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