding and legal obligations of the Municipality according to the import thereof, and to constitute this Indenture a valid assignment and pledge of the properties and amounts assigned and pledged to the payment of the principal of and premium, if any, and interest on the Bonds and a valid assignment and pledge of the rights of the Municipality under the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities, the right to receive notices and its rights relating to any amendments to the Loan Agreement) and the Note have been done and performed, and the creation, execution and delivery of this Indenture and the creation, execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE OF TRUST WITNESSES THAT: GRANTING CLAUSES In order to secure the payment of the principal of and premium, if any, and interest on the Bonds and in order to secure the performance and observance of all the covenants and conditions in this Indenture and in the Bonds, and in order to declare the terms and conditions upon which the Bonds are issued, authenticated, delivered, secured and accepted by all persons who shall from time to time be or become holders thereof, and for and in consideration of the premises, the Loan, the mutual covenants of the parties, the acceptance by the Trustee of the trust hereby created, and the purchase and acceptance of the Bonds by the holders, the Municipality and the Company have executed and delivered this Indenture and by this Indenture assign and pledge and grant a security interest in the following to the Trustee, its successors and assigns forever: First Granting Clause All of the right, title and interest of the Municipality in, to and under the Note and the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities, the right to receive notices and its rights relating to any amendments to the Loan Agreement), including all sums payable with respect to the indebtedness evidenced by the Note and the Loan Agreement, and all proceeds thereof; provided that the assignment made by this clause shall not impair or diminish any obligation of the Municipality under the Loan Agreement. Second Granting Clause All moneys and securities from time to time held by the Trustee under the terms of this Indenture, including without limitation the Guaranty, the moneys held in trust funds, and any and all other property pledged, assigned or transferred to the Trustee at any time for additional security by the Municipality or the Company or with their written consent, and all proceeds thereof. The Trustee is authorized to receive the additional property at any time and to hold and apply that property under this Indenture. TO HAVE AND TO HOLD FOREVER IN TRUST, NEVERTHELESS, upon the terms of this Indenture, to secure the payment of the principal of and premium, if any, and interest on the Bonds, and to secure the observance and performance of all the terms of this Indenture, and for the benefit and security of the holders of the Bonds, without preference, priority or distinction as to lien or otherwise, except as provided in this Indenture, of any one Bond over any other Bond or as among principal, premium and interest. The terms and conditions upon which the Bonds are to be issued, authenticated, delivered, secured and accepted by all persons who shall from time to time be or become the holders thereof, and the trusts and conditions upon which the pledged property, rights, interests, moneys and revenues are to be held and disbursed, are as follows: ARTICLE I Definitions and Exhibits Section 101. Terms Defined. As used in this Agreement, the following terms shall have the following meanings unless the context otherwise requires. "Bond" or "Bonds" means one or more of the Town of Fishers, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project) to be issued under this Indenture in the aggregate principal amount of $30,000,000. "Bondholder" or "Holder" or "Owner" or "Owner of the Bonds" means the registered owner of any Bond. "Bond Register" means the registration books of the Municipality kept by the Trustee to evidence the registration and transfer of the Bonds. "Business Day" means each Monday through Friday on which the national banks located in Indianapolis, Indiana are open for the transaction of normal banking business. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means Indianapolis Water Company, an Indiana corporation. "Continuing Disclosure Undertaking" shall mean that certain Continuing Disclosure Undertaking of the Company and the Guarantor dated the date of issuance and delivery of the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns, including without limitation (i) any surviving, resulting or transferee corporation or successor corporation appointed consistent with this Indenture, and (ii) any direct or indirect participants of The Depository Trust Company. "Determination of Taxability" means the occurrence of any of the following: (a) the filing by the Company of its certificate with the Trustee indicating to the satisfaction of the Trustee that an Event of Taxability has occurred; (b) notification to the Trustee that an authorized officer or official of the Internal Revenue Service has issued a statutory notice of deficiency or document of substantially similar import to the effect that an Event of Taxability has occurred; or (c) notification to the Trustee from any Bondholder or former Bondholder to the effect that the Internal Revenue Service has assessed as includable in the gross income of such Bondholder or former Bondholder interest on a Bond due to the occurrence of an Event of Taxability; provided, however, that in respect of clauses (b) and (c) above, a Determination of Taxability shall not be deemed to have occurred unless and until the Company has been notified of the allegation that an Event of Taxability and a Determination of Taxability have occurred and either (i) the Company fails to commence a contest of such allegation in good faith and by appropriate legal proceedings within 90 days following such notification, or (ii) the Company does commence such contest within such time, but thereafter fails to pursue it diligently, in good faith and by appropriate legal proceedings to a final order or judgment by a court or administrative body of competent jurisdiction, or (iii) such contest results in a final order or judgment of a court or administrative body of competent jurisdiction to the effect that an Event of Taxability has occurred and the time for any appeal of such order or judgment has expired. "Escrow and Defeasance Agreement" means the Escrow and Defeasance Agreement dated July 15, 1998 among the Company, the Trustee as trustee for the Bonds and the Trustee as trustee for the 1989 Bonds. "Event of Default" means those events of default specified in Section 801. "Event of Taxability" means any event, condition or circumstance which has the effect or result that interest on a Bond is not excludable for federal income tax purposes from the gross income of a Bondholder or a former Bondholder under Section 103 of the Code, other than for a period during which the Bondholder or a former Bondholder is or was a "substantial user" of the project financed with the 1989 Bonds or a "related person" for purposes of Section 147(a) of the Code, and the regulations thereunder. An Event of Taxability does not include any event, condition or circumstance which results in the interest on a Bond being a preference item subject to an alternate minimum tax, or in any other tax consequences that do not involve the inclusion for federal income tax purposes of interest on the Bonds in the income of Bondholders generally but instead depend upon a Bondholder's particular tax status. "Guarantor" means IWC Resources Corporation, the guarantor under the guaranty. "Guaranty" means the Guaranty Agreement dated as of July 15, 1998, under which IWC Resources Corporation guarantees the payment of the principal of, premium, if any, and interest on the Bonds. "Loan Agreement" means the Loan Agreement dated as of the date of this Indenture between the Company and the Municipality and all amendments and supplements thereto. "Majority" means, when used with reference to the Owners or Holders of Bonds outstanding, in excess of fifty percent (50%) of the principal amount of the Bonds outstanding. "MBIA" means MBIA Insurance Corporation, issuer of the Municipal Bond Insurance Policy. "Municipal Bond Insurance Policy" means the municipal bond insurance policy issued by MBIA insuring the payment when due of the principal of and interest on the bonds as provided therein. "Municipality" means the Town of Fishers, Indiana. "Officer's Certificate" means a certificate of the Municipality signed by the Mayor or Clerk or by any other person designated by resolution of the Municipality to act for either of those officers, either generally or with respect to the execution of any particular document or other specific matter, a certified copy of which resolution shall be filed with the Trustee. "Outstanding" or "Bonds outstanding" or "outstanding Bonds" means all Bonds which have been duly authenticated and delivered by the Trustee under this Indenture, except: (a) Bonds cancelled after purchase or because of payment at or redemption prior to maturity; (b) Bonds for the payment or redemption of which funds or securities shall have been deposited with the Trustee (whether upon or prior to the maturity or redemption date of those Bonds) and with respect to which all actions required to be taken at the time of such deposit as set forth in Section 1301 have been taken including, without limitation, the requirement that if those Bonds are to be redeemed prior to the maturity thereof, notice of the redemption shall have been given or arrangements satisfactory to the Trustee shall have been made for notice, or waiver of notice satisfactory in form to the Trustee shall have been filed with the Trustee; and (c) Bonds in lieu of which others have been authenticated under Section 207 and Section 208. "Person" means natural persons, firms, associations, corporations and public bodies. "Purchaser" means Edward D. Jones & Co., L.P. "Record Date" means with respect to an interest payment date, the first (1st) day of the calendar month that includes such interest payment date (whether or not a Business Day). "Representation Letter" means the Letter of Representation executed by the Issuer and delivered to DTC. "Securities Depository" means The Depository Trust Company, a corporation organized and existing under the laws of the State of New York, and any other securities depository for the Bonds appointed pursuant to the Indenture. "Trust Estate" means the property, rights, moneys, securities and other amounts conveyed to the Trustee pursuant to the Granting Clauses hereof. "Trustee" means National City Bank of Indiana, and any successor trustee or co-trustee. "Written Request" with reference to the Municipality means a request in writing signed by the President of the Town Council or Clerk-Treasurer or any other officer or officers of the Municipality satisfactory to the Trustee. Section 102. Rules of Interpretation. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole including exhibits and not to any particular Article, Section or other subdivision. (2) The terms defined in this Article include the plural, as well as the singular. (3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles. (4) Any terms not defined herein but defined in the Loan Agreement shall have the same meaning herein as in the Loan Agreement. Section 103. Exhibits. The following Exhibits are a part of this Agreement: Exhibit A: Form of Bond, form of Trustee's Certificate of Authentication and form of Assignment. Exhibit B: Form of Municipal Bond Insurance Policy.
ARTICLE II The Bonds Section 201. Terms of Bonds. No Bonds may be issued under this Indenture except in accordance with this Article. The total aggregate principal amount of Bonds shall not exceed $30,000,000 (other than Bonds issued pursuant to Section 207). Section 202. Issuance of Bonds; Denominations. Each of the Bonds shall be designated "Town of Fishers, Indiana Economic Development Water Facilities Refunding Revenue Bond, Series 1998 (Indianapolis Water Company Project)." The Bonds shall be issuable as fully registered bonds without coupons in the denominations of $5,000 or any integral multiple thereof and shall be lettered and numbered R-1 upward. Each Bond initially issued hereunder shall be dated July 15, 1998 and shall bear interest from that date. Bonds issued in exchange for Bonds surrendered for transfer or exchange or in place of mutilated, lost, stolen or destroyed Bonds will bear interest from the last date to which interest has been paid in full on the Bonds being transferred, exchanged or replaced or, if no interest has been paid, from July 15, 1998. Interest on the Bonds shall be paid to the persons who were the Owners of such Bonds as of the close of business on the Record Date next preceding such interest payment date at the registered addresses of such Owners as they shall appear on the registration books maintained by the Trustee notwithstanding the cancellation of any such Bonds upon any exchange or transfer thereof subsequent to the Record Date and prior to such interest payment date. Payment of interest to all Bondholders shall be by check drawn on the principal office of the Trustee and mailed on the due date thereof by first class United States mail to such Bondholder, or, at the written election of the registered owner of $500,000 or more in aggregate principal amount of Bonds delivered to the Trustee at least one Business Day prior to the Record Date for which such election will be effective, by wire transfer to the registered owner or by deposit into the account of the registered owner if such account is maintained by the Trustee. The interest on the Bonds shall be payable on each July 15, and January 15 commencing on January 15, 1999. The Bonds shall mature on July 15, 2028 and shall bear interest at the per annum rate of 5.05%, computed on the basis of a year of 360 days (consisting of 12 months of 30 days each). To the extent permitted by law, overdue interest on the Bonds shall also bear interest at such rate until paid in full. Section 203. Payments on Bonds. The principal of and premium, if any, and interest on the Bonds shall be payable in any coin or currency of the United States of America which, at the date of payment thereof, is legal tender for the payment of public and private debts. Principal of and premium, if any, and interest on the Bonds shall be payable at the principal corporate trust office of the Trustee, in the Town of Fishers, Indiana, or of any alternate paying agent named in the Bonds or subsequently appointed. Payment of the interest on the Bonds on any payment date shall be made to the person appearing on the Bond registration books of the Trustee as the registered Owner and shall be paid by check or draft mailed to the registered Owner on the due date at the address on such registration books without any presentation of the Bonds. Payment of the principal of and premium, if any, on any Bond shall be made upon presentation and surrender of the Bond as the same shall become due and payable. Section 204. Execution; Limited Obligation. The Bonds shall be executed on behalf of the Municipality with the manual or facsimile signature of its Mayor and attested with the manual or facsimile signature of its Clerk and shall have impressed or printed thereon the corporate seal of the Municipality. In case any officer whose signature appears on the Bonds shall cease to hold that office before the delivery of the Bonds, the signature shall nevertheless be valid and sufficient for all purposes, the same as if the officer had remained in office until delivery. The Bonds, and interest thereon, shall be limited obligations of the Municipality payable by it solely from the payments to be made under the Loan Agreement and on the Note (except to the extent paid out of moneys attributable to the proceeds of the Bonds or the income from the temporary investment thereof) and shall be a valid claim of the Holder of the Bonds only against the moneys held by the Trustee. In addition, payment of the Bonds shall be guaranteed by the Guarantor under the Guaranty and shall be further secured under and pursuant to the Municipal Bond Insurance Policy. The payments to be made under the Loan Agreement and on the Note which are assigned for the payment of the Bonds shall be used for no other purpose than to pay the principal of and premium, if any, and interest on the Bonds, except as may be otherwise expressly authorized in this Indenture. The Bonds shall not in any respect be a general obligation of, an indebtedness of, or constitute a charge against the general credit of the Municipality, the State of Indiana, or any political subdivision thereof, and they shall not be payable in any manner from funds raised by taxation. Section 205. Authentication. No Bond shall be valid or obligatory for any purpose or entitled to any benefit under this Indenture unless the certificate of authentication on the Bond has been executed by the Trustee, and the executed certificate of the Trustee on the Bond shall be conclusive evidence that the Bond has been authenticated and delivered under this Indenture. The Trustee's certificate of authentication on any Bond shall be deemed to have been executed by it if signed by an authorized representative of the Trustee, but it shall not be necessary that the same representative sign the certificate of authentication on all of the Bonds. Section 206. Delivery of Bonds. Upon the execution and delivery of this Indenture, the Municipality shall execute and deliver to the Trustee the Bonds in the aggregate principal amount of $30,000,000 and the Trustee shall authenticate the Bonds and deliver them to the Municipality or to such other person or persons as directed by the Municipality as provided in this Section 206. Prior to the delivery by the Trustee of the Bonds, there shall be filed with the Trustee: 1. A copy, certified by the Clerk of the Municipality, of the Ordinance adopted by the Municipality authorizing the execution and delivery of the Loan Agreement and this Indenture and the issuance of the Bonds. 2. Original executed counterparts of the Loan Agreement, this Indenture, the Note and the Guaranty. 3. A Written Request of the Municipality to the Trustee requesting the Trustee to authenticate and deliver the Bonds to the person or persons therein identified upon payment to the Trustee, but for the account of the Municipality, of a sum specified in such request and authorization. 4. An opinion of bond counsel to the effect that the Bonds are valid and binding limited obligations of the Municipality and that the interest thereon is excludable from the gross income of the recipients thereof for federal income tax purposes under Section 103 of the Code, except when the Bonds are held by a "substantial user" of the project financed by the 1989 Bonds or a "related person." 5. The Municipal Bond Insurance Policy. 6. The Continuing Disclosure Undertaking. 7. Such other items as shall be required by bond counsel employed in connection with the issuance of the Bonds. The proceeds of the Bonds shall be paid to the Trustee and deposited as provided in Section 301 hereof. Section 207. Mutilated, Lost, Stolen or Destroyed Bonds. If any Bond is mutilated, lost, stolen or destroyed, the Trustee may authenticate a new Bond for the same original principal amount provided that, in the case of a mutilated Bond, such mutilated Bond shall first be surrendered to the Trustee, and in the case of a lost, stolen or destroyed Bond, there shall be first furnished to the Trustee evidence of the loss, theft or destruction satisfactory to the Trustee, together with indemnity satisfactory to the Trustee. In the event a mutilated, lost, stolen or destroyed Bond shall have matured, instead of issuing a duplicate Bond the Trustee may pay the same without surrender thereof. The Municipality and the Trustee may charge the Holder or Owner of the Bond with their reasonable fees and expenses in this connection. Section 208. Registration and Exchange of Bonds; Persons Treated as Owners. The Municipality shall cause books for the registration and for the transfer of the Bonds to be kept by the Trustee, which is hereby appointed the Bond registrar of the Municipality. Upon surrender for transfer of any Bond at the principal office of the Trustee, endorsed for transfer or accompanied by an assignment executed by the registered Owner or his authorized attorney, the Trustee shall authenticate and deliver in the name of the transferee a new fully registered Bond or Bonds for the same original principal amount, which fully registered Bond or Bonds shall have been executed by the Municipality. Bonds may be exchanged at the principal corporate trust office of the Trustee for the same original principal amount of Bonds of other authorized denominations. The Municipality shall execute and the Trustee shall authenticate and deliver new Bonds which the Bondholder making the change is entitled to receive, bearing numbers not then outstanding. The Trustee shall not be required to transfer or exchange any Bond during any period beginning on a Record Date and ending on the interest payment date with respect to such Record Date or to transfer or exchange any Bond after the first mailing of notice calling such Bond or a portion thereof for redemption, nor any Bond during the fifteen-day period next preceding the giving of such notice of redemption. As to any Bond, the person in whose name the Bond is registered shall be deemed the absolute Owner for all purposes, and payment of either principal of or interest or premium on the Bond shall be made only to or upon the written order of the registered Owner or his legal representative. In each case the Bondholder requesting registration, exchange or transfer shall pay any resulting tax or other governmental charge. Section 209. Form of Bonds. The Bonds shall be substantially in the form set forth in Exhibit A hereto with any appropriate notations, omissions and insertions permitted or required by this Indenture or deemed necessary by the Trustee. Section 210. Book Entry. Initially, one certificate for the Bonds will be issued and registered to the Securities Depository. The Municipality and the Trustee may enter into a Letter of Representations (as defined below) relating to a book entry system to be maintained by the Securities Depository with respect to the Bonds. In the event that (a) the Securities Depository determines not to continue to act as a securities depository for the Bonds by giving notice to the Trustee and the Municipality discharging its responsibilities hereunder, or (b) the Municipality determines (at the direction of the Company) (i) that beneficial owners of the Bonds shall be able to obtain certificated Bonds, or (ii) to select a new Securities Depository, attempt to locate another qualified securities depository to serve as Securities Depository or authenticate and deliver certificated Bonds to the beneficial owners or to the Securities Depository participants on behalf of beneficial owners substantially in the form provided for in this Section 210. In delivering certificated Bonds, the Trustee shall be entitled to rely on the records of the Securities Depository as to the beneficial owners or the records of the Securities Depository participants acting on behalf of beneficial owners. Such certificated Bonds will then be registrable, transferable and exchangeable as set forth in the Indenture. So long as there is a Securities Depository for the Bonds, (1) it or its nominee shall be the registered owner of the Bonds; (2) notwithstanding anything to the contrary in the Indenture, determinations of persons entitled to payment of principal or purchase price, premium, if any, and interest, transfers of ownership and exchanges and receipt of notices shall be the responsibility of the Securities Depository and shall be effected pursuant to rules and procedures established by the Securities Depository; (3) the Municipality, the Company and the Trustee shall not be responsible or liable for maintaining, supervising or reviewing the records maintained by the Securities Depository, its participants or persons acting through such participants; (4) references in the Indenture to owners or registered owners of the Bonds shall mean the Securities Depository or its nominee and shall not mean the beneficial owners of the Bonds; and (5) in the event of any inconsistency between the provisions of the Indenture and the provisions of the Letter of Representations, the provisions of the Letter of Representations, except to the extent set forth in this paragraph and the next preceding paragraph, shall control. For purposes of this Section, following term shall have the following meaning: "Letter of Representations" means the Letter of Representations from the Municipality to the Securities Depository and (with the consent of the Company) any amendments thereto, or successor agreements between the Municipality, the Trustee and any successor Securities Depository, relating to a book entry system to be maintained by the Securities Depository with respect to the Bonds. Section 211. Payment Procedure Pursuant to Municipal Bond Insurance Policy. As long as the Municipal Bond Insurance Policy shall be in full force and effect with respect to the Bonds, the Municipality and the Trustee agree to comply with the following provisions: (a) At least two (2) days prior to all interest or principal payment dates the Company will notify MBIA and the Trustee if the Company does not expect to provide the Trustee with sufficient funds to pay the principal of or interest on the Bonds on such interest payment date. