-----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, KZ/VECx+ku2iOAc7uKDVxn9yIT1/5XXrf08ysmt+ft+7fMSKd9YbAhI41Wo90oBO Ac0REe27AfGHJipFqY3MRw== /in/edgar/work/20001101/0000950120-00-000291/0000950120-00-000291.txt : 20001106 0000950120-00-000291.hdr.sgml : 20001106 ACCESSION NUMBER: 0000950120-00-000291 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20001101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NISOURCE INC CENTRAL INDEX KEY: 0000823392 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 351719974 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: SEC FILE NUMBER: 070-09681 FILM NUMBER: 751046 BUSINESS ADDRESS: STREET 1: 801 E 86TH AVENUE CITY: MERRILLVILLE STATE: IN ZIP: 46410 BUSINESS PHONE: 2198535200 MAIL ADDRESS: STREET 1: 5265 HOHMAN AVENUE CITY: HAMMOND STATE: IN ZIP: 46320-1775 FORMER COMPANY: FORMER CONFORMED NAME: NIPSCO INDUSTRIES INC DATE OF NAME CHANGE: 19920703 U-1/A 1 0001.txt AMENDMENT NO. 2 TO FORM U-1 (As filed with the Securities and Exchange Commission November 1, 2000) File No. 70-9681 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Amendment No. 2 on FORM U-1/A APPLICATION OR DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 New NiSource Inc. NiSource Inc. Northern Indiana Public Service Company Kokomo Gas and Fuel Company Northern Indiana Fuel and Light Company EnergyUSA, Inc. Primary Energy, Inc. NiSource Capital Markets, Inc. NiSource Finance Corp. NiSource Pipeline Group, Inc. NiSource Development Company, Inc. NI Energy Services, Inc. Hamilton Harbour Insurance Services, Ltd. NiSource Corporate Services Company 801 East 86th Avenue Merrillville, Indiana 46410-6272 Bay State Gas Company Northern Utilities, Inc. 300 Friberg Parkway Westborough, Massachusetts 01581-5039 IWC Resources Corporation 1220 Waterway Blvd. Indianapolis, Indiana 46202 Miller Pipeline Corporation 8850 Crawfordsville Road Indianapolis, Indiana 46234 SM&P Utility Resources, Inc. 1145 Meredian St. Suite 200 Carmel, Indiana 46032 Columbia Energy Group 13880 Dulles Corner Lane Herndon, Virginia 20171-4600 Columbia Gas of Kentucky, Inc. Columbia Gas of Ohio, Inc. Columbia Gas of Maryland, Inc. Columbia Gas of Pennsylvania, Inc. Columbia Gas of Virginia, Inc. 200 Civic Center Drive Columbus, Ohio 43215 Columbia Energy Group Service Corporation Columbia LNG Corporation Columbia Atlantic Trading Corporation Columbia Energy Group Capital Corporation Columbia Pipeline Corporation Columbia Finance Corporation 13880 Dulles Corner Lane Herndon, Virginia 20171-4600 Columbia Electric Corporation 13880 Dulles Corner Lane Herndon, Virginia 20171-4600 Columbia Energy Resources, Inc. c/o 900 Pennsylvania Avenue Charleston, West Virginia 25302 Columbia Gas Transmission Corporation Columbia Transmission Communications Corporation 12801 Fair Lakes Parkway Fairfax, Virginia 22030-0146 Columbia Gulf Transmission Company 2603 Augusta, Suite 125 Houston, Texas 77057 Columbia Network Services Corporation 1600 Dublin Road Columbus, Ohio 43215-1082 Columbia Propane Corporation 9200 Arboretum Parkway, Suite 140 Richmond, Virginia 23236 Columbia Insurance Corporation, Ltd. 20 Parliament Street P.O Box HM 649 Hamilton HM CX, Bermuda (Names of companies filing this statement and addresses of principal executive offices) ----------------------------------------------------- NEW NISOURCE INC. 1 (Name of top registered holding company parent of each applicant or declarant) ------------------------------------------------------- Mark T. Maassel Vice President, Regulatory & Government Policy NiSource Inc. 801 East 86th Avenue Merrillville, Indiana 46410-6272 J. W. Trost, Vice President Columbia Energy Group Service Corporation 13880 Dulles Corner Lane Herndon, VA 20171-4600 (Names and addresses of agents for service) -------------------------------------------------------- The Commission is requested to mail copies of all orders, notices and other communications to: Peter V. Fazio, Jr., Esq. William T. Baker, Jr., Esq. Schiff Hardin & Waite Thelen Reid & Priest LLP 6600 Sears Tower 40 West 57th Street Chicago, Illinois 60606-6473 New York, New York 10019 William C. Weeden William S. Lamb, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Joanne C. Rutkowski, Esq. 1440 New York Avenue, N.W. LeBoeuf, Lamb, Greene & MacRae LLP Washington, D.C. 20005 125 West 55th Street New York, New York 10019-5389 - ------------------------ 1 New NiSource Inc. will be renamed "NiSource Inc." and will register upon completing its acquisition of Columbia Energy Group, as described in Item 1. TABLE OF CONTENTS ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION..................................1 ----------------------------------- 1.1 INTRODUCTION.........................................................1 ------------ 1.2. DESCRIPTION OF NISOURCE AND ITS SUBSIDIARIES.........................1 -------------------------------------------- 1.3. CAPITAL STRUCTURE OF NISOURCE........................................3 ----------------------------- 1.3.1 Securities Issued in the Merger...............................3 ------------------------------- 1.3.2 Other Outstanding Securities and Obligations of NiSource......4 -------------------------------------------------------- 1.4 CURRENT FINANCING AUTHORIZATION OF COLUMBIA ENERGY GROUP.............5 -------------------------------------------------------- 1.5. SUMMARY OF REQUESTED APPROVALS.......................................6 ------------------------------ 1.6 USE OF PROCEEDS......................................................9 --------------- 1.7 DESCRIPTION OF PROPOSED FINANCING PROGRAM...........................10 ----------------------------------------- 1.7.1 Continuation, Extension, or Renewal of Acquisition Debt......10 ------------------------------------------------------- 1.7.2 NiSource External Financing after the Merger.................10 -------------------------------------------- 1.7.3 NiSource Utility Subsidiary Financing........................15 ------------------------------------- 1.7.4 Non-Utility Subsidiary Financing.............................15 -------------------------------- 1.8 GUARANTEES..........................................................16 ---------- 1.8.1 NiSource Guarantees..........................................16 ------------------- 1.8.2 Non-Utility Subsidiary Guarantees............................17 --------------------------------- 1.9 HEDGING TRANSACTIONS................................................17 -------------------- 1.9.1 Interest Rate Hedges.........................................17 -------------------- 1.9.2 Anticipatory Hedges..........................................17 ------------------- 1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES............................18 ---------------------------------------- 1.11 FINANCING SUBSIDIARIES..............................................18 ---------------------- 1.12 INTERMEDIATE SUBSIDIARIES AND SUBSEQUENT REORGANIZATIONS............19 -------------------------------------------------------- 1.13 SALES OF SERVICES AND GOODS AMONG SUBSIDIARIES......................21 ---------------------------------------------- 1.13.1. Continuation of Certain Existing Arrangements with NiSource ----------------------------------------------------------- Utility Subsidiaries.......................................21 ------------ 1.13.2. Sales and Service Contracts Among Non-Utility Subsidiaries.22 ---------------------------------------------------------- 1.14 ACTIVITIES OF RULE 58 SUBSIDIARIES OUTSIDE THE UNITED STATES........23 ------------------------------------------------------------ 1.15 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS............25 -------------------------------------------------------- 1.15.1 Payment of Dividends by Columbia............................25 -------------------------------- 1.15.1 Payment of Dividends by Non-Utility Subsidiaries............26 ------------------------------------------------ 1.16 TAX ALLOCATION AGREEMENT...........................................27 ------------------------ 1.17 CERTIFICATES OF NOTIFICATION.......................................28 ---------------------------- ITEM 2. FEES, COMMISSIONS AND EXPENSES......................................29 ------------------------------ ITEM 3. APPLICABLE STATUTORY PROVISIONS.....................................29 ------------------------------- 3.1 GENERAL.............................................................29 ------- 3.2 COMPLIANCE WITH RULES 53 AND 54.....................................30 ------------------------------- ITEM 4. REGULATORY APPROVAL.................................................31 ------------------- ITEM 5. PROCEDURE...........................................................31 ---------- ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS...................................31 ---------------------------------- A. EXHIBITS............................................................31 -------- B. FINANCIAL STATEMENTS................................................32 -------------------- ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.............................33 --------------------------------------- The Application-Declaration filed in this proceeding on May 17, 2000, as amended and restated by Amendment No. 1, filed September 26, 2000, is hereby further amended and restated to read as follows: ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION ----------------------------------- 1.1 INTRODUCTION New NiSource Inc. ("New NiSource"), a Delaware ------------ corporation, is currently a wholly owned subsidiary of NiSource Inc. ("NiSource"), an Indiana corporation. In a separate proceeding,2 New NiSource, NiSource and Columbia Energy Group ("Columbia"), a Delaware corporation, have filed an Application/Declaration on Form U-1 (the "Merger Application") pursuant to Sections 9 and 10 and other applicable provisions of the Public Utility Holding Company Act of 1935 (the "Act") in which they are seeking approval for the acquisition by New NiSource of all of the issued and outstanding common stock of NiSource and Columbia, through mergers of separate subsidiaries of New NiSource with and into each of NiSource and Columbia, followed by the merger of NiSource into New NiSource (the "Merger"). Upon consummation of these transactions, New NiSource will be renamed "NiSource Inc." and will register as a holding company pursuant to Section 5 of the Act. For ease and simplicity, and in order to reflect this name change, the new registered holding company after the Merger is referred to throughout the remainder of this Application/Declaration as "NiSource." In those instances where it is necessary to distinguish the current NiSource prior to the Merger from the new registered holding company, the current NiSource will be referred to as "old" NiSource. This Application/Declaration seeks authorization and approval of the Commission with respect to the post-merger financing activities of NiSource and its subsidiaries, intrasystem guarantees, the maintenance and creation of specified types of new subsidiaries, the payment of dividends out of capital and unearned surplus and other related matters pertaining to the Applicants after NiSource registers under the Act. 1.2 DESCRIPTION OF NISOURCE AND ITS SUBSIDIARIES. Upon completion -------------------------------------------- of the Merger, NiSource will own, directly or indirectly, all of the issued and outstanding common stock of ten public utility subsidiary companies. These include the wholly-owned public utility subsidiaries of "old" NiSource: Northern Indiana Public Service Company ("Northern Indiana"), Kokomo Gas and Fuel Company ("Kokomo") and Northern Indiana Fuel and Light Company, Inc. ("NIFL"), all of which operate exclusively in Indiana, Bay State Gas Company ("Bay State"), which operates in Massachusetts,3 and Northern Utilities, Inc. ("Northern"), which operates in New Hampshire and contiguous areas in southern Maine (collectively, the "NiSource Utility Subsidiaries"); and the five current wholly-owned public utility subsidiaries of Columbia: Columbia Gas of Kentucky, Inc. ("Columbia Kentucky"), Columbia Gas of Maryland, Inc. ("Columbia Maryland"), Columbia Gas of Ohio, Inc. ("Columbia Ohio"), Columbia Gas of Pennsylvania, Inc. ("Columbia Pennsylvania") and Columbia Gas of Virginia, Inc. ("Columbia Virginia"), which distribute gas in portions of Kentucky, Maryland, Ohio, Pennsylvania and Virginia (collectively, the "Columbia Utility Subsidiaries," and together with the NiSource Utility Subsidiaries, the "Utility Subsidiaries"). - ------------------------ 2 See File No. 70-9551; Holding Co. Act Release No. 27226 (Sept. 1, 2000) (notice of filing). 3 Bay State is an exempt holding company pursuant to Rule 2. See File No. 69-340. Upon completion of the Merger, NiSource will also hold, directly or indirectly, all of the non-utility subsidiaries and investments currently owned by "old" NiSource, as well as those now owned by Columbia. "Old" NiSource's principal direct non-utility subsidiaries include EnergyUSA, Inc. ("EnergyUSA"), which serves as a holding company with management responsibility for many of "old" NiSource's non-utility subsidiaries and investments, including subsidiaries engaged in utility line locating and marking, pipeline construction, energy marketing, and energy management services; Primary Energy, Inc., which develops and invests in cogeneration and other large industrial energy facilities; IWC Resources Corporation ("IWC Resources"), a holding company for several water distribution companies;4 NiSource Pipeline Group, Inc., a holding company for "old" NiSource's investments in interstate pipeline companies; NiSource Development Company, Inc., which holds investments in various businesses, primarily in real estate, that are intended to complement "old" NiSource's energy businesses; NiSource Capital Markets, Inc. ("Capital Markets"), which provides financing for "old" NiSource's subsidiaries other than Northern Indiana and, in certain respects, IWC Resources and Bay State; and NiSource Corporate Services Company ("Corporate Services"), which provides management, administrative, gas portfolio management and other services to certain of "old" NiSource's subsidiaries. Columbia's material direct non-utility subsidiaries include Columbia Gas Transmission Corporation and Columbia Gulf Transmission Company, which are interstate pipeline companies; Columbia Electric Corporation, which develops, owns and operates cogeneration facilities and "exempt wholesale generator" ("EWG") facilities; Columbia Propane Corporation, which directly and through subsidiaries of its own purchases and sells propane and petroleum products; Columbia Energy Resources, Inc, which, through subsidiaries, explores for, develops, gathers and produces natural gas and oil in the United States and Canada; and Columbia Energy Group Service Corporation, a subsidiary service company.5 NiSource will maintain Columbia as a direct wholly-owned subsidiary after the Merger. Columbia, which will remain a registered holding company, will in turn hold all of the voting securities of the Columbia Utility Subsidiaries and its investments in other direct and indirect non-utility subsidiaries. Applicants expect that Columbia will continue to supply substantially all of the capital required by its subsidiaries. A more complete description of NiSource, "old" NiSource and Columbia, and their respective subsidiaries is contained in the Merger Application, to which reference is made. As used in the remainder of this Application/Declaration, the term "Non-Utility Subsidiaries" shall mean each of the direct and indirect non-utility subsidiaries of NiSource (including Columbia and the subsidiaries owned directly or indirectly by Columbia prior to the Merger) as of the effective date of the Merger. The term "Non-Utility Subsidiaries" also includes any direct or indirect non-utility subsidiary acquired or formed by NiSource after the effective date of the Merger in a transaction that has been approved - ------------------------ 4 As stated in the Merger Application, the water properties of IWC Resources are not expected to be retainable under the standards of Section 11(b)(1) of the Act. In addition, "old" NiSource has announced plans to sell the pipeline construction and certain other subsidiaries of EnergyUSA. 5 Columbia has announced plans to sell Columbia Electric Corporation and Columbia Propane Corporation. 2 by the Commission in this proceeding (see specifically Items 1.11 and 1.12) or in a separate proceeding, or in a transaction that is exempt under the Act (specifically, Sections 32, 33 and 34) or the rules thereunder (including, specifically, Rule 58). The term "Subsidiaries" means the Utility Subsidiaries and the Non-Utility Subsidiaries. Post-Merger, NiSource and the Subsidiaries are sometimes hereinafter collectively referred to as the "NiSource System" or as the "Applicants." 1.3 CAPITAL STRUCTURE OF NISOURCE FOLLOWING THE MERGER. -------------------------------------------------- 1.3.1 Securities Issued in the Merger. The authorized capital stock of ------------------------------- New NiSource consists of 420,000,000 shares, $0.01 par value, of which 400,000,000 are common shares ("Common Stock"), and 20,000,000 are preferred shares ("Preferred Stock"),6 of which 4,000,000 have been designated as Series A Junior Participating Preferred Shares and reserved for issuance under New NiSource's Shareholder Rights Agreement ("Rights Plan") (Exhibit B-2 hereto). In the Merger, New NiSource will issue approximately 121.2 million shares of Common Stock in exchange for the outstanding common stock of "old" NiSource, based on the number of such shares outstanding on June 30, 2000, and, assuming 30% of the outstanding Columbia shares are exchanged for Common Stock, approximately 96.9 million shares of Common Stock in exchange for the outstanding common stock of Columbia.7 In addition, New NiSource will issue Stock Appreciation Income Linked Securities(SM) ("SAILS(SM)") as part of the Merger, which will result in the issuance of between 6.4 million and 9.0 million shares of Common Stock on the fourth anniversary of the transaction (the actual number will depend on the NiSource stock price at that time), assuming 30% of the outstanding Columbia shares are exchanged for the stock consideration in the Merger. The cash portion of the consideration paid to Columbia shareholders in the Merger will range from approximately $4 billion, assuming 30% of the outstanding Columbia shares are exchanged for the New NiSource stock consideration, to approximately $6 billion, if all of the Columbia shares are exchanged for the cash and SAILS(SM) consideration. New NiSource has organized a special purpose financing subsidiary, NiSource Finance Corp. ("NiSource Finance"), to facilitate financing the cash portion of the Merger consideration and other costs associated with the Merger. NiSource Finance currently plans to make unsecured short-term borrowings under a 364-day revolving credit facility, with the option to convert outstanding loans at the expiration of such period to term loans maturing 364 days thereafter, or, alternatively, will issue commercial paper back-stopped by such credit facilities (the "Acquisition Debt"). The credit facilities and term loans comprising the Acquisition Debt will be guaranteed by New NiSource and, until it is merged into New NiSource, by "old" NiSource. NiSource believes that the holders of the maximum number of Columbia's shares (30%) will elect to exchange their stock for NiSource Common Stock. In - ------------------------ 6 "Old" NiSource has the same number of authorized shares of common and preferred stock as New NiSource, but without par value. 