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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] 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 1-9776
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NISOURCE INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
INDIANA 35-1719974
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
801 EAST 86TH AVENUE 46410
MERRILLVILLE, INDIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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Registrant's telephone number, including area code 219-853-5200
Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON SHARES NEW YORK, CHICAGO AND PACIFIC
PREFERRED SHARE PURCHASE RIGHTS NEW YORK, CHICAGO AND PACIFIC
OBLIGATIONS PURSUANT TO SUPPORT NEW YORK
AGREEMENTS WITH NISOURCE CAPITAL MARKETS, INC.
CORPORATE PREMIUM INCOME EQUITY SECURITIES NEW YORK
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 29, 2000, 124,685,697 Common Shares (not including
23,098,521 Common Shares held in treasury) were outstanding. The aggregate
market value of the Common Shares (based upon the February 29, 2000, closing
price of $12.938 on the New York Stock Exchange) held by nonaffiliates was
approximately $1,508,260,520.88.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the NiSource Inc. 1999 Annual Report to Shareholders are
incorporated by reference into Parts I, II and IV of this report.
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PART I
ITEM 1. BUSINESS
OVERVIEW OF CONSOLIDATED BUSINESS
NiSource Inc. (NiSource), formerly NIPSCO Industries, Inc., is an energy
and utility-based holding company headquartered in Merrillville, Indiana, that
provides natural gas, electricity and water to the public for residential,
commercial and industrial uses. NiSource was organized as an Indiana holding
company in 1987 under the name "NIPSCO Industries, Inc.," and changed its name
to NiSource Inc. on April 14, 1999, to reflect its new direction as a
multi-state supplier of energy and water resources and related services.
NiSource's gas business is comprised primarily of regulated gas utilities
that operate throughout northern Indiana and New England. In addition, NiSource
expanded its gas marketing, trading and storage operations with the April 1999
acquisition of TPC Corporation, now renamed EnergyUSA-TPC Corp. (TPC).
NiSource's electric business is comprised of a regulated electric utility that
operates in northern Indiana. The electric business also includes wholesale
sales and power marketing activities. NiSource's regulated gas and electric
subsidiaries are collectively referred to as the "Energy Utilities." NiSource's
regulated water subsidiaries are collectively called the "Water Utilities."
Collectively the Energy and Water Utilities are referred to as the "Utilities."
Non-regulated energy and utility-related products and services are provided
through the "Products and Services" subsidiaries. Products and Services
subsidiaries perform energy-related services and offer products in connection
with these services, which include pipeline construction, repair and maintenance
of underground gas pipelines and locating and marking utility lines.
In addition to the Utilities and the Products and Services subsidiaries,
NiSource has a wholly-owned subsidiary, NiSource Capital Markets, Inc. (Capital
Markets), which engages in financing activities for NiSource and certain of its
subsidiaries, excluding Northern Indiana Public Service Company (Northern
Indiana).
In June 1999, NiSource commenced a tender offer to acquire Columbia Energy
Group (CEG). In December 1999, CEG acknowledged preliminary indications of
interest from numerous other third parties and invited formal bids from those
companies that had indicated a preliminary value higher than the NiSource tender
offer price of $74 per share. As a result, in December, NiSource wrote off the
costs associated with its tender offer. On February 11, 2000, the NiSource
tender offer expired.
On February 28, 2000, after completion of the bidding process initiated by
CEG, NiSource and CEG announced approval of a merger agreement under which
NiSource will form a new holding company, which will acquire all of the
outstanding shares of CEG valued at approximately $6 billion. The new holding
company will also assume approximately $2.5 billion of CEG debt. Under the
agreement, CEG shareholders have the option to receive new holding company stock
for up to 30% of the outstanding CEG shares. Under the common stock option, each
CEG share will be exchanged for $74 in new holding company stock, based on the
average NiSource share price prior to the closing, but not more than 4.4848
shares of new holding company stock for each CEG share. Under the cash option,
each CEG share will be exchanged for $70 in cash plus a $2.60 face value unit
(consisting of a zero coupon debt security with a forward equity contract). A
commitment letter was accepted under which certain financial institutions
agreed, under specified conditions, to provide up to $6.0 billion to finance the
acquisition of CEG. The merger is conditioned upon, among other things, the
approvals of the shareholders of both companies and various regulatory
commissions. If NiSource shareholder approval is not obtained, the merger
agreement provides that the transaction will automatically be restructured to
eliminate the 30% common stock option for CEG shareholders.
See "Segments of Business" in the Notes to Consolidated Financial
Statements and "Selected Supplemental Information" in the 1999 Annual Report to
Shareholders regarding financial information about industry segments and classes
of customers served (see Exhibit 13).
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ELECTRIC OPERATIONS
Northern Indiana, NiSource's largest and dominant subsidiary, is a public
utility operating company incorporated in Indiana on August 2, 1912, that
supplies natural gas and electric energy to the public. It operates in 30
counties in the northern part of Indiana, serving an area of about 12,000 square
miles with a population of approximately 2.2 million. At December 31, 1999,
Northern Indiana served approximately 425,833 customers with electricity.
Northern Indiana owns and operates four coal-fired electric generating
stations with net capabilities of 3,179,000 kilowatts (kw), two hydroelectric
generating plants with net capabilities of 10,000 kw and four gas-fired
combustion turbine generating units with net capabilities of 203,000 kw for a
total system net capability of 3,392,000 kw. During the year ended December 31,
1999, Northern Indiana generated 89.9% and purchased 10.1% of its electric
requirements.
Northern Indiana's 1999 electric control area peak load (the highest level
of electrical utility usage in the control area) of 3,307,340 kw was set on July
30, 1999. Northern Indiana's electric control area includes Northern Indiana,
Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency
(IMPA). The 1999 peak established a new all time peak, exceeding the old peak of
3,161,200 kw previously set on July 14, 1995. Northern Indiana's 1999 internal
peak load, which excludes WVPA and IMPA, of 2,962,340 kw was also set on July
30, 1999. This also established a new all-time internal peak load, exceeding the
old peak of 2,888,450 kw previously set on August 6, 1996.