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest, or both. ARTICLE III Application of Bond Proceeds; Redemption Fund Section 301. Deposit of Funds. Pursuant to Section 3.1 of the Loan Agreement, the Municipality shall deposit with the Trustee all proceeds from the sale of Bonds and the Trustee shall deposit the accrued interest on the Bonds, if any, into the Bond Fund created under Section 402 hereof and the balance of the proceeds into the Redemption Fund created under Section 302 hereof. Section 302. Redemption Fund. The Municipality shall establish with the Trustee a separate account to be designated as the "Indianapolis Water Company, Series 1998 (Fishers) Redemption Fund." Moneys on deposit in the Redemption Fund shall be held by the Trustee under the Escrow and Defeasance Agreement and paid out by the Trustee as provided in Section 3.2 of the Loan Agreement solely for the purposes of discharging, retiring and redeeming the 1989 Bonds and terminating all obligations and liabilities of the Company created by or relating to the 1989 Bonds; provided, however, that any moneys remaining in the Redemption Fund after such discharge, retirement, redemption and termination shall be promptly released and distributed to the Company. Moneys on deposit in the Redemption Fund may be invested only in direct obligations of the United States of America or other obligations backed by the full faith and credit of the United States of America and the income or loss shall be credited or charged to the Redemption Fund. ARTICLE IV Revenues and Funds Section 401. Source of Payment of Bonds. The Bonds and all payments to be made by the Municipality hereunder are not general obligations of the Municipality, but are limited obligations payable by it solely out of the revenues and other amounts derived from the Note and under the Loan Agreement. In addition, the Bonds shall be guaranteed by the Guarantor under the Guaranty and shall be further secured under and pursuant to the Municipal Bond Insurance Policy. Section 402. Creation of Bond Fund. There is created with the Trustee a trust fund to be designated as the "Indianapolis Water Company, Series 1998 Bond Fund." Amounts deposited into the Bond Fund shall be used to pay the principal of and premium, if any, and interest on the Bonds and as otherwise authorized in this Indenture. Section 403. Payments into Bond Fund. Pursuant to Section 301 hereof, all accrued interest received at the time of the sale of any Bonds shall be deposited into the Bond Fund. In addition, there shall be deposited into the Bond Fund all payments received pursuant to the Note and all other moneys received by the Trustee under the Loan Agreement or the Guaranty which are required or directed to be paid into the Bond Fund and all amounts received from MBIA under the Municipal Bond Insurance Policy. Section 404. Use of Moneys in Bond Fund. Except as provided in Section 1301 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of and premium, if any, and interest on the Bonds, for the redemption of all or a portion of the Bonds prior to maturity, for the purchase of Bonds or portions thereof for the purpose of cancellation, for any fees and expenses of the Trustee and any paying agent and for any fees and expenses of the Municipality caused by any default of the Company under the Loan Agreement. Whenever the amount in the Bond Fund is sufficient to redeem all of the Bonds then unpaid and to pay the premium, if any, and interest to accrue thereon prior to redemption, the Trustee shall, at the request of the Company, take the necessary steps to redeem the Bonds on the earliest possible redemption date for which the required redemption notice may be given. However, any moneys in the Bond Fund may be used to redeem a part of the Bonds outstanding so long as the Company is not in default with respect to any payments under the Loan Agreement or the Note, but only to the extent those moneys are in excess of the amount still required for payment of the portion of the Bonds previously called for redemption, the premium thereon, if any, and interest, and any past due interest and principal. Section 405. Investment of Funds. Moneys in the Bond Fund and the Redemption Fund may be invested in direct obligations of the United States of America or other obligations backed by the full faith and credit of the United States of America. Any such investments shall be held by or under control of the Trustee and shall be deemed at all times a part of the Bond Fund or Redemption Fund, as the case may be, and the interest accruing thereon and any profit realized therefrom shall be credited to such fund, and any loss resulting from such investments shall be charged to such fund. The Trustee shall sell and reduce to cash funds a sufficient portion of investments under the provisions of this Section 405 whenever the cash balance in the Bond Fund is insufficient to pay the principal of and premium, if any, and interest on the Bonds as and when payable. The Company and the Municipality covenant to each other and to and for the benefit of the Holders of the Bonds that no use will be made of the proceeds from the issue and sale of the Bonds which would cause the Bonds to be classified as arbitrage bonds within the meaning of Section 103(b)(2) and Section 148 of the Code. The parties reserve the right, however, to make any investment of proceeds permitted by the laws of the State of Indiana, if Section 148 or regulations thereunder are repealed or relaxed or are held void by final judgment of a court of competent jurisdiction, so long as the investment would not result in making the interest on the Bonds subject to federal income taxation. In making investments, the parties may rely on an opinion of counsel of recognized competence in such matters. The Trustee may make any and all investments permitted by this Section 405 through its own bond department. Section 406. Trust Funds. All moneys and securities received by the Trustee under the provisions of this Indenture shall be trust funds and shall not be subject to lien or attachment of any creditor of the Municipality or of the Company. Section 407. Nonpresentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereon becomes due, either at maturity, or at the date fixed for redemption thereof, or otherwise, if funds sufficient to pay such Bond shall have been made available to the Trustee for the benefit of the Holder thereof, all liability of the Municipality to the Owner thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds for five years, without liability for interest thereon, for the benefit of the Holder of such Bond, who shall thereafter be restricted exclusively to such funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, such Bond. Any moneys so deposited with and held by the Trustee not so applied to the payment of Bonds within five years after the date on which the same shall become due, shall be repaid by the Trustee to the Company and thereafter Bondholders shall be entitled to look only to the Company for payment, and then only to the extent of the amount so repaid, and the Company shall not be liable for any interest thereon and shall not be regarded as a trustee of such money. Nor shall the Company be liable for any portion of such money that it delivers to the State of Indiana pursuant to IC 32-9. ARTICLE V Redemption of Bonds Before Maturity Section 501. Determination of Taxability Redemption. The Bonds are subject to mandatory redemption in whole (or in part as provided below) on the earliest practicable date (selected by the Trustee) within one hundred and eighty (180) days following a Determination of Taxability. The redemption price shall be 100% of the principal amount thereof plus accrued interest to the redemption date. Fewer than all the Bonds may be redeemed if redemption of fewer than all would result in the interest payable on the Bonds remaining outstanding being not includable in the gross income for federal income tax purposes of any owner other than a "substantial user" or "related person." If fewer than all Bonds are redeemed, the Trustee will select the Bonds to be redeemed by lot or by such other random means as the Trustee shall determine in its discretion. For purposes of this Section, Bondholder shall include the beneficial owner of a Bond (i.e., the actual owner as recorded in the records of DTC). Section 502. Redemption in the Event of Death of a Bondholder. On July 15 of each year commencing July 15, 2000, the Trustee will, upon the death of any registered owner, redeem any Bond held by such registered owner following presentation for redemption as described below by such registered owner's personal representative or surviving joint tenant(s), subject to the limitations that in any 12-month period the Trustee shall not be obligated to redeem Bonds pursuant to this Section to the extent that (i) the aggregate principal amount of Bonds so subject to redemption, together with the aggregate principal amount of City of Indianapolis, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project) (the "1998 Indianapolis Bonds") subject to redemption by reason of the death of any registered owner of 1998 Indianapolis Bonds exceeds $800,000, or (ii) the Bonds of any registered owner so subject to redemption together with the registered owner's 1998 Indianapolis Bonds subject to redemption by reason of the death of such registered owner, exceed the aggregate principal amount of $25,000. The Bonds subject to redemption as described above may be presented for redemption by delivering to the Trustee within two (2) years of the death of a registered owner (i) a written request for redemption in form satisfactory to the Trustee, signed by the personal representative or surviving joint tenant(s) of the registered owner, (ii) the Bond(s) to be redeemed, (iii) appropriate evidence of death and ownership of such Bond(s) at the time of death, and (iv) appropriate evidence of the authority of such personal representative or surviving joint tenant(s). In order for Bonds to be eligible for redemption on any July 15, such Bonds must be presented for redemption in full compliance with the provisions set forth above, prior to the May 15, next preceding such July 15. Upon receipt by the Trustee of all of the foregoing and by the time specified above, the Trustee shall promptly (and in any event by the June 15 next succeeding such July 15) certify to the Company and MBIA of such receipt and that a redemption of Bonds will occur under this Section 502 on the next succeeding July 15. The Bonds presented for redemption prior to maturity will be redeemed in the order of their receipt by the Trustee. Any Bonds not redeemed in any such period because of the individual $25,000 limitation or the aggregate $800,000 limitation, will be held in the order described above for redemption on the July 15 in succeeding years until redeemed. Any such redemption shall be at a price equal to 100% of the principal amount of the Bonds so to be redeemed, plus accrued interest to the redemption date. The death of a person who, during his or her lifetime, was entitled to substantially all of the beneficial interest of ownership of a Bond will be deemed the death of a registered owner, regardless of the registered owner, if such beneficial interest can be established to the satisfaction of the Trustee. Such beneficial interest shall be deemed to exist in typical cases of street name or nominee ownership, ownership under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between the husband and wife, and trust and certain other arrangements where one person has substantially all of the beneficial ownership interest in the Bond during his or her lifetime. In the case of Bonds registered in the name of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the redemption limitations described above apply to each beneficial owner of Bonds held by any Qualified Institution. In connection with the redemption request, such Qualified Institution must submit evidence, satisfactory to the Trustee, that it holds the Bonds subject to request on behalf of such beneficial owner and must certify the aggregate amount of redemption requests made on behalf of such beneficial owner. It is intended that the Bonds and the 1998 Indianapolis Bonds be treated as a single issue of bonds for purposes of this Section 502 and for all other provisions of this Indenture related to this Section 502 and the Trustee agrees to apply and administer the provisions of this Indenture in accordance with that intention. Section 503. Optional Redemption. The Bonds are subject to redemption by the Municipality (at the election and direction of the Company) prior to stated maturity in whole or in part on any date on or after July 15, 2005. The redemption price for any such redemption shall be the amount determined from the table below (expressed as a percentage of the principal amount of the Bonds or portions thereof so redeemed), plus accrued interest to the redemption date:
Redemption Period Redemption (both dates inclusive) Price July 15, 2005 through July 14, 2006 102% July 15, 2006 through July 14, 2007 101% July 15, 2007 and thereafter 100%
If less than all Bonds at the time outstanding are to be called for prior redemption, the particular Bonds or portions thereof to be redeemed shall be selected by lot or by such other random means as the Trustee shall determine in its discretion. Bonds of denominations greater than $5,000 may be called for redemption, in part, in multiples of $5,000. Section 504. Notice of Redemption. (a) Notice of the call for redemption identifying the Bonds to be redeemed (and, in the case of partial redemption of any Bonds, the respective principal amounts thereof to be redeemed), the redemption date and the redemption price shall (except for a redemption pursuant to Section 502) be given to Bondholders and to MBIA by mailing the redemption notice by registered or certified mail at least thirty days but no more than sixty days prior to the date fixed for redemption to the registered Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books; provided, however, that failure to give notice by mailing, or any defect therein, with respect to any Bond shall not affect the validity of any proceedings for the redemption of any other Bonds or portions thereof. Reference is hereby made to Section 5.4 of the Loan Agreement, which provision sets forth the obligations of the Company with respect to notice to the Trustee of the Company's exercise of its rights to prepay the Note. In connection with an optional redemption, the redemption notice may state that the redemption is conditional upon the timely receipt by the Trustee of funds sufficient to pay the redemption price of the Bonds to be redeemed as of the date of such redemption. In the event of such conditional redemption notice, if such funds are not so received by the Trustee, the call for redemption shall be of no force and effect and the redemption shall not occur. On and after the redemption date specified in the notice, if funds sufficient to pay the redemption price of the Bonds described in such notice are received by the Trustee, the Bonds that were called for redemption shall not bear interest, shall no longer be protected by this Indenture and shall not be deemed to be outstanding, and the Holders thereof shall have the right only to receive the redemption price plus accrued interest to the date fixed for redemption; provided, however, that all actions required by Section 1301 of this Indenture have been taken. (b) In addition to the redemption notice required above, if there is more than one Bondholder of all the Bonds, further notice (the "Additional Notice") shall be given by the Trustee as set out below. No defect in the Additional Notice or any failure to give all or any portion of the Additional Notice shall in any manner defeat the effectiveness of a call for redemption if notice is given as prescribed in paragraph (a) above. (1) Each Additional Notice of redemption shall contain the information required in paragraph (a) above for an official notice of redemption plus (i) the CUSIP numbers of all Bonds being redeemed; (ii) the date of the Bonds as originally issued: (iii) the rate of interest borne by each Bond being redeemed; (iv) the maturity date of each Bond being redeemed; and (v) any other descriptive information needed to identify accurately the Bonds being redeemed. (2) Upon the payment of the redemption price of the Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. (3) Each Additional Notice of redemption shall be sent at least 35 days before the redemption date by registered or certified mail or overnight delivery service to the Paying Agents, if any, to all registered securities depositories then in the business of holding substantial amounts of obligations similar to the Bonds (such depositories now being The Depository Trust Company of New York, New York, Midwest Securities Trust Company of Chicago, Illinois, Pacific Securities Depository Trust Company of San Francisco, California and Philadelphia Depository Trust Company of Philadelphia, Pennsylvania), to Standard and Poor's Ratings Group, and to one or more national information services that disseminate notices of redemption of obligations such as the Bonds. (4) In addition, the Trustee shall at all reasonable times make available to any interested party complete information as to which Bonds have been redeemed or called for redemption. Section 505. Cancellation. All Bonds that have been redeemed shall be cancelled by the Trustee and disposed of by the Trustee. A cancelled Bond shall not be reissued and a counterpart of the certificate evidencing its disposition shall be furnished by the Trustee to the Municipality and the Company. ARTICLE VI General Covenants Section 601. Payment of Principal, Premium, if any, and Interest. The Municipality shall promptly pay, but solely from payments under the Loan Agreement and on the Note and from funds otherwise available therefor in the Bond Fund the principal of and premium, if any, and interest on every Bond at the place, on the dates and in the manner provided herein and in the Bonds. The Bonds do not represent or constitute a debt of the Municipality within the meaning of the provisions of the Constitution or Statutes of the State of Indiana or a pledge of or charge against the credit of the Municipality or grant to the Owners or Holders thereof any right to have the Municipality levy taxes or appropriate any funds for the payment of the principal thereof or interest thereon. Section 602. Performance of Covenants. The Municipality will perform its obligations under this Indenture, the Bonds and the proceedings of its governing body pertaining to the Bonds. The Municipality represents that it is authorized under the Constitution and laws of the State of Indiana to issue the Bonds, to execute this Indenture and to assign all its right and title and interest in and to the Note and the Loan Agreement under this Indenture; that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been taken, and that the Bonds in the hands of the Holders and Owners thereof are and will be valid and binding obligations of the Municipality. The Company covenants that it will faithfully perform at all times all covenants, undertakings, stipulations and provisions which it has expressly undertaken to perform in this Indenture. Section 603. Ownership; Instruments of Further Assurance. The Municipality represents that it lawfully owns the Note and that the pledge and assignment thereof and the assignment of its interests in the Loan Agreement to the Trustee hereby made are valid and lawful. The Municipality covenants that it will defend the title to the Note and its interest in the Loan Agreement assigned to the Trustee, for the benefit of the Holders and Owners of the Bonds against the claims and demands of all persons whomsoever. The Municipality covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such indentures supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, pledging, assigning and confirming unto the Trustee the Note, the Loan Agreement and all payments thereon and thereunder pledged hereby to the payment of the principal of and premium, if any, and interest on the Bonds. The Municipality covenants that, except as provided herein and in the Loan Agreement, it will not sell, convey, mortgage, encumber or otherwise dispose of any part of the revenues and receipts payable under the Note and the Loan Agreement or its rights under the Loan Agreement. Section 604. Rights under Loan Agreement and Note. The Municipality agrees that the Trustee in its name or in the name of the Municipality may enforce all rights, remedies and privileges granted to the Municipality and all obligations of the Company under and pursuant to the Loan Agreement and the Note for and on behalf of the Bondholders, whether or not the Municipality is in default hereunder. Section 605. Designation of Additional Paying Agents. The Municipality will cause the necessary arrangements to be made through the Trustee for the designation of alternate paying agents, if any, and for the payment of the Bonds. Section 606. Recordation; Application of Uniform Commercial Code. The Municipality, the Company and the Trustee shall cause this Indenture and all supplements hereto as well as such other security instruments, financing statements and all supplements thereto and other instruments or documents as may be reasonably required from time to time to be kept, recorded and filed in such manner and in such places as may be required by law in order to preserve fully and protect the security of the Owners of the Bonds and the rights of the Trustee hereunder, and to perfect the lien of, and the security interest created by, this Indenture. This Indenture is a security agreement in support of any financing statement which may be executed and filed with respect to the Trust Estate, or any part thereof, and should an Event of Default occur, the Trustee may assert any or all of the remedies accorded a secured party under the Uniform Commercial Code of Indiana. The Company covenants and agrees to execute and to furnish to the Trustee such financing statements and continuations thereof as the Trustee may reasonably deem necessary or appropriate. Section 607. List of Bondholders. The Trustee as bond registrar will keep on file at the principal corporate trust office of the Trustee a list of names and addresses of the Holders of all Bonds. At reasonable times and under reasonable regulations established by the Trustee, said list may be inspected and copied by the Company, by the Purchaser or by Holders (or a designated representative thereof) of 10% or more in principal amount of Bonds then outstanding, such ownership and the authority of any such designated representative to be evidenced to the reasonable satisfaction of the Trustee. ARTICLE VII Possession and Use of the Project Financed with the 1989 Bonds Section 701. Subordination to Rights of Company. This Indenture and the rights and privileges hereunder of the Trustee and the Holders of the Bonds are specifically made subject and subordinate to the rights and privileges of the Company set forth in the Loan Agreement. ARTICLE VIII Remedies Section 801. Events of Default. If any of the following events occurs, it is hereby declared an "Event of Default": (a)default in the due and punctual payment and for a period of five (5) days thereafter of any interest on any Bonds; or (b)default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond, whether at stated maturity thereof, or at the date for redemption thereof, or otherwise; or (c)any Event of Default as defined in Section 6.1 of the Loan Agreement shall have occurred; or (d)failure by the Municipality or the Company to perform any other obligations under the Bonds or in this Indenture continuing for sixty (60) days after written notice specifying the failure given to the Municipality and the Company by the Trustee, which shall give such notice at the written request of the Holders of not less than ten percent (10%) in aggregate principal amount of the Bonds then outstanding; provided, however, that with respect to this clause (d) and with respect to Section 6.1(d) of the Loan Agreement if failure of performance shall be such that it cannot be corrected within such period, it shall not constitute an Event of Default if: (i) such failure of performance, in the reasonable opinion of the Trustee, is correctable without material adverse effect on the Bonds; (ii) corrective action is instituted by or on behalf of the Municipality or the Company within such period and is diligently pursued until such failure of performance is corrected; and (iii) in the reasonable opinion of the Trustee, correction of such failure of performance has not taken an unreasonable amount of time. The Trustee may request (and may rely upon) from the Company or the Municipality a certificate to the effect that the Company or the Municipality has instituted corrective action and will diligently pursue such action and believes that its failure of performance can be corrected through such action; or (e)an Event of Default as defined in Section 4.1 of the Guaranty shall have occurred. Section 802. Acceleration Rights. Upon the happening of any Event of Default specified in Section 801 herein, the Trustee may, with the consent of MBIA, and shall, at the written direction of MBIA, without any action on the part of the Holders of the Bonds, and shall upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding (but only with the written consent of MBIA), by notice in writing delivered to the Municipality and MBIA, declare the entire principal amount of the Bonds then outstanding and the interest accrued thereon, immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in this Indenture or in the Bonds to the contrary notwithstanding. Section 803. Other Remedies; Rights of Bondholders. Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy by suit at law or in equity to enforce the payment of the principal of and premium, if any, and interest on the Bonds then outstanding, to enforce this Indenture or to enforce its rights under the Loan Agreement or the Note. If an Event of Default shall have occurred, and if requested by MBIA or by the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding (but only with the written consent of MBIA) and indemnified as provided in Section 902(i) hereof, the Trustee must exercise such one or more of the rights and powers conferred by this Section 803 as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. No remedy given under this Indenture to the Trustee or to the Bondholders is intended to be exclusive of any other remedy. Each remedy shall be cumulative and shall be in addition to any other remedy given hereunder or existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair the right or power or shall be construed to be a waiver of any Event of Default; and every right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any Event of Default, whether by the Trustee or by the Bondholders, shall extend to or shall affect any subsequent Event of Default or shall impair any rights or remedies relating to that Event of Default. Section 804. Right of Bondholders to Direct Proceedings. Subject to the rights of MBIA under the Municipal Bond Insurance Policy, the Holders of a majority in aggregate principal amount of the Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, the method and place of conducting all proceedings to be taken in connection with the enforcement of this Indenture, or for the appointment of a receiver or any other proceedings hereunder; provided, that such direction shall be in accordance with the provisions of law and of this Indenture and that the Trustee is indemnified as provided in Section 902(i) of this Indenture. Section 805. Appointment of Receivers. Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled, to the extent permitted by law, to the appointment of a receiver or receivers of the Trust Estate and of the revenues, earnings, income, products and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer. Section 806. Application of Moneys. Subject to the rights of MBIA under the Municipal Bond Insurance Policy, all moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article VIII shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances and fees incurred or made by the Trustee and the sums required to be paid by the Company pursuant to this Indenture, the Bonds, the Loan Agreement or the Note (other than payment of principal, premium and interest on the Bonds or the Note), be deposited into the Bond Fund and applied as follows without preference, priority or distinction as between any Bond and any other Bond: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all moneys shall be applied: First--To the payment of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest and, if the amount available is not sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on that installment, to the persons entitled thereto, without any discrimination or privilege; and Second--To the payment of the unpaid principal of and premium, if any, on the Bonds which shall have become due (other than portions of the Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, with interest from the respective dates upon which they become due and, if the amount available is not sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on that installment, to the persons entitled thereto, without any discrimination or privilege. Third--To MBIA in connection with any payments due it with respect to the Municipal Bond Insurance Policy. (b) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all moneys shall be applied to the payment of the principal of and premium, if any, and interest then due and unpaid on the Bonds (other than portions of the Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), without preference or priority, ratably, according to the amounts due respectively for principal, premium and interest, to the persons entitled thereto, without any discrimination or privilege. (c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded, then, subject to the provisions of subsection (b) of this Section 806 in the event that the principal of the Bonds shall later become due or be declared due and payable, the money shall be applied in accordance with subsection (a) of this Section 806. Moneys shall be applied under this Section 806 at the times that the Trustee shall determine, having regard for the amount of moneys available for application and the likelihood of additional moneys becoming available for application in the future. The Trustee shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which application is to be made and on that date interest on the amounts of principal to be paid shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the Holder of any Bond until the Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Section 807. Remedies Vested in Trustee. All rights of action (including the right to file proofs of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants the Holders of the Bonds and any recovery of judgment shall, subject to the provisions of Section 806 hereof, be for the equal benefit of the Holders of the Bonds. Section 808. Rights and Remedies of Bondholders. No Holder of any Bond may institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust thereof or for the appointment of a receiver or any other remedy hereunder, unless (a) a default has occurred of which the Trustee has been notified as provided in subsection (g) of Section 902 hereof, or of which by that subsection it is deemed to have notice, (b) that default shall have become an Event of Default and the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding shall have made written request to the Trustee and shall have offered reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceedings in its own name, (c) they have offered to the Trustee indemnity as provided in Section 902(i) hereof, and (d) the Trustee shall thereafter fail or refuse to exercise its powers, or to institute such action, suit or proceeding. The notification, request and offer of indemnity are, at the option of the Trustee, conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder. No one or more Holders of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of this Indenture by their action or to enforce any right hereunder except in the manner herein provided, and all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of the Holders of all Bonds then outstanding. Section 809. Termination of Proceedings. If the Trustee shall have proceeded to enforce any right under this Indenture and the proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then the Municipality, the Company, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder. Section 810. Waivers of Events of Default. Subject to the rights of MBIA under the Municipal Bond Insurance Policy, the Trustee may in its discretion waive any Event of Default (except to the extent that the Trustee is required by the Bondholders pursuant to Section 803 hereof to exercise certain rights or powers) and its consequences and rescind any declaration of acceleration of maturity of principal of and interest on the Bonds, and shall do so upon the written request of the Holders of not less than a majority in aggregate principal amount of the Bonds then outstanding; provided, however, that there shall not be waived (a) any default in the payment of the principal of or premium on any Bond or (b) any default in the payment when due of the interest on any Bond unless prior to such waiver or rescission, all arrears of interest, principal and premium, and all fees and expenses of the Trustee in connection with such default, shall have been paid or provided for. In case of any such waiver or rescission, the Municipality, the Company, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon. Section 811. Cooperation of Municipality. In the event of a default hereunder, the Municipality shall cooperate with the Trustee and use its best efforts to protect the Bondholders. Section 812. Consent of MBIA Upon Default. Anything in this Indenture to the contrary notwithstanding, so long as the Municipal Bond Insurance Policy is in effect and MBIA is not in default in its obligations thereunder, upon the occurrence and continuance of an Event of Default, MBIA shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Trustee for the benefit of the Bondholders under this Indenture, including, without limitation, acceleration of the principal of the Bonds as described in this Indenture and the right to annul any declaration of acceleration, and MBIA shall also be entitled to approve all waivers of Events of Default. ARTICLE IX The Trustee Section 901. Acceptance of Trusts. The Trustee accepts the trusts imposed upon it by this Indenture. The Trustee shall exercise the rights and powers vested in it by this Indenture and shall use the same degree of care as a prudent man would exercise or use in the circumstances in the conduct of his own affairs. Section 902. Certain Rights of Trustee. (a) The Trustee may perform any of its duties by or through attorneys, agents, receivers or employees but shall be answerable for the conduct of the same in accordance with the standard specified in Section 901 and shall be entitled to advice of counsel concerning all matters hereunder and may pay reasonable compensation to all attorneys and agents as may reasonably be employed and shall be entitled to reimbursement therefor from the Company. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Municipality or the Company). The Trustee shall not be responsible for any loss or damage resulting from any action or nonaction in good faith in reliance upon such opinion or advice. (b) The Trustee shall not be responsible for any recital in this Indenture, or in the Bonds (except the certificate of the Trustee endorsed on the Bonds) or in any related document (other than documents relating solely to and executed only by the Trustee), or for the validity of the execution by the Municipality of this Indenture or of any supplements or instruments of further assurance, or for the sufficiency of the security for the Bonds or as to the maintenance of the security therefor except as provided in Section 606 hereof; and the Trustee shall not be bound to make any investigation as to the performance or observance of any covenants, conditions or agreements on the part of the Municipality or on the part of the Company under the Loan Agreement. The Trustee shall have no obligation to perform any of the duties of the Municipality under the Loan Agreement, and the Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with the provisions of this Indenture. (c) The Trustee shall not be accountable for the use of any Bonds. The Trustee may be or become the Owner of Bonds with the same rights which it would have if not Trustee. (d) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. (e) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon an Officer's Certificate of the Municipality. Prior to the occurrence of a default of which the Trustee has been notified or of which it is deemed to have notice, the Trustee may accept an Officer's Certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept an Officer's Certificate of the Municipality to the effect that an ordinance or resolution has been adopted by the Municipality as conclusive evidence that such ordinance or resolution has been adopted and is in full force and effect. (f) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its gross negligence or willful default. (g) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default (other than nonpayment of the principal and interest on the Bonds) unless the Trustee shall be specifically notified in writing of the Event of Default by the Municipality, by the Holders of at least twenty-five percent (25%) in aggregate principal amount of all Bonds then outstanding or by the Company and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the principal corporate trust office of the Trustee. (h) The Trustee may demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that required by the terms hereof which the Trustee deems desirable. (i) Before taking any action, the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses which it may incur and to protect it against all liability, except liability which is adjudicated to have resulted from its gross negligence or willful default in connection with any action so taken. (j) All moneys received by the Trustee or any paying agent shall be held in trust for the purposes for which they were received but need not be segregated from other funds except to the extent required by law. (k) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. Section 903. Fees, Charges and Expenses of Trustee and Paying Agent. The Trustee and any paying agent shall be entitled to prompt payment upon demand or reimbursement for usual and customary fees for their services rendered hereunder as set forth in fee schedules or similar documents effective during the term of this Indenture and available from the Trustee and all advances, counsel fees and other expenses reasonably and necessarily made or incurred by them in connection with such services. Upon an Event of Default, but only upon an Event of Default, the Trustee and any paying agent shall have a right of payment prior to payment on account of interest or principal of or premium, if any, on the Bonds for the foregoing advances, fees, costs and expenses incurred. Section 904. Notice to Bondholders if Default Occurs. If an Event of Default occurs of which the Trustee is required to take notice or if notice of an Event of Default be given by the Municipality, the Bondholders or the Company as provided in Section 902(g) hereof, the Trustee shall give prompt written notice thereof to MBIA and to the Owners of all Bonds then outstanding. Section 905. Intervention by Trustee. In any judicial proceeding to which the Municipality is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of the Holders of the Bonds, the Trustee may intervene on behalf of the Bondholders and, subject to the provisions of Section 902(i) hereof, shall do so if requested in writing by the Holders of at least twenty-five percent (25%) in aggregate principal amount of all Bonds then outstanding. The rights and obligations of the Trustee under this Section 905 are subject to the approval of a court of competent jurisdiction. Section 906. Successor Trustee. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party shall become successor Trustee hereunder, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto; provided, however, that if the successor corporation is not a trust company or bank within the State of Indiana that satisfies the requirements of Section 909 hereof, the Trustee shall resign from the trusts hereby created prior to such sale, merger, consolidation or transfer. Section 907. Resignation by Trustee. The Trustee and any successor Trustee may at any time resign by giving thirty days' written notice to the Municipality, the Company and MBIA and by registered or certified mail to the registered Owners of the Bonds then outstanding, and the resignation shall take effect upon the appointment of a successor or temporary Trustee by the Bondholders or by the Municipality as provided herein and such successor or temporary Trustee's acceptance of such appointment. The Trustee may petition a court of appropriate jurisdiction to have a successor Trustee appointed. Section 908. Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the Municipality and signed by the Owners of a majority in aggregate principal amount of all Bonds then outstanding (but only with the consent of MBIA). The Trustee may be removed at any time, at the request of MBIA, for any breach of the Trust set forth herein. Any such removal shall take effect upon the appointment of a successor or temporary Trustee by the Bondholders or by the Municipality as provided herein and such successor or temporary Trustee's acceptance of such appointment. Section 909. Appointment of Successor Trustee by Bondholders; Temporary Trustee. In case the Trustee shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor reasonably acceptable to MBIA may be appointed by the Owners of a majority in aggregate principal amount of all Bonds then outstanding by an instrument or concurrent instruments in writing; provided, nevertheless, that in case of such vacancy the Municipality by an instrument executed by its Mayor and attested by its Clerk under its seal may appoint a temporary Trustee to fill the vacancy until a successor Trustee is appointed by the Bondholders; and any temporary Trustee shall immediately be superseded by the successor Trustee appointed by the Bondholders. Every temporary or successor Trustee shall be a trust company or bank in good standing within the State of Indiana, duly authorized to exercise trust powers and subject to examination by federal or state authority, and having a reported capital and surplus of not less than $75,000,000 and acceptable to MBIA. The appointment of every temporary or successor Trustee shall be subject to the prior approval of the Company, which approval may not be unreasonably withheld. Notwithstanding any other provision of this Indenture, no removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to MBIA, shall be appointed. Section 910. Concerning Any Successor Trustees. Every successor Trustee shall deliver to its predecessor, the Municipality and the Company an instrument in writing accepting its appointment, and thereupon such successor without any further act, deed or conveyance, shall become fully vested with all the properties, rights, powers, trusts, duties and obligations of its predecessor; but the predecessor shall, nevertheless, on the Written Request of the Municipality, or of the successor Trustee, execute and deliver an instrument transferring to the successor Trustee all the properties, rights, powers and trusts of the predecessor; and every predecessor Trustee shall deliver all securities and moneys held by it as Trustee to its successor. If any instrument in writing from the Municipality is required by any successor Trustee for more fully and certainly vesting in the successor the rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing shall, on request, be executed and delivered by the Municipality. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, together with all other instruments provided for in this Article, shall be filed or recorded by the successor Trustee in each recording office, if any, where the Indenture has been filed or recorded. Section 911. Trustee Protected in Relying upon Resolution, etc. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the release of property and the withdrawal of cash. Section 912. Successor Trustee as Trustee of Funds, Paying Agent and Bond Registrar. In the event of a change in the office of Trustee, the predecessor Trustee which has resigned or been removed shall cease to be trustee of the funds provided hereunder and bond registrar and paying agent for principal of and premium, if any, and interest on the Bonds, and the successor Trustee shall become such Trustee, bond registrar and paying agent. ARTICLE X Continuing Disclosure Section 1001. Continuing Disclosure. Pursuant to Section 4.8 of the Loan Agreement and Section 3.4 of the Guaranty Agreement, the Company and the Guarantor have undertaken all responsibility for compliance with continuing disclosure requirements, and the Municipality shall have no liability to the Holders of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of this Indenture, failure of the Company or the Guarantor to comply with the Continuing Disclosure Undertaking shall not be considered an Event of Default; however, any Bondholder may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Company and the Guarantor to comply with its obligations under Section 4.8 of the Loan Agreement and Section 3.4 of the Guaranty Agreement. ARTICLE XI Supplemental Indentures Section 1101. Supplemental Indentures Not Requiring Consent of Bondholders. The Municipality, the Company and the Trustee may without the consent of, or notice to, any of the Bondholders (but only with the consent of MBIA) enter into an indenture or indentures supplemental to this Indenture, which is consistent with the terms hereof, for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission in this Indenture or in any supplemental indenture which is not to the prejudice of the Trustee or the Holders of the Bonds; (b) To grant to the Trustee any additional rights, remedies, powers or authority that may lawfully be granted to the Trustee; (c) To subject to this Indenture additional collateral; (d) To modify, amend or supplement this Indenture or any indenture supplemental hereto in such manner as to permit the qualification hereof and thereof under any federal statute hereafter in effect or under any state Blue Sky Law, and in connection therewith, if they so determine, to add to this Indenture or any indenture supplemental hereto, such other terms, conditions and provisions (which, in the judgment of the Trustee, are not to the prejudice of the Holders of the Bonds) as may be permitted or required by said federal statute or Blue Sky Law; and (e) To effect any other change which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Holders of the Bonds. Section 1102. Supplemental Indentures Requiring Consent of Bondholders. Exclusive of supplemental indentures covered by Section 1101 hereof and subject to the terms of this Section, the Holders of at least a majority in aggregate principal amount of the Bonds then outstanding may (with the written consent of MBIA) consent to the execution and delivery by the Municipality, the Company and the Trustee of such other indenture or indentures supplemental hereto for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms of this Indenture or any supplemental indenture; provided, however, that the unanimous written consent of the Bondholders shall be required for any amendment which would permit: (a) an extension of the stated maturity or reduction in the principal amount of, or reduction in the rate or extension of the time of paying of interest on, or reduction of any premium payable on the redemption of, any Bond, (b) a reduction in the aggregate principal amount of Bonds the Holders of which are required to consent to any such supplemental indenture, or (c) the material modification of the rights, duties or immunities of the Trustee. ARTICLE XII Amendments to the Loan Agreement Section 1201. Amendments, etc., to Loan Agreement or the Guaranty Not Requiring Consent of Bondholders. The Municipality and the Trustee with the consent of the Company and with the written consent of MBIA shall, without the consent of or notice to the Bondholders, consent to any amendment, change or modification of the Loan Agreement or the Guaranty as may be required (a) by the provisions of any such instrument and this Indenture, (b) for the purpose of curing any ambiguity or formal defect or omission or (c) in connection with any other change which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Holders of the Bonds. Section 1202. Amendments, etc., to Loan Agreement or the Guaranty Requiring Consent of Bondholders. Except for the amendments, changes or modifications as provided in Section 1201 hereof, neither the Municipality nor the Trustee shall consent to any other amendment, change or modification of the Loan Agreement or the Guaranty without the consent of the Holders of at least a Majority in aggregate principal amount of the Bonds then outstanding and only with the written consent of MBIA. Section 1203. No Amendment May Alter Note. Under no circumstances shall any amendment to the Loan Agreement alter the provisions of the Note relating to the payment of principal, premium, and interest thereon, without the written consent of the Holders of all the Bonds at the time outstanding and without the written consent of MBIA. ARTICLE XIII Miscellaneous Section 1301. Satisfaction and Discharge. All rights and obligations of the Municipality and the Company under the Loan Agreement, the Note and this Indenture shall terminate and those instruments shall cease to be of further effect, and the Trustee shall cancel the Note and deliver it to the Company, shall execute and deliver all appropriate instruments evidencing the satisfaction of this Indenture, and shall assign and deliver to the Company any moneys and investments in all funds established hereunder (except moneys or investments held by the Trustee for the payment of principal of, interest on, or premium, if any, on the Bonds) when (a) all fees and expenses of the Trustee and any paying agent shall have been paid or provided for; (b) the Municipality and the Company shall have performed all of their obligations under the Loan Agreement, the Note and this Indenture; (c) there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient without reinvestment, or direct noncallable obligations of the United States of America the principal of and the interest on which when due without reinvestment will provide moneys which, together with the moneys, if any, deposited with the Trustee, shall be sufficient, to pay when due the principal or redemption price, if applicable, and interest due and to become due on the Bonds prior to the redemption date or maturity date thereof, as the case may be; provided, that if any Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been duly given or arrangement satisfactory to the Trustee shall have been made for notice, or waiver of notices satisfactory in form to the Trustee shall have been filed with the Trustee; and (d) the Trustee shall have received an opinion of Bond Counsel addressed to the Trustee to the effect that such actions shall not cause the interest on the Bonds to become includable under Section 103 of the Code in the gross income of the Holders thereof for federal income tax purposes. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by MBIA pursuant to the Municipal Bond Insurance Policy, the Bonds shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Municipality, and the assignment and pledge of the Trust Estate and all covenants, agreements and other obligations of the Municipality to the Bondholders shall continue to exist and shall run to the benefit of MBIA, and MBIA shall be subrogated to the rights of such Bondholders. Section 1302. Application of Trust Money. All money or direct obligations of the United States of America deposited with or held by the Trustee pursuant to Section 1301 hereof shall be held in trust for the Holders of the Bonds, and applied by it, in accordance with the provisions of the Bonds and this Indenture, to the payment, either directly or through any paying agent, to the persons entitled thereto, of the principal and premium, if any, and interest on the Bonds for whose payment the money has been deposited with the Trustee. Any income or interest earned by, or increment to, the investments held under Section 1301 hereof shall to the extent not required for the purposes of this Section 1302, be transferred to the Bond Fund. Section 1303. Consents, etc., of Bondholders. Any consent, request, direction, approval, objection or other instrument required by this Indenture to be executed by the Bondholders may be in any number of concurrent writings and may be executed by the Bondholders in person or by agent appointed in writing. Proof of the execution of any such instrument or of the writing appointing any agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken under such request or other instrument. The fact and date of the execution by any person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within such jurisdiction that the person signing such writing acknowledged before him the execution thereof, by affidavit of any witness to such execution. For all purposes of this Indenture and of the proceedings for the enforcement hereof, any such person shall be deemed to continue to be the Holder of such Bonds until the Trustee shall have received notice in writing to the contrary. In determining whether the holders of the required principal amount of Bonds outstanding have taken any action under this Indenture, Bonds owned by the Company or any person controlling, controlled by or under common control with the Company shall be disregarded and deemed not to be outstanding. In determining whether the Trustee shall be protected in relying on any such action, only Bonds which the Trustee knows to be so owned shall be disregarded. Any action, consent or other instrument shall be irrevocable and shall bind any subsequent owner of such Bond or any Bond delivered in substitution therefor. Section 1304. Parties Interested Herein. Nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Company, the Trustee, MBIA and the Bondholders, any right, remedy, or claim under or by reason of this Indenture or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Indenture contained by and on behalf of the Company shall be for the sole and exclusive benefit of the Company, the Trustee, MBIA, and the Bondholders. Section 1305. Severability. If any provision of this Indenture shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatever. The invalidity of any one or more phrases, sentences, clauses or Sections in this Indenture shall not affect the remaining portions of this Indenture, or any part thereof. Section 1306. Notices. All notices, certificates, payments or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, postage prepaid, or overnight express mail addressed as follows: if to the Municipality, at the Fishers Town Hall, 1 Municipal Drive, Fishers, Indiana 46038, Attention of its Clerk-Treasurer; if to the Company or to the Guarantor, at 1220 Waterway Boulevard, Indianapolis, Indiana 46202, Attention of its Chief Financial Officer; if to the Trustee, at 101 West Washington Street, Indianapolis, Indiana 46255, Attention of the Corporate Trust Department; and if to MBIA, at MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504; or to such other addresses as may hereafter be furnished by notice. Section 1307. Trustee as Paying Agent and Registrar. The Trustee is hereby designated and agrees to act as principal paying agent and Bond Registrar for the Bonds. Section 1308. Counterparts. This Indenture may be executed in several counterparts, each of which shall be an original. Section 1309. Applicable Law. This Indenture shall be governed by and construed in accordance with the applicable laws of the State of Indiana. Section 1310. Holidays. If any date for the payment of principal of or premium or interest on the Bonds is not a Business Day, then such payment shall be due on the first Business Day thereafter and payment on such day shall be considered timely hereunder. Section 1311. Captions and Table of Contents. The captions herein and the Table of Contents are inserted only as a matter of convenience and do not in any way define, limit, construe or describe the scope or intent of this Indenture or any section thereof or in any other way affect this Indenture. ARTICLE XIV Municipal Bond Insurance Provisions Section 1401. Notices. While the Municipal Bond Insurance Policy is in effect, the Company shall furnish to MBIA: (i) as soon as practicable after the filing thereof, a copy of any financial statement of the Company and the Guarantor and a copy of any audit and annual report of the Company or the Guarantor; (ii) a copy of any notice to be given to the Bondholders, or to any other person pursuant to this Indenture or the Loan Agreement, including, without limitation, notice of any redemption of or defeasance of Bonds, and any certificate rendered pursuant to this Indenture relating to the security for the Bonds; and (iii) such additional information it may reasonably request. The Trustee shall notify MBIA of any failure of the Company to provide relevant notices, certificates, etc. If and to the extent the Trustee does not have sufficient funds on the date on which interest on or principal of the Bonds is due to make such interest or principal payments, the Trustee shall notify MBIA by telephone or telegraph (which notification shall be confirmed in writing sent to MBIA by registered or certified mail). In the event of such notification and thereafter on the date on which interest on or principal of the Bonds is due, the Trustee does receive sufficient funds to make such interest or principal payments in whole or in part, the Trustee shall so notify MBIA in the same manner (and shall confirm such notification in the same manner). If the Trustee has notice that any Bondholder has been required to disgorge payments of principal or interest on the Bonds to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Bondholder within the meaning of any applicable bankruptcy laws, then the Trustee shall notify MBIA or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. The Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for the Bondholders, as follows: (i) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Trustee shall (a) execute and deliver to State Street bank and Trust Company, N.A., or its successors under the Insurance Policy, in form satisfactory to the Insurance Trustee, an instrument appointing the Insurer as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer; (b) receive as designee of the respective Holders (and not as Trustee) in accordance with the tenor of the Insurance Policy payment from the Insurance Trustee with respect to the claims for interest so assigned; and (c) disburse the same to such respective Holders; and (ii) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Trustee shall (a) execute and deliver to the Insurance Trustee in form satisfactory to the Insurance Trustee an instrument appointing the Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Bonds surrendered to the Insurance Trustee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Insurer and available for such payment (but such assignment shall be delivered only if payment from the Insurance Trustee is received); (b) receive as designee of the respective Holders (and not as Insurer) in accordance with the tenor of the Insurance Policy payment therefor from the Insurance Trustee; and (c) disburse the same to such Holders. Payments with respect to claims for interest on and principal of Bonds disbursed by the Trustee from proceeds of the Insurance Policy shall not be considered to discharge the obligation of the Company with respect to such Bonds, and the Insurer shall become the owner of such unpaid Bonds and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. Irrespective of whether any such assignment is executed and delivered, the Municipality and the Trustee hereby agree for the benefit of the Insurer that they recognize that to the extent the Insurer makes payments, directly or indirectly, on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the Municipality, with interest thereon as provided and solely from the sources stated in this Indenture and the Bonds. They will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Insurance Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to Holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest. The Company will permit MBIA to discuss the affairs, finances and accounts of the Company or any information MBIA may reasonably request regarding the security for the Bonds with appropriate officers of the Company. The Trustee or the Company, as appropriate, will permit MBIA to have access to and make copies of all books and records relating to the Bonds at any reasonable time. In connection with the issuance of Additional Bonds pursuant to this Indenture, the Company shall deliver to MBIA a copy of the disclosure document, if any, circulated with respect to such Additional Bonds. Copies of any amendments made to any documents executed in connection with the issuance of the Bonds which amendments are consented to by MBIA, shall be sent to Standard & Poor's Ratings Service. MBIA shall receive notice of the resignation or removal of the Trustee and the appointment of a successor thereto. Notwithstanding any other provision of this Indenture to the contrary, the Trustee shall immediately notify MBIA if at any time there are insufficient moneys to make any payments of principal and/or interest as required and immediately upon the occurrence of any Event of Default hereunder. Section 1402. Consent of MBIA. Any provision of this Indenture expressly recognizing or granting rights in or to MBIA may not be amended in any manner which affects the rights of MBIA hereunder without the prior written consent of MBIA. Unless otherwise provided in this Section, MBIA's consent shall be required in addition to Bondholder consent, when required, for the following purposes: (i) execution and delivery of any supplemental indenture or any amendment, supplement or change to or modification of the Loan Agreement, the Note or the Guaranty; (ii) removal of the Trustee and selection and appointment of any successor trustee; and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Bondholder consent. Section 1403. Effectiveness of Rights of MBIA to Consent or Direct Actions. All rights granted MBIA hereunder to direct or consent to actions to be taken under any provision of this Indenture shall be effective only if MBIA shall, at the time thereof, be in compliance with its payment obligations under the Municipal Bond Insurance Policy. Section 1404. Trustee to Consider Effect on Bondholders of Actions Taken Pursuant to Indenture as if There Were No Municipal Bond Insurance. Notwithstanding any other provision of this Indenture, in determining whether the rights of the Bondholders will be adversely affected by any action taken pursuant to the terms and provisions of this Indenture, the Trustee shall consider the effect on the Bondholders as if there were no Municipal Bond Insurance Policy. Section 1405. MBIA as Third-Party Beneficiary. To the extent that this Indenture confers upon or gives or grants to MBIA any right, remedy, or claim under or by reason of this Indenture, MBIA is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given, or granted hereunder. [This page intentionally left blank. Signature pages follow.] IN WITNESS WHEREOF, INDIANAPOLIS WATER COMPANY, has caused these presents to be signed in its name and behalf and attested by its duly authorized officers and the Town of Fishers Indiana, has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its Clerk and, to evidence its acceptance of the Trusts hereby created, National City Bank of Indiana of Indianapolis has caused these presents to be signed in its name and behalf by a duly authorized Vice President and Trust Officer, its official seal to be hereunto affixed, and the same to be attested by one of its duly authorized officers, all as of the day and year first above written. INDIANAPOLIS WATER COMPANY By /s/ Joseph R. Broyles Joseph R. Broyles, President /s/ John M. Davis John M. Davis, Secretary THE TOWN OF FISHERS, INDIANA By /s/ Walter F. Kelly (SEAL) Walter F. Kelly, President, Town Council ATTEST: /s/ Linda Gaye Cordell Linda Gaye Cordell, Clerk-Treasurer NATIONAL CITY BANK OF INDIANA (SEAL) By /s/ Authorized Vice President, ATTEST: Vice President /s/ Trust Officer, Trust Officer STATE OF INDIANA ) ) SS: COUNTY OF ) Before me, the undersigned, a Notary Public in and for the State of Indiana, personally appeared Joseph R. Broyles and John M. Davis personally known to me to be the President and Secretary of Indianapolis Water Company, who, after being first duly sworn, acknowledged that they as such officers, being authorized to do so, executed the foregoing Indenture of Trust for and on behalf of said Corporation. WITNESS MY HAND and Notarial Seal this _____ day of _______________, 1998. ------------------------- Notary Public ------------------------------ I am a resident of (Printed Name) ____________ County, Indiana My Commission Expires: - ---------------------- STATE OF INDIANA ) ) SS: COUNTY OF ) Before me, the undersigned, a Notary Public in and for the State of Indiana, personally appeared Walter F. Kelly and Linda Gaye Cordell personally known to me to be the President of the Town Council and Clerk-Treasurer of the Town of Fishers, who, after being first duly sworn, acknowledged that they as such officers, being authorized to do so, executed the foregoing Indenture of Trust for and on behalf of said Town. WITNESS MY HAND and Notarial Seal this _____ day of _______________, 1998. ------------------------- Notary Public ------------------------------ I am a resident of (Printed Name) ____________ County, Indiana My Commission Expires: - ---------------------- STATE OF INDIANA ) ) SS: COUNTY OF ) Before me, the undersigned, a Notary Public in and for the State of Indiana, personally appeared _______________________________________________ personally known to me to be the _________________________________________ of National City Bank of Indiana, who, after being first duly sworn, acknowledged that as such officers, being authorized to do so, executed the foregoing Indenture of Trust for and on behalf of said Company. WITNESS MY HAND and Notarial Seal this _____ day of _______________, 1998. ------------------------- Notary Public ------------------------------ I am a resident of (Printed Name) ____________ County, Indiana My Commission Expires: - ---------------------- This instrument was prepared by Theodore J. Esping, Baker & Daniels, 300 North Meridian Street, Suite 2700, Indianapolis, Indiana 46204. EXHIBIT A TO INDENTURE [FORM OF REGISTERED BOND] UNITED STATES OF AMERICA STATE OF INDIANA TOWN OF FISHERS ECONOMIC DEVELOPMENT WATER FACILITIES REFUNDING REVENUE BOND, SERIES 1998 (INDIANAPOLIS WATER COMPANY PROJECT) NO. R-_ INTEREST MATURITY AUTHENTICATION RATE DATE DATE CUSIP ____% JULY 15, 2028 REGISTERED OWNER: ______________________________ PRINCIPAL AMOUNT: ______________________________ The Town of Fishers, Indiana (the "Municipality"), for value received, promises to pay in lawful money of the United States of America to the Registered Owner (named above) or registered assigns, on the Maturity Date set forth above unless this Bond shall have previously been called for redemption and payment of the redemption price made or provided for but solely from the payments under the Loan Agreement and on the Note described below and not otherwise, upon surrender hereof, the principal sum set forth above and to pay interest on the principal amount remaining unpaid from time to time in like money, but solely from the payments under the Loan Agreement and on the Note described below, at the rate per annum set forth above, payable semiannually on July 15 and January 15 of each year commencing January 15, 1999, until payment of such principal amount, or provision for that payment, shall have been made upon redemption or at maturity including, to the extent permitted by law, interest on overdue interest at such rate. This Bond shall bear interest (computed on the basis of a year of 360 days consisting of 12 months of 30 days each) from July 15, 1998. The principal of and premium, if any, and interest payable upon redemption, are payable at the principal corporate trust office of National City Bank of Indiana, as Trustee (the "Trustee") in the City of Indianapolis, Indiana, or at the principal office of any successor Trustee or additional paying agent appointed under the Indenture described below. Payment of the interest on this Bond on any interest payment date shall be made to the person appearing on the Bond registration books of the Trustee on the Record Date as the registered owner and shall be paid by check or draft mailed on the interest payment date to the registered owner at the address on such registration books (or at any other address furnished to the Trustee in writing by the holder) without any presentation of this Bond, or, at the written election of the registered owner of $500,000 or more in aggregate principal amount of Bonds delivered to the Trustee at least one Business Day prior to the Record Date for which such election will be effective, by wire transfer to the registered owner or by deposit into the account of the registered owner if such account is maintained by the Trustee. Payment of the principal of this Bond shall be made upon presentation and surrender of this Bond as the same shall become due and payable. If any date for the payment of the principal of or premium or interest on this Bond is not a Business Day (as such term is defined in the Indenture), then such payment shall be due on the first Business day thereafter. This Bond is one of the Bonds being issued under the Indenture (as described herein) in the aggregate principal amount of $30,000,000 to provide for the discharge and termination of all liabilities and obligations of Indianapolis Water Company, an Indiana corporation (the "Company"), relating to or connected with the 7-7/8% Town of Fishers, Indiana, Economic Development Water Facilities Revenue Bonds, Series 1989 (Indianapolis Water Company Project). The proceeds from the sale of the Bonds will be loaned to the Company under a Loan Agreement dated as of July 15, 1998 (the "Loan Agreement") between the Company and the Municipality and the Company will give its Promissory Note (the "Note") to evidence the Company's obligation to repay the loan. The Bonds are issued under and secured by an Indenture of Trust dated as of July 15, 1998 (the "Indenture"), executed and delivered by the Municipality and the Company to National City Bank of Indiana, Indianapolis, as Trustee. Under the Indenture, the Municipality assigns the Note and its rights under the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities and rights relating to any amendment of the Loan Agreement) to the Trustee. In addition, the principal of, premium, if any, and interest on the Bonds are guaranteed by IWC Resources Corporation, an Indiana corporation. Reference is made to the Indenture and to all indentures supplemental thereto for a description of the nature and extent of the rights, duties and obligations of the Municipality, the Company and the Trustee, the rights of the holders of the Bonds, and the terms on which the Bonds are issued and to all the provisions of which the holder hereof by the acceptance of this Bond assents. This Bond is transferable by the registered holder at the principal corporate trust office of the Trustee in Indianapolis, Indiana, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture and upon surrender and cancellation of this Bond. The Bonds are issuable as fully registered Bonds in denominations of $5,000 and any whole multiple thereof. Subject to the limitations and upon payment of the charges provided in the Indenture, fully registered Bonds may be exchanged for an equal aggregate principal amount of fully registered Bonds of any denomination or denominations authorized by the Indenture. The Municipality and the Trustee may treat the registered holder of this Bond as the absolute owner for the purpose of receiving payment of or on account of principal, premium, if any, and interest due hereon and for all other purposes and neither the Municipality nor the Trustee nor any paying agent shall be affected by any notice to the contrary. The Bonds are subject to mandatory redemption in whole (or in part as provided below) upon a Determination of Taxability (as defined in the Indenture). When so called for redemption, the Bonds shall be subject to redemption by the Municipality at a redemption price of 100% of the principal amount thereof outstanding plus accrued interest to the redemption date. Fewer than all the Bonds may be redeemed if redemption of fewer than all would result in the interest payable on the Bonds remaining outstanding being not includible in the gross income for federal income tax purposes of any owner other than a "substantial user" or "related person." If fewer than all Bonds are redeemed, the Trustee will select the Bonds to be redeemed by lot as provided in the Indenture or by such other method acceptable to the Trustee. On July 15 of each year commencing July 15, 2000, the Trustee will, upon the death of any registered owner, redeem any Bond held by such registered owner following presentation for redemption as described below by such registered owner's personal representative or surviving joint tenant(s), subject to the limitation that in any 12-month period the Trustee shall not be obligated to redeem Bonds pursuant to this paragraph to the extent that the aggregate principal amount of Bonds so subject to redemption, together with the aggregate principal amount of City of Indianapolis, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project) (the "1998 Indianapolis Bonds") subject to redemption by reason of the death of any registered owner of 1998 Indianapolis Bonds exceeds $800,000, or the Bonds of any registered owner so tendered for redemption, together with the registered owners 1998 Indianapolis Bonds tendered for redemption by reason of the death of such registered owner, is in excess of the aggregate principal amount of $25,000. The Bonds subject to redemption as described above may be presented for redemption by delivering to the Trustee within two years of the death of the registered owner (i) a written request for redemption in form satisfactory to the Trustee, signed by the personal representative or surviving joint tenant(s) of the registered owner, (ii) the Bond(s) to be redeemed, (iii) appropriate evidence of death and ownership of such Bond(s) at the time of death, and (iv) appropriate evidence of the authority of such personal representative or surviving joint tenant(s). In order for Bonds to be eligible for redemption on any July 15, such Bonds must be presented for redemption in full compliance with the provisions set forth above, prior to May 15 next preceding such July 15. The Bonds presented for redemption prior to maturity will be redeemed in the order of their receipt by the Trustee. Any Bonds not redeemed in any such period because of the individual $25,000 limitation or the aggregate $800,000 limitation, will be held in the order described above for redemption on the July 15 in succeeding years until redeemed. Any such redemption shall be at a price equal to 100% of the principal amount of the Bonds so to be redeemed, plus accrued interest to the redemption date. The death of a person who, during his or her lifetime, was entitled to substantially all of the beneficial interest of ownership of a Bond will be deemed the death of a registered owner, regardless of the registered owner, if such beneficial interest can be established to the satisfaction of the Trustee. Such beneficial interest shall be deemed to exist in typical cases of street name or nominee ownership, ownership under the Uniform Transfers to Minors Act, community property or other joint ownership arrangements between the husband and wife, and trust and certain other arrangements where one person has substantially all of the beneficial ownership interest in the Bond during his or her lifetime. In the case of Bonds registered in the name of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the redemption limitations described above apply to each beneficial owner of Bonds held by any Qualified Institution. In connection with the redemption request, such Qualified Institution must submit evidence, satisfactory to the Trustee, that it holds the Bonds subject to request on behalf of such beneficial owner and must certify the aggregate amount of redemption requests made on behalf of such beneficial owner. The Bonds are also subject to redemption (at the election of the Company) prior to stated maturity in whole or in part on any interest payment date on or after July 15, 2005. The redemption price for any such redemption shall be the amount determined from the table below (expressed as a percentage of the principal amount of the Bonds or portions thereof so redeemed), plus accrued interest to the redemption date:
REDEMPTION PERIOD (BOTH DATES INCLUSIVE) REDEMPTION PRICE July 15, 2005 through July 14, 2006 102% July 15, 2006 through July 14, 2007 101% July 15, 2007 and thereafter 100%
If less than all Bonds at the time outstanding are to be called for redemption, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot or by such other random means as the Trustee shall determine in its discretion. Bonds of denominations greater than $5,000 may be called for redemption, in part, in multiples of $5,000. If any of the Bonds are called for redemption, a notice of the call for redemption identifying the Bonds to be redeemed will be mailed by registered or certified mail at least thirty days but no more than sixty days prior to the date fixed for redemption to the registered owner at the address shown on the registration books, provided that failure to give this notice by mailing, or any defect in the notice, shall not affect the validity of any proceedings for the redemption of any other Bonds or portions thereof. All Bonds called for redemption will cease to bear interest on the specified redemption date, provided funds for redemption are on deposit at the place of payment at that time and all other requirements relating to redemption as set forth in the Indenture are satisfied, and shall no longer be protected by the Indenture and shall not be deemed to be outstanding under the provisions of the Indenture. The Bonds are issued pursuant to and in full compliance with the Constitution and laws of the State of Indiana, particularly IC 5-1-5, IC 36-7-11.9 and IC 36-7-12 and pursuant to an Ordinance adopted by the Town Council of the Municipality on the ____ day of June, 1998. THIS BOND AND THE ISSUE OF WHICH IT FORMS A PART ARE LIMITED OBLIGATIONS OF THE MUNICIPALITY AND ARE PAYABLE SOLELY AND ONLY FROM REVENUES AND RECEIPTS DERIVED FROM THE LOAN AGREEMENT AND THE NOTE. THE BONDS SHALL NOT IN ANY RESPECT BE A GENERAL OBLIGATION OF AN INDEBTEDNESS OF, OR CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE TOWN OF FISHERS, INDIANA, THE STATE OF INDIANA OR ANY POLITICAL SUBDIVISION THEREOF, AND THEY SHALL NOT BE PAYABLE IN ANY MANNER FROM FUNDS RAISED BY TAXATION. Payments sufficient for the prompt payment when due of the principal of and premium, if any, and interest on the Bonds are to be paid to the Trustee for the account of the Municipality and deposited into the Bond Fund created under the Indenture. The holder of this Bond shall have no right to enforce the provisions of the Indenture or to take any action with respect to any Event of Default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, except as provided in the Indenture. In certain events, as provided in the Indenture, the principal of all outstanding Bonds may become or may be declared due and payable before the stated maturity. Modifications or alterations of the Indenture may be made only to the extent and in the circumstances permitted by the Indenture. In the event of default in the payment of principal or interest hereon or if any Event of Default as defined in the Indenture occurs, the unpaid principal of this Bond may be declared or may become immediately due in the manner and with the effect and subject to the conditions provided therein. If any payment of principal of and premium, if any, and interest on this Bond shall not be paid when due, the Municipality shall pay to the holder of this Bond, but solely from payments under the Loan Agreement and the Note, interest on such unpaid obligations (to the extent permitted by law) at a per annum rate of interest equal to the per annum rate then in effect on the Bonds. Municipal Bond Insurance Policy No. _________ (the "Policy") with respect to payments due for principal of and interest on this Bond has been issued by ____________________. The Policy has been delivered to _________________________, as the Insurance Trustee under said Policy and will be held by such Insurance Trustee or any successor insurance trustee. The Policy is on file and available for inspection at the principal office of the Insurance Trustee and a copy thereof may be secured from _______________ or the Insurance Trustee. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of _______________ as more fully set forth in the Policy. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond, and the issue of which it forms a part, together with all other obligations of the Municipality, do not exceed or violate any constitutional or statutory limitation. This Bond shall not be valid or obligatory for any purpose or be entitled to any benefit under the Indenture until the certificate of authentication on this Bond shall have been executed by the Trustee. IN WITNESS WHEREOF, the Municipality has caused this Bond to be executed under its corporate seal. Town of Fishers, Indiana By: ____________________________ Mayor Attest: ________________________ Clerk-Treasurer TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds described in the Indenture. NATIONAL CITY BANK OF INDIANA as Trustee By: _____________________________ Authorized Representative The following abbreviations, when used in the inscription of the face of the within Bond, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM as tenants in common TEN ENT as tenants by the entireties JT TEN as joint tenants with right of survivorship and not as tenants in common
UNIF TRANF MIN ACT _____________ Custodian _______________ (Cust) (Minor) under Uniform Transfers to Minors Act --------------------- (State) Additional abbreviations may also be used though not in list above. ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto ____________________ [PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE: __________________] the within Bond of the City of Indianapolis, Indiana and all rights thereunder and does hereby irrevocably constitute and appoint _______________ attorney to transfer such Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: ================================ (Registered Owner) NOTICE: The signature(s) to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. Signature guaranteed: - -------------------------- NOTICE: Signature(s) must be guaranteed by an eligible guarantor institution participating in a Securities Transfer Association recognized signature guarantee program. [END OF BOND FORM] INDENTURE OF TRUST CITY OF INDIANAPOLIS, INDIANA AND INDIANAPOLIS WATER COMPANY TO National City Bank of Indiana, As Trustee DATED AS OF JULY 15, 1998 $10,000,000 City of Indianapolis, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project)
Table of Contents RECITALS 1 GRANTING CLAUSES 2 ARTICLE I Definitions and Exhibits 3 Section 101. Terms Defined. 3 Section 102. Rules of Interpretation. 6 Section 103. Exhibits. 7 ARTICLE II The Bonds 7 Section 201. Terms of Bonds. 7 Section 202. Issuance of Bonds; Denominations. 7 Section 203. Payments on Bonds. 8 Section 204. Execution; Limited Obligation. 8 Section 205. Authentication. 8 Section 206. Delivery of Bonds. 9 Section 207. Mutilated, Lost, Stolen or Destroyed Bonds. 9 Section 208. Registration and Exchange of Bonds; Persons Treated as Owners. 10 Section 209. Form of Bonds. 10 Section 210. Book Entry. 10 Section 211. Payment Procedure Pursuant to Municipal Bond Insurance Policy. 11 ARTICLE III Application of Bond Proceeds; Redemption Fund 12 Section 301. Deposit of Funds. 12 Section 302. Redemption Fund. 12 ARTICLE IV Revenues and Funds 12 Section 401. Source of Payment of Bonds. 12 Section 402. Creation of Bond Fund. 12 Section 403. Payments into Bond Fund. 12 Section 404. Use of Moneys in Bond Fund. 13 Section 405. Investment of Funds. 13 Section 406. Trust Funds. 13 Section 407. Nonpresentment of Bonds. 13 ARTICLE V Redemption of Bonds Before Maturity 14 Section 501. Determination of Taxability Redemption. 14 Section 502. Redemption in the Event of Death of a Bondholder. 14 Section 503. Optional Redemption. 15 Section 504. Notice of Redemption. 16 Section 505. Cancellation. 17 ARTICLE VI General Covenants 17 Section 601. Payment of Principal, Premium, if any, and Interest. 17 Section 602. Performance of Covenants. 18 Section 603. Ownership; Instruments of Further Assurance. 18 Section 604. Rights under Loan Agreement and Note. 18 Section 605. Designation of Additional Paying Agents. 18 Section 606. Recordation; Application of Uniform Commercial Code. 18 Section 607. List of Bondholders. 19 ARTICLE VII Possession and Use of the Project Financed with the 1989 Bonds 19 Section 701. Subordination to Rights of Company. 19 ARTICLE VIII Remedies 19 Section 801. Events of Default. 19 Section 802. Acceleration Rights. 20 Section 803. Other Remedies; Rights of Bondholders. 20 Section 804. Right of Bondholders to Direct Proceedings. 21 Section 805. Appointment of Receivers. 21 Section 806. Application of Moneys. 21 Section 807. Remedies Vested in Trustee. 22 Section 808. Rights and Remedies of Bondholders. 23 Section 809. Termination of Proceedings. 23 Section 810. Waivers of Events of Default. 23 Section 811. Cooperation of Municipality. 23 Section 812. Consent of MBIA Upon Default 23 ARTICLE IX The Trustee 24 Section 901. Acceptance of Trusts. 24 Section 902. Certain Rights of Trustee. 24 Section 903. Fees, Charges and Expenses of Trustee and Paying Agent. 26 Section 904. Notice to Bondholders if Default Occurs. 26 Section 905. Intervention by Trustee. 26 Section 906. Successor Trustee. 26 Section 907. Resignation by Trustee. 26 Section 908. Removal of Trustee. 27 Section 909. Appointment of Successor Trustee by Bondholders; Temporary Trustee. 27 Section 910. Concerning Any Successor Trustees. 27 Section 911. Trustee Protected in Relying upon Resolution, etc. 27 Section 912. Successor Trustee as Trustee of Funds, Paying Agent and Bond Registrar. 28 ARTICLE X Continuing Disclosure 28 Section 1001. Continuing Disclosure. 28 ARTICLE XI Supplemental Indentures 28 Section 1101. Supplemental Indentures Not Requiring Consent of Bondholders. 28 Section 1102. Supplemental Indentures Requiring Consent of Bondholders. 29 ARTICLE XII Amendments to the Loan Agreement 29 Section 1201. Amendments, etc., to Loan Agreement or the Guaranty Not Requiring Consent of Bondholders. 29 Section 1202. Amendments, etc., to Loan Agreement or the Guaranty Requiring Consent of Bondholders. 29 Section 1203. No Amendment May Alter Note. 30 ARTICLE XIII Miscellaneous 30 Section 1301. Satisfaction and Discharge. 30 Section 1302. Application of Trust Money. 31 Section 1303. Consents, etc., of Bondholders. 31 Section 1304. Parties Interested Herein. 31 Section 1305. Severability. 32 Section 1306. Notices. 32 Section 1307. Trustee as Paying Agent and Registrar. 32 Section 1308. Counterparts. 32 Section 1309. Applicable Law. 32 Section 1310. Holidays. 32 Section 1311. Captions and Table of Contents. 32 ARTICLE XIV Municipal Bond Insurance Provisions 33 Section 1401. Notices. 33 Section 1402. Consent of MBIA. 34 Section 1403. Effectiveness of Rights of MBIA to Consent or Direct Actions. 35 Section 1404. Trustee to Consider Effect on Bondholders of Actions Taken Pursuant to Indenture as if There Were No Municipal Bond Insurance. 35 Section 1405. MBIA as Third-Party Beneficiary. 35