7 The actual number of shares of Common Stock issued in the Merger will depend upon, among other things, the number of "old" NiSource and Columbia common shares outstanding on the date on which the Merger is consummated and the elections made by Columbia's shareholders. 3 such event, and upon the completion in 2000 of the sale of certain non-core assets of "old" NiSource and/or Columbia, and, if required, the sale of additional shares of Common Stock, NiSource commits that common equity as a percentage of pro forma consolidated capitalization will be no less than 28.5%. In addition, NiSource commits that, on or before November 1, 2002, and thereafter for the remainder of the Authorization Period (as defined in Item 1.5, below), the combined consolidated capitalization of the new holding company system will include no less than 30% common equity. Based on similar circumstances, the Commission has previously held that such a pro forma consolidated capitalization is acceptable. See The National Grid Group plc, Holding Co. Act Release No. 27154 (Mar. 15, 2000). Further, NiSource commits to maintain common equity of Columbia as a percentage of Columbia's consolidated capitalization at 30% or above throughout the Authorization Period, and to maintain common equity as a percentage of capitalization of each of the Utility Subsidiaries at 30% or above throughout the Authorization Period. 1.3.2 Other Outstanding Securities and Obligations of "Old" NiSource. -------------------------------------------------------------- By operation of law as a result of the Merger, all of the existing obligations of "old" NiSource, including all of those described below, will become the direct obligations of NiSource. In February 1999, in conjunction with its acquisition of Bay State, "old" NiSource issued 6,000,000 Premium Income Equity Securities(SM) ("PIES(SM)"). Each PIES(SM) is a unit consisting of a stock purchase contract issued by "old" NiSource and a preferred security issued by NIPSCO Capital Trust I ("Capital Trust"), a special purpose financing subsidiary of Capital Markets. The stock purchase contracts obligate the holders thereof to purchase from NiSource, no later than February 19, 2003, for a price of $50, a number of shares of NiSource Common Stock that is based on the closing price for NiSource Common Stock over a 20-day period prior to such date, subject to a collar.8 Based on "old" NiSource's trading price as of June 30, 2000, the aggregate number of shares of Common Stock that NiSource would issue pursuant to the PIES(SM) is approximately 13.1 million. Each preferred security has a stated liquidation amount of $50, and represents an undivided ownership interest in the assets of Capital Trust and is guaranteed by Capital Markets. The assets of Capital Trust consist solely of the debentures of Capital Markets maturing on February 19, 2005 that Capital Trust purchased with the net proceeds of the offering ($345 million) plus equity invested by Capital Markets ($10.7 million). "Old" NiSource also currently maintains certain credit arrangements for the benefit of its subsidiaries that will remain outstanding following the Merger and become obligations of NiSource. Specifically, under the terms of a Support Agreement, dated April 4, 1989, as amended, between "old" NiSource and Capital Markets (see Exhibit B-1), NiSource will be obligated to make payments of interest and principal on Capital Markets' obligations in the event of a failure to pay by Capital Markets. Capital Markets has entered into revolving credit agreements for $200 million, which may be used to support the issuance of commercial paper. At June 30, 2000, Capital Markets had issued $186.0 million in commercial paper but there were no borrowings outstanding under the revolving credit agreements. Capital Markets also has $178.0 million available in money - ------------------------ 8 Under the formula, the number of shares of NiSource Common Stock issued in respect of each unit of the PIES(SM) will not be less than 1.6103 nor greater than 1.9002. 4 market lines of credit with $141.5 million of borrowings outstanding as of June 30 , 2000. At June 30, 2000, Capital Markets also had outstanding $300 million of medium-term notes having various maturities between April 2004 and May 2027. The interest rates on and maturities of all of the currently outstanding securities of Capital Trust and Capital Markets, as described above, were at the time issued within the parameters set forth in Item 1.7.2 below for similar types of securities proposed to be issued directly or indirectly by NiSource. In addition, the Support Agreement backs various guarantees and other forms of credit support that have been provided by Capital Markets for the benefit of non-utility subsidiaries of "old" NiSource. These include guarantees of securities issued by other subsidiaries, lease payment obligations, obligations under energy marketing contracts, obligations of cogeneration affiliates under operations and maintenance agreements, surety bonds and indemnification obligations. At June 30, 2000, the maximum potential financial exposure of Capital Markets under all of these guarantees was approximately $1 billion. 1.4 CURRENT FINANCING AUTHORIZATION OF COLUMBIA ENERGY GROUP -------------------------------------------------------- Columbia currently has financing authority derived from three orders (collectively, the "Columbia Financing Orders"). By order dated June 8, 1999,9 Columbia has authority to issue and sell equity and long-term debt securities in an amount not to exceed $6 billion at any one time outstanding through December 31, 2003. In addition, Columbia is authorized to "enter into guarantee arrangements, obtain letters of credit, and otherwise provide credit support" for its subsidiary companies in an amount not to exceed $5 billion at any one time outstanding through December 31, 2003. By order dated December 22, 1997,10 Columbia has the authority to issue and sell short-term debt securities (that is, debt securities with maturities of one year or less) in an amount not to exceed $2 billion at any one time outstanding through December 31, 2003. Short-term debt may include borrowings under a revolving credit facility, the issuance of commercial paper, and bid notes to individual banks participating in the revolving credit facility. The order also authorizes four of the Columbia Utility Subsidiaries (Columbia Ohio, Columbia Pennsylvania, Columbia Kentucky, and Columbia Maryland) to make direct borrowings from Columbia.11 Columbia's Utility Subsidiaries and certain non-utility subsidiaries also may make short-term borrowings through the Columbia system money pool. Various restrictions on Columbia's current financing authority are set forth in an order dated December 23, 1996.12 Under the Columbia Financing Orders, the effective cost of money on debt may not exceed 300 basis points over comparable term U.S. treasury securities; and the effective cost of money on preferred stock and other fixed income securities may not exceed 500 basis points over 30-year term U.S. treasury - ------------------------ 9 Columbia Energy Group, Holding Co. Act Release No. 27035 (June 8, 1999). 10 The Columbia Gas System, Inc., Holding Co. Act Release No. 26798 (Dec. 22, 1997). 11 Columbia Energy Group Service Corporation and Columbia's non-utility subsidiaries rely upon Rule 52 for borrowings from Columbia. 12 The Columbia Gas System, Inc., Holding Co. Act Release No. 26634 (Dec. 23, 1996). 5 securities. Bid notes must bear interest rates comparable to, or lower than, those available through other proposed forms of short-term borrowing with similar terms and have maturities not exceeding 270 days. The underwriting fees, commissions, or other similar remuneration paid in connection with the non-competitive bid issue, sale or distribution of any securities may not exceed 5% of the principal or total amount of the financing. Columbia is authorized under the Columbia Financing Orders to utilize the proceeds of authorized financing for general and corporate purposes including: (a) financing, in part, of the capital expenditures of Columbia and its subsidiaries; (b) in the case of short-term debt, financing gas storage inventories, other working capital requirements and capital spending of the Columbia system; (c) the acquisition of interests in EWGs and "foreign utility companies" ("FUCOs"); (d) the acquisition, retirement, or redemption of securities of which Columbia is an issuer without the need for prior Commission approval pursuant to Rule 42 or a successor rule; and/or (e) the acquisition of the securities of nonutility companies as permitted under any rule of the Commission permitting such acquisitions. The Applicants are not requesting any changes to the amounts or types of securities and guarantees that Columbia and the Columbia Utility Subsidiaries are authorized to issue under the terms of the Columbia Financing Orders, and any securities or guarantees issued by Columbia and the Columbia Utility Subsidiaries will not count against the proposed limits on financing under this Application/Declaration. Following the Merger, Columbia may continue to provide capital required by its subsidiaries by issuing short-term and long-term debt securities, within the limits of the Columbia Financing Orders. Any capital that is provided by NiSource to Columbia after the Merger will be within the limits set forth below in Item 1.7. 1.5 SUMMARY OF REQUESTED APPROVALS. The Applicants request approval for ------------------------------ a program of external financing, credit support arrangements, and other related proposals following the registration of NiSource under the Act for the period through December 31, 2003 ("Authorization Period"), as follows: (i) NiSource requests authorization to maintain the facility under which the Acquisition Debt is issued, including any extensions, renewals or replacements thereof during the Authorization Period, and the associated guarantees. (ii) NiSource requests authority to issue and sell from time to time, directly or indirectly through one or more direct Financing Subsidiaries (as defined in paragraph (ix) below and described in Item 1.11), equity securities and long-term and short-term debt securities in an aggregate amount at any time outstanding not to exceed $14 billion. The amounts of securities that NiSource is requesting authority to issue and the dollar limitations contained in this paragraph are in addition to the amounts of securities Columbia is currently authorized to issue and the dollar limitations imposed on Columbia under the Columbia Financing Orders, as well as the amounts of securities that the NiSource Utility Subsidiaries are proposing to issue, as summarized in paragraph (iii) below. Within such overall financing limitation, NiSource proposes to issue and sell Common Stock and Preferred Stock and, directly or through one or more direct 6 Financing Subsidiaries, unsecured long-term indebtedness ("Long-term Debt") and other forms of preferred or equity-linked securities having maturities of up to 50 years. The aggregate amount of all such Common Stock, Preferred Stock, Long-term Debt and other forms of preferred or equity-linked securities at any time outstanding during the Authorization Period shall not exceed $12 billion, provided that shares of Common Stock that are issuable with respect to the SAILS(SM) and the outstanding PIES(SM), as described above, and shares of Preferred Stock issued pursuant to the Rights Plan will not count against this limit. In addition, NiSource requests authority to issue and sell from time to time, directly or indirectly through one or more Financing Subsidiaries, unsecured short-term indebtedness having maturities of less than one year ("Short-term Debt") in an aggregate principal amount at any time outstanding not to exceed $2 billion, provided that the Acquisition Debt (or any debt extending, renewing or replacing the Acquisition Debt) will not be counted against the Short-term Debt limit, regardless of its maturity, but will instead be counted against the $12 billion limit on long-term securities. As a further limitation, the aggregate principal amount of all indebtedness of NiSource or any direct Financing Subsidiary of NiSource at any time outstanding (including, without limitation, the Acquisition Debt, existing debt of "old" NiSource that is assumed by NiSource as a result of the Merger, and any Long-term Debt or Short-term Debt issued after the Merger) shall not exceed $10 billion (the "NiSource Debt Limitation"). (iii) The NiSource Utility Subsidiaries request authority to issue and sell from time to time short-term notes or other short-term debt securities in an aggregate amount at any one time outstanding not to exceed the following amounts: (A) Northern Indiana - $1 billion; (B) Kokomo - $50 million; (C) NIFL - $50 million; (D) Bay State - $250 million; and (E) Northern - $50 million. (iv) NiSource requests authority, directly or through one or more Financing Subsidiaries, to guarantee indebtedness or contractual obligations or provide other forms of credit support ("NiSource Guarantees") on behalf or for the benefit of its Subsidiaries in an aggregate principal or nominal amount not to exceed $5 billion at any one time outstanding, provided that any securities issued by Financing Subsidiaries of NiSource that are guaranteed or supported by other forms of credit enhancement provided by NiSource will not count against this limitation. The amount of NiSource Guarantees is in addition to the amounts of guarantees and other forms of credit support that Columbia is currently authorized to issue under the terms of the Columbia Financing Orders. (v) Non-Utility Subsidiaries (other than Columbia) request authority to provide guarantees of indebtedness or contractual obligations or provide other forms of credit support ("Non-Utility Subsidiary Guarantees") on behalf or for the benefit of other Non-Utility Subsidiaries in an aggregate principal or nominal amount not to exceed $2 billion at any one time outstanding, exclusive of any guarantees that are exempt pursuant to Rule 45(b) and Rule 52(b). 7 (vi) NiSource and, to the extent not exempt under Rule 52, the Subsidiaries request authority to enter into hedging transactions ("Interest Rate Hedges") with respect to the indebtedness of such companies in order to manage and minimize interest rate costs. Such companies also request authority to enter into hedging transactions ("Anticipatory Hedges") with respect to anticipatory debt issuances in order to lock-in current interest rates and/or manage interest rate risk exposure.13 (vii) NiSource, for itself and on behalf of the Subsidiaries, requests authorization to change the terms of the authorized capitalization of any Subsidiary, provided that, if a Subsidiary is not wholly owned, all other required shareholder consents have been obtained for such change. (viii) NiSource and the Subsidiaries request authority to acquire the equity securities of one or more additional special-purpose subsidiaries ("Financing Subsidiaries") organized solely to facilitate a financing and to guarantee the securities issued by such Financing Subsidiaries, to the extent not exempt pursuant to Rule 45(b) and Rule 52(b). (ix) NiSource requests authority to acquire, directly or indirectly, the equity securities of one or more intermediate subsidiaries ("Intermediate Subsidiaries") organized exclusively for the purpose of acquiring, financing, and holding the securities of one or more existing or future Non-Utility Subsidiaries, including but not limited to EWGs, FUCOs, companies engaged or formed to engage in activities permitted by Rule 58 ("Rule 58 Subsidiaries"), or "exempt telecommunications companies" ("ETCs"), provided that Intermediate Subsidiaries may also provide management, administrative, project development and operating services to such entities. (x) NiSource requests an exemption from the at-cost requirements of Section 13(b) with respect to certain existing arrangements between its Non-Utility and Utility Subsidiaries. In addition, as permitted by Rule 87(b)(1), Non-Utility Subsidiaries may from time to time provide services and sell goods to each other. To the extent not exempt pursuant to Rule 90(d), such companies request authority to perform such services and to sell such goods to each other at fair market prices, without regard to "cost," as determined in accordance with Rules 90 and 91, subject to certain limitations that are noted below. (xi) NiSource requests authority on behalf of any current and future Rule 58 Subsidiaries to engage in certain categories of activities permitted thereunder outside the United States, subject to certain limitations. (xii) Columbia requests authority to pay dividends out of capital and unearned surplus in an amount no greater than the net proceeds realized from the sale of the securities or assets of any of its - ------------------------ 13 Although Columbia has comparable authority (see The Columbia Gas System, Inc., supra n. 12), its subsidiaries do not. 8 non-utility subsidiaries and/or to use such net proceeds to reacquire shares of its common stock that are held by NiSource. Non-Utility Subsidiaries request authority to pay dividends out of capital and unearned surplus to the extent permitted under applicable law and the terms of any credit arrangements to which they may be parties. The Subsidiaries also request the authority to acquire, retire, or redeem the securities that they have issued to any associate company, any affiliate, or any affiliate of an associate company. (xiii) NiSource requests approval, subject to a request for reservation of jurisdiction, for an agreement among NiSource and its Subsidiaries to allocate consolidated income tax liabilities. 