Northern Indiana's electric system is interconnected with the systems of
Ameren Services Corporation (formerly Central Illinois Public Service Company),
American Electric Power, Commonwealth Edison Company (ComEd), Cinergy Services,
Inc. and Consumers Energy. Electric energy is purchased from, sold to or
exchanged with various other utilities and power marketers under Northern
Indiana's power sales and open access transmission tariffs.
Northern Indiana provides WVPA with transmission and distribution service,
operating reserve requirements and capacity deficiency service and provides IMPA
with transmission service, operating reserve requirements and capacity
deficiency service, in Northern Indiana's control area. Northern Indiana also
engages in sales and services under interconnection agreements with WVPA and
IMPA.
WVPA provides service to 12 Rural Electric Membership Corporations (REMC's)
located in Northern Indiana's control area. IMPA provides service to the
municipal electric system of the city of Rensselaer located in Northern
Indiana's control area.
Northern Indiana and WVPA have executed a supplemental agreement for unit
peaking capacity and energy. Unit peaking capacity is the capacity used to serve
peak demand from a specific peaking generating unit. Pursuant to this agreement,
which runs through December 2001, WVPA purchases 90,000 kw of capacity per
month.
Northern Indiana serves the Town of Argos as a full requirement customer
and provides network integration service to seven other municipal wholesale
customers.
Northern Indiana is a member of the East Central Area Reliability
Coordination Agreement (ECAR). ECAR is one of nine regional electric reliability
councils established to coordinate planning and operations of member electric
utilities regionally and nationally.
Fuel Supply. The generating units of Northern Indiana are located at
Bailly, Mitchell, Michigan City and Schahfer Generating Stations. Northern
Indiana's 13 steam generating units have a net capability of 3,179,000 kw. Coal
is the primary source of fuel for all units, except for three, which utilize
natural gas. In addition, Northern Indiana's four combustion turbine generating
units with a net capability of 203,000 kw are fired by gas. Fuel requirements
for Northern Indiana's generation for 1999 were supplied as follows:
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Coal..................................................... 97.9%
Natural gas.............................................. 2.1%
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In 1999, Northern Indiana used approximately 9.0 million tons of coal at
its generating stations. Northern Indiana has established a normal level of coal
stock that is expected to provide adequate fuel supply during the year.
Annual coal requirements for Northern Indiana's electric generating units
through 2003 are estimated to range from 9.4 million tons to 9.7 million tons,
depending from year to year upon anticipated sales levels, scheduled maintenance
and other variables. These requirements are being met or will be met in part
under long-term contracts as follows:
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MILLION TONS/YEAR SULFUR CONTENT EXPIRATION
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1.300(a) Low 2001
1.600(b) Low 2002
1.000(c) Low 2001
0.500(d) Low 2000
0.432(e) Low 2002
1.000(f) High 2000
0.600 High 2004
0.500(g) High 2001
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(a) 1.3 million tons in 2000; 0.25 million tons in 2001.
(b) 1.6 million tons in 2000; plus or minus 10% option years in 2001 and 2002.
Northern Indiana can terminate 12/31/2000 or 12/31/2001.
(c) 0.8 million to 1.2 million tons in 2000 and 2001.
(d) Option year in 2000.
(e) Option to purchase an additional 0.432 million tons in 2000 and 2001; 0.864
million tons in 2002.
(f) 1.0 million tons in 2000.
(g) 0.75 million tons in 2000 and 2001.
The average cost of coal consumed in 1999 was $26.13 per ton, or 1.47 cents
per kilowatt-hour (kwh) generated as compared to $26.83 per ton, or 1.52 cents
per kwh generated in 1998.
Coal Reserves. Included in the previous table of coal contracts is a coal
mining contract with Cyprus Shoshone Coal Corporation (Cyprus) under which
Cyprus is mining Northern Indiana's coal reserves in the Cyprus mine through the
year 2001. The costs of such reserves are being recovered through the ratemaking
process as such coal reserves are used to produce electricity.
Fuel Adjustment Clause. Northern Indiana adjusts metered electric rates
through operation of a fuel adjustment clause to reflect changes in fuel costs.
See "Summary of Significant Accounting Policies-Fuel Adjustment Clause" in the
Notes to Consolidated Financial Statements.
GAS UTILITY OPERATIONS
Northern Indiana, Bay State Gas Company (BSG), Northern Utilities, Inc.
(Northern Utilities), Kokomo Gas and Fuel Company (Kokomo Gas) and Northern
Indiana Fuel and Light Company (NIFL), combined, are the tenth largest local
natural gas distribution company in the nation, servicing more than one million
gas customers.
Northern Indiana. Northern Indiana supplies natural gas of about 1,000
British thermal units (Btu) per cubic foot. In a 24-hour period ended January 5,
1999, Northern Indiana's 1999 maximum day send-out (the maximum amount of gas
delivered through Northern Indiana's distribution system to its end customers)
was 1.7 million dekatherms (dth). Northern Indiana's total gas send-out for 1999
was 282.5 million dth, compared to 266.0 million dth in 1998.
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Agreements have been negotiated with natural gas suppliers to replace
former pipeline supplier contracts pursuant to the requirements of Federal
Energy Regulatory Commission (FERC) Order No. 636. Northern Indiana also has
agreements which allow for the purchase of gas either from gas marketers or
producers.
Northern Indiana has firm transportation agreements with pipelines, which
allow Northern Indiana to move its gas through the pipelines' transmission
systems. In 1999, all of the gas supplied by Northern Indiana was transported by
ANR Pipeline Company (ANR), Crossroads Pipeline Company (Crossroads), a
subsidiary of NiSource, Midwestern Gas Transmission Company (Midwestern),
Natural Gas Pipeline Company of America (Natural), Panhandle Eastern Pipe Line
Company (Panhandle), Tennessee Gas Pipeline Company (Tennessee) and Trunkline
Gas Company (Trunkline). The transportation rates of Crossroads and the
transportation and storage rates of ANR, Midwestern, Natural, Panhandle,
Tennessee and Trunkline to Northern Indiana are subject to change in accordance
with rate proceedings filed with the FERC.