INDENTURE OF TRUST This INDENTURE OF TRUST has been executed as of July 15, 1998, by and among the CITY OF INDIANAPOLIS, INDIANA (the "Municipality"), INDIANAPOLIS WATER COMPANY, an Indiana corporation (the "Company"), and National City Bank of Indiana, a national banking association authorized to accept trusts of this character with its principal office located in Indianapolis, Indiana, as Trustee (the "Trustee"). RECITALS 1. Definitions of certain of the terms used in these Recitals are set out in Article I hereof and Article I of the Loan Agreement. 2. IC 5-1-5, IC 36-7-11.9 and IC 36-7-12 authorize municipalities in the State of Indiana to issue revenue bonds to finance the cost of providing economic development facilities and also authorize the municipalities to issue revenue bonds to refund such bonds. 3. In 1989, the Company financed a portion of its capital expansion program in Indianapolis through the issuance and sale of the City of Indianapolis, Indiana 7-7/8% Economic Development Water Facilities Revenue Bonds, Series 1989 (Indianapolis Water Company Project) (the "1989 Bonds"). 4. The Company borrowed from the Municipality funds derived from the sale of the 1989 Bonds, and the Company, as evidence of its obligation to repay the funds, issued and delivered to the Municipality its First Mortgage Bonds, Economic Development Series B in the principal amount of $10,000,000. 5. The Company has determined that the 1989 Bonds can be refinanced at a net savings to the Company and has further determined that such refinancing will result in other benefits to the Company. 6. Pursuant to IC 5-1-5, IC 36-7-11.9 and IC 36-7-12, the Municipality is authorized and empowered to issue revenue bonds to refund and refinance revenue bonds previously issued by it. The Municipality is obtaining funds to loan to the Company to assist with the refunding and refinancing of the 1989 Bonds through the sale of its $10,000,000 aggregate principal amount of City of Indianapolis, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project). 7. Under the Loan Agreement and pursuant to this Indenture, the Municipality will issue $10,000,000 of its Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project), will sell the Bonds to the Purchaser and will lend the proceeds from the sale of the Bonds to the Company. The Bonds will be payable solely out of the revenues and other amounts derived from the Note and under the Loan Agreement, and pursuant to the Guaranty Agreement under which the principal of, premium, if any, and interest on the Bonds will be guaranteed by IWC Resources Corporation, an Indiana corporation (the "Guarantor") and will be further secured under and pursuant to the Municipal Bond Insurance Policy. The Bonds shall not in any respect be a general obligation of, an indebtedness of, or constitute a charge against the general credit of the Municipality, the State of Indiana or any political subdivision thereof. 8. To evidence its obligation to repay the Loan, the Company will deliver its Note to the Municipality. 9. This Indenture provides for the issuance of the Bonds, the assignment by the Municipality of the Note and its rights under the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities, the right to receive notices and its rights relating to any amendments to the Loan Agreement) to the Trustee. 10. The Bonds and the Trustee's Certificate of Authentication for the Bonds will be substantially in the form set forth in Exhibit A hereto. 11. All things necessary to make the Bonds, when authenticated by the Trustee and issued as provided in this Indenture, the valid, binding and legal obligations of the Municipality according to the import thereof, and to constitute this Indenture a valid assignment and pledge of the properties and amounts assigned and pledged to the payment of the principal of and premium, if any, and interest on the Bonds and a valid assignment and pledge of the rights of the Municipality under the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities, the right to receive notices and its rights relating to any amendments to the Loan Agreement) and the Note have been done and performed, and the creation, execution and delivery of this Indenture and the creation, execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE OF TRUST WITNESSES THAT: GRANTING CLAUSES In order to secure the payment of the principal of and premium, if any, and interest on the Bonds and in order to secure the performance and observance of all the covenants and conditions in this Indenture and in the Bonds, and in order to declare the terms and conditions upon which the Bonds are issued, authenticated, delivered, secured and accepted by all persons who shall from time to time be or become holders thereof, and for and in consideration of the premises, the Loan, the mutual covenants of the parties, the acceptance by the Trustee of the trust hereby created, and the purchase and acceptance of the Bonds by the holders, the Municipality and the Company have executed and delivered this Indenture and by this Indenture assign and pledge and grant a security interest in the following to the Trustee, its successors and assigns forever: First Granting Clause All of the right, title and interest of the Municipality in, to and under the Note and the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities, the right to receive notices and its rights relating to any amendments to the Loan Agreement), including all sums payable with respect to the indebtedness evidenced by the Note and the Loan Agreement, and all proceeds thereof; provided that the assignment made by this clause shall not impair or diminish any obligation of the Municipality under the Loan Agreement. Second Granting Clause All moneys and securities from time to time held by the Trustee under the terms of this Indenture, including without limitation the Guaranty, the moneys held in trust funds, and any and all other property pledged, assigned or transferred to the Trustee at any time for additional security by the Municipality or the Company or with their written consent, and all proceeds thereof. The Trustee is authorized to receive the additional property at any time and to hold and apply that property under this Indenture. TO HAVE AND TO HOLD FOREVER IN TRUST, NEVERTHELESS, upon the terms of this Indenture, to secure the payment of the principal of and premium, if any, and interest on the Bonds, and to secure the observance and performance of all the terms of this Indenture, and for the benefit and security of the holders of the Bonds, without preference, priority or distinction as to lien or otherwise, except as provided in this Indenture, of any one Bond over any other Bond or as among principal, premium and interest. The terms and conditions upon which the Bonds are to be issued, authenticated, delivered, secured and accepted by all persons who shall from time to time be or become the holders thereof, and the trusts and conditions upon which the pledged property, rights, interests, moneys and revenues are to be held and disbursed, are as follows: ARTICLE I Definitions and Exhibits Section 101. Terms Defined. As used in this Agreement, the following terms shall have the following meanings unless the context otherwise requires. "Bond" or "Bonds" means one or more of the City of Indianapolis, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project) to be issued under this Indenture in the aggregate principal amount of $10,000,000. "Bondholder "or "Holder" or "Owner" or "Owner of the Bonds" means the registered owner of any Bond. "Bond Register" means the registration books of the Municipality kept by the Trustee to evidence the registration and transfer of the Bonds. "Business Day" means each Monday through Friday on which the national banks located in Indianapolis, Indiana are open for the transaction of normal banking business. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means Indianapolis Water Company, an Indiana corporation. "Continuing Disclosure Undertaking" shall mean that certain Continuing Disclosure Undertaking of the Company and the Guarantor dated the date of issuance and delivery of the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns, including without limitation (i) any surviving, resulting or transferee corporation or successor corporation appointed consistent with this Indenture, and (ii) any direct or indirect participants of The Depository Trust Company. "Determination of Taxability" means the occurrence of any of the following: (a) the filing by the Company of its certificate with the Trustee indicating to the satisfaction of the Trustee that an Event of Taxability has occurred; (b) notification to the Trustee that an authorized officer or official of the Internal Revenue Service has issued a statutory notice of deficiency or document of substantially similar import to the effect that an Event of Taxability has occurred; or (c) notification to the Trustee from any Bondholder or former Bondholder to the effect that the Internal Revenue Service has assessed as includable in the gross income of such Bondholder or former Bondholder interest on a Bond due to the occurrence of an Event of Taxability; provided, however, that in respect of clauses (b) and (c) above, a Determination of Taxability shall not be deemed to have occurred unless and until the Company has been notified of the allegation that an Event of Taxability and a Determination of Taxability have occurred and either (i) the Company fails to commence a contest of such allegation in good faith and by appropriate legal proceedings within 90 days following such notification, or (ii) the Company does commence such contest within such time, but thereafter fails to pursue it diligently, in good faith and by appropriate legal proceedings to a final order or judgment by a court or administrative body of competent jurisdiction, or (iii) such contest results in a final order or judgment of a court or administrative body of competent jurisdiction to the effect that an Event of Taxability has occurred and the time for any appeal of such order or judgment has expired. "Escrow and Defeasance Agreement" means the Escrow and Defeasance Agreement dated July 15, 1998 among the Company, the Trustee as trustee for the Bonds and the Trustee as trustee for the 1989 Bonds. "Event of Default" means those events of default specified in Section 801. "Event of Taxability" means any event, condition or circumstance which has the effect or result that interest on a Bond is not excludable for federal income tax purposes from the gross income of a Bondholder or a former Bondholder under Section 103 of the Code, other than for a period during which the Bondholder or a former Bondholder is or was a "substantial user" of the project financed with the 1989 Bonds or a "related person" for purposes of Section 147(a) of the Code, and the regulations thereunder. An Event of Taxability does not include any event, condition or circumstance which results in the interest on a Bond being a preference item subject to an alternate minimum tax, or in any other tax consequences that do not involve the inclusion for federal income tax purposes of interest on the Bonds in the income of Bondholders generally but instead depend upon a Bondholder's particular tax status. "Guarantor" means IWC Resources Corporation, the guarantor under the Guaranty. "Guaranty" means the Guaranty Agreement dated as of July 15, 1998, under which IWC Resources Corporation guarantees the payment of the principal of, premium, if any, and interest on the Bonds. "Loan Agreement" means the Loan Agreement dated as of the date of this Indenture between the Company and the Municipality and all amendments and supplements thereto. "Majority" means, when used with reference to the Owners or Holders of Bonds outstanding, in excess of fifty percent (50%) of the principal amount of the Bonds outstanding. "MBIA" means MBIA Insurance Corporation, issuer of the Municipal Bond Insurance Policy. "Municipal Bond Insurance Policy" means the municipal bond insurance policy issued by MBIA insuring the payment when due of the principal of and interest on the bonds as provided therein. "Municipality" means the City of Indianapolis, Indiana. "Officer's Certificate" means a certificate of the Municipality signed by the Mayor or Clerk or by any other person designated by resolution of the Municipality to act for either of those officers, either generally or with respect to the execution of any particular document or other specific matter, a certified copy of which resolution shall be filed with the Trustee. "Outstanding" or "Bonds outstanding" or "outstanding Bonds" means all Bonds which have been duly authenticated and delivered by the Trustee under this Indenture, except: (a) Bonds cancelled after purchase or because of payment at or redemption prior to maturity; (b) Bonds for the payment or redemption of which funds or securities shall have been deposited with the Trustee (whether upon or prior to the maturity or redemption date of those Bonds) and with respect to which all actions required to be taken at the time of such deposit as set forth in Section 1301 have been taken including, without limitation, the requirement that if those Bonds are to be redeemed prior to the maturity thereof, notice of the redemption shall have been given or arrangements satisfactory to the Trustee shall have been made for notice, or waiver of notice satisfactory in form to the Trustee shall have been filed with the Trustee; and (c) Bonds in lieu of which others have been authenticated under Section 207 and Section 208. "Person" means natural persons, firms, associations, corporations and public bodies. "Purchaser" means Edward D. Jones & Co., L.P. "Record Date" means with respect to an interest payment date, the first (1st) day of the calendar month that includes such interest payment date (whether or not a Business Day). "Representation Letter" means the Letter of Representation executed by the Issuer and delivered to DTC. "Securities Depository" means The Depository Trust Company, a corporation organized and existing under the laws of the State of New York, and any other securities depository for the Bonds appointed pursuant to the Indenture. "Trust Estate" means the property, rights, moneys, securities and other amounts conveyed to the Trustee pursuant to the Granting Clauses hereof. "Trustee" means National City Bank of Indiana, and any successor trustee or co-trustee. "Written Request" with reference to the Municipality means a request in writing signed by the Mayor or Clerk or any other officer or officers of the Municipality satisfactory to the Trustee. Section 102. Rules of Interpretation. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole including exhibits and not to any particular Article, Section or other subdivision. (2) The terms defined in this Article include the plural, as well as the singular. (3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles. (4) Any terms not defined herein but defined in the Loan Agreement shall have the same meaning herein as in the Loan Agreement. Section 103. Exhibits. The following Exhibits are a part of this Agreement: Exhibit A: Form of Bond, form of Trustee's Certificate of Authentication and form of Assignment. Exhibit B: Form of Municipal Bond Insurance Policy. ARTICLE II The Bonds Section 201. Terms of Bonds. No Bonds may be issued under this Indenture except in accordance with this Article. The total aggregate principal amount of Bonds shall not exceed $10,000,000 (other than Bonds issued pursuant to Section 207). Section 202. Issuance of Bonds; Denominations. Each of the Bonds shall be designated "City of Indianapolis, Indiana Economic Development Water Facilities Refunding Revenue Bond, Series 1998 (Indianapolis Water Company Project)." The Bonds shall be issuable as fully registered bonds without coupons in the denominations of $5,000 or any integral multiple thereof and shall be lettered and numbered R-1 upward. Each Bond initially issued hereunder shall be dated July 15, 1998 and shall bear interest from that date. Bonds issued in exchange for Bonds surrendered for transfer or exchange or in place of mutilated, lost, stolen or destroyed Bonds will bear interest from the last date to which interest has been paid in full on the Bonds being transferred, exchanged or replaced or, if no interest has been paid, from July 15, 1998. Interest on the Bonds shall be paid to the persons who were the Owners of such Bonds as of the close of business on the Record Date next preceding such interest payment date at the registered addresses of such Owners as they shall appear on the registration books maintained by the Trustee notwithstanding the cancellation of any such Bonds upon any exchange or transfer thereof subsequent to the Record Date and prior to such interest payment date. Payment of interest to all Bondholders shall be by check drawn on the principal office of the Trustee and mailed on the due date thereof by first class United States mail to such Bondholder, or, at the written election of the registered owner of $500,000 or more in aggregate principal amount of Bonds delivered to the Trustee at least one Business Day prior to the Record Date for which such election will be effective, by wire transfer to the registered owner or by deposit into the account of the registered owner if such account is maintained by the Trustee. The interest on the Bonds shall be payable on each July 15, and January 15 commencing on January 15, 1999. The Bonds shall mature on July 15, 2028 and shall bear interest at the per annum rate of 5.05%, computed on the basis of a year of 360 days (consisting of 12 months of 30 days each). To the extent permitted by law, overdue interest on the Bonds shall also bear interest at such rate until paid in full. Section 203. Payments on Bonds. The principal of and premium, if any, and interest on the Bonds shall be payable in any coin or currency of the United States of America which, at the date of payment thereof, is legal tender for the payment of public and private debts. Principal of and premium, if any, and interest on the Bonds shall be payable at the principal corporate trust office of the Trustee, in the City of Indianapolis, Indiana, or of any alternate paying agent named in the Bonds or subsequently appointed. Payment of the interest on the Bonds on any payment date shall be made to the person appearing on the Bond registration books of the Trustee as the registered Owner and shall be paid by check or draft mailed to the registered Owner on the due date at the address on such registration books without any presentation of the Bonds. Payment of the principal of and premium, if any, on any Bond shall be made upon presentation and surrender of the Bond as the same shall become due and payable. Section 204. Execution; Limited Obligation. The Bonds shall be executed on behalf of the Municipality with the manual or facsimile signature of its Mayor and attested with the manual or facsimile signature of its Clerk and shall have impressed or printed thereon the corporate seal of the Municipality. In case any officer whose signature appears on the Bonds shall cease to hold that office before the delivery of the Bonds, the signature shall nevertheless be valid and sufficient for all purposes, the same as if the officer had remained in office until delivery. The Bonds, and interest thereon, shall be limited obligations of the Municipality payable by it solely from the payments to be made under the Loan Agreement and on the Note (except to the extent paid out of moneys attributable to the proceeds of the Bonds or the income from the temporary investment thereof) and shall be a valid claim of the Holder of the Bonds only against the moneys held by the Trustee. In addition, payment of the Bonds shall be guaranteed by the Guarantor under the Guaranty and shall be further secured under and pursuant to the Municipal Bond Insurance Policy. The payments to be made under the Loan Agreement and on the Note which are assigned for the payment of the Bonds shall be used for no other purpose than to pay the principal of and premium, if any, and interest on the Bonds, except as may be otherwise expressly authorized in this Indenture. The Bonds shall not in any respect be a general obligation of, an indebtedness of, or constitute a charge against the general credit of the Municipality, the State of Indiana, or any political subdivision thereof, and they shall not be payable in any manner from funds raised by taxation. Section 205. Authentication. No Bond shall be valid or obligatory for any purpose or entitled to any benefit under this Indenture unless the certificate of authentication on the Bond has been executed by the Trustee, and the executed certificate of the Trustee on the Bond shall be conclusive evidence that the Bond has been authenticated and delivered under this Indenture. The Trustee's certificate of authentication on any Bond shall be deemed to have been executed by it if signed by an authorized representative of the Trustee, but it shall not be necessary that the same representative sign the certificate of authentication on all of the Bonds. Section 206. Delivery of Bonds. Upon the execution and delivery of this Indenture, the Municipality shall execute and deliver to the Trustee the Bonds in the aggregate principal amount of $10,000,000 and the Trustee shall authenticate the Bonds and deliver them to the Municipality or to such other person or persons as directed by the Municipality as provided in this Section 206. Prior to the delivery by the Trustee of the Bonds, there shall be filed with the Trustee: 1. A copy, certified by the Clerk of the Municipality, of the Ordinance adopted by the Municipality authorizing the execution and delivery of the Loan Agreement and this Indenture and the issuance of the Bonds. 2. Original executed counterparts of the Loan Agreement, this Indenture, the Note and the Guaranty. 3. A Written Request of the Municipality to the Trustee requesting the Trustee to authenticate and deliver the Bonds to the person or persons therein identified upon payment to the Trustee, but for the account of the Municipality, of a sum specified in such request and authorization. 4. An opinion of bond counsel to the effect that the Bonds are valid and binding limited obligations of the Municipality and that the interest thereon is excludable from the gross income of the recipients thereof for federal income tax purposes under Section 103 of the Code, except when the Bonds are held by a "substantial user" of the project financed by the 1989 Bonds or a "related person." 5. The Municipal Bond Insurance Policy. 6. The Continuing Disclosure Undertaking. 7. Such other items as shall be required by bond counsel employed in connection with the issuance of the Bonds. The proceeds of the Bonds shall be paid to the Trustee and deposited as provided in Section 301 hereof. Section 207. Mutilated, Lost, Stolen or Destroyed Bonds. If any Bond is mutilated, lost, stolen or destroyed, the Trustee may authenticate a new Bond for the same original principal amount provided that, in the case of a mutilated Bond, such mutilated Bond shall first be surrendered to the Trustee, and in the case of a lost, stolen or destroyed Bond, there shall be first furnished to the Trustee evidence of the loss, theft or destruction satisfactory to the Trustee, together with indemnity satisfactory to the Trustee. In the event a mutilated, lost, stolen or destroyed Bond shall have matured, instead of issuing a duplicate Bond the Trustee may pay the same without surrender thereof. The Municipality and the Trustee may charge the Holder or Owner of the Bond with their reasonable fees and expenses in this connection. Section 208. Registration and Exchange of Bonds; Persons Treated as Owners. The Municipality shall cause books for the registration and for the transfer of the Bonds to be kept by the Trustee, which is hereby appointed the Bond registrar of the Municipality. Upon surrender for transfer of any Bond at the principal office of the Trustee, endorsed for transfer or accompanied by an assignment executed by the registered Owner or his authorized attorney, the Trustee shall authenticate and deliver in the name of the transferee a new fully registered Bond or Bonds for the same original principal amount, which fully registered Bond or Bonds shall have been executed by the Municipality. Bonds may be exchanged at the principal corporate trust office of the Trustee for the same original principal amount of Bonds of other authorized denominations. The Municipality shall execute and the Trustee shall authenticate and deliver new Bonds which the Bondholder making the change is entitled to receive, bearing numbers not then outstanding. The Trustee shall not be required to transfer or exchange any Bond during any period beginning on a Record Date and ending on the interest payment date with respect to such Record Date or to transfer or exchange any Bond after the first mailing of notice calling such Bond or a portion thereof for redemption, nor any Bond during the fifteen-day period next preceding the giving of such notice of redemption. As to any Bond, the person in whose name the Bond is registered shall be deemed the absolute Owner for all purposes, and payment of either principal of or interest or premium on the Bond shall be made only to or upon the written order of the registered Owner or his legal representative. In each case the Bondholder requesting registration, exchange or transfer shall pay any resulting tax or other governmental charge. Section 209. Form of Bonds. The Bonds shall be substantially in the form set forth in Exhibit A hereto with any appropriate notations, omissions and insertions permitted or required by this Indenture or deemed necessary by the Trustee. Section 210. Book Entry. Initially, one certificate for the Bonds will be issued and registered to the Securities Depository. The Municipality and the Trustee may enter into a Letter of Representations (as defined below) relating to a book entry system to be maintained by the Securities Depository with respect to the Bonds. In the event that (a) the Securities Depository determines not to continue to act as a securities depository for the Bonds by giving notice to the Trustee and the Municipality discharging its responsibilities hereunder, or (b) the Municipality determines (at the direction of the Company) (i) that beneficial owners of the Bonds shall be able to obtain certificated Bonds, or (ii) to select a new Securities Depository, attempt to locate another qualified securities depository to serve as Securities Depository or authenticate and deliver certificated Bonds to the beneficial owners or to the Securities Depository participants on behalf of beneficial owners substantially in the form provided for in this Section 210. In delivering certificated Bonds, the Trustee shall be entitled to rely on the records of the Securities Depository as to the beneficial owners or the records of the Securities Depository participants acting on behalf of beneficial owners. Such certificated Bonds will then be registrable, transferable and exchangeable as set forth in the Indenture. So long as there is a Securities Depository for the Bonds, (1) it or its nominee shall be the registered owner of the Bonds; (2) notwithstanding anything to the contrary in the Indenture, determinations of persons entitled to payment of principal or purchase price, premium, if any, and interest, transfers of ownership and exchanges and receipt of notices shall be the responsibility of the Securities Depository and shall be effected pursuant to rules and procedures established by the Securities Depository; (3) the Municipality, the Company and the Trustee shall not be responsible or liable for maintaining, supervising or reviewing the records maintained by the Securities Depository, its participants or persons acting through such participants; (4) references in the Indenture to owners or registered owners of the Bonds shall mean the Securities Depository or its nominee and shall not mean the beneficial owners of the Bonds; and (5) in the event of any inconsistency between the provisions of the Indenture and the provisions of the Letter of Representations, the provisions of the Letter of Representations, except to the extent set forth in this paragraph and the next preceding paragraph, shall control. For purposes of this Section, following term shall have the following meaning: "Letter of Representations" means the Letter of Representations from the Municipality to the Securities Depository and (with the consent of the Company) any amendments thereto, or successor agreements between the Municipality, the Trustee and any successor Securities Depository, relating to a book entry system to be maintained by the Securities Depository with respect to the Bonds. Section 211. Payment Procedure Pursuant to Municipal Bond Insurance Policy. As long as the Municipal Bond Insurance Policy shall be in full force and effect with respect to the Bonds, the Municipality and the Trustee agree to comply with the following provisions: (a) At least two (2) days prior to all interest payment dates the Company will notify MBIA and the Trustee if the Company does not expect to provide the Trustee with sufficient funds to pay the principal of or interest on the Bonds on such interest payment date. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest, or both. ARTICLE III Application of Bond Proceeds; Redemption Fund Section 301. Deposit of Funds. Pursuant to Section 3.1 of the Loan Agreement, the Municipality shall deposit with the Trustee all proceeds from the sale of Bonds and the Trustee shall deposit the accrued interest on the Bonds, if any, into the Bond Fund created under Section 402 hereof and the balance of the proceeds into the Redemption Fund created under Section 302 hereof. Section 302. Redemption Fund. The Municipality shall establish with the Trustee a separate account to be designated as the "Indianapolis Water Company, Series 1998 (Indianapolis) Redemption Fund." Moneys on deposit in the Redemption Fund shall be held by the Trustee under the Escrow and Defeasance Agreement and paid out by the Trustee as provided in Section 3.2 of the Loan Agreement solely for the purposes of discharging, retiring and redeeming the 1989 Bonds and terminating all obligations and liabilities of the Company created by or relating to the 1989 Bonds; provided, however, that any moneys remaining in the Redemption Fund after such discharge, retirement, redemption and termination shall be promptly released and distributed to the Company. Moneys on deposit in the Redemption Fund may be invested only in direct obligations of the United States of America or other obligations backed by the full faith and credit of the United States of America and the income or loss shall be credited or charged to the Redemption Fund. ARTICLE IV Revenues and Funds Section 401. Source of Payment of Bonds. The Bonds and all payments to be made by the Municipality hereunder are not general obligations of the Municipality, but are limited obligations payable by it solely out of the revenues and other amounts derived from the Note and under the Loan Agreement. In addition, the Bonds shall be guaranteed by the Guarantor under the Guaranty and shall be further secured under and pursuant to the Municipal Bond Insurance Policy. Section 402. Creation of Bond Fund. There is created with the Trustee a trust fund to be designated as the "Indianapolis Water Company, Series 1998 Bond Fund." Amounts deposited into the Bond Fund shall be used to pay the principal of and premium, if any, and interest on the Bonds and as otherwise authorized in this Indenture. Section 403. Payments into Bond Fund. Pursuant to Section 301 hereof, all accrued interest received at the time of the sale of any Bonds shall be deposited into the Bond Fund. In addition, there shall be deposited into the Bond Fund all payments received pursuant to the Note and all other moneys received by the Trustee under the Loan Agreement or the Guaranty which are required or directed to be paid into the Bond Fund and all amounts received from MBIA under the Municipal Bond Insurance Policy. Section 404. Use of Moneys in Bond Fund. Except as provided in Section 1301 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of and premium, if any, and interest on the Bonds, for the redemption of all or a portion of the Bonds prior to maturity, for the purchase of Bonds or portions thereof for the purpose of cancellation, for any fees and expenses of the Trustee and any paying agent and for any fees and expenses of the Municipality caused by any default of the Company under the Loan Agreement. Whenever the amount in the Bond Fund is sufficient to redeem all of the Bonds then unpaid and to pay the premium, if any, and interest to accrue thereon prior to redemption, the Trustee shall, at the request of the Company, take the necessary steps to redeem the Bonds on the earliest possible redemption date for which the required redemption notice may be given. However, any moneys in the Bond Fund may be used to redeem a part of the Bonds outstanding so long as the Company is not in default with respect to any payments under the Loan Agreement or the Note, but only to the extent those moneys are in excess of the amount still required for payment of the portion of the Bonds previously called for redemption, the premium thereon, if any, and interest, and any past due interest and principal. Section 405. Investment of Funds. Moneys in the Bond Fund and the Redemption Fund may be invested in direct obligations of the United States of America or other obligations backed by the full faith and credit of the United States of America. Any such investments shall be held by or under control of the Trustee and shall be deemed at all times a part of the Bond Fund or Redemption Fund, as the case may be, and the interest accruing thereon and any profit realized therefrom shall be credited to such fund, and any loss resulting from such investments shall be charged to such fund. The Trustee shall sell and reduce to cash funds a sufficient portion of investments under the provisions of this Section 405 whenever the cash balance in the Bond Fund is insufficient to pay the principal of and premium, if any, and interest on the Bonds as and when payable. The Company and the Municipality covenant to each other and to and for the benefit of the Holders of the Bonds that no use will be made of the proceeds from the issue and sale of the Bonds which would cause the Bonds to be classified as arbitrage bonds within the meaning of Section 103(b)(2) and Section 148 of the Code. The parties reserve the right, however, to make any investment of proceeds permitted by the laws of the State of Indiana, if Section 148 or regulations thereunder are repealed or relaxed or are held void by final judgment of a court of competent jurisdiction, so long as the investment would not result in making the interest on the Bonds subject to federal income taxation. In making investments, the parties may rely on an opinion of counsel of recognized competence in such matters. The Trustee may make any and all investments permitted by this Section 405 through its own bond department. Section 406. Trust Funds. All moneys and securities received by the Trustee under the provisions of this Indenture shall be trust funds and shall not be subject to lien or attachment of any creditor of the Municipality or of the Company. Section 407. Nonpresentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereon becomes due, either at maturity, or at the date fixed for redemption thereof, or otherwise, if funds sufficient to pay such Bond shall have been made available to the Trustee for the benefit of the Holder thereof, all liability of the Municipality to the Owner thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds for five years, without liability for interest thereon, for the benefit of the Holder of such Bond, who shall thereafter be restricted exclusively to such funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, such Bond. Any moneys so deposited with and held by the Trustee not so applied to the payment of Bonds within five years after the date on which the same shall become due, shall be repaid by the Trustee to the Company and thereafter Bondholders shall be entitled to look only to the Company for payment, and then only to the extent of the amount so repaid, and the Company shall not be liable for any interest thereon and shall not be regarded as a trustee of such money. Nor shall the Company be liable for any portion of such money that it delivers to the State of Indiana pursuant to IC 32-9. ARTICLE V Redemption of Bonds Before Maturity Section 501. Determination of Taxability Redemption. The Bonds are subject to mandatory redemption in whole (or in part as provided below) on the earliest practicable date (selected by the Trustee) within one hundred and eighty (180) days following a Determination of Taxability. The redemption price shall be 100% of the principal amount thereof plus accrued interest to the redemption date. Fewer than all the Bonds may be redeemed if redemption of fewer than all would result in the interest payable on the Bonds remaining outstanding being not includable in the gross income for federal income tax purposes of any owner other than a "substantial user" or "related person." If fewer than all Bonds are redeemed, the Trustee will select the Bonds to be redeemed by lot or by such other random means as the Trustee shall determine in its discretion. For purposes of this Section, Bondholder shall include the beneficial owner of a Bond (i.e., the actual owner as recorded in the records of DTC). Section 502. Redemption in the Event of Death of a Bondholder. On July 15 of each year commencing July 15, 2000, the Trustee will, upon the death of any registered owner, redeem any Bond held by such registered owner following presentation for redemption as described below by such registered owner's personal representative or surviving joint tenant(s), subject to the limitations that in any 12-month period the Trustee shall not be obligated to redeem Bonds pursuant to this Section to the extent that (i) the aggregate principal amount of Bonds so subject to redemption, together with the aggregate principal amount of Town of Fishers, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project) (the "1998 Fishers Bonds") subject to redemption by reason of the death of any registered owner of 1998 Fishers Bonds exceeds $800,000, or (ii) the Bonds of any registered owner so subject to redemption together with the registered owner's 1998 Fishers Bonds subject to redemption by reason of the death of such registered owner, exceed the aggregate principal amount of $25,000. The Bonds subject to redemption as described above may be presented for redemption by delivering to the Trustee within two (2) years of the death of a registered owner (i) a written request for redemption in form satisfactory to the Trustee, signed by the personal representative or surviving joint tenant(s) of the registered owner, (ii) the Bond(s) to be redeemed, (iii) appropriate evidence of death and ownership of such Bond(s) at the time of death, and (iv) appropriate evidence of the authority of such personal representative or surviving joint tenant(s). In order for Bonds to be eligible for redemption on any July 15, such Bonds must be presented for redemption in full compliance with the provisions set forth above, prior to the May 15, next preceding such July 15. Upon receipt by the Trustee of all of the foregoing and by the time specified above, the Trustee shall promptly (and in any event by the June 15 next succeeding such July 15) certify to the Company and MBIA of such receipt and that a redemption of Bonds will occur under this Section 502 on the next succeeding July 15. The Bonds presented for redemption prior to maturity will be redeemed in the order of their receipt by the Trustee. Any Bonds not redeemed in any such period because of the individual $25,000 limitation or the aggregate $800,000 limitation, will be held in the order described above for redemption on the July 15 in succeeding years until redeemed. Any such redemption shall be at a price equal to 100% of the principal amount of the Bonds so to be redeemed, plus accrued interest to the redemption date. The death of a person who, during his or her lifetime, was entitled to substantially all of the beneficial interest of ownership of a Bond will be deemed the death of a registered owner, regardless of the registered owner, if such beneficial interest can be established to the satisfaction of the Trustee. Such beneficial interest shall be deemed to exist in typical cases of street name or nominee ownership, ownership under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between the husband and wife, and trust and certain other arrangements where one person has substantially all of the beneficial ownership interest in the Bond during his or her lifetime. In the case of Bonds registered in the name of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the redemption limitations described above apply to each beneficial owner of Bonds held by any Qualified Institution. In connection with the redemption request, such Qualified Institution must submit evidence, satisfactory to the Trustee, that it holds the Bonds subject to request on behalf of such beneficial owner and must certify the aggregate amount of redemption requests made on behalf of such beneficial owner. It is intended that the Bonds and the 1998 Fishers Bonds be treated as a single issue of bonds for purposes of this Section 502 and for all other provisions of this Indenture related to this Section 502 and the Trustee agrees to apply and administer the provisions of this Indenture in accordance with that intention. Section 503. Optional Redemption. The Bonds are subject to redemption by the Municipality (at the election and direction of the Company) prior to stated maturity in whole or in part on any date on or after July 15, 2005. The redemption price for any such redemption shall be the amount determined from the table below (expressed as a percentage of the principal amount of the Bonds or portions thereof so redeemed), plus accrued interest to the redemption date:
Redemption Period Redemption (both dates inclusive) Price July 15, 2005 through July 14, 2006 102% July 15, 2006 through July 14, 2007 101% July 15, 2007 and thereafter 100%
If less than all Bonds at the time outstanding are to be called for prior redemption, the particular Bonds or portions thereof to be redeemed shall be selected by lot or by such other random means as the Trustee shall determine in its discretion. Bonds of denominations greater than $5,000 may be called for redemption, in part, in multiples of $5,000. Section 504. Notice of Redemption. (a) Notice of the call for redemption identifying the Bonds to be redeemed (and, in the case of partial redemption of any Bonds, the respective principal amounts thereof to be redeemed), the redemption date and the redemption price shall (except for a redemption pursuant to Section 502) be given to Bondholders and to MBIA by mailing the redemption notice by registered or certified mail at least thirty days but no more than sixty days prior to the date fixed for redemption to the registered Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books; provided, however, that failure to give notice by mailing, or any defect therein, with respect to any Bond shall not affect the validity of any proceedings for the redemption of any other Bonds or portions thereof. Reference is hereby made to Section 5.4 of the Loan Agreement, which provision sets forth the obligations of the Company with respect to notice to the Trustee of the Company's exercise of its rights to prepay the Note. In connection with an optional redemption, the redemption notice may state that the redemption is conditional upon the timely receipt by the Trustee of funds sufficient to pay the redemption price of the Bonds to be redeemed as of the date of such redemption. In the event of such conditional redemption notice, if such funds are not so received by the Trustee, the call for redemption shall be of no force and effect and the redemption shall not occur. On and after the redemption date specified in the notice, if funds sufficient to pay the redemption price of the Bonds described in such notice are received by the Trustee, the Bonds that were called for redemption shall not bear interest, shall no longer be protected by this Indenture and shall not be deemed to be outstanding, and the Holders thereof shall have the right only to receive the redemption price plus accrued interest to the date fixed for redemption; provided, however, that all actions required by Section 1301 of this Indenture have been taken. (b) In addition to the redemption notice required above, if there is more than one Bondholder of all the Bonds, further notice (the "Additional Notice") shall be given by the Trustee as set out below. No defect in the Additional Notice or any failure to give all or any portion of the Additional Notice shall in any manner defeat the effectiveness of a call for redemption if notice is given as prescribed in paragraph (a) above. (1) Each Additional Notice of redemption shall contain the information required in paragraph (a) above for an official notice of redemption plus (i) the CUSIP numbers of all Bonds being redeemed; (ii) the date of the Bonds as originally issued: (iii) the rate of interest borne by each Bond being redeemed; (iv) the maturity date of each Bond being redeemed; and (v) any other descriptive information needed to identify accurately the Bonds being redeemed. (2) Upon the payment of the redemption price of the Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. (3) Each Additional Notice of redemption shall be sent at least 35 days before the redemption date by registered or certified mail or overnight delivery service to the Paying Agents, if any, to all registered securities depositories then in the business of holding substantial amounts of obligations similar to the Bonds (such depositories now being The Depository Trust Company of New York, New York, Midwest Securities Trust Company of Chicago, Illinois, Pacific Securities Depository Trust Company of San Francisco, California and Philadelphia Depository Trust Company of Philadelphia, Pennsylvania), to Standard and Poor's Ratings Group, and to one or more national information services that disseminate notices of redemption of obligations such as the Bonds. (4) In addition, the Trustee shall at all reasonable times make available to any interested party complete information as to which Bonds have been redeemed or called for redemption. Section 505. Cancellation. All Bonds that have been redeemed shall be cancelled by the Trustee and disposed of by the Trustee. A cancelled Bond shall not be reissued and a counterpart of the certificate evidencing its disposition shall be furnished by the Trustee to the Municipality and the Company. ARTICLE VI General Covenants Section 601. Payment of Principal, Premium, if any, and Interest. The Municipality shall promptly pay, but solely from payments under the Loan Agreement and on the Note and from funds otherwise available therefor in the Bond Fund the principal of and premium, if any, and interest on every Bond at the place, on the dates and in the manner provided herein and in the Bonds. The Bonds do not represent or constitute a debt of the Municipality within the meaning of the provisions of the Constitution or Statutes of the State of Indiana or a pledge of or charge against the credit of the Municipality or grant to the Owners or Holders thereof any right to have the Municipality levy taxes or appropriate any funds for the payment of the principal thereof or interest thereon. Section 602. Performance of Covenants. The Municipality will perform its obligations under this Indenture, the Bonds and the proceedings of its governing body pertaining to the Bonds. The Municipality represents that it is authorized under the Constitution and laws of the State of Indiana to issue the Bonds, to execute this Indenture and to assign all its right and title and interest in and to the Note and the Loan Agreement under this Indenture; that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been taken, and that the Bonds in the hands of the Holders and Owners thereof are and will be valid and binding obligations of the Municipality. The Company covenants that it will faithfully perform at all times all covenants, undertakings, stipulations and provisions which it has expressly undertaken to perform in this Indenture. Section 603. Ownership; Instruments of Further Assurance. The Municipality represents that it lawfully owns the Note and that the pledge and assignment thereof and the assignment of its interests in the Loan Agreement to the Trustee hereby made are valid and lawful. The Municipality covenants that it will defend the title to the Note and its interest in the Loan Agreement assigned to the Trustee, for the benefit of the Holders and Owners of the Bonds against the claims and demands of all persons whomsoever. The Municipality covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such indentures supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, pledging, assigning and confirming unto the Trustee the Note, the Loan Agreement and all payments thereon and thereunder pledged hereby to the payment of the principal of and premium, if any, and interest on the Bonds. The Municipality covenants that, except as provided herein and in the Loan Agreement, it will not sell, convey, mortgage, encumber or otherwise dispose of any part of the revenues and receipts payable under the Note and the Loan Agreement or its rights under the Loan Agreement. Section 604. Rights under Loan Agreement and Note. The Municipality agrees that the Trustee in its name or in the name of the Municipality may enforce all rights, remedies and privileges granted to the Municipality and all obligations of the Company under and pursuant to the Loan Agreement and the Note for and on behalf of the Bondholders, whether or not the Municipality is in default hereunder. Section 605. Designation of Additional Paying Agents. The Municipality will cause the necessary arrangements to be made through the Trustee for the designation of alternate paying agents, if any, and for the payment of the Bonds. Section 606. Recordation; Application of Uniform Commercial Code. The Municipality and the Company shall cause this Indenture and all supplements hereto as well as such other security instruments, financing statements and all supplements thereto and other instruments or documents as may be reasonably required from time to time to be kept, recorded and filed in such manner and in such places as may be required by law in order to preserve fully and protect the security of the Owners of the Bonds and the rights of the Trustee hereunder, and to perfect the lien of, and the security interest created by, this Indenture. This Indenture is a security agreement in support of any financing statement which may be executed and filed with respect to the Trust Estate, or any part thereof, and should an Event of Default occur, the Trustee may assert any or all of the remedies accorded a secured party under the Uniform Commercial Code of Indiana. The Company covenants and agrees to execute and to furnish to the Trustee such financing statements and continuations thereof as the Trustee may reasonably deem necessary or appropriate. Section 607. List of Bondholders. The Trustee as bond registrar will keep on file at the principal corporate trust office of the Trustee a list of names and addresses of the Holders of all Bonds. At reasonable times and under reasonable regulations established by the Trustee, said list may be inspected and copied by the Company, by the Purchaser or by Holders (or a designated representative thereof) of 10% or more in principal amount of Bonds then outstanding, such ownership and the authority of any such designated representative to be evidenced to the reasonable satisfaction of the Trustee. ARTICLE VII Possession and Use of the Project Financed with the 1989 Bonds Section 701. Subordination to Rights of Company. This Indenture and the rights and privileges hereunder of the Trustee and the Holders of the Bonds are specifically made subject and subordinate to the rights and privileges of the Company set forth in the Loan Agreement. ARTICLE VIII Remedies Section 801. Events of Default. If any of the following events occurs, it is hereby declared an "Event of Default": (a) default in the due and punctual payment and for a period of five (5) days thereafter of any interest on any Bonds; or (b) default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond, whether at stated maturity thereof, or at the date for redemption thereof, or otherwise; or (c) any Event of Default as defined in Section 6.1 of the Loan Agreement shall have occurred; or (d) failure by the Municipality or the Company to perform any other obligations under the Bonds or in this Indenture continuing for sixty (60) days after written notice specifying the failure given to the Municipality and the Company by the Trustee, which shall give such notice at the written request of the Holders of not less than ten percent (10%) in aggregate principal amount of the Bonds then outstanding; provided, however, that with respect to this clause (d) and with respect to Section 6.1(d) of the Loan Agreement if failure of performance shall be such that it cannot be corrected within such period, it shall not constitute an Event of Default if: (i) such failure of performance, in the reasonable opinion of the Trustee, is correctable without material adverse effect on the Bonds; (ii) corrective action is instituted by or on behalf of the Municipality or the Company within such period and is diligently pursued until such failure of performance is corrected; and (iii) in the reasonable opinion of the Trustee, correction of such failure of performance has not taken an unreasonable amount of time. The Trustee may request (and may rely upon) from the Company or the Municipality a certificate to the effect that the Company or the Municipality has instituted corrective action and will diligently pursue such action and believes that its failure of performance can be corrected through such action; or (e) an Event of Default as defined in Section 4.1 of the Guaranty shall have occurred. Section 802. Acceleration Rights. Upon the happening of any Event of Default specified in Section 801 herein, the Trustee may, with the consent of MBIA, and shall, at the written direction of MBIA, without any action on the part of the Holders of the Bonds, and shall upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding (but only with the written consent of MBIA), by notice in writing delivered to the Municipality and MBIA, declare the entire principal amount of the Bonds then outstanding and the interest accrued thereon, immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in this Indenture or in the Bonds to the contrary notwithstanding. Section 803. Other Remedies; Rights of Bondholders. Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy by suit at law or in equity to enforce the payment of the principal of and premium, if any, and interest on the Bonds then outstanding, to enforce this Indenture or to enforce its rights under the Loan Agreement or the Note. If an Event of Default shall have occurred, and if requested by MBIA or by the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding (but only with the written consent of MBIA) and indemnified as provided in Section 902(i) hereof, the Trustee must exercise such one or more of the rights and powers conferred by this Section 803 as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. No remedy given under this Indenture to the Trustee or to the Bondholders is intended to be exclusive of any other remedy. Each remedy shall be cumulative and shall be in addition to any other remedy given hereunder or existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair the right or power or shall be construed to be a waiver of any Event of Default; and every right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any Event of Default, whether by the Trustee or by the Bondholders, shall extend to or shall affect any subsequent Event of Default or shall impair any rights or remedies relating to that Event of Default. Section 804. Right of Bondholders to Direct Proceedings. Subject to the rights of MBIA under the Municipal Bond Insurance Policy, the Holders of a majority in aggregate principal amount of the Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, the method and place of conducting all proceedings to be taken in connection with the enforcement of this Indenture, or for the appointment of a receiver or any other proceedings hereunder; provided, that such direction shall be in accordance with the provisions of law and of this Indenture and that the Trustee is indemnified as provided in Section 902(i) of this Indenture. Section 805. Appointment of Receivers. Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled, to the extent permitted by law, to the appointment of a receiver or receivers of the Trust Estate and of the revenues, earnings, income, products and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer. Section 806. Application of Moneys. Subject to the rights of MBIA under the Municipal Bond Insurance Policy, all moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article VIII shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances and fees incurred or made by the Trustee and the sums required to be paid by the Company pursuant to this Indenture, the Bonds, the Loan Agreement or the Note (other than payment of principal, premium and interest on the Bonds or the Note), be deposited into the Bond Fund and applied as follows without preference, priority or distinction as between any Bond and any other Bond: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all moneys shall be applied: First--To the payment of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest and, if the amount available is not sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on that installment, to the persons entitled thereto, without any discrimination or privilege; and Second--To the payment of the unpaid principal of and premium, if any, on the Bonds which shall have become due (other than portions of the Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, with interest from the respective dates upon which they become due and, if the amount available is not sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on that installment, to the persons entitled thereto, without any discrimination or privilege. Third--To MBIA in connection with any payments due it with respect to the Municipal Bond Insurance Policy. (b) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all moneys shall be applied to the payment of the principal of and premium, if any, and interest then due and unpaid on the Bonds (other than portions of the Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), without preference or priority, ratably, according to the amounts due respectively for principal, premium and interest, to the persons entitled thereto, without any discrimination or privilege. (c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded, then, subject to the provisions of subsection (b) of this Section 806 in the event that the principal of the Bonds shall later become due or be declared due and payable, the money shall be applied in accordance with subsection (a) of this Section 806. Moneys shall be applied under this Section 806 at the times that the Trustee shall determine, having regard for the amount of moneys available for application and the likelihood of additional moneys becoming available for application in the future. The Trustee shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which application is to be made and on that date interest on the amounts of principal to be paid shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the Holder of any Bond until the Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Section 807. Remedies Vested in Trustee. All rights of action (including the right to file proofs of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants the Holders of the Bonds and any recovery of judgment shall, subject to the provisions of Section 806 hereof, be for the equal benefit of the Holders of the Bonds. Section 808. Rights and Remedies of Bondholders. No Holder of any Bond may institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust thereof or for the appointment of a receiver or any other remedy hereunder, unless (a) a default has occurred of which the Trustee has been notified as provided in subsection (g) of Section 902 hereof, or of which by that subsection it is deemed to have notice, (b) that default shall have become an Event of Default and the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding shall have made written request to the Trustee and shall have offered reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceedings in its own name, (c) they have offered to the Trustee indemnity as provided in Section 902(i) hereof, and (d) the Trustee shall thereafter fail or refuse to exercise its powers, or to institute such action, suit or proceeding. The notification, request and offer of indemnity are, at the option of the Trustee, conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder. No one or more Holders of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of this Indenture by their action or to enforce any right hereunder except in the manner herein provided, and all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of the Holders of all Bonds then outstanding. Section 809. Termination of Proceedings. If the Trustee shall have proceeded to enforce any right under this Indenture and the proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then the Municipality, the Company, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder. Section 810. Waivers of Events of Default. Subject to the rights of MBIA under the Municipal Bond Insurance Policy, the Trustee may in its discretion waive any Event of Default (except to the extent that the Trustee is required by the Bondholders pursuant to Section 803 hereof to exercise certain rights or powers) and its consequences and rescind any declaration of acceleration of maturity of principal of and interest on the Bonds, and shall do so upon the written request of the Holders of not less than a majority in aggregate principal amount of the Bonds then outstanding; provided, however, that there shall not be waived (a) any default in the payment of the principal of or premium on any Bond or (b) any default in the payment when due of the interest on any Bond unless prior to such waiver or rescission, all arrears of interest, principal and premium, and all fees and expenses of the Trustee in connection with such default, shall have been paid or provided for. In case of any such waiver or rescission, the Municipality, the Company, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon. Section 811. Cooperation of Municipality. In the event of a default hereunder, the Municipality shall cooperate with the Trustee and use its best efforts to protect the Bondholders. Section 812. Consent of MBIA Upon Default. Anything in this Indenture to the contrary notwithstanding, so long as the Municipal Bond Insurance Policy is in effect and MBIA is not in default in its obligations thereunder, upon the occurrence and continuance of an Event of Default, MBIA shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Trustee for the benefit of the Bondholders under this Indenture, including, without limitation, acceleration of the principal of the Bonds as described in this Indenture and the right to annul any declaration of acceleration, and MBIA shall also be entitled to approve all waivers of Events of Default. ARTICLE IX The Trustee Section 901. Acceptance of Trusts. The Trustee accepts the trusts imposed upon it by this Indenture. The Trustee shall exercise the rights and powers vested in it by this Indenture and shall use the same degree of care as a prudent man would exercise or use in the circumstances in the conduct of his own affairs. Section 902. Certain Rights of Trustee. (a) The Trustee may perform any of its duties by or through attorneys, agents, receivers or employees and shall not be answerable for the conduct of such attorneys, agents or receivers if the same are appointed in accordance with the standard specified in Section 901 and shall be entitled to advice of counsel concerning all matters hereunder and may pay reasonable compensation to all attorneys and agents as may reasonably be employed and shall be entitled to reimbursement therefor from the Company. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Municipality or the Company). The Trustee shall not be responsible for any loss or damage resulting from any action or nonaction in good faith in reliance upon such opinion or advice. (b) The Trustee shall not be responsible for any recital in this Indenture, or in the Bonds (except the certificate of the Trustee endorsed on the Bonds) or in any related document (other than documents relating solely to and executed only by the Trustee), or for the validity of the execution by the Municipality of this Indenture or of any supplements or instruments of further assurance, or for the sufficiency of the security for the Bonds or as to the maintenance of the security therefor except as provided in Section 606 hereof; and the Trustee shall not be bound to make any investigation as to the performance or observance of any covenants, conditions or agreements on the part of the Municipality or on the part of the Company under the Loan Agreement. The Trustee shall have no obligation to perform any of the duties of the Municipality under the Loan Agreement, and the Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with the provisions of this Indenture. (c) The Trustee shall not be accountable for the use of any Bonds. The Trustee may be or become the Owner of Bonds with the same rights which it would have if not Trustee. (d) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. (e) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon an Officer's Certificate of the Municipality. Prior to the occurrence of a default of which the Trustee has been notified or of which it is deemed to have notice, the Trustee may accept an Officer's Certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept an Officer's Certificate of the Municipality to the effect that an ordinance or resolution has been adopted by the Municipality as conclusive evidence that such ordinance or resolution has been adopted and is in full force and effect. (f) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its gross negligence or willful default. (g) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default (other than nonpayment of the principal and interest on the Bonds) unless the Trustee shall be specifically notified in writing of the Event of Default by the Municipality, by the Holders of at least twenty-five percent (25%) in aggregate principal amount of all Bonds then outstanding or by the Company and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the principal corporate trust office of the Trustee. (h) The Trustee may demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that required by the terms hereof which the Trustee deems desirable. (i) Before taking any action, the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses which it may incur and to protect it against all liability, except liability which is adjudicated to have resulted from its gross negligence or willful default in connection with any action so taken. (j) All moneys received by the Trustee or any paying agent shall be held in trust for the purposes for which they were received but need not be segregated from other funds except to the extent required by law. (k) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. Section 903. Fees, Charges and Expenses of Trustee and Paying Agent. The Trustee and any paying agent shall be entitled to prompt payment upon demand or reimbursement for usual and customary fees for their services rendered hereunder as set forth in fee schedules or similar documents effective during the term of this Indenture and available from the Trustee and all advances, counsel fees and other expenses reasonably and necessarily made or incurred by them in connection with such services. Upon an Event of Default, but only upon an Event of Default, the Trustee and any paying agent shall have a right of payment prior to payment on account of interest or principal of or premium, if any, on the Bonds for the foregoing advances, fees, costs and expenses incurred. Section 904. Notice to Bondholders if Default Occurs. If an Event of Default occurs of which the Trustee is required to take notice or if notice of an Event of Default be given by the Municipality, the Bondholders or the Company as provided in Section 902(g) hereof, the Trustee shall give prompt written notice thereof to MBIA and to the Owners of all Bonds then outstanding. Section 905. Intervention by Trustee. In any judicial proceeding to which the Municipality is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of the Holders of the Bonds, the Trustee may intervene on behalf of the Bondholders and, subject to the provisions of Section 902(i) hereof, shall do so if requested in writing by the Holders of at least twenty-five percent (25%) in aggregate principal amount of all Bonds then outstanding. The rights and obligations of the Trustee under this Section 905 are subject to the approval of a court of competent jurisdiction. Section 906. Successor Trustee. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party shall become successor Trustee hereunder, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto; provided, however, that if the successor corporation is not a trust company or bank within the State of Indiana that satisfies the requirements of Section 909 hereof, the Trustee shall resign from the trusts hereby created prior to such sale, merger, consolidation or transfer. Section 907. Resignation by Trustee. The Trustee and any successor Trustee may at any time resign by giving thirty days' written notice to the Municipality, the Company and MBIA and by registered or certified mail to the registered Owners of the Bonds then outstanding, and the resignation shall take effect upon the appointment of a successor or temporary Trustee by the Bondholders or by the Municipality as provided herein and such successor or temporary Trustee's acceptance of such appointment. The Trustee may petition a court of appropriate jurisdiction to have a successor Trustee appointed. Section 908. Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the Municipality and signed by the Owners of a majority in aggregate principal amount of all Bonds then outstanding (but only with the consent of MBIA). The Trustee may be removed at any time, at the request of MBIA, for any breach of the Trust set forth herein. Any such removal shall take effect upon the appointment of a successor or temporary Trustee by the Bondholders or by the Municipality as provided herein and such successor or temporary Trustee's acceptance of such appointment. Section 909. Appointment of Successor Trustee by Bondholders; Temporary Trustee. In case the Trustee shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor reasonably acceptable to MBIA may be appointed by the Owners of a majority in aggregate principal amount of all Bonds then outstanding by an instrument or concurrent instruments in writing; provided, nevertheless, that in case of such vacancy the Municipality by an instrument executed by its Mayor and attested by its Clerk under its seal may appoint a temporary Trustee to fill the vacancy until a successor Trustee is appointed by the Bondholders; and any temporary Trustee shall immediately be superseded by the successor Trustee appointed by the Bondholders. Every temporary or successor Trustee shall be a trust company or bank in good standing within the State of Indiana, duly authorized to exercise trust powers and subject to examination by federal or state authority, and having a reported capital and surplus of not less than $75,000,000 and acceptable to MBIA . The appointment of every temporary or successor Trustee shall be subject to the prior approval of the Company, which approval may not be unreasonably withheld. Notwithstanding any other provision of this Indenture, no removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to MBIA, shall be appointed. Section 910. Concerning Any Successor Trustees. Every successor Trustee shall deliver to its predecessor, the Municipality and the Company an instrument in writing accepting its appointment, and thereupon such successor without any further act, deed or conveyance, shall become fully vested with all the properties, rights, powers, trusts, duties and obligations of its predecessor; but the predecessor shall, nevertheless, on the Written Request of the Municipality, or of the successor Trustee, execute and deliver an instrument transferring to the successor Trustee all the properties, rights, powers and trusts of the predecessor; and every predecessor Trustee shall deliver all securities and moneys held by it as Trustee to its successor. If any instrument in writing from the Municipality is required by any successor Trustee for more fully and certainly vesting in the successor the rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing shall, on request, be executed and delivered by the Municipality. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, together with all other instruments provided for in this Article, shall be filed or recorded by the successor Trustee in each recording office, if any, where the Indenture has been filed or recorded. Section 911. Trustee Protected in Relying upon Resolution, etc. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the release of property and the withdrawal of cash. Section 912. Successor Trustee as Trustee of Funds, Paying Agent and Bond Registrar. In the event of a change in the office of Trustee, the predecessor Trustee which has resigned or been removed shall cease to be trustee of the funds provided hereunder and bond registrar and paying agent for principal of and premium, if any, and interest on the Bonds, and the successor Trustee shall become such Trustee, bond registrar and paying agent. ARTICLE X Continuing Disclosure Section 1001. Continuing Disclosure. Pursuant to Section 4.8 of the Loan Agreement and Section 3.4 of the Guaranty Agreement, the Company and the Guarantor have undertaken all responsibility for compliance with continuing disclosure requirements, and the Municipality shall have no liability to the Holders of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of this Indenture, failure of the Company or the Guarantor to comply with the Continuing Disclosure Undertaking shall not be considered an Event of Default; however, any Bondholder may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Company and the Guarantor to comply with its obligations under Section 4.8 of the Loan Agreement and Section 3.4 of the Guaranty Agreement. ARTICLE XI Supplemental Indentures Section 1101. Supplemental Indentures Not Requiring Consent of Bondholders. The Municipality, the Company and the Trustee may without the consent of, or notice to, any of the Bondholders (but only with the consent of MBIA) enter into an indenture or indentures supplemental to this Indenture, which is consistent with the terms hereof, for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission in this Indenture or in any supplemental indenture which is not to the prejudice of the Trustee or the Holders of the Bonds; (b) To grant to the Trustee any additional rights, remedies, powers or authority that may lawfully be granted to the Trustee; (c) To subject to this Indenture additional collateral; (d) To modify, amend or supplement this Indenture or any indenture supplemental hereto in such manner as to permit the qualification hereof and thereof under any federal statute hereafter in effect or under any state Blue Sky Law, and in connection therewith, if they so determine, to add to this Indenture or any indenture supplemental hereto, such other terms, conditions and provisions (which, in the judgment of the Trustee, are not to the prejudice of the Holders of the Bonds) as may be permitted or required by said federal statute or Blue Sky Law; and (e) To effect any other change which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Holders of the Bonds. Section 1102. Supplemental Indentures Requiring Consent of Bondholders. Exclusive of supplemental indentures covered by Section 1101 hereof and subject to the terms of this Section, the Holders of at least a majority in aggregate principal amount of the Bonds then outstanding may (with the written consent of MBIA) consent to the execution and delivery by the Municipality, the Company and the Trustee of such other indenture or indentures supplemental hereto for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms of this Indenture or any supplemental indenture; provided, however, that the unanimous written consent of the Bondholders shall be required for any amendment which would permit: (a) an extension of the stated maturity or reduction in the principal amount of, or reduction in the rate or extension of the time of paying of interest on, or reduction of any premium payable on the redemption of, any Bond, (b) a reduction in the aggregate principal amount of Bonds the Holders of which are required to consent to any such supplemental indenture, or (c) the material modification of the rights, duties or immunities of the Trustee. ARTICLE XII Amendments to the Loan Agreement Section 1201. Amendments, etc., to Loan Agreement or the Guaranty Not Requiring Consent of Bondholders. The Municipality and the Trustee with the consent of the Company and with the written consent of MBIA shall, without the consent of or notice to the Bondholders, consent to any amendment, change or modification of the Loan Agreement or the Guaranty as may be required (a) by the provisions of any such instrument and this Indenture, (b) for the purpose of curing any ambiguity or formal defect or omission or (c) in connection with any other change which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Holders of the Bonds. Section 1202. Amendments, etc., to Loan Agreement or the Guaranty Requiring Consent of Bondholders. Except for the amendments, changes or modifications as provided in Section 1201 hereof, neither the Municipality nor the Trustee shall consent to any other amendment, change or modification of the Loan Agreement or the Guaranty without the consent of the Holders of at least a Majority in aggregate principal amount of the Bonds then outstanding and only with the written consent of MBIA. Section 1203. No Amendment May Alter Note. Under no circumstances shall any amendment to the Loan Agreement alter the provisions of the Note relating to the payment of principal, premium, and interest thereon, without the written consent of the Holders of all the Bonds at the time outstanding. ARTICLE XIII Miscellaneous Section 1301. Satisfaction and Discharge. All rights and obligations of the Municipality and the Company under the Loan Agreement, the Note and this Indenture shall terminate and those instruments shall cease to be of further effect, and the Trustee shall cancel the Note and deliver it to the Company, shall execute and deliver all appropriate instruments evidencing the satisfaction of this Indenture, and shall assign and deliver to the Company any moneys and investments in all funds established hereunder (except moneys or investments held by the Trustee for the payment of principal of, interest on, or premium, if any, on the Bonds) when (a) all fees and expenses of the Trustee and any paying agent shall have been paid or provided for; (b) the Municipality and the Company shall have performed all of their obligations under the Loan Agreement, the Note and this Indenture; (c) there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient without reinvestment, or direct noncallable obligations of the United States of America the principal of and the interest on which when due without reinvestment will provide moneys which, together with the moneys, if any, deposited with the Trustee, shall be sufficient, to pay when due the principal or redemption price, if applicable, and interest due and to become due on the Bonds prior to the redemption date or maturity date thereof, as the case may be; provided, that if any Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been duly given or arrangement satisfactory to the Trustee shall have been made for notice, or waiver of notices satisfactory in form to the Trustee shall have been filed with the Trustee; and (d) the Trustee shall have received an opinion of Bond Counsel addressed to the Trustee to the effect that such actions shall not cause the interest on the Bonds to become includable under Section 103 of the Code in the gross income of the Holders thereof for federal income tax purposes. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by MBIA pursuant to the Municipal Bond Insurance Policy, the Bonds shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Municipality, and the assignment and pledge of the Trust Estate and all covenants, agreements and other obligations of the Municipality to the Bondholders shall continue to exist and shall run to the benefit of MBIA, and MBIA shall be subrogated to the rights of such Bondholders. Section 1302. Application of Trust Money. All money or direct obligations of the United States of America deposited with or held by the Trustee pursuant to Section 1301 hereof shall be held in trust for the Holders of the Bonds, and applied by it, in accordance with the provisions of the Bonds and this Indenture, to the payment, either directly or through any paying agent, to the persons entitled thereto, of the principal and premium, if any, and interest on the Bonds for whose payment the money has been deposited with the Trustee. Any income or interest earned by, or increment to, the investments held under Section 1301 hereof shall to the extent not required for the purposes of this Section 1302, be transferred to the Bond Fund. Section 1303. Consents, etc., of Bondholders. Any consent, request, direction, approval, objection or other instrument required by this Indenture to be executed by the Bondholders may be in any number of concurrent writings and may be executed by the Bondholders in person or by agent appointed in writing. Proof of the execution of any such instrument or of the writing appointing any agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken under such request or other instrument. The fact and date of the execution by any person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within such jurisdiction that the person signing such writing acknowledged before him the execution thereof, by affidavit of any witness to such execution. For all purposes of this Indenture and of the proceedings for the enforcement hereof, any such person shall be deemed to continue to be the Holder of such Bonds until the Trustee shall have received notice in writing to the contrary. In determining whether the holders of the required principal amount of Bonds outstanding have taken any action under this Indenture, Bonds owned by the Company or any person controlling, controlled by or under common control with the Company shall be disregarded and deemed not to be outstanding. In determining whether the Trustee shall be protected in relying on any such action, only Bonds which the Trustee knows to be so owned shall be disregarded. Any action, consent or other instrument shall be irrevocable and shall bind any subsequent owner of such Bond or any Bond delivered in substitution therefor. Section 1304. Parties Interested Herein. Nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Company, the Trustee, MBIA, and the Bondholders, any right, remedy, or claim under or by reason of this Indenture or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Indenture contained by and on behalf of the Company shall be for the sole and exclusive benefit of the Company, the Trustee, MBIA, and the Bondholders. Section 1305. Severability. If any provision of this Indenture shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatever. The invalidity of any one or more phrases, sentences, clauses or Sections in this Indenture shall not affect the remaining portions of this Indenture, or any part thereof. Section 1306. Notices. All notices, certificates, payments or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, postage prepaid, or overnight express mail addressed as follows: if to the Municipality, at the City-County Building, Indianapolis, Indiana 46204, Attention of its Controller; if to the Company or to the Guarantor, at 1220 Waterway Boulevard, Indianapolis, Indiana 46202, Attention of its Chief Financial Officer; if to the Trustee, at 101 West Washington Street, Indianapolis, Indiana 46255, Attention of the Corporate Trust Department; and if to MBIA, at MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504; or to such other addresses as may hereafter be furnished by notice. Section 1307. Trustee as Paying Agent and Registrar. The Trustee is hereby designated and agrees to act as principal paying agent and Bond Registrar for the Bonds. Section 1308. Counterparts. This Indenture may be executed in several counterparts, each of which shall be an original. Section 1309. Applicable Law. This Indenture shall be governed by and construed in accordance with the applicable laws