1.6 USE OF PROCEEDS. The proceeds from the financings authorized by the --------------- Commission pursuant to this Application/Declaration will be used for general corporate purposes, including (i) refinancing of the Acquisition Debt, (ii) financing, in part, investments by and capital expenditures of NiSource and its Subsidiaries (including equity contributions, advances and loans to Columbia), (iii) the funding of future investments in EWGs, FUCOs, and Rule 58 Subsidiaries, (iv) the repayment, redemption, refunding or purchase by NiSource or any Subsidiary of any of its own securities, and (v) financing working capital requirements of NiSource and its Subsidiaries. As previously indicated, any capital that is provided by NiSource to Columbia after the Merger will be within the limits set forth below in Item 1.7. NiSource proposes to make open account advances or cash capital contributions to Columbia, purchase additional shares of Columbia common stock, and/or make loans, directly or through a Financing Subsidiary, evidenced by Columbia's promissory notes. The interest rate and maturity on any borrowings by Columbia from NiSource, or its Financing Subsidiary, will parallel the effective cost and maturity of a comparable debt security issued by the lender. The Applicants represent that no financing proceeds will be used to acquire the equity securities of any company unless such acquisition has been approved by the Commission in this proceeding or in a separate proceeding or in accordance with an available exemption under the Act or rules thereunder, including Sections 32 and 33 and Rule 58. NiSource states that the aggregate amount of proceeds of financing and NiSource Guarantees approved by the Commission in this proceeding which are used to fund investments in EWGs and FUCOs will not, when added to NiSource's "aggregate investment" (as defined in Rule 53) in all such entities at any point in time, exceed 50% of NiSource's "consolidated retained earnings" (also as defined in Rule 53).14 Further, NiSource represents that proceeds of financing and NiSource Guarantees and Non-Utility Guarantees utilized to fund investments in Rule 58 Subsidiaries will be subject to the limitations of that rule. Lastly, NiSource represents that it will not seek to recover through higher rates of any of the Utility Subsidiaries losses attributable to any operations of its Non-Utility Subsidiaries. - ------------------------ 14 Columbia's "aggregate investment" in EWGs and FUCOs will be combined with NiSource's "aggregate investment" in such entities. Consistent with this practice, the Applicants propose that the investment limit for both NiSource and Columbia under Rule 53 shall be equal to 50% of NiSource's consolidated retained earnings. 9 1.7 DESCRIPTION OF PROPOSED FINANCING PROGRAM. ----------------------------------------- 1.7.1 Continuation, Extension, or Renewal of Acquisition Debt As -------------------------------------------------------- indicated, the cash portion of the consideration to be paid in the Merger and other costs associated therewith (estimated at approximately $4.0 billion to $6.0 billion) will be financed through borrowings by NiSource Finance under a 364-day revolving credit facility or by the issuance of commercial paper back-stopped by the undrawn credit facility. After the Merger, NiSource intends to refinance some or all of the Acquisition Debt from the proceeds of issuances of equity securities and long-term debt securities, as described below, and/or cash proceeds from sales of assets. Pending such refinancing, NiSource requests authorization to maintain or replace the facility under which the Acquisition Debt is issued and renew or extend the maturities of borrowings thereunder and/or commercial paper back-stopped by such facility, and to renew or extend the associated NiSource guaranty. The effective cost of money on any borrowing evidencing a renewal or extension of the Acquisition Debt will not exceed at the time of such renewal or extension 300 basis points over the London Interbank Offered Rate ("LIBOR") for maturities of 1 year or less. 1.7.2 NiSource External Financing after the Merger. NiSource -------------------------------------------- requests authority to issue and sell Common Stock and Preferred Stock and directly or indirectly through one or more Financing Subsidiaries (as described in Item 1.11) Long-term Debt and other forms of preferred or equity-linked securities. The aggregate amount of all such Common Stock, Preferred Stock, Long-term Debt and other preferred or equity-linked securities at any time outstanding shall not exceed $12 billion, provided that shares of Common Stock that are issuable with respect to the SAILS(SM) and the currently outstanding PIES(SM) and shares of Preferred Stock issued pursuant to the Rights Plan, as described below in Item 1.7.2(b), will not count against this limit. In addition, NiSource requests authority to issue and sell, directly or indirectly through one or more Financing Subsidiaries, Short-term Debt in an aggregate principal amount at any time outstanding not to exceed $2 billion. As noted in Item 1.5, the aggregate principal amount of all indebtedness issued by NiSource or any Financing Subsidiary of NiSource at any time outstanding (including, specifically, Acquisition Debt, Long-term Debt and Short-term Debt) will not exceed the NiSource Debt Limitation. The amounts of securities that NiSource is requesting authority to issue and the dollar limitations contained in this paragraph are in addition to the amounts of securities Columbia is currently authorized to issue and the dollar limitations imposed on Columbia under the Columbia Financing Orders. NiSource contemplates that the Common Stock, Preferred Stock, Long-term Debt and other preferred or equity-linked securities would be issued and sold directly to one or more purchasers in privately-negotiated transactions or to one or more investment banking or underwriting firms or other entities who would resell such securities without registration under the Securities Act of 1933 in reliance upon one or more applicable exemptions from registration thereunder, or to the public either (i) through underwriters selected by negotiation or competitive bidding or (ii) through selling agents acting either as agent or as principal for resale to the public either directly or through dealers. 10 (a) Common Stock. NiSource may issue and sell Common Stock, or ------------ options, warrants or other stock purchase rights exercisable for Common Stock, pursuant to underwriting agreements of a type generally standard in the industry. Public distributions may be pursuant to private negotiation with underwriters, dealers or agents, as discussed below, or effected through competitive bidding among underwriters. In addition, sales may be made through private placements or other non-public offerings to one or more persons. All such Common Stock sales will be at rates or prices and under conditions negotiated or based upon, or otherwise determined by, competitive capital markets. Specifically, NiSource may issue and sell Common Stock through underwriters or dealers, through agents, or directly to a limited number of purchasers or a single purchaser. If underwriters are used in the sale of Common Stock, such securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Common Stock may be offered to the public either through underwriting syndicates (which may be represented by a managing underwriter or underwriters designated by NiSource) or directly by one or more underwriters acting alone. Common Stock may be sold directly by NiSource or through agents designated by NiSource from time to time. If dealers are utilized in the sale of Common Stock, NiSource will sell such securities to the dealers, as principals. Any dealer may then resell such Common Stock to the public at varying prices to be determined by such dealer at the time of resale. If Common Stock is being sold in an underwritten offering, NiSource may grant the underwriters thereof a "green shoe" option permitting the purchase from NiSource at the same price of additional shares solely for the purpose of covering over-allotments. NiSource may also issue Common Stock or options, warrants or other stock purchase rights exercisable for Common Stock in public or privately-negotiated transactions as consideration for the equity securities or assets of other companies, provided that the acquisition of any such equity securities or assets has been authorized in a separate proceeding or is exempt under the Act or the rules thereunder (specifically Rule 58).15 NiSource also proposes to issue Common Stock and/or purchase shares of its Common Stock (either currently or under forward contracts) in the open market for purposes of reissuing such shares at a later date under the SAILS(SM) and PIES(SM) or other equity-linked securities, or pursuant to stock-based plans which are maintained for stockholders, employees and nonemployee directors. Currently, "old" NiSource maintains three plans under which it may directly issue or purchase in the open market shares of Common Stock. These plans will become NiSource plans as a result of the Merger. The first is the 1994 Long-Term Incentive Plan, as amended and restated ("Long-Term Incentive Plan"). The Long-Term Incentive Plan authorizes grants of restricted common stock, stock options and other stock-based awards to eligible executives and other key employees, as well as to directors of the company and its subsidiaries. The Long-Term Incentive Plan authorizes NiSource to issue a maximum of 11 million - ------------------------ 15 The Commission has previously approved the issuance of common stock as consideration for the acquisition of a new business in an exempt transaction or transaction that has been approved in a separate proceeding. See e.g., SCANA Corp., Holding Co. Act Release No. 27137 (Feb. 14, 2000). 11 shares of common stock (or options, performance shares or other rights with respect thereto). The Long-Term Incentive Plan, as amended, will expire on December 31, 2005. A copy of the Long-Term Incentive Plan is filed herewith as Exhibit J-1. "Old" NiSource has also adopted a Nonemployee Director Stock Incentive Plan under which NiSource may grant restricted common shares to nonemployee directors of NiSource. The plan provides for a grant of 2,000 shares to each person, other than an employee of NiSource, upon his or her election or re-election as a director of NiSource. The grants of restricted shares vest in 20% annual increments, with all of a director's shares vesting five years after the date of award. A copy of the Nonemployee Director Stock Incentive Plan is filed herewith as Exhibit J-2. "Old" NiSource has also adopted an Employee Stock Purchase Plan. Under this plan, employees of NiSource and participating subsidiaries may purchase Common Stock through payroll deductions of not less than $10 in any pay period and not more than $20,000 per calendar year. Amounts deducted are used to purchase shares of Common Stock at the end of each three-month saving period at prices determined for that savings period. The purchase price is equal to 90% of the fair market value, which is defined as the closing price of Common Stock on the New York Stock Exchange on the last trading day of a savings period. As of June 30, 2000, the maximum remaining number of shares of Common Stock that may be purchased under this plan is 352,245. A copy of the Employee Stock Purchase Plan is filed herewith as Exhibit J-3. NiSource proposes to issue shares of its Common Stock under the authorization and within the limitations set forth herein in order to satisfy its obligations under each of these existing stock-based plans. Shares of Common Stock issued under these plans may either be newly issued shares, treasury shares or shares purchased in the open market. NiSource will make open-market purchases of Common Stock in accordance with the terms of or in connection with the operation of the plans pursuant to Rule 42. NiSource also proposes, within the limitations set forth herein, to issue and/or purchase shares of Common Stock pursuant to these existing stock plans, as they may be amended or extended, and similar plans or plan funding arrangements hereafter adopted without any additional Commission order. Stock transactions of this variety would thus be treated the same as other stock transactions permitted pursuant to this Application/Declaration. (b) Preferred Stock, Long-term Debt and other Preferred or ------------------------------------------------------ Equity-Linked Securities. NiSource will not issue any shares of its authorized - ------------------------ Preferred Stock in the Merger and will not have any shares of Preferred Stock outstanding at the time that it registers as a holding company. However, after it registers, NiSource seeks to have the flexibility to issue its authorized Preferred Stock or, directly or indirectly through one or more Financing Subsidiaries, to issue Long-term Debt and other types of preferred or equity-linked securities (including, specifically, trust preferred securities). The proceeds of Preferred Stock, Long-term Debt or other preferred or equity-linked securities would enable NiSource to reduce the Acquisition Debt and Short-term Debt or other debt issued or guaranteed by "old" NiSource with 12 more permanent capital, and provide an important source of future financing for the operations of and investments in non-utility businesses which are exempt under the Act.16 Preferred Stock or other types of preferred or equity-linked securities may be issued in one or more series with such rights, preferences, and priorities as may be designated in the instrument creating each such series, as determined by NiSource's board of directors. All such securities will be redeemed no later than 50 years after the issuance thereof. The dividend rate on any series of Preferred Stock or other preferred or equity-linked securities will not exceed at the time of issuance 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the term of such securities. Dividends or distributions on Preferred Stock or other preferred or equity-linked securities will be made periodically and to the extent funds are legally available for such purpose, but may be made subject to terms which allow the issuer to defer dividend payments or distributions for specified periods. Preferred Stock or other preferred or equity-linked securities may be convertible or exchangeable into shares of Common Stock. As indicated, 4,000,000 shares of Preferred Stock have been designated as Series A Junior Participating Preferred Shares ("Series A Shares") and reserved for issuance under the Rights Plan.17 Under the Rights Plan, each share of Common Stock includes one preferred purchase right ("Right"), which entitles its holder to purchase one-hundredth (1/100) of a Series A Share at a price of $60 per one-hundredth of a share, subject to adjustment. The Rights will become exercisable if a person or group acquires 25% or more of the voting power of NiSource or announces a tender or exchange offer following which such person or group would hold 25% or more of NiSource's voting power. If such an acquisition were consummated, or if NiSource were acquired by the person or group in a merger or other business combination, then each Right would be exercisable for that number of shares of Common Stock or the acquiring company's common shares having a market value of two times the exercise price of the Right. The Rights will also become exercisable on or after the date on which the 25% threshold has been triggered, if NiSource is acquired in a merger or other business combination in which NiSource is not the survivor or in which NiSource is the survivor but its Common Stock is changed into or exchanged for securities of another entity, cash or other property, or 50% or more of the assets or earning power of NiSource and its subsidiaries is sold. At such time, each Right will become exercisable for that number of common shares of the acquiring company having a market value of two times the exercise price of the Right, but the Rights will not be exercisable in this instance if the person who acquired sufficient shares to reach the 25% threshold did so at a price and on terms - ------------------------ 16 Recently, the Commission approved a similar financing application filed by Southern Company in which Southern Company requested approval to issue preferred securities and long-term debt, directly or indirectly through special-purpose financing entities. See The Southern Company, Holding Co. Act Release No. 27134 (Feb. 9, 2000). In that case, the Commission took account of the changing needs of registered holding companies for sources of capital other than common equity and short-term debt brought about primarily by the elimination of restrictions under the Act on investments in various types of non-core businesses (e.g., EWGs, FUCOs, ETCs and businesses allowed by Rule 58). The Commission noted that, without the ability to raise capital in external markets that is appropriate for such investments, registered holding companies would be at a competitive disadvantage to other energy companies that are not subject to regulation under the Act. 17 NiSource's proposed Shareholder Rights Agreement is substantially the same as the Shareholder Rights Agreement that "old" NiSource currently has in place. See Exhibit B-3. 13 determined by the board of directors to be fair to NiSource's shareholders and in the best interests of NiSource, provided that the price per common share offered in the merger or other business combination is not less than the price paid in the offer and the form of the consideration offered in the merger or other business combination is the same as that paid in the offer. NiSource may redeem the Rights at a price of $.01 per Right prior to the occurrence of an event that causes the Rights to be exercisable for Common Stock. The Rights will expire on March 12, 2010. NiSource requests authorization to issue Preferred Stock upon exercise of the outstanding Rights without regard to the $12 billion limit on issuance of Common Stock, Preferred Stock and Long Term Debt.18 Long-term Debt of a particular series (a) may be convertible into any other securities of NiSource, (b) will have a maturity ranging from one to 50 years, (c) will bear interest at a rate not to exceed at the time of issuance 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the term of such Long-term Debt, (d) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount thereof, (e) may be entitled to mandatory or optional sinking fund provisions, (f) may provide for reset of the coupon pursuant to a remarketing arrangement, and (g) may be called from existing investors by a third party. The maturity dates, interest rates, redemption and sinking fund provisions and conversion features, if any, with respect to the Long-term Debt of a particular series, as well as any associated placement, underwriting or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding. NiSource commits to maintain a rating for all Long-term Debt that is at the investment grade level as established by a nationally recognized statistical rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities Exchange Act of 1934. (c) Short-term Debt. Subject to the NiSource Debt Limitation, --------------- NiSource proposes to issue and sell from time to time, directly or indirectly through one or more Financing Subsidiaries, Short-term Debt in an aggregate principal amount at any time outstanding not to exceed $2 billion. The effective cost of money on Short-term Debt authorized in this proceeding will not exceed at the time of issuance 300 basis points over LIBOR for maturities of 1 year or less. Commercial paper will be sold, directly or indirectly through one or more Financing Subsidiaries, in established domestic or European commercial paper markets. Such commercial paper would typically be sold to dealers at the discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that the dealers acquiring such commercial paper will reoffer it at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. It is anticipated that such commercial paper will be reoffered to investors such as commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities, finance companies and nonfinancial corporations. - ------------------------ 18 The Commission has previously authorized registered holding companies to adopt and implement similar shareholder rights plans. See e.g., Ameren Corporation, Holding Co. Act Release No. 26961 (Dec. 29, 1998); Interstate Energy Corporation, Holding Co. Act Release No. 26965 (Jan. 15, 1999). 