Approximately 77% of Northern Indiana's 1999 gas supply was purchased on
the spot market, generally on less than 30-day agreements. The average price per
dth (including FERC Order No. 636 transition charges) in 1999 was $2.56,
compared to $2.49 in 1998, and the average cost of purchased gas, after
adjustment for transition charges billed to transport customers, was $2.58 per
dth, as compared to $2.48 per dth in 1998.
Northern Indiana has a curtailment plan (a plan which outlines service to
be curtailed in the event of limited gas supply) that has been approved by the
Indiana Utility Regulatory Commission (IURC). There were no firm sales
curtailments in 1999 and none are expected during 2000.
Northern Indiana operates an underground gas storage field at Royal Center,
Indiana, which currently has a storage capacity of 6.75 million dth. Withdrawals
were made in the 1999-2000 winter of up to 103,126 dth per day. In addition,
Northern Indiana has several gas storage service agreements which make possible
the withdrawal of substantial quantities of gas from other storage facilities.
All of the storage agreements have limitations on the volume and timing of daily
withdrawals. These contracts provide in the aggregate for approximately 29.6
million dth of annual stored volume and allow for approximately 661,000 dth of
maximum daily withdrawal.
Northern Indiana has a liquefied natural gas plant in LaPorte County which
is designed for peak shaving (the process of supplementing gas supply during
periods of high demand) and has the following capacities: maximum storage of 4
million dth; maximum liquefaction rate (gas to liquid), 20,000 dth per day;
maximum vaporization rate (output to distribution system), 300,000 dth per day.
BSG and Northern Utilities. BSG was incorporated in 1974 as a Massachusetts
corporation. BSG is primarily a gas distribution utility that provides local
transportation services in the greater Brockton, Lawrence and Springfield,
Massachusetts areas. Additionally, BSG also offers additional energy products
and services to its customers, and invests in energy ventures. Northern
Utilities is a gas distribution utility operating in the Portland and Lewiston
areas of Maine and the Portsmouth areas in New Hampshire.
Almost all of BSG customers purchase bundled local transportation and
natural gas, with only 22,563 of 315,670 gas distribution customers electing to
purchase unbundled local transportation. BSG total gas send-out for 1999 was
87.3 million dth.
BSG has firm transportation agreements with pipelines, which allow BSG to
move its gas through the pipelines' transmission systems. In 1999, all of the
gas supplied by BSG was transported by Algonquin Gas Transmission Company,
Portland Natural Gas Transmission Systems (PNGTS) (NiSource owns 19.06% of
PNGTS), Granite State Gas Transmission Inc. (Granite), a subsidiary of NiSource,
CNG Transmission Corp., National Fuel Gas Supply Corp., Iroquois Gas
Transmission System, Texas Eastern Transmission Corp., Texas Gas Transmission
Corp., Williams Gas Pipeline and Tennessee Gas Pipeline Company.
BSG has several gas storage service agreements, which make possible the
withdrawal of substantial quantities of gas from underground storage facilities.
All of the storage agreements have limitations on the volume and timing of
quantities of gas from other storage facilities. All of the storage agreements
have limitations on the volume and timing of daily withdrawals. These contracts
provide in aggregate for
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approximately 13.5 million dth of annual stored volume and allow for
approximately 127,468 dth of maximum daily withdrawal.
BSG produces liquid propane (LP) air gas from LP purchased from several
suppliers. The LP air gas is produced by BSG's seven LP air gas plants, all
located in Massachusetts, which have a combined storage capacity of 320,249 dth
of natural gas equivalent and a combined rated daily vaporization capability of
118,194 dth.
BSG owns a liquefied natural gas (LNG) facility in Springfield,
Massachusetts which consists of liquefaction equipment capable of liquefying
10,000 dth of natural gas per day, a 1,020,000 dth storage tank and vaporization
equipment capable of vaporizing 55,000 dth per day. BSG has a leased LNG
facility in Brockton, Massachusetts with a storage capacity of 800,000 dth and
rated daily vaporization capability of 50,000 dth. BSG has two LNG satellite
facilities which storage capacities of 8,000 and 12,800 dth, and daily
vaporization capability of 12,000 and 19,200 dth, respectively.
Northern Utilities has one LP air gas plant in New Hampshire with a storage
capacity of 9,908 dth of natural gas equivalent and rated daily vaporization
capability of 4,080 dth. Northern Utilities has one LP air gas plant in Maine
with a storage capacity of 16,761 dth of natural gas equivalent and a rated
daily vaporization capability of 10,000 dth.
Northern Utilities also has one LNG facility in Maine with a storage
capability of 13,750 Mt. and rated daily vaporization capability of 14,000 Mt.
Kokomo Gas. Kokomo Gas is a public utility operating company incorporated
in Indiana in 1917, that supplies natural gas to the public. It operates in the
city of Kokomo, Indiana and the surrounding six counties having a population of
approximately 100,000, and served approximately 34,500 customers at December 31,
1999. The Kokomo Gas service territory is contiguous to Northern Indiana's gas
service territory.
Kokomo Gas has a liquefied natural gas plant in Howard County with the
following capacities: maximum storage of 400,000 thousand cubic feet (mcf);
maximum liquefaction rate of 2,850 mcf per day; maximum vaporization rate of
30,000 mcf per day. Kokomo Gas also has a gas holder with a storage capacity of
12,000 mcf.
Kokomo Gas' total gas send-out for 1999 was 8.0 million dth, compared to
7.4 million dth for 1998. Total transportation volumes for industrial customers
in 1999 were 3.5 million dth, compared to 3.3 million dth in 1998. Kokomo Gas
purchased gas under a term agreement from TPC to satisfy all of its system
requirements in 1999.
NIFL. NIFL is a public utility operating company incorporated in Indiana in
1906, that supplies natural gas to the public. Headquartered in Auburn, Indiana,
it operates in five counties in the northeast corner of the state having a
population of approximately 66,700, and served approximately 35,491 customers at
December 31, 1999. The NIFL service territory is contiguous to Northern
Indiana's gas service territory.
NIFL's total gas send-out for 1999 was 13.7 million dth, compared to 11.0
million dth for 1998. Total transportation volumes for industrial customers in
1999 were 8.9 million dth, compared to 6.7 million dth in 1998. NIFL purchased
gas on the spot market from a number of suppliers and also under term agreements
from TPC to satisfy system requirements in 1999.