of the State of Indiana. Section 1310. Holidays. If any date for the payment of principal of or premium or interest on the Bonds is not a Business Day, then such payment shall be due on the first Business Day thereafter and payment on such day shall be considered timely hereunder. Section 1311. Captions and Table of Contents. The captions herein and the Table of Contents are inserted only as a matter of convenience and do not in any way define, limit, construe or describe the scope or intent of this Indenture or any section thereof or in any other way affect this Indenture. ARTICLE XIV Municipal Bond Insurance Provisions Section 1401. Notices. While the Municipal Bond Insurance Policy is in effect, the Company shall furnish to MBIA: (i) as soon as practicable after the filing thereof, a copy of any financial statement of the Company and the Guarantor and a copy of any audit and annual report of the Company or the Guarantor; (ii) a copy of any notice to be given to the Bondholders, including, without limitation, notice of any redemption of or defeasance of Bonds, and any certificate rendered pursuant to this Indenture relating to the security for the Bonds; and (iii) such additional information it may reasonably request. The Trustee shall notify MBIA of any failure of the Company to provide relevant notices, certificates, etc. If and to the extent the Trustee does not have sufficient funds on the date on which interest on or principal of the Bonds is due to make such interest or principal payments, the Trustee shall notify MBIA by telephone or telegraph (which notification shall be confirmed in writing sent to MBIA by registered or certified mail). In the event of such notification and thereafter on the date on which interest on or principal of the Bonds is due, the Trustee does receive sufficient funds to make such interest or principal payments in whole or in part, the Trustee shall so notify MBIA in the same manner (and shall confirm such notification in the same manner). If the Trustee has notice that any Bondholder has been required to disgorge payments of principal or interest on the Bonds to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Bondholder within the meaning of any applicable bankruptcy laws, then the Trustee shall notify MBIA or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. The Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for the Bondholders, as follows: (i) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Trustee shall (a) execute and deliver to State Street bank and Trust Company, N.A., or its successors under the Insurance Policy, in form satisfactory to the Insurance Trustee, an instrument appointing the Insurer as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer; (b) receive as designee of the respective Holders (and not as Trustee) in accordance with the tenor of the Insurance Policy payment from the Insurance Trustee with respect to the claims for interest so assigned; and (c) disburse the same to such respective Holders; and (ii) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Trustee shall (a) execute and deliver to the Insurance Trustee in form satisfactory to the Insurance Trustee an instrument appointing the Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Bonds surrendered to the Insurance Trustee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Insurer and available for such payment (but such assignment shall be delivered only if payment from the Insurance Trustee is received); (b) receive as designee of the respective Holders (and not as Insurer) in accordance with the tenor of the Insurance Policy payment therefor from the Insurance Trustee; and (c) disburse the same to such Holders. Payments with respect to claims for interest on and principal of Bonds disbursed by the Trustee from proceeds of the Insurance Policy shall not be considered to discharge the obligation of the Company with respect to such Bonds, and the Insurer shall become the owner of such unpaid Bonds and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. Irrespective of whether any such assignment is executed and delivered, the Municipality and the Trustee hereby agree for the benefit of the Insurer that they recognize that to the extent the Insurer makes payments, directly or indirectly, on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the Municipality, with interest thereon as provided and solely from the sources stated in this Indenture and the Bonds. They will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Insurance Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to Holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest. The Company will permit MBIA to discuss the affairs, finances and accounts of the Company or any information MBIA may reasonably request regarding the security for the Bonds with appropriate officers of the Company. The Trustee or the Company, as appropriate, will permit MBIA to have access to and make copies of all books and records relating to the Bonds at any reasonable time. Notwithstanding any other provision of this Indenture to the contrary, the Trustee shall immediately notify MBIA if at any time there are insufficient moneys to make any payments of principal and/or interest as required and immediately upon the occurrence of any Event of Default hereunder. Section 1402. Consent of MBIA. Any provision of this Indenture expressly recognizing or granting rights in or to MBIA may not be amended in any manner which affects the rights of MBIA hereunder without the prior written consent of MBIA. Unless otherwise provided in this Section, MBIA's consent shall be required in addition to Bondholder consent, when required, for the following purposes: (i) execution and delivery of any supplemental indenture or any amendment, supplement or change to or modification of the Loan Agreement; (ii) removal of the Trustee and selection and appointment of any successor trustee; and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Bondholder consent. Section 1403. Effectiveness of Rights of MBIA to Consent or Direct Actions. All rights granted MBIA hereunder to direct or consent to actions to be taken under any provision of this Indenture shall be effective only if MBIA shall, at the time thereof, be in compliance with its payment obligations under the Municipal Bond Insurance Policy. Section 1404. Trustee to Consider Effect on Bondholders of Actions Taken Pursuant to Indenture as if There Were No Municipal Bond Insurance. Notwithstanding any other provision of this Indenture, in determining whether the rights of the Bondholders will be adversely affected by any action taken pursuant to the terms and provisions of this Indenture, the Trustee shall consider the effect on the Bondholders as if there were no Municipal Bond Insurance Policy. Section 1405. MBIA as Third-Party Beneficiary. To the extent that this Indenture confers upon or gives or grants to MBIA any right, remedy, or claim under or by reason of this Indenture, MBIA is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given, or granted hereunder. [This page intentionally left blank. Signature pages follow.] IN WITNESS WHEREOF, INDIANAPOLIS WATER COMPANY, has caused these presents to be signed in its name and behalf and attested by its duly authorized officers and the City of Indianapolis Indiana, has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its Clerk and, to evidence its acceptance of the Trusts hereby created, National City Bank of Indiana of Indianapolis has caused these presents to be signed in its name and behalf by a duly authorized Vice President and Trust Officer, its official seal to be hereunto affixed, and the same to be attested by one of its duly authorized officers, all as of the day and year first above written. INDIANAPOLIS WATER COMPANY By /s/ Joseph R. Broyles Joseph R. Broyles, President /s/ John M. Davis John M. Davis, Secretary THE CITY OF INDIANAPOLIS By /s/ Stephen Goldsmith (SEAL) Stephen Goldsmith, Mayor ATTEST: /s/ Suellen Hart Suellen Hart, Clerk NATIONAL CITY BANK OF INDIANA (SEAL) By /s/Authorized Vice President, ATTEST: Vice President /s/ Trust Officer, Trust Officer STATE OF INDIANA ) ) SS: COUNTY OF ) Before me, the undersigned, a Notary Public in and for the State of Indiana, personally appeared David A. Kelly and John M. Davis personally known to me to be the Vice President and Secretary of Indianapolis Water Company, who, after being first duly sworn, acknowledged that they as such officers, being authorized to do so, executed the foregoing Indenture of Trust for and on behalf of said Corporation. WITNESS MY HAND and Notarial Seal this _____ day of _______________, 1998. ------------------------- Notary Public ------------------------------ I am a resident of (Printed Name) ____________ County, Indiana My Commission Expires: - ---------------------- STATE OF INDIANA ) ) SS: COUNTY OF ) Before me, the undersigned, a Notary Public in and for the State of Indiana, personally appeared Stephen Goldsmith and Suellen Hart personally known to me to be the Mayor and Clerk of the City of Indianapolis, who, after being first duly sworn, acknowledged that they as such officers, being authorized to do so, executed the foregoing Indenture of Trust for and on behalf of said City. WITNESS MY HAND and Notarial Seal this _____ day of _______________, 1998. ------------------------- Notary Public ------------------------------ I am a resident of (Printed Name) ____________ County, Indiana My Commission Expires: - ---------------------- STATE OF INDIANA ) ) SS: COUNTY OF ) Before me, the undersigned, a Notary Public in and for the State of Indiana, personally appeared _______________________________________________ personally known to me to be the _________________________________________ of National City Bank of Indiana, who, after being first duly sworn, acknowledged that as such officers, being authorized to do so, executed the foregoing Indenture of Trust for and on behalf of said Company. WITNESS MY HAND and Notarial Seal this _____ day of _______________, 1998. ------------------------- Notary Public ------------------------------ I am a resident of (Printed Name) ____________ County, Indiana My Commission Expires: - ---------------------- This instrument was prepared by Theodore J. Esping, Baker & Daniels, 300 North Meridian Street, Suite 2700, Indianapolis, Indiana 46204. EXHIBIT A TO INDENTURE [FORM OF REGISTERED BOND] UNITED STATES OF AMERICA STATE OF INDIANA CITY OF INDIANAPOLIS ECONOMIC DEVELOPMENT WATER FACILITIES REFUNDING REVENUE BOND, SERIES 1998 (INDIANAPOLIS WATER COMPANY PROJECT) NO. R-_ INTEREST MATURITY AUTHENTICATION RATE DATE DATE CUSIP ____% JULY 15, 2028 REGISTERED OWNER: ______________________________ PRINCIPAL AMOUNT: ______________________________ The City of Indianapolis, Indiana (the "Municipality"), for value received, promises to pay in lawful money of the United States of America to the Registered Owner (named above) or registered assigns, on the Maturity Date set forth above unless this Bond shall have previously been called for redemption and payment of the redemption price made or provided for but solely from the payments under the Loan Agreement and on the Note described below and not otherwise, upon surrender hereof, the principal sum set forth above and to pay interest on the principal amount remaining unpaid from time to time in like money, but solely from the payments under the Loan Agreement and on the Note described below, at the rate per annum set forth above, payable semiannually on July 15 and January 15 of each year commencing January 15, 1999, until payment of such principal amount, or provision for that payment, shall have been made upon redemption or at maturity including, to the extent permitted by law, interest on overdue interest at such rate. This Bond shall bear interest (computed on the basis of a year of 360 days consisting of 12 months of 30 days each) from July 15, 1998. The principal of and premium, if any, and interest payable upon redemption, are payable at the principal corporate trust office of National City Bank of Indiana, as Trustee (the "Trustee") in the City of Indianapolis, Indiana, or at the principal office of any successor Trustee or additional paying agent appointed under the Indenture described below. Payment of the interest on this Bond on any interest payment date shall be made to the person appearing on the Bond registration books of the Trustee on the Record Date as the registered owner and shall be paid by check or draft mailed on the interest payment date to the registered owner at the address on such registration books (or at any other address furnished to the Trustee in writing by the holder) without any presentation of this Bond, or, at the written election of the registered owner of $500,000 or more in aggregate principal amount of Bonds delivered to the Trustee at least one Business Day prior to the Record Date for which such election will be effective, by wire transfer to the registered owner or by deposit into the account of the registered owner if such account is maintained by the Trustee. Payment of the principal of this Bond shall be made upon presentation and surrender of this Bond as the same shall become due and payable. If any date for the payment of the principal of or premium or interest on this Bond is not a Business Day (as such term is defined in the Indenture), then such payment shall be due on the first Business day thereafter. This Bond is one of the Bonds being issued under the Indenture (as described herein) in the aggregate principal amount of $10,000,000 to provide for the discharge and termination of all liabilities and obligations of Indianapolis Water Company, an Indiana corporation (the "Company"), relating to or connected with the 7-7/8% City of Indianapolis, Indiana, Economic Development Water Facilities Revenue Bonds, Series 1989 (Indianapolis Water Company Project). The proceeds from the sale of the Bonds will be loaned to the Company under a Loan Agreement dated as of July 15, 1998 (the "Loan Agreement") between the Company and the Municipality and the Company will give its Promissory Note (the "Note") to evidence the Company's obligation to repay the loan. The Bonds are issued under and secured by an Indenture of Trust dated as of July 15, 1998 (the "Indenture"), executed and delivered by the Municipality and the Company to National City Bank of Indiana, Indianapolis, as Trustee. Under the Indenture, the Municipality assigns the Note and its rights under the Loan Agreement (except the right to receive payment for its expenses, the right to receive indemnities and rights relating to any amendment of the Loan Agreement) to the Trustee. In addition, the principal of, premium, if any, and interest on the Bonds are guaranteed by IWC Resources Corporation, an Indiana corporation. Reference is made to the Indenture and to all indentures supplemental thereto for a description of the nature and extent of the rights, duties and obligations of the Municipality, the Company and the Trustee, the rights of the holders of the Bonds, and the terms on which the Bonds are issued and to all the provisions of which the holder hereof by the acceptance of this Bond assents. This Bond is transferable by the registered holder at the principal corporate trust office of the Trustee in Indianapolis, Indiana, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture and upon surrender and cancellation of this Bond. The Bonds are issuable as fully registered Bonds in denominations of $5,000 and any whole multiple thereof. Subject to the limitations and upon payment of the charges provided in the Indenture, fully registered Bonds may be exchanged for an equal aggregate principal amount of fully registered Bonds of any denomination or denominations authorized by the Indenture. The Municipality and the Trustee may treat the registered holder of this Bond as the absolute owner for the purpose of receiving payment of or on account of principal, premium, if any, and interest due hereon and for all other purposes and neither the Municipality nor the Trustee nor any paying agent shall be affected by any notice to the contrary. The Bonds are subject to mandatory redemption in whole (or in part as provided below) upon a Determination of Taxability (as defined in the Indenture). When so called for redemption, the Bonds shall be subject to redemption by the Municipality at a redemption price of 100% of the principal amount thereof outstanding plus accrued interest to the redemption date. Fewer than all the Bonds may be redeemed if redemption of fewer than all would result in the interest payable on the Bonds remaining outstanding being not includible in the gross income for federal income tax purposes of any owner other than a "substantial user" or "related person." If fewer than all Bonds are redeemed, the Trustee will select the Bonds to be redeemed by lot as provided in the Indenture or by such other method acceptable to the Trustee. On July 15 of each year commencing July 15, 2000, the Trustee will, upon the death of any registered owner, redeem any Bond held by such registered owner following presentation for redemption as described below by such registered owner's personal representative or surviving joint tenant(s), subject to the limitation that in any 12-month period the Trustee shall not be obligated to redeem Bonds pursuant to this paragraph to the extent that the aggregate principal amount of Bonds so subject to redemption, together with the aggregate principal amount of Town of Fishers, Indiana Economic Development Water Facilities Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project) (the "1998 Fishers Bonds") subject to redemption by reason of the death of any registered owner of 1998 Fishers Bonds exceeds $800,000, or the Bonds of any registered owner so tendered for redemption, together with the registered owners 1998 Fishers Bonds tendered for redemption by reason of the death of such registered owner, is in excess of the aggregate principal amount of $25,000. The Bonds subject to redemption as described above may be presented for redemption by delivering to the Trustee within two years of the death of the registered owner (i) a written request for redemption in form satisfactory to the Trustee, signed by the personal representative or surviving joint tenant(s) of the registered owner, (ii) the Bond(s) to be redeemed, (iii) appropriate evidence of death and ownership of such Bond(s) at the time of death, and (iv) appropriate evidence of the authority of such personal representative or surviving joint tenant(s). In order for Bonds to be eligible for redemption on any July 15, such Bonds must be presented for redemption in full compliance with the provisions set forth above, prior to May 15 next preceding such July 15. The Bonds presented for redemption prior to maturity will be redeemed in the order of their receipt by the Trustee. Any Bonds not redeemed in any such period because of the individual $25,000 limitation or the aggregate $800,000 limitation, will be held in the order described above for redemption on the July 15 in succeeding years until redeemed. Any such redemption shall be at a price equal to 100% of the principal amount of the Bonds so to be redeemed, plus accrued interest to the redemption date. The death of a person who, during his or her lifetime, was entitled to substantially all of the beneficial interest of ownership of a Bond will be deemed the death of a registered owner, regardless of the registered owner, if such beneficial interest can be established to the satisfaction of the Trustee. Such beneficial interest shall be deemed to exist in typical cases of street name or nominee ownership, ownership under the Uniform Transfers to Minors Act, community property or other joint ownership arrangements between the husband and wife, and trust and certain other arrangements where one person has substantially all of the beneficial ownership interest in the Bond during his or her lifetime. In the case of Bonds registered in the name of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the redemption limitations described above apply to each beneficial owner of Bonds held by any Qualified Institution. In connection with the redemption request, such Qualified Institution must submit evidence, satisfactory to the Trustee, that it holds the Bonds subject to request on behalf of such beneficial owner and must certify the aggregate amount of redemption requests made on behalf of such beneficial owner. The Bonds are also subject to redemption (at the election of the Company) prior to stated maturity in whole or in part on any interest payment date on or after July 15, 2005. The redemption price for any such redemption shall be the amount determined from the table below (expressed as a percentage of the principal amount of the Bonds or portions thereof so redeemed), plus accrued interest to the redemption date:
REDEMPTION PERIOD (BOTH DATES INCLUSIVE) REDEMPTION PRICE July 15, 2005 through July 14, 2006 102% July 15, 2006 through July 14, 2007 101% July 15, 2007 and thereafter 100%
If less than all Bonds at the time outstanding are to be called for redemption, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot or by such other random means as the Trustee shall determine in its discretion. Bonds of denominations greater than $5,000 may be called for redemption, in part, in multiples of $5,000. If any of the Bonds are called for redemption, a notice of the call for redemption identifying the Bonds to be redeemed will be mailed by registered or certified mail at least thirty days but no more than sixty days prior to the date fixed for redemption to the registered owner at the address shown on the registration books, provided that failure to give this notice by mailing, or any defect in the notice, shall not affect the validity of any proceedings for the redemption of any other Bonds or portions thereof. All Bonds called for redemption will cease to bear interest on the specified redemption date, provided funds for redemption are on deposit at the place of payment at that time and all other requirements relating to redemption as set forth in the Indenture are satisfied, and shall no longer be protected by the Indenture and shall not be deemed to be outstanding under the provisions of the Indenture. The Bonds are issued pursuant to and in full compliance with the Constitution and laws of the State of Indiana, particularly IC 5-1-5, IC 36-7-11.9 and IC 36-7-12 and pursuant to an Ordinance adopted by the City County Council of the Municipality on the ____ day of June, 1998. THIS BOND AND THE ISSUE OF WHICH IT FORMS A PART ARE LIMITED OBLIGATIONS OF THE MUNICIPALITY AND ARE PAYABLE SOLELY AND ONLY FROM REVENUES AND RECEIPTS DERIVED FROM THE LOAN AGREEMENT AND THE NOTE. THE BONDS SHALL NOT IN ANY RESPECT BE A GENERAL OBLIGATION OF AN INDEBTEDNESS OF, OR CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE CITY OF INDIANAPOLIS, INDIANA, THE STATE OF INDIANA OR ANY POLITICAL SUBDIVISION THEREOF, AND THEY SHALL NOT BE PAYABLE IN ANY MANNER FROM FUNDS RAISED BY TAXATION. Payments sufficient for the prompt payment when due of the principal of and premium, if any, and interest on the Bonds are to be paid to the Trustee for the account of the Municipality and deposited into the Bond Fund created under the Indenture. The holder of this Bond shall have no right to enforce the provisions of the Indenture or to take any action with respect to any Event of Default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, except as provided in the Indenture. In certain events, as provided in the Indenture, the principal of all outstanding Bonds may become or may be declared due and payable before the stated maturity. Modifications or alterations of the Indenture may be made only to the extent and in the circumstances permitted by the Indenture. In the event of default in the payment of principal or interest hereon or if any Event of Default as defined in the Indenture occurs, the unpaid principal of this Bond may be declared or may become immediately due in the manner and with the effect and subject to the conditions provided therein. If any payment of principal of and premium, if any, and interest on this Bond shall not be paid when due, the Municipality shall pay to the holder of this Bond, but solely from payments under the Loan Agreement and the Note, interest on such unpaid obligations (to the extent permitted by law) at a per annum rate of interest equal to the per annum rate then in effect on the Bonds. Municipal Bond Insurance Policy No. _________ (the "Policy") with respect to payments due for principal of and interest on this Bond has been issued by ____________________. The Policy has been delivered to _________________________, as the Insurance Trustee under said Policy and will be held by such Insurance Trustee or any successor insurance trustee. The Policy is on file and available for inspection at the principal office of the Insurance Trustee and a copy thereof may be secured from _______________ or the Insurance Trustee. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of _______________ as more fully set forth in the Policy. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond, and the issue of which it forms a part, together with all other obligations of the Municipality, do not exceed or violate any constitutional or statutory limitation. This Bond shall not be valid or obligatory for any purpose or be entitled to any benefit under the Indenture until the certificate of authentication on this Bond shall have been executed by the Trustee. IN WITNESS WHEREOF, the Municipality has caused this Bond to be executed under its corporate seal. City of Indianapolis, Indiana By: ____________________________ Mayor Attest: ________________________ Clerk TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds described in the Indenture. NATIONAL CITY BANK OF INDIANA as Trustee By: _____________________________ Authorized Representative The following abbreviations, when used in the inscription of the face of the within Bond, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM as tenants in common TEN ENT as tenants by the entireties JT TEN as joint tenants with right of survivorship and not as tenants in common
UNIF TRANF MIN ACT _____________ Custodian _______________ (Cust) (Minor) under Uniform Transfers to Minors Act --------------------- (State) Additional abbreviations may also be used though not in list above. ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto ____________________ [PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE: __________________] the within Bond of the City of Indianapolis, Indiana and all rights thereunder and does hereby irrevocably constitute and appoint _______________ attorney to transfer such Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: ================================ (Registered Owner) NOTICE: The signature(s) to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. Signature guaranteed: - -------------------------- NOTICE: Signature(s) must be guaranteed by an eligible guarantor institution participating in a Securities Transfer Association recognized signature guarantee program. [END OF BOND FORM] SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NIPSCO Industries, Inc. (Registrant) ----------------------------------------------- Stephen P. Adik Executive Vice President, Chief Financial Officer, Treasurer and Chief Accounting Officer Date: November 9, 1998 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-Q, into NIPSCO Industries, Inc.'s previously filed Form S-8 Registration Statement No. 33-30619; Form S-8 Registration Statement No. 33-30621; Forms S-8 Registration Statement No. 333-08263; Form S-8 Registration Statement No. 333-19981; Form S-8 Registration Statement No. 333-19983; Form S-8 Registration Statement No. 333-19985; Form S-8 Registration Statement No. 333-59151; Form S-8 Registration Statement No. 333-59153; Form S-3 Registration Statement No. 333-22347; Form S-3 Registration Statement No. 333-26847; Form S-3 Registration Statement No. 333-39911, and Form S-4A Registration Statement No. 333-50537. Chicago, Illinois November 9, 1998 EX-27 2
UT This schedule contains summary financial information extracted from the financial statements of NIPSCO Industries, Inc. for three months ended September 30, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 JUL-01-1998 SEP-30-1998 PER-BOOK 3,648,562 266,343 482,184 172,543 267,598 4,837,230 332,702 86,630 713,386 1,134,718 56,991 85,614 484,600 211,154 1,669,850 151,900 20,718 1,828 0 0 2,752,969 4,900,492 2,986,633 99,719 2,571,919 2,571,919 414,714 8,680 423,394 35,199 288,476 0 288,476 28,244 0 80,456 1.54 1.53
-----END PRIVACY-ENHANCED MESSAGE-----