14 NiSource also proposes to establish, directly or indirectly through one or more Financing Subsidiaries, credit lines with banks or other institutional lenders. Loans under these lines will have maturities of less than one year from the date of each borrowing and the amounts outstanding thereunder will not exceed the proposed Short-term Debt limitation. NiSource may engage in other types of short-term financing generally available to borrowers with comparable credit ratings as it may deem appropriate in light of its needs and market conditions at the time of issuance. 1.7.3 NiSource Utility Subsidiary Financing The issue and sale of ------------------------------------- most securities by the NiSource Utility Subsidiaries will be exempt from the preapproval requirements of Sections 6(a) and 7 of the Act pursuant to Rule 52(a), as most such securities must be approved by the public service commission in the state in which each NiSource Utility Subsidiary is incorporated and operating. In particular: Indiana Utility Regulatory Commission ("IURC") must approve all financings by Northern Indiana, Kokomo, and NIFL other than short-term indebtedness having a maturity of 12 months or less; the Massachusetts Department of Telecommunications and Energy ("MDTE") must approve all financings by Bay State other than short-term indebtedness having a maturity of one year or less; and the New Hampshire Public Utilities Commission ("NHPUC") must approve most financings by Northern other than short-term indebtedness having a maturity of one year or less up to a maximum amount equal to 10% of net plant. Accordingly, the NiSource Utility Subsidiaries request authority to issue and sell from time to time during the Authorization Period notes and other evidences of indebtedness having a maturity of one year or less in an aggregate principal amount outstanding at any one time not to exceed the following limits: Northern Indiana - $1 billion; Kokomo - $50 million; NIFL - $50 million; Bay State - $250 million; and Northern - $50 million. Subject to such limitations, the NiSource Utility Subsidiaries may engage in short-term financing as they may deem appropriate in light of their needs and market conditions at the time of issuance. Such short-term financing could include, without limitation, commercial paper sold in established domestic or European commercial paper markets, bank lines and debt securities issued under its indentures and note programs. The effective cost of money on short-term financing authorized in this proceeding will not exceed 300 basis points over the LIBOR for maturities of 1 year or less. 1.7.4 Non-Utility Subsidiary Financing. NiSource, through the -------------------------------- Non-Utility Subsidiaries, expects to continue to be active in the development and expansion of energy-related or otherwise functionally-related, non-utility businesses. In order to finance investments in such competitive businesses, it will be necessary for the Non-Utility Subsidiaries to have the ability to engage in financing transactions that are commonly accepted for such types of investments. It is believed that, in almost all cases, financings by the Non-Utility Subsidiaries (other than Columbia) will be exempt from Commission authorization pursuant to Rule 52(b). In order to be exempt under Rule 52(b), any loans by NiSource to a Non-Utility Subsidiary or by any Non-Utility Subsidiary, including a Financing Subsidiary, to another Non-Utility Subsidiary must have interest rates and maturities that are designed to parallel the lending company's effective cost of capital. However, in the limited circumstances where the Non-Utility Subsidiary 15 making the borrowing is not wholly owned by NiSource, directly or indirectly, authority is requested under the Act for NiSource or a Non-Utility Subsidiary, as the case may be, to make such loans to such subsidiaries at interest rates and maturities designed to provide a return to the lending company of not less than its effective cost of capital.19 If such loans are made to a Non-Utility Subsidiary, such company will not sell any services to any associate Non-Utility Subsidiary unless such company falls within one of the categories of companies to which goods and services may be sold on a basis other than "at cost," as described below in Item 1.13.2. Furthermore, in the event any such loans are made, NiSource will include in the next certificate filed pursuant to Rule 24 in this proceeding substantially the same information as that required on Form U-6B-2 with respect to such transaction. 1.8 GUARANTEES. ---------- 1.8.1 NiSource Guarantees. NiSource requests authorization, directly ------------------- or indirectly through one or more Financing Subsidiaries, to provide guarantees, obtain letters of credit, enter into capital support, "keep well," indemnification, reimbursement or expense agreements, or otherwise provide credit support (collectively, "NiSource Guarantees") with respect to the debt or contractual obligations of any Subsidiary as may be appropriate in the ordinary course of such Subsidiary's business, in an aggregate principal amount not to exceed $5 billion outstanding at any one time, provided however, that the amount of any NiSource Guarantees in respect of obligations of any Subsidiaries shall also be subject to the limitations of Rule 53(a)(1) or Rule 58(a)(1), as applicable. The proposed limitation on NiSource Guarantees shall not include the amount of any guarantees or other forms of credit support outstanding at the time of the Merger or guarantees or other forms of credit support provided with respect to securities issued by any Financing Subsidiary (the amounts of which would count only against the proposed limitations on the amounts of debt and equity securities that NiSource may issue). NiSource proposes to charge each Subsidiary a fee for each guarantee provided on its behalf that is not greater than the cost, if any, of obtaining the liquidity necessary to perform the guarantee (for example, bank line commitment fees or letter of credit fees, plus other transactional expenses) for the period of time the guarantee remains outstanding. 1.8.2 Non-Utility Subsidiary Guarantees. In addition to guarantees --------------------------------- that may be provided by NiSource, Non-Utility Subsidiaries (including Financing Subsidiaries without credit support from NiSource, but excluding Columbia) request authority to provide to other Non-Utility Subsidiaries guarantees of indebtedness or contractual obligations or other forms of credit support ("Non-Utility Subsidiary Guarantees") in an aggregate principal amount not to exceed $2 billion outstanding at any one time, exclusive of any guarantees and other forms of credit support that are exempt pursuant to Rule 45(b) and Rule 52(b), provided however, that the amount of Non-Utility Guarantees in respect of obligations of any Rule 58 Subsidiaries shall remain subject to the limitations of Rule 58(a)(1). The Non-Utility Subsidiary providing any such credit support may charge its associate company a fee for each guarantee provided on its behalf determined in the same manner as specified above. - ------------------------ 19 The Commission has granted similar authority to another registered holding company. See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22, 1999). 16 1.9 HEDGING TRANSACTIONS. -------------------- 1.9.1 Interest Rate Hedges. NiSource, and to the extent not exempt -------------------- pursuant to Rule 52, the Subsidiaries, request authorization to enter into interest rate hedging transactions with respect to existing indebtedness ("Interest Rate Hedges"), subject to certain limitations and restrictions, in order to reduce or manage interest rate cost. Interest Rate Hedges would only be entered into with counterparties ("Approved Counterparties") whose senior debt ratings, or the senior debt ratings of the parent companies of the counterparties, as published by Standard and Poor's Ratings Group, are equal to or greater than BBB, or an equivalent rating from Moody's Investors Service, Fitch Investor Service or Duff and Phelps. Interest Rate Hedges will involve the use of financial instruments commonly used in today's capital markets, such as interest rate swaps, caps, collars, floors, and structured notes (i.e., a debt instrument in which the principal and/or interest payments are indirectly linked to the value of an underlying asset or index), or transactions involving the purchase or sale, including short sales, of U.S. Treasury obligations. The transactions would be for fixed periods and stated notional amounts. In no case will the notional principal amount of any interest rate swap exceed that of the underlying debt instrument and related interest rate exposure. NiSource and its Subsidiaries will not engage in speculative transactions. Fees, commissions and other amounts payable to the counterparty or exchange (excluding, however, the swap or option payments) in connection with an Interest Rate Hedge will not exceed those generally obtainable in competitive markets for parties of comparable credit quality. 1.9.2 Anticipatory Hedges. In addition, NiSource and the Subsidiaries ------------------- request authorization to enter into interest rate hedging transactions with respect to anticipated debt offerings (the "Anticipatory Hedges"), subject to certain limitations and restrictions. Such Anticipatory Hedges would only be entered into with Approved Counterparties, and would be utilized to fix and/or limit the interest rate risk associated with any new issuance through (i) a forward sale of exchange-traded U.S. Treasury futures contracts, U.S. Treasury obligations and/or a forward swap (each a "Forward Sale"), (ii) the purchase of put options on U.S. Treasury obligations (a "Put Options Purchase"), (iii) a Put Options Purchase in combination with the sale of call options on U.S. Treasury obligations (a "Zero Cost Collar"), (iv) transactions involving the purchase or sale, including short sales, of U.S. Treasury obligations, or (v) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or cash transactions, including, but not limited to structured notes, caps and collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with brokers through the opening of futures and/or options positions traded on the Chicago Board of Trade ("CBOT"), the establishment of over-the-counter positions with one or more counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. NiSource or a Subsidiary will determine the optimal structure of each Anticipatory Hedge transaction at the time of execution. The Applicants represent that each Interest Rate Hedge and Anticipatory Hedge will qualify for hedge accounting treatment under GAAP. The Applicants 17 will also comply with the then existing financial disclosure requirements of the Financial Accounting Standards Board associated with hedging transactions.20 1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES. The portion of an ---------------------------------------- individual Subsidiary's aggregate financing to be effected through the sale of stock to NiSource or other immediate parent company during the Authorization Period pursuant to Rule 52 and/or pursuant to an order issued in this proceeding cannot be ascertained at this time. The proposed sale of capital securities may in some cases exceed the then authorized capital stock of such Subsidiary. In addition, the Subsidiary may choose to use capital stock with no par value. Also, a Subsidiary may wish to engage in a reverse stock split to reduce franchise taxes or for other corporate purposes. As needed to accommodate such proposed transactions and to provide for future issuances of securities, the Applicants request authority to change the terms of any Subsidiary's authorized capitalization by an amount deemed appropriate by NiSource or other intermediate parent company, provided that, if a Subsidiary is not wholly owned, all other required shareholder consents have been obtained for such change. A Subsidiary would be able to change the par value, or change between par value and no-par value stock, without additional Commission approval. Any such action by a Utility Subsidiary would be subject to and would only be taken upon the receipt of any necessary approvals by the state commission in the state or states where the Utility Subsidiary is incorporated and doing business.21 1.11 FINANCING SUBSIDIARIES. As indicated, NiSource will issue the ---------------------- Acquisition Debt through NiSource Finance, a direct or indirect special purpose financing subsidiary. In addition, "old" NiSource currently owns, directly and indirectly, all of the common equity securities of two other special-purpose entities (Capital Markets and Capital Trust) formed specifically for the purpose of financing the activities of "old" NiSource and certain of its Subsidiaries. These financing subsidiaries will become Subsidiaries of NiSource as a result of the Merger. In the future, NiSource and the Subsidiaries may find it desirable to organize and acquire the equity securities of one or more additional corporations, trusts, partnerships or other entities (hereinafter, together with NiSource Finance, Capital Markets and Capital Trust, "Financing Subsidiaries") organized to serve the same purpose. Specifically, Financing Subsidiaries may be organized to issue long-term debt, short-term debt or equity or equity-linked securities, including but not limited to monthly income preferred securities, and would dividend, loan or otherwise transfer the proceeds of such financings to or as directed by the Financing Subsidiary's parent company, provided, however, that a Financing Subsidiary of any Utility Subsidiary will dividend, loan or otherwise transfer the proceeds of any financing only to its parent Utility Subsidiary. NiSource may, if required, guarantee, provide support for or enter into expense agreements in respect of the obligations of any Financing Subsidiary that it organizes. The Subsidiaries may also provide guarantees and enter into expense agreements, if required, on behalf of any Financing - ------------------------ 20 The proposed terms and conditions of the Interest Rate Hedges and Anticipatory Hedges are substantially the same as the Commission has approved in other cases. See New Century Energies, Inc., et al., Holding Co. Act Release No. 27000 (April 7, 1999); and Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999). 21 The Commission has granted similar approvals to other registered holding companies. See Conectiv, Inc., Holding Co. Act Release No. 26833 (Feb. 26, 1998); and New Century Energies, Inc., Holding Co. Act Release No. 26750 (Aug. 1, 1997). 18 Subsidiaries that they organize pursuant to Rules 45(b)(7) and 52, as applicable. The amount of any long-term debt, short-term debt or equity or equity-linked securities issued by any Financing Subsidiary shall be counted against any limitation on the amounts of similar types of securities that may be issued directly by the parent company of a Financing Subsidiary, as set forth in this Application/Declaration (see Item 1.7, above) or in any other Application/Declaration that may be filed in the future, to the extent that such securities are guaranteed by such parent company. In such cases, however, the guaranty by the parent company would not also be counted against the limitations on NiSource Guarantees or Subsidiary Guarantees, as the case may be, set forth in Item 1.8.1 or Item 1.8.2, above.22 1.12 INTERMEDIATE SUBSIDIARIES AND SUBSEQUENT REORGANIZATIONS. -------------------------------------------------------- NiSource proposes to acquire, directly or indirectly, the securities of one or more Intermediate Subsidiaries, which would be organized exclusively for the purpose of acquiring, holding and/or financing the acquisition of the securities of or other interest in one or more EWGs or FUCOs, Rule 58 Subsidiaries, ETCs or other non-exempt Non-Utility Subsidiaries (as authorized in this proceeding or in a separate proceeding), provided that Intermediate Subsidiaries may also engage in development activities ("Development Activities") and administrative activities ("Administrative Activities") relating to such subsidiaries.23 To the extent such transactions are not exempt from the Act or otherwise authorized or permitted by rule, regulation or order of the Commission issued thereunder, NiSource requests an exemption under Section 13(b) of the Act for Intermediate Subsidiaries to provide management, administrative, project development and operating services to such entities at fair market prices in the specific circumstances set forth in Item 1.13.2, below. Development Activities will be limited to due diligence and design review; market studies; preliminary engineering; site inspection; preparation of bid proposals, including, in connection therewith, posting of bid bonds; application for required permits and/or regulatory approvals; acquisition of site options and options on other necessary rights; negotiation and execution of contractual commitments with owners of existing facilities, equipment vendors, construction firms, power purchasers, thermal "hosts," fuel suppliers and other project contractors; negotiation of financing commitments with lenders and other third-party investors; and such other preliminary activities as may be required in connection with the purchase, acquisition, financing or construction of facilities or the acquisition of securities of or interests in new businesses. Intermediate Subsidiaries request authority to expend up to $250 million during the Authorization Period on all such Development Activities. Administrative Activities will include ongoing personnel, accounting, engineering, legal, financial, and other support activities necessary to manage NiSource's investments in Non-Utility Subsidiaries. - ------------------------ 22 The Commission has previously authorized registered holding companies and their subsidiaries to create financing subsidiaries, subject to substantially the same terms and conditions. See New Century Energies, Inc., et al., Holding Co. Act Release No. 27000 (April 7, 1999); and Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999); and Southern Company, Holding Co. Act Release No. 27134 (Feb. 9, 2000). 