Crossroads. Crossroads is a natural gas pipeline company which was approved
by FERC to operate as an interstate pipeline in May 1995. Crossroads owns and
operates a 201-mile, 20-inch pipeline that extends from Schererville, Indiana,
in the northwestern corner of the state, where it takes delivery from the
interstate pipeline facilities of Natural Gas Pipeline Company of America, to
Cygnet, Ohio, located in northwestern Ohio, where it interconnects with
facilities owned by Columbia Gas Transmission Corporation.
Granite. Granite owns and operates a 105-mile, 6 to 12 inch diameter,
interstate pipeline that extends from Haverhill, Massachusetts, in a
northeasterly direction to a point near Westbrook, Maine. Granite receives gas
through its interconnects with Tennessee Gas Pipeline Company and PNGTS. Granite
serves customers through its interconnections with BSG and Northern Utilities.
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PNGTS. PNGTS is a 292-mile pipeline in northern New England in which
NiSource subsidiaries have a combined interest of 19.06%.
Gas Cost Adjustment Clause. Metered gas rates may be adjusted to reflect
the cost of purchased gas, contracted gas storage and storage transportation
charges. See "Summary of Significant Accounting Policies--Gas Cost Adjustment
Clause" in the Notes to Consolidated Financial Statements in the 1999 Annual
Report to Shareholders (see Exhibit 13).
WATER OPERATIONS
The Water Utilities supply water for residential, commercial and industrial
uses and for fire protection service in Indianapolis, Indiana and surrounding
areas. The territory served by the Water Utilities covers an area of
approximately 650 square miles in seven counties of central Indiana and the
Water Utilities served approximately 275,688 customers at December 31, 1999.
The combined maximum daily capacity of the Water Utilities' treatment
plants, together with the maximum daily capacity of the three primary well
fields, is 247 million gallons per day (MGD). During 1999, the average daily
consumption was 146 MGD and the maximum daily consumption was 221 MGD.
The principal sources of the Indianapolis Water Company (IWC) and IWC
Morgan Water Company water supplies are the White River, which flows through
Indianapolis from north to south and is supplemented by Morse Reservoir on a
tributary, Cicero Creek; Fall Creek, which flows through Indianapolis from the
northeast and is supplemented by Geist Reservoir; the city of Indianapolis'
Eagle Creek Reservoir, located on Eagle Creek in northwest Marion County, from
which water is purchased under a long-term contract; Geist Well Field, a ground
water supply located downstream of Geist Reservoir; and South Well Field located
in southern Marion and northern Johnson Counties. The principal source of water
for Harbour Water Corporation, Liberty Water Corporation, Lawrence Water
Company, Inc. and The Darlington Water Works Company are derived from wells
within their service territory.
The three large surface reservoirs are essential to providing an adequate
supply during dry periods. Two are used to supplement low stream flows in the
White River and Fall Creek, respectively, and water is drawn directly from the
third. The reservoirs are designed to maintain an adequate water supply in the
event of a repetition of the worst two-year drought ever recorded in the
Indianapolis area. The theoretical dependable supply from the three reservoirs
including natural stream flows represents approximately 63% of the total
dependable supply available to IWC with the balance supplied by natural stream
flow and wells.
The Water Utilities have aquifer protection plans for Geist and South Well
Fields. Once fully developed, the Geist Well Field will produce 12 to 15 MGD
while the South Well Field will produce 48 MGD. The protection plans will guide
the Water Utilities' development of these newest major sources of supply and
result in land use plans to protect the aquifer systems from potential
contamination sources.
GAS MARKETING
On April 1, 1999, NiSource acquired the stock of TPC, a natural gas storage
and marketing company based in Houston, Texas. As a result of the TPC
acquisition, NiSource had an indirect investment representing a 77.3% interest
in Market Hub Partners, L. P. (MHP), a Delaware limited partnership. During the
fourth quarter of 1999, NiSource subsidiaries purchased the remaining interests
in MHP.
TPC. TPC is a major natural gas marketer and gas asset portfolio manager.
During 1999, TPC assumed the operations of NESI Energy Marketing LLC (NEM) which
provided natural gas sales and management services to industrial and commercial
customers, engaged in natural gas marketing activities and provided gas supply
to Northern Indiana, Kokomo Gas and NIFL under spot and /or term contracts.
During 1999, TPC and NEM had combined sales of approximately 317 million dth.
MHP. MHP is one of the largest owners and operators of high deliverability
salt cavern natural gas storage capacity in North America. MHP's Moss Bluff and
Egan facilities, located near Houston, Texas, and
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in Acadia Parish, Louisiana, respectively, are strategically positioned at
industry-recognized market hubs near the convergence of major natural gas
pipelines and serve as aggregation points for natural gas collected along the
Texas and Louisiana Gulf Coast. The Moss Bluff and Egan facilities have
bi-directional interconnects to five pipelines, which form hub and spoke systems
and enable MHP to provide its customers with storage and other services that
allow better management of their variable gas load requirements. At December 31,
1999, MHP's two facilities maintained approximately 22.7 billion cubic feet
(bcf) of natural gas working storage capacity, 91.6% of which was leased under
storage contracts with major utilities, pipeline companies, local distribution
companies, natural gas producers and natural gas marketers. These storage
contracts provide a minimum level of revenue regardless of usage by the
customer. MHP supplements these revenues by providing a variety of load
management services. On February 17, 2000, drilling began at a third storage
facility located in Tioga County, Pennsylvania. The new facility is scheduled to
be completed in mid-June 2000. MHP performs storage services under long-term
demand contracts as well as various other hub services for Northern Indiana and
TPC.
PRODUCTS AND SERVICES AND OTHER SUBSIDIARIES
PRIMARY. Primary offers expertise to large energy customers in managing the
engineering, construction, operation and maintenance of various cogeneration
projects. Primary is the parent of the following subsidiaries: Harbor Coal
Company (Harbor Coal), North Lake Energy Corporation (North Lake), Lakeside
Energy Corporation (Lakeside), Portside Energy Corporation (Portside),
Cokenergy, Inc. (Coke), Whiting Clean Energy, Inc. (Whiting) and Ironside Energy
LLC (Ironside).
Harbor Coal. Harbor Coal is a 50% partner with Ispat Inland, Inc. (Ispat)
in a $65 million pulverized coal injection facility which began operation in
August 1993. The facility receives raw coal, pulverizes it and delivers it to
Ispat for use in the operation of its blast furnaces. NiSource 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. North Lake has entered into a lease for the use of a
75-megawatt energy facility located at Ispat. The facility uses steam generated
by Ispat to produce electricity which is delivered to Ispat. The facility began
commercial operation in May 1996. NiSource has guaranteed North Lake's
obligations relative to the lease and certain obligations to Ispat relative to
the project.
Lakeside. Lakeside 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. A fifteen-year tolling agreement with US Steel commenced on April
16, 1997 when the facility was placed in commercial operation. Capital Markets
guarantees certain limited Lakeside obligations to the lessor.
Portside. Portside has entered into a lease for the use of a 63-megawatt
energy facility at the Midwest Division of National Steel Corporation
(National), to process natural gas into electricity, steam and heated water to
be provided to National for a fifteen-year period. NiSource has guaranteed
certain Portside obligations to the lessor. The facility began commercial
operation on September 26, 1997.
Coke. Coke built and now leases and operates an energy facility at Ispat's
Indiana Harbor Works to scrub flue gases and recover waste heat from the coke
facility constructed by Indiana Harbor Coke Company, LP (Harbor Coke) and to
produce process steam and electricity from the recovered heat which is then
delivered to Ispat. Coke has a fifteen-year service agreement and a related
fifteen-year fuel supply agreement with Ispat and Harbor Coke. Capital Markets
guarantees certain obligations relative to the lease. The facility began
commercial operation on October 1, 1998.
Whiting. Whiting, acting as agent for an owner/lessor, has entered into
contracts for the construction of a 525-megawatt, natural gas fired, combined
cycle power plant. The facility will be located adjacent to BP Amoco Oil
Company's (Amoco) Whiting Refinery in Whiting, Indiana. Whiting has entered into
an agreement with the owner/lessor to lease the plant upon its completion. Upon
completion, presently scheduled for June 2001,Whiting will utilize the facility
to supply process steam to the refinery and electricity to the
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wholesale market. Capital Markets has guaranteed certain Whiting obligations to
the owner/lessor and to Amoco.
Ironside. Ironside, acting as agent for a third party owner/lessor, has
entered into contracts for the construction of a 50- megawatt cogeneration
plant. The facility is to be located in LTV Steel Company, Inc.'s (LTV) Indiana
Harbor Works plant in northwest Indiana. Ironside intends to enter into an
agreement to lease the facility from the owner/lessor upon completion of
construction. Ironside will sublease the facility to LTV and LTV will utilize
the facility to produce high-pressure steam and electricity upon completion of
construction, presently anticipated to occur in August 2001. Certain Ironside
obligations to the owner/lessor and to LTV are guaranteed by Capital Markets.
Primary has advanced approximately $36.6 million and $31.8 million, at
December 31, 1999 and December 31, 1998, respectively, to the lessors of the
energy-related projects discussed above. 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.
ENERGYUSA, INC. (EUSA). EUSA coordinates the energy-related diversification
efforts of NiSource.
EnergyUSA Commercial Energy Services, Inc. (Commercial). Commercial
provides energy solutions, which enhance its customers' competitiveness through
cost reductions, modernizing infrastructure and improving cost accountabilities,
including marketing energy efficient lighting solutions. During 1999, the
operations of all the Savage companies, which were acquired in the February 1999
purchase of BSG, including Savage ALERT, a company that serves the energy and
HVAC engineering needs of large-scale commercial customers in 22 states, were
reorganized under Commercial.
SM&P Utility Resources Inc.(SM&P) and Underground Technology, Inc. (UTI).
SM&P and UTI (of which NiSource owns 50%) provide underground facility locating
to utilities throughout the United States. During 1999, SM&P and UTI performed
6.6 million line locates making NiSource one of the largest locating providers
in the country.
Miller Pipeline Corporation (Miller). Miller installs and maintains
underground pipelines for natural gas and water utilities and also sells
products and services related to infrastructure preservation and replacement.
During 1999, Miller had sales of $72.6 million and 512 customers nationwide.
EnergyUSA Consumer Products Group (Consumer). Consumer provides home
products and propane sales, and participates in retail gas pilot programs in
Indiana, Ohio, Michigan, Massachusetts, New Hampshire and Maine.
NISOURCE DEVELOPMENT COMPANY, INC. (DEVELOPMENT). Through its subsidiaries,
Development makes various investments, primarily in real estate, intended to
complement NiSource's energy businesses. At December 31, 1999, Development has
$33.3 million of investments, at equity, relating to affordable housing projects
located primarily throughout Indiana. In 1992, it began the development of a
residential development located in Chesterton, Indiana which was substantially
complete at December 31, 1999.
CAPITAL MARKETS. Capital Markets provides financing for NiSource's subsidiaries
other than Northern Indiana and, in certain respects, IWC Resources Corporation
(IWCR) (the holding company for the Water Utilities) and BSG. As of December 31,
1999, Capital Markets had $137.0 million in commercial paper outstanding, having
a weighted average interest rate of 6.28%. Capital Markets has entered into a
five-year $100 million revolving credit agreement and a 364-day $100 million
revolving credit agreement with several banks. These agreements, which now
terminate on September 23, 2003 and September 23, 2000, respectively, provide
financing flexibility to Capital Markets and may be used to support the issuance
of commercial paper. At December 31, 1999, there were no borrowings outstanding
under either of these agreements. Capital Markets also has $163.0 million of
money market lines of credit. As of December 31, 1999, $142.5 million of
borrowings were outstanding under these lines of credit.