23 The Commission has previously authorized Columbia to organize intermediate subsidiary companies to acquire and hold various non-utility subsidiaries. See Columbia Energy Group, et al., Holding Co. Act Release No. 27099 (Nov. 5, 1999). 19 An Intermediate Subsidiary may be organized, among other things, (1) in order to facilitate the making of bids or proposals to develop or acquire an interest in any EWG or FUCO, Rule 58 Subsidiary, ETC or other non-exempt Non-Utility Subsidiary; (2) after the award of such a bid proposal, in order to facilitate closing on the purchase or financing of such acquired company; (3) at any time subsequent to the consummation of an acquisition of an interest in any such company in order, among other things, to effect an adjustment in the respective ownership interests in such business held by NiSource and non-affiliated investors; (4) to facilitate the sale of ownership interests in one or more acquired non-utility companies; (5) to comply with applicable laws of foreign jurisdictions limiting or otherwise relating to the ownership of domestic companies by foreign nationals; (6) as a part of tax planning in order to limit NiSource's exposure to U.S. and foreign taxes; (7) to further insulate NiSource and the Utility Subsidiaries from operational or other business risks that may be associated with investments in non-utility companies; or (8) for other lawful business purposes. Investments in Intermediate Subsidiaries may take the form of any combination of the following: (1) purchases of capital shares, partnership interests, member interests in limited liability companies, trust certificates or other forms of equity interests; (2) capital contributions; (3) open account advances with or without interest; (4) loans; and (5) guarantees issued, provided or arranged in respect of the securities or other obligations of any Intermediate Subsidiaries. Funds for any direct or indirect investment in any Intermediate Subsidiary will be derived from (1) financings authorized in this proceeding; (2) any appropriate future debt or equity securities issuance authorization obtained by NiSource from the Commission; and (3) other available cash resources, including proceeds of securities sales by Non-Utility Subsidiaries pursuant to Rule 52. To the extent that NiSource provides funds or guarantees directly or indirectly to an Intermediate Subsidiary that are used for the purpose of making an investment in any EWG or FUCO or a Rule 58 Subsidiary, the amount of such funds or guarantees will be included in NiSource's "aggregate investment" in such entities, as calculated in accordance with Rule 53 or Rule 58, as applicable. In addition, NiSource also requests approval to consolidate or otherwise reorganize all or any part of its direct and indirect ownership interests in Non-Utility Subsidiaries, and the activities and functions related to such investments. To effect any such consolidation or other reorganization, NiSource may wish to either contribute the equity securities of one Non-Utility Subsidiary to another Non-Utility Subsidiary (including a newly formed Intermediate Subsidiary) or sell (or cause a Non-Utility Subsidiary to sell) the equity securities or all or part of the assets of one Non-Utility Subsidiary to another one. To the extent that these transactions are not otherwise exempt under the Act or Rules thereunder,24 NiSource hereby requests authorization under the Act to consolidate or otherwise reorganize under one or more direct or indirect Intermediate Subsidiaries NiSource's ownership interests in existing and future Non-Utility Subsidiaries.25 Such transactions may take the form of a - ------------------------ 24 Sections 12(c), 32(g), 33(c)(1) and 34(d) and Rules 43(b), 45(b), 46(a) and 58, as applicable, may exempt many of the transactions described in this paragraph. 25 The Commission has granted similar authority to another holding company. See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22, 1999). 20 Non-Utility Subsidiary selling, contributing or transferring the equity securities of a subsidiary or all or part of such subsidiary's assets as a dividend to an Intermediate Subsidiary or to another Non-Utility Subsidiary, and the acquisition, directly or indirectly, of the equity securities or assets of such subsidiary, either by purchase or by receipt of a dividend. The purchasing Non-Utility Subsidiary in any transaction structured as an intrasystem sale of equity securities or assets may execute and deliver its promissory note evidencing all or a portion of the consideration given. Each transaction would be carried out in compliance with all applicable U.S or foreign laws and accounting requirements, and any transaction structured as a sale would be carried out for a consideration equal to the book value of the equity securities being sold.26 1.13 SALES OF SERVICES AND GOODS AMONG SUBSIDIARIES. ---------------------------------------------- 1.13.1. Continuation of Certain Existing Arrangements between NiSource -------------------------------------------------------------- Subsidiaries. Certain Subsidiaries of NiSource provide a variety of services to - ------------ other NiSource Subsidiaries, and, in at least one case, a Columbia subsidiary, under a variety of existing agreements. These agreements, described as follows, do not appear to fall within any statutory or administrative exemption and are not cost based: SM&P Utility Resources ("SM&P"), which provides underground facilities locating services for utilities throughout the United States, has agreements with Northern Indiana and NIFL under which it provides these services using fixed hourly labor rates that are comparable to those that SM&P charges under contracts with nonassociate companies. Currently, SM&P's work for these Subsidiaries accounts for less than 10% of its total revenues, the balance of which is derived from nonassociate customers. SM&P will continue to compete for this business with other companies providing similar services to NiSource companies. Miller Pipeline Corp. ("Miller"), which installs, repairs and maintains underground pipelines used for gas and water transmission and distribution systems, provides these services to Indianapolis Water Company, Northern Indiana, NIFL, Kokomo, and Columbia Ohio, as well as to nonassociate companies. Under the agreements, Miller uses standard labor and equipment charges that are comparable to those charged to nonassociate customers. Currently, Miller's work for these Subsidiaries accounts for less than 40% of its total revenues, the balance of which is derived from nonassociate customers. Miller will continue to compete for this business with other companies providing similar services to NiSource companies. After the Merger, it is contemplated that both SM&P and Miller will continue to provide the services described above to associate companies on competitive terms under these existing agreements or new agreements that may be entered into from time to time. The cost of services provided to any associate company by SM&P and Miller will in all cases be comparable to the costs charged to unaffiliated third parties. - ------------------------ 26 The Commission has authorized other registered holding companies to carry out future reorganizations of their non-utility businesses without further approval. See Columbia Energy Group, Inc., Holding Co. Act Release No. 27099 (Nov. 5, 1999). 21 Bay State provides repair and installation services to EnergyUSA for propane equipment sold by EnergyUSA under an agreement entered into in December 1999. Bay State also supplies or procures necessary materials. Under the agreement, Bay State charges a flat response fee and standard hourly labor rates. To the extent needed, NiSource requests an exemption pursuant to Section 13(b) of the Act in order that all of the contractual arrangements described in this section may remain in place through November 1, 2001. During that period, NiSource will assess the need to maintain these arrangements in place and will either discontinue them or address, in a separate application, the justification for continuing them on a permanent basis.27 1.13.2. Sales and Service Contracts Among Non-Utility Subsidiaries. In ---------------------------------------------------------- the limited circumstances set forth below, NiSource's Non-Utility Subsidiaries (other than Columbia) propose to provide services and sell goods to each other at fair market prices determined without regard to cost, and therefore request an exemption (to the extent that Rule 90(d) does not apply) pursuant to Section 13(b) from the cost standards of Rules 90 and 91 as applicable to such transactions, in any case in which the Non-Utility Subsidiary purchasing such goods or services is: (i) A FUCO or foreign EWG that derives no part of its income, directly or indirectly, from the generation, transmission, or distribution of electric energy for sale within the United States; (ii) An EWG that sells electricity at market-based rates that have been approved by the Federal Energy Regulatory Commission ("FERC"), provided that the purchaser is not Northern Indiana; (iii) A "qualifying facility" ("QF") within the meaning of the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA") that sells electricity exclusively (a) at rates negotiated at arms-length to one or more industrial or commercial customers purchasing such electricity for their own use and not for resale, and/or (ii) to an electric utility company (other than Northern Indiana) at the purchaser's "avoided cost" as determined in accordance with the regulations under PURPA; (iv) A domestic EWG or QF that sells electricity at rates based upon its cost of service, as approved by FERC or any state public utility commission having jurisdiction, provided that the purchaser thereof is not Northern Indiana; or (v) A Rule 58 Subsidiary or any other Non-Utility Subsidiary that (a) is partially-owned by NiSource, provided that the ultimate purchaser of such goods or services is not a Utility Subsidiary, NiSource Services (or any other entity within the NiSource system whose activities and operations are primarily related to the provision of goods and services to the Utility Subsidiaries), (b) is - ------------------------ 27 The Commission recently granted similar interim relief under Section 13(a) to another new registered holding company. See Dominion Resources, Inc., Holding Co. Act Release No. 27113 (Dec. 15, 1999). 22 engaged solely in the business of developing, owning, operating and/or providing services or goods to Non-Utility Subsidiaries described in clauses (i) through (iv) immediately above, or (c) does not derive, directly or indirectly, any material part of its income from sources within the United States and is not a public-utility company operating within the United States.28 1.14 ACTIVITIES OF ENERGY-RELATED SUBSIDIARIES OUTSIDE THE UNITED STATES. ------------------------------------------------------------------- NiSource, on behalf of any current or future Non-Utility Subsidiaries (other than Columbia), requests authority for such Non-Utility Subsidiaries to engage in certain "energy-related" activities outside the United States. Such activities may include: (i) the brokering and marketing of electricity, natural gas and other energy commodities ("Energy Marketing"); (ii) energy management services ("Energy Management Services"), including the marketing, sale, installation, operation and maintenance of various products and services related to energy management and demand-side management, including energy and efficiency audits; facility design and process control and enhancements; construction, installation, testing, sales and maintenance of (and training client personnel to operate) energy conservation equipment; design, implementation, monitoring and evaluation of energy conservation programs; development and review of architectural, structural and engineering drawings for energy efficiencies, design and specification of energy consuming equipment; and general advice on programs; the design, construction, installation, testing, sales and maintenance of new and retrofit heating, ventilating, and air conditioning ("HVAC"), electrical and power systems, alarm and warning systems, motors, pumps, lighting, water, water-purification and plumbing systems, and related structures, in connection with energy-related needs; and the provision of services and products designed to prevent, control, or mitigate adverse effects of power disturbances on a customer's electrical systems; and (iii) engineering, consulting and other technical support services ("Consulting Services") with respect to energy-related businesses, as well as for individuals. Such Consulting Services would include technology assessments, power factor correction and harmonics mitigation analysis, meter reading and repair, rate schedule design and analysis, environmental services, engineering services, billing services (including consolidation billing and bill disaggregation tools), risk management services, communications systems, information systems/data processing, system planning, strategic planning, finance, feasibility studies, and other similar services. - ------------------------ 28 The five circumstances in which market based pricing would be allowed are substantially the same as those approved by the Commission in other cases. See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22, 1999); Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999); and Interstate Energy Corporation, Holding Co. Act Release No. 27069 (August 26, 1999). 23 NiSource requests that the Commission (i) authorize Non-Utility Subsidiaries (other than Columbia) to engage in Energy Marketing activities in Canada and reserve jurisdiction over Energy Marketing activities outside of Canada pending completion of the record in this proceeding,29 (ii) authorize Non-Utility Subsidiaries (other than Columbia) to provide Energy Management Services and Consulting Services anywhere outside the United States,30 and (iii) reserve jurisdiction over other activities of Non-Utility Subsidiaries (other than Columbia) outside the United States, pending completion of the record. In addition, NiSource requests authorization for Non-Utility Subsidiaries (other than Columbia) to engage in "gas-related" activities outside the United States, subject to certain proposed limitations and a request for reservation of jurisdiction. Specifically, NiSource requests approval for Non-Utility Subsidiaries (other than Columbia) to engage in the development, exploration and production of natural gas and oil in Canada and to invest up to $300 million in the equity securities or assets of new or existing companies that derive substantially all of their income from such activities. In addition, NiSource requests approval for Non-Utility Subsidiaries (other than Columbia) to invest, directly or indirectly through other subsidiaries, in natural gas pipelines or storage facilities located outside the United States. Investments in such entities would also count against the $300 million investment limitation. NiSource requests that the Commission (i) reserve jurisdiction over the proposed exploration and production activities in foreign countries other than Canada pending completion of the record,31 and (ii) reserve jurisdiction over investments in pipeline and storage facilities outside the United States pending completion of the record. 1.15 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS. -------------------------------------------------------- 1.15.1 PAYMENT OF DIVIDENDS BY COLUMBIA. -------------------------------- As indicated, Columbia has announced its intention to sell certain non-core assets or businesses either before or after the Merger. In the event that such sales take place, Section 12(c) and Rules 26(c) and 46 could limit Columbia's ability to distribute the cash proceeds from such sales to NiSource as a dividend. This would occur if the amount of proceeds from such sales were to exceed Columbia's retained earnings at the time of the distribution. Likewise, the exemption under Rule 42 would not apply to any use of such proceeds by Columbia to acquire shares of its common stock that are held by NiSource. - ------------------------ 29 See Southern Energy, Inc., Holding Co. Act Rel. No. 27020 (May 13, 1999) (supplemental order amending prior order to permit registered holding company subsidiary to engage in power and gas marketing activities in Canada and reserving jurisdiction over such activities outside the United States and Canada); Interstate Energy Corporation, Holding Co. Act Release No. 27069 (August 26, 1999). See too, National Fuel Gas Company, et al., Holding Co. Act Release No. 27114 (Dec. 16, 1999). 30 The Commission has heretofore authorized non-utility subsidiaries of a registered holding company to sell similarly-defined energy management services and technical consulting services to customers outside the United States. See Columbia Energy Group, et al., Holding Co. Act Release No. 26498 (March 25, 1996); and Cinergy Corp., Holding Co. Act Release No. 26662 (February 7, 1997); and Interstate Energy Corporation, Holding Co. Act Release No. 27069 (August 26, 1999). 31 The Commission has heretofore authorized similar programs of investing in development, exploration and production activities in Canada. See National Fuel Gas Company, et al., Holding Co. Act Release No. 27114 (Dec. 16, 1999); and Columbia Energy Group, et al., Holding Co. Act Release No. 27055 (July 30, 1999). 24 Accordingly, Applicants request authority for Columbia to transfer some or all of the net proceeds of any sale or sales of the securities or assets of Non-Utility Subsidiaries to NiSource, either by paying a dividend or by repurchasing shares of its common stock that are held by NiSource.32 NiSource intends to use some or all of the proceeds of such non-core asset sales to repay Acquisition Debt. Columbia will not pay any dividend to NiSource or repurchase shares of its common stock from NiSource if, as a result thereof, common equity as a percentage of its capitalization would be less than 30% on a consolidated basis. 1.15.2 PAYMENT OF DIVIDENDS BY NON-UTILITY SUBSIDIARIES . ------------------------------------------------- NiSource also proposes, on behalf of each of its current and future Non-Utility Subsidiaries that such companies be permitted to pay dividends with respect to the securities of such companies, from time to time through the Authorization Period, out of capital and unearned surplus (including revaluation reserve), to the extent permitted under applicable corporate law.33 NiSource anticipates that there will be situations in which a Non-Utility Subsidiary will have unrestricted cash available for distribution in excess of such company's current and retained earnings. In such situations, the declaration and payment of a dividend would have to be charged, in whole or in part, to capital or unearned surplus. As an example, if an Intermediate Subsidiary of NiSource were to purchase all of the stock of an EWG or FUCO, and following such acquisition, the EWG or FUCO incurs non-recourse borrowings some or all of the proceeds of which are distributed to the Intermediate Subsidiary as a reduction in the amount invested in the EWG or FUCO (i.e., return of capital), the Intermediate Subsidiary (assuming it has no earnings) could not, without the Commission's approval, in turn distribute such cash to NiSource or its other parent.34 Similarly, using the same example, if an Intermediate Subsidiary, following its acquisition of all of the stock of an EWG or FUCO, were to sell part of that stock to a third party for cash, the Intermediate Subsidiary would again have substantial unrestricted cash available for distribution, but (assuming no profit on the sale of the stock) would not have current earnings and therefore could not, without the Commission's approval, declare and pay a dividend to its parent out of such cash proceeds. - ------------------------ 32 The Commission has previously authorized the payment of dividends out of capital and unearned surplus in an amount equal to the net proceeds of sales of assets. See e.g., Northeast Utilities, et al., Holding Co. Act Release No. 27147 (Mar. 7, 2000). 