The financial obligations of Capital Markets are subject to a Support
Agreement between NiSource and Capital Markets, under which NiSource has
committed to make payments of interest and principal on Capital
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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 NiSource. Under the terms of the Support Agreement, in addition to the
cash flow of cash dividends paid to NiSource by any of its consolidated
subsidiaries, the assets of NiSource, 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 NiSource, other than the assets
of Northern Indiana, as reflected in the consolidated financial statements of
NiSource, was approximately $3.2 billion at December 31, 1999.
REGULATION
HOLDING COMPANY ACT. NiSource is currently exempt from registration with the
Securities and Exchange Commission (SEC) as a "registered holding company" under
the Public Utility Holding Company Act of 1935, as amended (Holding Company
Act). However, upon consummation of the acquisition of CEG, either the proposed
new holding company over NiSource or NiSource, whichever is the acquiring party,
will become a "registered holding company". As the result of registration, the
new combined NiSource/Columbia Energy System will be subject to regulation under
the Holding Company Act by the SEC, including, in the absence of exemption,
requirements for SEC approval for securities issuances and extensions of credit,
acquisitions and dispositions of utility property, acquisition of non-utility
business, and affiliate transactions between companies in the new system.
Registered systems are limited in the scope of their gas and utility operations
and in their ownership of non-utility businesses which are not functionally
related to their utility operations unless otherwise exempted under the Holding
Company Act. The Holding Company Act also regulates holding company system
service companies and the rendering of services by holding company affiliates to
other companies in their system.
STATE UTILITY REGULATORY COMMISSIONS. NiSource (the holding company) is not
subject to regulation by state utility and regulatory commissions since it is
not a public utility. NiSource and its non-utility subsidiaries are subject to
certain reporting and information access requirements under applicable state
law. Furthermore, certain contracts between NiSource or its non-utility
subsidiaries and the Utilities must be filed with, and in some cases approved
by, the appropriate state utility and regulatory commissions.
The Utilities are subject to regulation by the applicable state utility
regulatory commission as to rates, service, accounts, and issuance of securities
and in other respects in the state where the Utilities provide service. The
Utilities are also subject to limited regulation by local public authorities.
The Texas Railroad Commission regulates Moss Bluff Development Corporation.
FEDERAL ENERGY REGULATORY COMMISSION. NiSource is not regulated by the FERC, but
any subsidiary that engages in FERC jurisdictional sales or activities,
including the Energy Utilities, is subject to such regulation.
Northern Indiana's restructuring under NiSource was approved by a February
29, 1988 order of the FERC. The order is conditioned upon the FERC's continuing
authority to examine the books and records of NiSource and its subsidiaries,
upon further order of the FERC, and to make such supplemental orders, for good
cause, as it may find necessary or appropriate regarding the restructuring.
In 1999, about 7% of Northern Indiana's electric revenues were derived from
electric service it furnished at wholesale in interstate commerce to other
utility companies, power marketers, municipalities and WVPA (see "Item 1.
Business-Electric Operations" regarding WVPA). Northern Indiana's wholesale
rates and operations are subject to the jurisdiction of the FERC. FERC
jurisdiction does not extend to the issuance of securities by Northern Indiana,
which are regulated by the IURC. The FERC has declared Northern Indiana, BSG,
Northern Utilities, Kokomo Gas and NIFL exempt from the provisions of the
Natural Gas Act.
MHP's Egan Facility is a gas storage facility subject to regulation by the
FERC as to rates, service, accounts and in other respects. The FERC also
certificates certain facilities of MHP.
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RATE MATTERS
For a description of Northern Indiana's Alternative Regulatory Plan (ARP)
See "Competition and Regulatory Changes" below.
On January 27, 2000, the Citizens Action Coalition (CAC), a private
consumer organization, filed a petition before the IURC. The petition does not
seek a specified amount of rate reduction, but rather alleges that the existing
Northern Indiana electric rates are "unreasonable and unsafe," and seeks to have
the IURC force Northern Indiana to produce detailed financial calculations that
would justify its electric rates. Northern Indiana is opposing the petition on
both legal and factual grounds, and believes that its current rates are just and
reasonable as required by statute.
On November 14, 1997, IWC petitioned the IURC for approval of new water
rates and charges. On March 17, 1998, IWC and the Office of Utility Consumer
Counselor (OUCC), representing the ratepayers, filed a "Stipulation and
Settlement Agreement" resolving the issues in the case. This agreement, approved
by the IURC on April 8, 1998, provided for an increase in IWC's water rates and
charges in two phases. The first phase was an immediate increase of
approximately $5,253,000. The second phase approved an additional increase of
approximately $4,540,000 on April 8, 1999. The agreement further provided that
prior to January 1, 2002, IWC cannot request an additional change in its basic
rates and charges nor seek authority to continue allowance for funds used during
construction (AFUDC) or defer depreciation on its capital projects after they
have been completed and are in service. Effective with the second phase of the
increase, IWC will use individual depreciation rates for each plant account as
approved by the IURC on January 15, 1997, to produce a composite depreciation
rate of 2.21%.
COMPETITION AND REGULATORY CHANGES
The regulatory frameworks applicable to the Energy Utilities, at both the
state and federal levels, are undergoing fundamental changes. These changes have
impacted and will continue to have an impact NiSource's operations, structure
and profitability. At the same time, competition within the electric and gas
industries will create opportunities to compete for new customers and revenues.
Management has taken steps to become more competitive and profitable in this
changing environment, including partnering on energy projects with major
industrial customers, converting some of its generating units to allow use of
lower cost, low sulfur coal, providing its gas customers with increased customer
choice for new products and services, acquiring companies which increase our
scale and establishing subsidiaries that provide gas and develop new
energy-related products for residential, commercial and industrial customers.
THE ELECTRIC INDUSTRY. At the Federal level, the FERC issued Order No. 888-A in
1996 which required all public utilities owning, controlling or operating
transmission lines to file non-discriminatory open-access tariffs and offer
wholesale electricity suppliers and marketers the same transmission service they
provide themselves. In 1997, FERC approved Northern Indiana's open-access
transmission tariff. On December 20, 1999, FERC issued a final rule addressing
the formation and operation of Regional Transmission Organizations (RTOs). The
rule is intended to eliminate pricing inequities in the provision of wholesale
transmission service. NiSource does not believe that compliance with the new
rules will be material to its future earnings. Although wholesale customers
currently represent a small portion of Northern Indiana's electricity sales, it
intends to continue its efforts to retain and add wholesale customers by
offering competitive rates and also intends to expand the customer base for
which it provides transmission services.
At the state level, NiSource announced in 1997 and 1998 that, if consensus
could be reached regarding electric utility restructuring legislation, NiSource
would support a restructuring bill before the Indiana General Assembly. During
1999, discussions were held with the other investor-owned utilities in Indiana
regarding the technical and economic aspects of possible legislation leading to
greater customer choice. A consensus was not reached. Therefore, NiSource did
not support legislation regarding electric restructuring during the 2000 session
of the Indiana General Assembly. During 2000, discussions will continue with all
segments of the Indiana electric industry in an attempt to reach a consensus on
electric restructuring legislation for introduction during the 2001 session of
the Indiana General Assembly.
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THE GAS INDUSTRY. At the Federal level, gas industry deregulation began in the
mid-1980's when FERC required interstate pipelines to provide nondiscriminatory
transportation service pursuant to unbundled rates. This regulatory change
permitted large industrial and commercial customers to purchase their gas
supplies either from the Energy Utilities or directly from competing producers
and marketers which would then use the Energy Utilities' facilities to transport
the gas. More recently, the focus of deregulation in the gas industry has
shifted to the states.
At the state level, the IURC approved in 1997 Northern Indiana's ARP which
implemented new rates and services that included, among other things, unbundling
of services for additional customer classes (primarily residential and
commercial users), 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 cost savings or cost increases with its
customers based upon a comparison of Northern Indiana's actual gas supply
portfolio cost to a market-based benchmark price. Phase I of Northern Indiana's
Customer Choice Pilot Program ended March 31, 1999. This pilot program offered
82,000 residential customers within St. Joseph County and 10,000 commercial
customers throughout the NiSource service area the right to choose alternative
gas suppliers. Phase II of Northern Indiana's Customer Choice Pilot Program
commenced April 1, 1999 and will continue for a one-year period. During this
phase, Northern Indiana is offering customer choice to all 660,000 residential
and 50,000 commercial customers throughout its gas service territory. A limit of
150,000 residential and 20,000 commercial customers are eligible to enroll in
Phase II of the program. The IURC order allows a specific NiSource natural gas
marketing subsidiary to participate as a supplier of choice to Northern Indiana
customers. In addition, as Northern Indiana has allowed residential and
commercial customers to designate alternative gas suppliers, it has also offered
new services to all classes of customers including price protection, negotiated
sales and services, gas lending and parking, and new storage services.
In Massachusetts, BSG implemented new unbundled rates and services for all
commercial-industrial customers in 1993, and launched one of the nation's
earliest residential and small commercial-industrial customer choice pilot
programs in 1996. The BSG pilot, in which almost 28% of eligible customers
participated, is scheduled to conclude on April 1, 2000 when all Massachusetts
gas utilities are expected to begin making unbundled gas service available to
all customer classes pursuant to new statewide model terms and conditions that
are currently awaiting approval by the Massachusetts Department of
Telecommunications and Energy.
In New Hampshire, Northern Utilities introduced unbundled tariffs and
services for all commercial-industrial customers in 1994. In 1998, the New
Hampshire Public Utilities Commission (NHPUC) formed a collaborative group to
investigate the merits of further unbundling and advise the NHPUC accordingly.
The collaborative group has recommended new model tariffs and regulation
designed to make unbundled services available to all commercial-industrial
customers statewide on November 1, 2000, with consideration of residential
unbundling at a later date. Hearings before the NHPUC regarding the
recommendations are expected to be held during the first quarter of 2000.
In Maine, Northern Utilities introduced unbundled rates and services for
large commercial-industrial customers in December 1995 and expanded the
availability to all daily metered commercial and industrial customers on
November 1, 1999. In June 1999 the Maine Public Utilities Commission (MPUC)
opened an inquiry into the potential merits of further regulatory changes
related to unbundling. This inquiry is intended to investigate all the key
elements of full customer choice and will include a review of customer choice
programs in Massachusetts and New Hampshire.
To date, the Energy Utilities have not been materially affected by
competition and management does not foresee substantial adverse affects in the
near future unless the current regulatory structure is substantially altered.
NiSource believes the steps that it has taken to deal with increased competition
has had and will continue to have significant positive effects in the next few
years.
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EMPLOYEES
NiSource had 7,399 employees at December 31, 1999. Of these employees,
3,549 are represented by various local unions. The total number of employees at
Northern Indiana was 3,077; at SM&P, 1,365; at BSG, 919; at Miller, 762; at IWC,
433; and NiSource had 843 employees in remaining operations.
ENVIRONMENTAL MATTERS
GENERAL. The operations of NiSource are subject to extensive and evolving
federal, state and local environmental laws and regulations intended to protect
the public health and the environment. Such environmental laws and regulations
affect operations as they relate to impacts on air, water and land.
SUPERFUND. Because several NiSource subsidiaries are "potentially responsible
parties" (PRPs) under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) at several waste disposal sites, as well as at former
manufactured-gas plant sites which it, or its corporate predecessors, own or
owned or operated, it may be required to share in the costs of clean up of such
sites. A program was instituted to investigate former manufactured-gas plant
sites where it is the current or former owner, which investigation has
identified forty-six such sites. Initial sampling has been conducted at thirty
sites. Investigation activities have been completed at twenty-three sites and
remedial measures have been selected or implemented at sixteen sites. NiSource
intends to continue to evaluate its facilities and properties with respect to
environmental laws and regulations and take any required corrective action.
In an effort to recover a portion of the costs related to the former
manufactured gas plants, various companies that provided insurance coverage
which NiSource believed covered costs related to former manufactured-gas plant
sites were approached. Northern Indiana filed claims in Indiana state court
against various insurance companies, seeking coverage for costs associated with
several manufactured-gas plant sites and damages for alleged misconduct by some
of the insurance companies. Settlements have been reached with all insurance
companies. Additionally, agreements have been reached with other Indiana
utilities relating to cost sharing and management of the investigation and
remediation of several former manufactured-gas plant sites at which Northern
Indiana and such utilities or their predecessors were operators or owners.