33 The Commission has granted similar approvals to other registered holding companies. See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22, 1999); and Interstate Energy Corporation, et al., Holding Co. Act Release No. 27069 (August 26, 1999). 34 The same problem would arise where an Intermediate Subsidiary is over-capitalized in anticipation of a bid which is ultimately unsuccessful. In such a case, NiSource would normally desire a return of some or all of the funds invested. 25 Further, there may be periods during which unrestricted cash available for distribution by a Non-Utility Subsidiary exceeds current and retained earnings due to the difference between accelerated depreciation allowed for tax purposes, which may generate significant amounts of distributable cash, and depreciation methods required to be used in determining book income. Finally, even under circumstances in which a Non-Utility Subsidiary has sufficient earnings, and therefore may declare and pay a dividend to its immediate parent, such immediate parent may have negative retained earnings, even after receipt of the dividend, due to losses from other operations. In this instance, cash would be trapped at a subsidiary level where there is no current need for it. NiSource, on behalf of each current and future non-exempt Non-Utility Subsidiary, represents that it will not declare or pay any dividend out of capital or unearned surplus in contravention of any law restricting the payment of dividends. In this regard, it should be noted that all U.S. jurisdictions limit to one extent or another the authority of corporations to make dividend distributions to shareholders. Most State corporation statutes contain either or both an equity insolvency test or some type of balance sheet test. NiSource also states that its subsidiaries will comply with the terms of any credit agreements and indentures that restrict the amount and timing of distributions to shareholders. 1.16 TAX ALLOCATION AGREEMENT. The Applicants ask the Commission to approve ------------------------ an agreement for the allocation of consolidated tax among NiSource and the Subsidiaries (the "Tax Allocation Agreement"). Approval is necessary because the Tax Allocation Agreement provides for the retention by NiSource of certain payments from the Subsidiaries for tax losses that NiSource will incur due to interest expense it will pay on the Acquisition Debt, rather than the allocation of such losses to Subsidiaries without payment as would otherwise be required by Rule 45(c)(5). A copy of the proposed Tax Allocation Agreement will be filed by post-effective amendment as Exhibit B-4 hereto. Provisions in a tax allocation agreement between a registered holding company and its subsidiaries must comply with Section 12 of the Act and Rule 45 thereunder. Rule 45(a) of the Act generally prohibits any registered holding company or subsidiary company from, directly or indirectly, lending or in any manner extending its credit to or indemnifying, or making any donation or capital contribution to, any company in the same holding company system, except pursuant to a Commission order. Rule 45(c) provides, however, that no approval is required for a tax allocation agreement between eligible associate companies in a registered holding company system that "provides for allocation among such associate companies of the liabilities and benefits arising from such consolidated tax return for each tax year in a manner not inconsistent with" the conditions of the rule. Of interest here, Rule 45(c)(5) provides that: The agreement may, instead of excluding members as provided in paragraph (c)(4), include all members of the group in the tax allocation, recognizing negative corporate taxable income or a negative corporate tax, according to the allocation method chosen. An agreement under this paragraph shall provide that those associate companies with a positive allocation will pay ------------------- the amount allocated and those subsidiary companies with a negative -------------------- allocation will receive current payment of their corporate tax credits. The 26 agreement shall provide a method for apportioning such payments, and for carrying over uncompensated benefits, if the consolidated loss is too large to be used in full. Such method may assign priorities to specified kinds of benefits. (Emphasis added). Under the rule, only "subsidiary companies," as opposed to "associate companies" (which includes the holding company in a holding company system), are entitled to be paid for corporate tax credits. However, if a tax allocation agreement does not fully comply with the provisions of Rule 45(c), it may nonetheless be approved by the Commission under Section 12(b) and Rule 45(a). In connection with the 1981 amendments to Rule 45, the Commission explained that the distinction between "associate companies," on the one hand, and "subsidiary companies," on the other, represented a policy decision to preclude the holding company from sharing in consolidated return savings. The Commission noted that exploitation of utility companies by holding companies through the misallocation of consolidated tax return benefits was among the abuses examined in the investigations underlying the enactment of the Act.35 It must be noted, however, that the result in Rule 45(c)(5) is not dictated by the statute and, as the Commission has recognized, there is discretion on the part of the agency to approve tax allocation agreements that do not, by their terms, comply with Rule 45(c) -- so long as the policies and provisions of the Act are otherwise satisfied. In this matter, where the holding company is seeking only to receive payment for tax losses that have been generated by it, the proposed arrangement will not give rise to the types of problems (e.g., upstream loans) that the Act was intended to address.36 As a result of the Merger, NiSource will be creating tax losses (chiefly in the form of deductions for interest expense relating to the Acquisition Debt) that are non-recourse to the Subsidiaries. Under the proposed Tax Allocation Agreement, NiSource would receive the benefit of those losses through cash payments from Subsidiaries with positive taxable income. NiSource requests that the Commission reserve jurisdiction over this proposal pending completion of the record. 1.17 CERTIFICATES OF NOTIFICATION. NiSource proposes to file certificates ---------------------------- of notification pursuant to Rule 24 that report each of the transactions carried out in accordance with the terms and conditions of and for the purposes represented in this Application/Declaration. Such certificates of notification would be filed within 60 days after the end of each of the first three calendar quarters, and 90 days after the end of the last calendar quarter, in which transactions occur, commencing with the report for the fourth quarter of 2000. The Rule 24 certificates will contain the following information for the reporting period: (a) The sales of any Common Stock and the purchase price per share and the market price per share at the date of the agreement of sale; - ------------------------ 35 See Holding Co. Act Release No. 21968 (March 25, 1981), citing Sen. Doc. 92, Part 72A, 70th Congress, 1st Sess. at 477-482. 36 See e.g., Section 12(a) of the Act. 27 (b) The total number of shares of Common Stock issued or issuable under options granted during the quarter under NiSource's benefit plans or otherwise; (c) If Common Stock has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted to the acquiror; (d) The amount and terms of any Long-term Debt, Preferred Stock or other preferred or equity-linked securities, or Short-term Debt issued directly or indirectly by NiSource during the quarter; (e) The amount and terms of any Short-term Debt issued directly or indirectly by any NiSource Utility Subsidiary during the quarter; (f) The amount and terms of any financings consummated by any Non-Utility Subsidiary during the quarter that are not exempt under Rule 52; (g) The name of the guarantor and of the beneficiary of any NiSource Guarantee or Non-Utility Subsidiary Guarantee issued during the quarter, and the amount, terms and purpose of the guarantee; (h) The notional amount and principal terms of any Interest Rate Hedge or Anticipatory Hedge entered into during the quarter and the identity of the parties to such instruments; (i) The name, parent company, and amount invested in any new Intermediate Subsidiary or Financing Subsidiary during the quarter; (j) A list of Form U-6B-2 statements filed with the Commission during the quarter, including the name of the filing entity and the date of the filing; and (k) Consolidated balance sheets as of the end of the quarter, and separate balance sheets as of the end of the quarter for each company, including NiSource, that has engaged in financing transactions during the quarter. ITEM 2. FEES, COMMISSIONS AND EXPENSES. ------------------------------ The fees, commissions and expenses incurred or to be incurred in connection with the preparation and filing of this Application/Declaration and certain of the Exhibits filed herewith are estimated not to exceed $100,000. The above fees do not include underwriting fees and all other expenses incurred in consummating specific financings, credit support arrangements, asset transfers, or other transactions covered hereby. The fees and expenses incurred in connection with specific financings will not exceed 5% of the proceeds thereof. 28 ITEM 3. APPLICABLE STATUTORY PROVISIONS. ------------------------------- 3.1 GENERAL. Sections 6(a) and 7 of the Act are applicable to the issuance ------- and sale of Common Stock, Preferred Stock, Long-term Debt and Short-term Debt by NiSource and to the issuance and sale of securities by the Utility Subsidiaries and Non-Utility Subsidiaries that are not exempt under Rule 52. In addition, Sections 6(a) and 7 of the Act are applicable to Interest Rate Hedges, except to the extent that they may be exempt under Rule 52, and to Anticipatory Hedges. Section 12(b) of the Act and Rule 45(a) are applicable to the issuance of NiSource Guarantees and to Non-Utility Subsidiary Guarantees, to the extent not exempt under Rules 45(b) and 52. Sections 9(a)(1) and 10 of the Act are also applicable to NiSource's or any Non-Utility Subsidiary's acquisition of the equity securities of any Financing Subsidiary or Intermediate Subsidiary, and the energy-related activities of Non-Utility Subsidiaries outside the United States. Section 12(c) of the Act and Rules 26(c) and 46 are applicable to the payment of dividends from capital and unearned surplus by Columbia and the Non-Utility Subsidiaries. Section 13(b) applies to NiSource's request for an exemption to allow certain of Subsidiaries to render services to other Subsidiaries at prices other than cost for a limited time. In addition, Section 13(b) of the Act and Rules 80 - 92 are generally applicable to the performance of services and sale of goods among Non-Utility Subsidiaries, but may be exempt from the requirements thereof in some cases pursuant to Rules 87(b)(1), 90(d) and 92, as applicable. Section 12(b) of the Act and Rule 45(c) are applicable to the proposed Tax Allocation Agreement. 3.2 COMPLIANCE WITH RULES 53 AND 54. The transactions proposed herein are ------------------------------- also subject to Rules 53 and 54. Under Rule 53(a), the Commission shall not make certain specified findings under Sections 7 and 12 in connection with a proposal by a holding company to issue securities for the purpose of acquiring the securities of or other interest in an EWG, or to guarantee the securities of an EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) thereof are met, provided that none of the conditions specified in paragraphs (b)(1) through (b)(3) of Rule 53 exists. Rule 54 provides that the Commission shall not consider the effect of the capitalization or earnings of subsidiaries of a registered holding company that are EWGs or FUCOs in determining whether to approve other transactions if Rule 53(a), (b) and (c) are satisfied. These standards are met. Rule 53(a)(1): The combined "aggregate investment" of NiSource and Columbia in EWGs and FUCOs is approximately $7.52 million, or approximately 1% of NiSource's pro forma "consolidated retained earnings" at December 31, 1999 ($774.4 million). Rule 53(a)(2): NiSource will maintain books and records enabling it to identify investments in and earnings from each EWG and FUCO in which it directly or indirectly acquires and holds an interest. NiSource will cause each domestic EWG in which it acquires and holds an interest, and each foreign EWG and FUCO that is a majority-owned subsidiary, to maintain its books and records and prepare its financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). All of such books and records and financial statements will be made available to the Commission, in English, upon request. 29 Rule 53(a)(3): No more than 2% of the employees of the Utility Subsidiaries will, at any one time, directly or indirectly, render services to EWGs and FUCOs. Rule 53(a)(4): NiSource will submit a copy of the Application/Declaration in this proceeding and each amendment thereto, and will submit copies of any Rule 24 certificates required hereunder, as well as a copy of NiSource's Form U5S, to each of the public service commissions having jurisdiction over the retail rates of the Utility Subsidiaries. In addition, NiSource states that the provisions of Rule 53(a) are not made inapplicable to the authorization herein requested by reason of the occurrence or continuance of any of the circumstances specified in Rule 53(b). Rule 53(c) is inapplicable by its terms. ITEM 4. REGULATORY APPROVAL. ------------------- As described in Item 1.7, the IURC, MDTE and NHPUC generally have jurisdiction over the issuance of securities by public utilities that are subject to their jurisdiction. No state commission, and no federal commission, other than the Commission, has jurisdiction over any of the other transactions proposed in this Application/Declaration. ITEM 5. PROCEDURE. --------- The Commission has published a notice under Rule 23 with respect to the filing of this Application/Declaration, and the notice period has expired. The Applicants request that the Commission's order be issued as soon as the rules allow, and that there should not be a 30-day waiting period between issuance of the Commission's order and the date on which the order is to become effective. The Applicants hereby waive a recommended decision by a hearing officer or any other responsible officer of the Commission and consent that the Division of Investment Management may assist in the preparation of the Commission's decision and/or order, unless the Division opposes the matters proposed herein. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS. --------------------------------- A. EXHIBITS. -------- A-1 Form of Amended and Restated Certificate of Incorporation of New NiSource (incorporated by reference to Exhibit 3.3 to Registration Statement on Form S-4 of New NiSource in File No. 333-33896). A-2 Form of Amended and Restated By-Laws of New NiSource (incorporated by reference to Exhibit 3.4 to Registration Statement on Form S-4 of New NiSource in File No. 333-33896). A-3 Amended and Restated Articles of Incorporation of "old" NiSource dated as of May 13, 1998, as amended on April 14, 1999 and March 2, 2000 (incorporated by reference to Exhibit 3 to "old" NiSource's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and Exhibits 3.2 and 3.3 to "old" NiSource's 30 Annual Report on Form 10-K for the year ended December 31, 1999 in File No. 1-9776). A-4 Amended and Restated By-Laws of "old" NiSource effective January 29, 2000 (incorporated by reference to Exhibit 3.4 to "old" NiSource's Annual Report on Form 10-K for the year ended December 31, 1999 in File No. 1-9776). B-1 "Old" NiSource Support Agreement, as amended (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 of NIPSCO Industries, Inc. in File No. 33-54516). B-2 Form of Shareholder Rights Agreement between New NiSource and Chase Mellon Shareholder Services, L.L.C., as rights agent (incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-4 of New NiSource in File No. 333-33896). B-3 Shareholder Rights Agreement between "old" NiSource and Harris Trust and Savings Bank, as rights agent, dated February 17, 2000 (incorporated by reference to Exhibit 4.1 to Form 8-A, dated February 24, 2000, of "old" NiSource in File No. 1-9776). B-4 Form of Tax Allocation Agreement (to be filed by post-effective amendment). F Opinion of Counsel (filed herewith). H Proposed Form of Federal Register Notice (previously filed). I-1 Deleted. I-2 Deleted. J-1 Long-Term Incentive Plan, as amended and restated effective January 1, 2000 (incorporated by reference to Annex IV to Registration Statement on Form S-4 of New NiSource in File No. 333-33896). J-2 Nonemployee Director Stock Incentive Plan, as amended and restated effective February 1, 1998 (incorporated by reference to exhibit 10.3 to NIPSCO Industries' Annual Report on Form 10-K for the year ended December 31, 1998 in File No. 1-9776). J-3 Employee Stock Purchase Plan prospectus, dated May 1, 1999 (filed herewith). 31 B. FINANCIAL STATEMENTS. -------------------- FS-1 "Old" NiSource Consolidated See Annual Report of "old" Statements of Income for last NiSource on Form 10-K for the three fiscal years ended December year ended December 31, 31, 1999 1999 in File No. 1-9776 FS-2 "Old" NiSource Consolidated See Annual Report of "old" Balance Sheets as of December 31, NiSource Form 10-K for the 1999 year ended December 31, 1999 in File No. 1-9776 FS-3 "Old" NiSource Consolidated See Quarterly Report of "old" Statement of Income for the six NiSource on Form 10-Q for the months ended June 30, 2000 period ended June 30, 2000 in File No. 1-9776 FS-4 "Old" NiSource Consolidated See Quarterly Report of "old" Balance Sheet as of June 30, 2000 NiSource Form 10-Q for the period ended June 30, 2000 in File No. 1-9776 FS-5 Columbia Consolidated Statements See Annual Report of Columbia of Income for the last three on Form 10-K for the fiscal fiscal years ended December 31, year ended December 31, 1999 1999 in File No. 1-1098 FS-6 Columbia Consolidated Balance See Annual Report of Columbia Sheet as of December 31, 1999 on Form 10-K for the fiscal year ended December 31, 1999 in File No. 1-1098 FS-7 Columbia Consolidated Statement See Quarterly Report of of Income for the six months ended Columbia on Form 10-Q for the June 30, 2000 period ended June 30, 2000 in File No. 1-1098 FS-8 Columbia Consolidated Balance See Quarterly Report of Sheet as of June 30, 2000 Columbia on Form 10-Q for the period ended June 30, 2000 in File No. 1-1098 32 ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS. --------------------------------------- None of the matters that are the subject of this Application/Declaration involves a "major federal action" nor do such matters "significantly affect the quality of the human environment" as those terms are used in section 102(2)(C) of the National Environmental Policy Act. The transactions that are the subject of this Application/Declaration will not result in changes in the operation of the Applicants that will have an impact on the environment. The Applicants are not aware of any federal agency that has prepared or is preparing an environmental impact statement with respect to the transactions that are the subject of this Application/Declaration. 33 SIGNATURES Pursuant to the requirements of the Public Utility Holding Company Act of 1935, each of the undersigned companies has duly caused this Application/Declaration, as amended, to be signed on its behalf by the undersigned thereunto duly authorized. NEW NISOURCE INC. NISOURCE INC. NORTHERN INDIANA PUBLIC SERVICE COMPANY ENERGYUSA, INC. NISOURCE CAPITAL MARKETS, INC. NISOURCE FINANCE CORP. NISOURCE DEVELOPMENT COMPANY, INC. NI ENERGY SERVICES, INC. HAMILTON HARBOUR INSURANCE SERVICES, LTD. NISOURCE CORPORATE SERVICES COMPANY /s/ Gary L. Neale ------------------------------------ Name: Gary L. Neale Title: President of New NiSource Inc.; Chairman, Chief Executive Officer and President of NiSource Inc; Chairman and Chief Executive Officer of Northern Indiana Public Service Company; Chairman and President of NiSource Finance Corp.; and Chairman of EnergyUSA, Inc., NiSource Capital Markets, Inc., NiSource Development Company, Inc., NI Energy Services, Inc., Hamilton Harbour Insurance Services, LTD., and NiSource Corporate Services Company KOKOMO GAS AND FUEL COMPANY NORTHERN INDIANA FUEL AND LIGHT COMPANY BAY STATE GAS COMPANY NORTHERN UTILITIES, INC. /s/ Jeffrey W. Yundt ------------------------------------ Name: Jeffrey W. Yundt Title: Chairman of Kokomo Gas and Fuel Company and Northern Indiana Fuel and Light Company; Chief Executive Officer and President of Bay State Gas Company; Chairman, Chief Executive Officer and President of Northern Utilities, Inc. 34 PRIMARY ENERGY, INC. /s/ Joseph L. Turner, Jr. ------------------------------------ Name: Joseph L. Turner, Jr. Title: President NISOURCE PIPELINE GROUP, INC. /s/ Daniel D. Gavito ------------------------------------ Name: Daniel D. Gavito Title: President IWC RESOURCES CORPORATION /s/ James T. Morris ------------------------------------ Name: James T. Morris Title: Chairman, Chief Executive Officer and President MILLER PIPELINE CORPORATION /s/ Dale R. Miller ------------------------------------ Name: Dale R. Miller Title: Chief Executive Officer SM&P UTILITY RESOURCES, INC. /s/ Michael B. Stayton ------------------------------------ Name: Michael B. Stayton Title: President 35 COLUMBIA ENERGY GROUP /s/ M. W. O'Donnell ------------------------------------ Name: M. W. O'Donnell Title: Senior Vice President and Chief Financial Officer COLUMBIA GAS OF KENTUCKY, INC. COLUMBIA GAS OF OHIO, INC. COLUMBIA GAS OF MARYLAND, INC. COLUMBIA GAS OF PENNSYLVANIA, INC. COLUMBIA GAS OF VIRGINIA, INC. COLUMBIA NETWORK SERVICES CORPORATION COLUMBIA PROPANE CORPORATION COLUMBIA ENERGY GROUP SERVICE CORPORATION COLUMBIA ATLANTIC TRADING CORPORATION COLUMBIA ENERGY GROUP CAPITAL CORPORATION COLUMBIA ELECTRIC CORPORATION COLUMBIA PIPELINE CORPORATION COLUMBIA FINANCE CORPORATION COLUMBIA TRANSMISSION COMMUNICATIONS CORPORATION COLUMBIA ENERGY RESOURCES, INC. COLUMBIA INSURANCE CORPORATION, LTD. /s/ R. L. Dennis ------------------------------------ Name: R. L. Dennis Title: Vice President COLUMBIA GULF TRANSMISSION COMPANY COLUMBIA GAS TRANSMISSION CORPORATION COLUMBIA LNG CORPORATION /s/ M. E. Bockelmann ------------------------------------ Name: M. E. Bockelmann Title: Vice President Date: November 1, 2000 36 EX-99 2 0002.txt EXHIBIT F EXHIBIT F October 24, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: NiSource Inc., et al. - File No. 70-9681 Ladies and Gentlemen: We have acted as special counsel for NiSource Inc. ("NiSource"), an Indiana corporation, and New NiSource Inc. ("New NiSource"), a Delaware corporation and a wholly-owned subsidiary of NiSource, in connection with the preparation and filing of the Application-Declaration on Form U-1 (the "Application") under the Public Utility Holding Company Act of 1935, as amended (the "Act") in the above-referenced proceeding. In a separate proceeding (File No. 70-9551), New NiSource is seeking Commission approval under the Act to acquire all of the issued and outstanding common stock of NiSource and Columbia Energy Group ("Columbia"), following which NiSource will merge into New NiSource. New NiSource will be renamed "NiSource Inc." and thereupon register under the Act. The new registered holding company is referred to in this opinion as "NiSource." This opinion is being delivered at the request of NiSource and its subsidiaries in connection with the Application. In the Application, NiSource and its utility and non-utility subsidiary companies named therein (collectively, the "Applicants") are requesting authority for the period through December 31, 2003, as more fully described in the Application, for (i) the maintenance, extension, renewal or replacement of the indebtedness incurred in connection with the acquisition of Columbia, (ii) the issuance and sale by NiSource of common stock, preferred securities, and long-term and short-term debt securities and equity-linked securities, (iii) the issuance and sale of short-term debt securities by certain of NiSource's public utility subsidiaries, (iv) the issuance of guarantees and other forms of credit support by NiSource and its non-utility subsidiaries, (v) interest rate hedges, (vi) changes to the authorized capitalization of subsidiaries, (vii) the organization of one or more financing subsidiaries and intermediate subsidiaries, (viii) an exemption from the "at cost" standard under Rules 90 and Securities and Exchange Commission October 24, 2000 Page 2 91 as applied to certain transactions, (ix) Rule 58 subsidiaries to engage in certain activities outside the United States, (x) the payment of dividends out of capital and unearned surplus by Columbia and by non-utility subsidiaries, and (xi) an agreement to allocate consolidated income tax liability among NiSource and its subsidiaries, subject to a request for reservation of jurisdiction (collectively, the "Proposed Transactions"). As such counsel, we have examined original, certified, or conformed copies of all such corporate records, agreements, instruments and documents and have made such other investigations as we have deemed necessary or appropriate to enable us to render the opinions expressed below. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies and the authenticity of the originals of such latter documents. As to any facts material to our opinion, we have, when relevant facts were not independently established by us, relied upon the aforesaid instruments and documents. The opinions expressed below with respect to the Proposed Transactions are subject to the following assumptions and conditions: (a) The Proposed Transactions shall have been duly authorized and approved, to the extent required by the governing documents and applicable state laws, by the Board of Directors of NiSource and/or its appropriate subsidiary. (b) The Commission shall have duly entered an appropriate order with respect to the Proposed Transactions as described in the Application granting and permitting the Application to become effective under the Act and the rules and regulations thereunder and the Proposed Transactions shall have been consummated in accordance with the Application and said order. (c) Any registration statement required to be filed with respect to any securities to be issued shall have become effective pursuant to the Securities Act of 1933, as amended; no stop order shall have been entered with respect thereto; and the issuance of any such securities shall have been consummated in compliance with or pursuant to an exemption under the Securities Act of 1933, as amended, and the rules and regulations thereunder. (d) The Applicants shall have obtained all consents, waivers and releases, given all notices and made all filings, if any, required for the Proposed Transactions under all applicable governing corporate documents, contracts, agreements, debt instruments, indentures, franchises, licenses and permits. (e) As to the due organization of certain Applicants, namely Kokomo Gas and Fuel Company, Northern Indiana Fuel and Light Company, Bay State Gas Company and Northern Utilities, Inc., the opinions of local counsel for such Applicants on which we have relied are correct. The opinions with respect to due organization filed as Exhibits F to the Application-Declarations on Form U-1, as Securities and Exchange Commission October 24, 2000 Page 3 amended, in connection with the Columbia Financing Orders (as that term is defined in the Application) are correct. The representation and warranty of Columbia as to the due organization of each of its subsidiaries in Section 5.1(a) of the Agreement and Plan of Merger, dated as of February 27, 2000, as amended and restated as of March 31, 2000, among NiSource, Columbia, New NiSource and related subsidiary corporations is correct. (f) No act or event other than as described herein shall have occurred subsequent to the date hereof which would change the opinions expressed herein. (g) The consummation of the Proposed Transactions shall be conducted under our supervision and all legal matters incident thereto shall be satisfactory to us, including the receipt in satisfactory form of opinions of other counsel qualified to practice in jurisdictions in which we are not admitted to practice, as we may deem appropriate. Based on the foregoing and subject to the qualifications set forth herein, we are of the opinion that: 1. The consummation of the Proposed Transactions will not violate any of the laws of the State of Indiana applicable to such transactions. 2. The Applicants are each validly organized and duly existing; the securities to be issued by the Applicants will, in the case of stock, be validly issued, fully paid and non-assessable and, in the case of debt securities, be valid and legally binding obligations of such companies, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and the holders thereof will be entitled to the rights and privileges appertaining thereto. 3. The Applicants will legally acquire any securities or assets being acquired. 4. The consummation of the proposed transactions will not violate the legal rights of the holders of any securities issued by NiSource or any associate company thereof. Securities and Exchange Commission October 24, 2000 Page 4 The law covered by the opinions expressed herein is limited to the laws of the States of Delaware and Indiana and the federal securities laws of the United States of America. We hereby consent to the filing of this opinion as Exhibit F to the Application. Very truly yours, SCHIFF HARDIN & WAITE By: /s/ Peter V. Fazio, Jr. ---------------------------------- Peter V. Fazio, Jr. EX-99 3 0003.txt EXHIBIT J-3 THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING' SECURITIES THAT AVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NISOURCE INC. ----------------- COMMON SHARES WITHOUT PAR VALUE ----------------- OFFERED PURSUANT TO THE NISOURCE INC. EMPLOYEE STOCK PURCHASE PLAN ----------------- The Employee Stock Purchase Plan of NiSource Inc. provides eligible employees with the opportunity to purchase Common Shares of NiSource Inc. at a discount from market value through payroll deductions. The primary purposes of the Plan are to provide employees of NiSource Inc. and certain of its subsidiaries an additional means of saving a portion of their earnings and to encourage employee ownership of NiSource Inc. Common Shares. Further information concerning the' Plan, including the number of Common Shares to be offered pursuant to the Plan, is set forth herein. ----------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------- The date of this Prospectus is May 1, 1999 NISOURCE INC. NiSource Inc. ("NiSource" or the "Company"), formerly NIPSCO Industries, Inc. is an Indiana corporation, incorporated on September 22, 1987, which serves as the holding company for a number of subsidiaries, including five public utility operating companies: Northern Indiana Public Service Company ("Northern Indiana"), Kokomo Gas and Fuel Company ("Kokomo Gas"), Northern Indiana Fuel and Light Company, Inc. ("NIFL'), Indianapolis Water Company, ("IWC"), and Bay State Gas Company ("BSG"). NiSource major non-utility subsidiaries include NiSource Development Company, inc. ("Development"), NIPSCO Energy Services, Inc. ("Services"), and NiSource Capital Markets, Inc. ("Capital Markets") and Primary Energy, Inc. ("Primary"). Northern Indiana, NiSource largest and dominant subsidiary, is a public utility operating company, incorporated in Indiana on August 2, 1912, engaged in supplying natural gas and electric energy to the public. It operates in 30 counties in the northern part of Indiana, serving an area of about 12,000 square miles with a population of approximately 2,200,OOO. At December 31, 1997, Northern Indiana served approximately 729,449 customers with gas and approximately 416,334 with electricity. AVAILABLE INFORMATION NiSource is subject to the informational requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission ("SEC"). Copies of such reports, proxy statements, and other information can be obtained, at prescribed rates, from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, such reports, proxy statements, and other information can be inspected at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Offices located at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street, Chicago, Illinois 60661. Industries' Common Shares are traded on the New York Stock Exchange ("NYSE"), the Chicago Stock Exchange ("CHX"), and the Pacific Stock Exchange ("PSE") and such reports and other information can be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005, the CHX, One Financial Place, 440 South LaSalle Street, Chicago, Illinois 60605 and the PSE, 301 Pine Street, San Francisco, California 94104. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by Industries with the SEC are incorporated herein by reference: 1. NiSource Annual Report on Form 1 O-K for the year ended December 31, 1997. 2. NiSource Quarterly Reports on Form 10-Q for the quarter ended March 31 and June 30, and September 30, 1997. 3. The description of NiSource Common Shares contained in NiSource Registration Statement on Form 8-K dated February 13,1998. All documents filed by NiSource pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing such documents. This Prospectus incorporates documents by reference that are not presented herein or delivered herewith. These documents are available without charge upon written or oral request from NiSource 2 Shareholder Services, 5265 Hohman Avenue, Hammond, Indiana 46320 (telephone toll-free out of state, 800-348-6466, toll-free within Indiana 800-552-6815 and Hammond local calls (219) 8535700). DESCRIPTION OF THE PLAN The Company has had an Employee Stock Purchase Plan since 1964, which has been amended from time to time. Effective March 3, 1988, the Plan was assumed by NiSource and amended to allow participation by eligible employees of NiSource and certain of its subsidiaries. The Plan provides eligible employees with the opportunity to purchase common shares, without par value, of NiSource ("Common Shares") at a discount from market value through payroll deductions. The primary purposes of the Plan are to provide employees of NiSource and its participating subsidiaries an additional means of saving a portion of their earnings and to encourage employee ownership of Common Shares. Further information concerning the Plan, including the number of Common Shares to be offered pursuant to the Plan, is set forth herein. 1. WHAT IS THE PLAN? The Plan offers a convenient and economical way for eligible employees of NiSource or any participating subsidiaries thereof to initiate or increase their ownership of Common Shares. Once you are enrolled in the Plan your payroll deductions will be used by the administrator of the Plan (see question 30) to purchase Common Shares (both full and fractional shares) for you. 2. WHO MAY PARTICIPATE? Participating companies are: (1) NiSource; and (2) Those subsidiaries of NiSource whose Boards of Directors have adopted resolutions requesting participation in the Plan for their employees and whose requests are approved by the Industries Welfare Benefit Plans Administrative Committee. You may participate if: (1) you are an active employee of NiSource or a participating subsidiary with at least one year of service with NiSource or any subsidiary; and (2) either: (a) you are a full-time employee or a part-time employee whose customary employment is more than 20 hours per week and more than-five months in any calendar year; or (b) you are customarily employed by NiSource or a participating subsidiary for at least six months in any calendar year. However, even if you qualify under these rules, you may not acquire any right to purchase Common Shares under the Plan if: (1) immediately after participating, you would own at least 5% of the total combined voting power or value of all classes of stock of the Company or any subsidiary; or (2) such right would permit you to purchase stock under this Plan or any similar employee stock purchase plan of the Company or any subsidiary with a fair market value of more than $25,000 in a calendar year. 3 3. HOW DOES THE PLAN OPERATE? The Plan provides for four Savings Periods during each calendar year, Savings accumulated by you through payroll deductions will be used at the end of each Savings Period to purchase as many full and fractional Common Shares as possible at the purchase price determined for that Savings Period. 4. WHAT ARE THE SAVINGS PERIODS? Savings Periods are the three month periods from January 1 to March 31, April 1 to June 30, July 1 to September 30 and October 1 to December 31. Each Savings Period includes all paydays within that period. 5. WHEN CAN I START MY PARTICIPATION IN THE PLAN? You become eligible to participate in the Plan on the first day of the month in which you first meet the criteria listed in response to Question 2. You can enroll and start purchasing Common Shares as of the first day of the next month. Whether or not you participate in the Plan is your decision. 6. IF I'AM ELIGIBLE, HOW DO I ENROLL IN THE PLAN? You may enroll by giving NiSource Shareholder Services a signed payroll Deduction Authorization Form (the "Authorization"). The Authorization becomes effective for payroll periods ending on or after the first day of the following month. All Authorizations must be received by the 15th of the month. Any forms received after the 15th will not be processed until the next month. For example, payroll deduction requests received between March 1 and March 15 will begin April 1. Any requests received between March 16 and March 31 will not begin until May 1. 7. WHAT ARE THE PROVISIONS OF THE AUTHORIZATION? Your Authorization directs your employer to deduct money from your pay in a specified amount while you are a participant in the Plan. The Authorization also specifies the registration of the shares. You, as the employee, must be named in the registration (see appendix A for examples). The Authorization is effective until you advise Payroll of a change in your participation as described in response to question 9. 8. WHEN WILL THE PAYROLL DEDUCTIONS START AND IN WHAT AMOUNT MAY THEY BE MADE? After NiSource Shareholder Services receives the Authorization, Payroll is notified of your deduction request. The deductions will begin in the first payroll period after the deduction information is processed by Payroll as described in response to question 6. Payroll deductions can be in any full dollar amounts, not less than $10 per regular pay period, and not more than $20,000 per calendar year. 9. WHAT IF I DECIDE TO INCREASE, DECREASE OR SiOP MY PAYROLL DEDUCTION? You may increase, decrease or stop your payroll deduction at any time. To make this change, you must deliver a new Authorization to NiSource Shareholder Services. Generally speaking, forms will become effective as described in response to question 6 with respect to payroll deduction requests. 10. WHAT HAPPENS TO THE MONEY DEDUCTED FROM MY PAY? Your payroll deductions will be credited to your Purchase Account under the Plan. At the end of each Savings Period, the balance in your Purchase Account will be applied to purchase the number of Common Shares as described in response to question 13. No interest is paid to any employee on the savings accumulated in his or her Purchase Account under the Plan. 4 11. WHAT WILL BE THE PRICE OF SHARES PURCHASED UNDER.THE PLAN? The purchase price per share assigned to the Common Shares for any Savings Period will be 90% of the fair market value. For purposes of the Plan, fair market value is the closing price of the Common Shares on the NYSE on the last trading day of the Savings Period. Common Shares purchased under the Plan will come from treasury shares, authorized but unissued shares or open market purchases of Common Shares. You will pay no brokerage commissions, fees or service charges in connection with purchases of Common Shares under the Plan. 12. HOW MANY SHARES MAY BE PURCHASED BY PARTICIPANTS UNDER THE PLAN? As of the date of this Prospectus, the maximum number of Common Shares that may be purchased in the future under the Plan is 469,062 shares. This number may increase in the future with shareholder approval. This number may also increase or decrease proportionately, as appropriate, in the event of a future stock dividend, stock split or combination of Common Shares. If the number of shares remaining available for purchase under the Plan is not sufficient to satisfy all then outstanding purchase rights, the available shares will be apportioned among all participants on an equitable basis. 13. HOW MANY SHARES CAN I BUY IN EACH SAVINGS PERIOD? The number of Common Shares purchased by you during each Savings Period will be determined by dividing your Purchase Account balance by the purchase price per share for that Savings Period. Shares will be allocated to four decimal places. The number of shares you can purchase will depend on the size of your payroll deductions and the fair market value of a Common Share as of each purchase date. For example, if you have authorized deductions of $200 for the Savings Period and the fair market value of a Common Share is $30, then your purchase price would be 90% of $30.00 or $27.00, and you would purchase 7.4074 Common Shares ($200/$27.00). 14. CAN COMMON SHARES BE PURCHASED UNDER THE PLAN FOR CASH? No. Common Shares can be purchased only through payroll deductions. 15. HOW DO I OBTAIN CERTIFICATES FOR THE COMMON SHARES I HAVE PURCHASED? For your convenience, all shares purchased for you under the Plan by the administrator are initially held in your Plan Account under the Plan. Certificates for full shares credited to your Plan Account will be issued and sent to you only upon written request to Harris Trust and Savings Bank ("Harris Trust"), the Plan custodian, 311 W. Monroe Street, 14th Floor, Chicago, Illinois 60690. 16. WHAT HAPPENS TO THE SHARES I PURCHASE? The shares you purchase will be considered credited and outstanding to you as of the close of business on the last day of each Savings Period. 17. MAY I DEPOSIT CERTIFICATED SHARES I OWN INTO THE PLAN? As a participant in the Plan, you may, if you wish, deposit any stock certificates now or hereafter registered in your name or as described in Appendix A, representing shares purchased under the Plan, for credit to your Plan Account. There is no charge for this service and such deposits will relieve you of the responsibility for loss, theft, or destruction of the certificates. Because you bear the risk of loss in sending stock certificates to Harris Trust, it is recommended that certificates be sent to Harris Trust by registered mail, return receipt requested, and properly insured. Whenever certificates are issued to YOU, either upon request or termination of your participation, new, differently numbered certificates will be issued. 5 18. HOW DO I SELL SHARES FOR WHICH I HOLD NO CERTIFICATES? You have two options: (1) Any shares held in your Plan Account can be sold through the Plan. The proceeds from the sale of your shares held in the Plan will be determined by the average price of all shares sold from the Plan on the day of sale. Any fractional share equivalent will be converted to cash at the same average sale price. or (2) You can request to have a certificate issued to you as described in response to question 15. Once a certificate is issued, you can sell those shares through a stockbroker. Certain restrictions are imposed by the Federal securities laws on sales of Common Shares by officers. All other employees may sell Common Shares purchased under the Plan without any restrictions. However, in light of certain Federal tax requirements, each employee on entering the Plan agrees to notify the Company if he or she disposes of any such Common Shares within one year after the purchase date. 19. COST OF THE PLAN TO YOU There are no brokerage commissions or service charges connected with Common Share purchases. These costs are paid by NiSource however, you will pay all costs incurred in the sale of shares. This would include a $5 service fee which may change from time to time and any associated broker commissions. 20. WILL COMMON SHARES BE REPURCHASED FROM AN EMPLOYEE? NiSource may, but is not obligated to, repurchase any Common Shares which you have purchased under the Plan. You may dispose of the Common Shares at any time you wish by selling them privately, on the open market, or through the Plan. To sell shares privately or on the open market, you would first need to have a certificate issued for your Common Shares as discussed in response to question 15. 21. WHAT HAPPENS TO MY DIVIDEND AND VOTING RIGHTS? You may elect either to receive a dividend check or reinvest your dividend in additional Common Shares under the Plan. You will receive proxy solicitation material just as any other shareholder, which will enable you to vote all full and fractional shares credited to your Plan Account. 22. WHAT HAPPENS IF THE COMPANY HAS A RIGHTS OFFERING OR PAYS A SHARE DIVIDEND? Your entitlement in a regular rights offering will be based on your holdings of full and fractional shares. Any share dividends or split shares distributed by NiSource on shares credited to your Plan Account will be added to your Plan Account. Rights, share dividends or split shares distributed on shares registered in your name will be mailed directly to you in the same way as to shareholders who do not participate in the Plan. 23. CAN MY RIGHTS UNDER THE PLAN BE ASSIGNED OR TRANSFERRED TO ANOTHER PERSON? No. Your rights under the Plan cannot be assigned or transferred to another person. 24. MAY I TERMINATE MY PARTICIPATION IN THE PLAN AT ANY TIME? Yes. Further, your death, retirement or termination of employment with NiSource and all affiliates will be considered your automatic termination from participation in the Plan. 6 25. HOW DO I TERMINATE MY PARTICIPATION IN THE PLAN AND WHEN IS IT EFFECTIVE? You must give written notice to NiSource Shareholder Services at least seven business days prior to the purchase date on which you wish to terminate participation. It will be effective immediately 26. WHAT HAPPENS WHEN I TERMINATE MY PARTICIPATION? YOU will receive a (1) certificate for all full Common Shares held in your Plan Account, and (2) check for the cash in your Purchase Account and the cash value of any fractional share held in your Plan Account (the cash value of the fractional share will be the average price of all shares sold from the Plan on the day of sale multiplied by the fractional share). You may also request a check for the cash value of all full and fractional shares held in your Plan Account (the cash value of the shares will be the average price of all shares sold from the Plan on the day of sale multiplied by the number of shares sold). If you select this option, you will pay all fees associated with the sale of Common Shares in your Plan Account as described in response to question 19. 27. MAY I WITHDRAW THE CASH IN MY PURCHASE ACCOUNT OR SUSPEND MY PAYROLL DEDUCTIONS WITHOUT TERMINATING MY PARTICIPATION IN THE PLAN? Withdrawing the cash balance credited to your Purchase Account does not terminate your participation in the Plan. However, it does discontinue your payroll deductions. You may suspend your payroll deductions to the Plan without terminating your participation. To resume your payroll deductions, it would be necessary to fill out a new Authorization as described in response to question 6. 28. WHAT HAPPENS IF I DIE, RETIRE, TERMINATE MY EMPLOYMENT OR OTHERWISE CEASE TO BE ELIGIBLE TO PARTICIPATE? Upon the occurrence of such event, your participation in the Plan will immediately stop. The cash credited to your Purchase Account on the date of such termination, a certificate for all full Common Shares held in your Plan Account and the cash value of any fractional share as specified in response to question 26 shall be delivered promptly to you or your legal representative. If one of these events occurs during a Savings Period, your deductions for that period will NOT be used to purchase Common Shares. They will be returned to you or your legal representative. 29. HOW DO I LEARN ABOUT THE STATUS OF MY PURCHASE AND PLAN ACCOUNTS? Each payroll deduction will be shown on your pay stub. In addition, a statement of your Plan and Purchase Accounts will be mailed approximately two weeks after the completion of the investment of quarterly cash deductions or any other transaction involving your Plan and Purchase Accounts. These statements contain information that is helpful for tax reporting and cost basis purposes; therefore, you should keep the statements until all Common Shares purchased under the Plan and Purchase Accounts have been disposed of and all tax obligations have been met. You will also receive all reports issued to shareholders of Industries, including annual reports, interim reports and proxy solicitation material. 30. WHO ADMINISTERS THE PLAN? The Controller, NiSource Management Services Company, 5265 Hohman Avenue, Hammond, Indiana 46320 is the administrator of the Plan. However, should you have questions concerning the Plan, or your Accounts, you should contact NiSource Shareholder Services at (219) 853-5700 (Hammond local calling area), toll-free within Indiana 800-552-6815 or toll-free out of state 800-348-6466. 7 31. WHAT IS THE RESPONSIBILITY OF THE COMPANY AND ADMINISTRATOR UNDER THE PLAN? The Company and the administrator will not be liable for any act done in good faith in connection with the Plan, or for any good faith omission to act, including, without limitation, any claim of liability arising out of failure to terminate a participant's Purchase and Plan Accounts upon such participant's death or retirement prior to the receipt of notice in writing of the event. 32. WHO INTERPRETS AND REGULATES THE PLAN? The Administrator reserves the right to interpret and regulate the Plan. 33. HOW LONG WILL THE PLAN BE IN EFFECT? Unless earlier terminated by the Board of Directors of NiSource the Plan will terminate when the maximum number of Common Shares available for sale under the Plan have been purchased. (See response to question 12.) 34. MAY THE PLAN BE TERMINATED OR AMENDED? NiSource reserves the right to modify, suspend or terminate the Plan, by action of its Board of Directors, as of the beginning of any Savings Period. Notice of suspension, modification or termination will be given to all participants. Upon termination of the Plan for any reason, the cash then credited to your Purchase Account, if any, a certificate for all full Common Shares held in your Plan Account and the cash value of any fractional share shall be distributed promptly to you. The Board may also amend the Plan from time to time to meet changes in legal requirements or for any other reason. In no event, however, may the Board amend the Plan to (i) materially adversely affect any rights outstanding under the Plan during the Savings Period in which such amendment is to be effected, (ii) increase the maximum number of Common Shares which may be purchased under the Plan (except with the approval of the shareholders of Industries, or as described in response to question 12) (iii) decrease the purchase price of the Common Shares below 90% of the fair market value or (iv) adversely affect the qualification of the Plan under Section 423 of the Internal Revenue Code. 35. IS AN EMPLOYEE REQUIRED TO ENTER THE PLAN? Absolutely not. Each employee who participates in.the Plan does so on a strictly voluntary basis. Each employee should decide whether the purchase of shares is a wise investment for him or her. An employee may wish to consult a banker or other specialist in investment matters or a tax advisor before making his or her decision. 36. IS THE PLAN SUBJECT TO ANY PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 ("ERISA")? The Plan is not subject to any provisions of ERISA. 37. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE PLAN? The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. While you will not realize taxable income at the time you purchase Common Shares under the Plan, there may be a taxable event later when you sell or otherwise dispose of the shares, You should consult your tax advisor in this regard. You will also be taxed on dividends on those shares as they are paid. 8 The length of time you hold your Common Shares before disposing of them is an important variable in determining federal income tax consequences. Your holding period starts the day after the day your shares are purchased (i.e., the last day Common Shares were traded on the NYSE in the applicable Savings Period). For an employee who sells or otherwise disposes of Common Shares purchased under the Plan, federal income tax considerations will differ, depending upon how long he or she has held the shares. Under present law, if the employee holds the Common Shares at least one year before disposing of them, the tax consequences, in the year of disposal, will be as follows: any profit up to the 10% discount will be taxable as ordinary income; any further profit will be taxable as a capital gain; any loss will be treated as a capital loss. Examples: Employee purchases one Common Share for $27.00 when market price is $30.00 (10% discount is $3.00) If he or she sells at . . . . . . . . . . . . . . . . $32.00 $29.00 $26.00 Resulting ordinary income would be . . . . . . . . . 3.00 2.00 -- Resulting capital gain or (loss) would be . . . . . . 2.00 -- (1.00) Under present law, if the employee holds shares less than one year before disposing of them, the tax consequences, in the year of disposal will be as follows: the full 10% discount will be taxable as ordinary income; any further profit will be taxable as a capital gain; any loss, after considering the full 10% discount as income, will be treated as capital loss. Examples: Employee purchases one Common Share for $27.00 when market price is $30.00 (10% discount is $3.00) If he or she sells at . . . . . . . . . . . . . . . . $32.00 $29.00 $26.00 Resulting ordinary income would be . . . . . . . . . 3.00 3.00 3.00 resulting capital gain or (loss) would be . . . . . . 2.00 (1.00) (4.00) Under present law, upon the death of an employee, whenever it occurs, there shall be included in the employee's ordinary taxable income, in the year in which death occurs, the amount by which the market price at date of death exceeds the amount paid for the shares; however, this amount shall not exceed the original 10% discount. lt is important to note that an employee does not have any tax consequences so long as he or she retains the shares. However, this statement must not be considered as a suggestion that the employee should not sell his or her shares. Under present law, if an employee holds shares less than one year before disposing of them, Industries will be allowed a deduction in the year of disposal equal to the 10% discount in Computing its taxable income. These examples are intended to serve as a guide for use in preparing U.S. income tax returns in the typical case of sale at market value of shares acquired under the Plan, If an employee disposes of his or her shares other than by selling them at market value, different U.S. tax considerations may apply. State and local income tax considerations may also apply. In all cases, employees may want to obtain tax advice before filing their tax returns. 9 APPENDIX A
Registration Example Sole Ownership Shares are owned by an individual solely. John Smith Joint Tenants with rights of survivorship (Jt. Ten.) John Smith & Mary Smith Jt Ten Shares are owned equally by both owners and upon the death of one of the registered owners, the shares would be transferred to the survivor. Trust registration John Smith Tr. Ua. 1/1/95 John Smith Revocable Living Trust Property in a Trust is held and managed by the employee as trustee for his benefit as beneficiary of the Trust. The above are examples only and are not intended to be an exhaustive list of all possible variations.
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