BSG and Northern Utilities have rate recovery for environmental response
costs in Maine, Massachusetts and New Hampshire. The rate treatment allows for
the recovery of 100% of prudently incurred costs for investigation and
remediation over a 5-7 year period from date of payment. Recoveries from third
parties or insurance companies in Maine and Massachusetts are allocated 50% to
rate payers and 50% to shareholders. In New Hampshire 100% of any recoveries
from third parties or insurance companies are returned to rate payers.
As of December 31, 1999, a reserve of approximately $23.8 million has been
recorded to cover probable corrective actions. The ultimate liability in
connection with these sites will depend upon many factors, including the volume
of material contributed to the site, the number of the other PRPs and their
financial viability, the extent of corrective actions required and rate
recovery. Based upon investigations and management's understanding of current
environmental laws and regulations, NiSource believes that any corrective
actions required, after consideration of insurance coverages, contributions from
other PRPs and rate recovery, will not have a material effect on its financial
position or results of operations.
CLEAN AIR ACT. The Clean Air Act Amendments of 1990 (CAAA) impose limits to
control acid rain on the emission of sulfur dioxide and nitrogen oxides (NOx)
which become fully effective in 2000. All of NiSource's facilities are already
in compliance with the sulfur dioxide limits. NiSource has already taken most of
the steps necessary to meet the NOx limits.
The CAAA also contain other provisions that could lead to limitations on
emissions of hazardous air pollutants and other air pollutants (including NOx as
discussed below), which may require significant capital expenditures for control
of these emissions. Until specific rules have been issued that affect NiSource's
facilities, what these requirements will be or the costs of complying with these
potential requirements cannot be predicted.
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NITROGEN OXIDES. During 1998, the Environmental Protection Agency (EPA) issued a
final rule, the NOx State Implementation Plan (SIP) call, requiring certain
states, including Indiana, to reduce NOx levels from several sources, including
industrial and utility boilers. The EPA stated that the intent of the rule is to
lower regional transport of ozone impacting other states' ability to attain the
federal ozone standard. According to the rule, the State of Indiana must issue
regulations implementing the control program. The State of Indiana, as well as
some other states, filed a legal challenge in December 1998 to the EPA NOx SIP
call rule. Lawsuits have also been filed against the rule by various groups,
including utilities. On May 25, 1999, the United States Court of Appeals for the
D.C. Circuit issued an order staying the NOx SIP call rule's September 30, 1999,
deadline for the state submittals until further order of the court. In a March
3, 2000 decision, the United States Court of Appeals for the D.C. Circuit ruled
largely in favor of EPA's regional NOx plan. An appeal of this decision is
expected. The State of Indiana in February 2000 proposed a moderate NOx control
plan designed to address Indiana's ozone nonattainment areas and regional ozone
transport. Any NOx emission limitations resulting from these actions could be
more restrictive than those imposed on electric utilities under the CAAA's acid
rain NOx reduction program described above. NiSource is evaluating the court
decision and any potential requirements that could result from the rules as
implemented by the State of Indiana. NiSource believes that the costs relating
to compliance with the new standards may be substantial, but such costs are
dependent upon the outcome of the current litigation and the ultimate control
program agreed to by the targeted states and the EPA. Northern Indiana is
continuing its programs to reduce NOx emissions and NiSource will continue to
closely monitor developments in this area.
In a related matter to EPA's NOx SIP call, several Northeastern states have
filed petitions with the EPA under Section 126 of the Clean Air Act. The
petitions allege harm and request relief from sources of emissions in the
Midwest that allegedly cause or contribute to ozone nonattainment in their
states. NiSource is monitoring EPA's decisions on these petitions and existing
litigation to determine the impact of these developments on Northern Indiana's
programs to reduce NOx emissions.
The EPA issued final rules revising the National Ambient Air Quality
Standards for ozone and particulate matter in July 1997. On May 14, 1999, the
United States Court of Appeals for the D.C. Circuit remanded the new rules for
both ozone and particulate matters to the EPA. Once rectified, the revised
standards could require additional reductions in sulfur dioxide, particulate
matter and NOx emissions from coal-fired boilers (including Northern Indiana's
generating stations) beyond measures discussed above. Final implementation
methods will be set by the EPA as well as state regulatory authorities. NiSource
believes that the costs relating to compliance with any new limits may be
substantial but are dependent upon the ultimate control program agreed to by the
targeted states and the EPA. NiSource 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.
In a letter dated September 15, 1999, the Attorney General of the State of
New York alleged that Northern Indiana violated the Clean Air Act by
constructing a major modification of one of its electric generating stations
without obtaining pre-construction permits required by the Prevention of
Significant Deterioration (PSD) program. The major modification allegedly took
place at the R. M. Schahfer Station when, "in approximately 1995-1997, Northern
Indiana upgraded the coal handling system at Unit 14 at the plant." While
Northern Indiana is investigating these allegations, Northern Indiana does not
believe that the modifications required pre-construction review under the PSD
program and believes that all appropriate permits were acquired.
CARBON DIOXIDE. Initiatives are being discussed both in the United States and
worldwide to reduce so-called "greenhouse gases" such as carbon dioxide and
other by-products of burning fossil fuels. Reduction of such emissions could
result in significant capital outlays or operating expenses to NiSource.
CLEAN WATER ACT AND RELATED MATTERS. NiSource's wastewater and water operations
are subject to pollution control and water quality control regulations,
including those issued by the EPA and the States of Indiana, Louisiana,
Massachusetts and Texas.
Under the Federal Clean Water Act and state regulations, NiSource must
obtain National Pollutant Discharge Elimination System permits for water
discharges from various facilities, including electric
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generating and water treatment stations and a propane plant. These facilities
either have permits for their water discharge or they have applied for a permit
renewal of any expiring permits. 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. In
December 1998, EPA promulgated two National Primary Drinking Water rules, the
Interim Enhanced Surface Water Treatment Rule and the Disinfectants and
Disinfection Byproducts Rule. The Water Utilities must comply with these rules
by December 2001. Management does not believe that significant changes will be
required to the Water Utilities' operations to comply with these rules; however,
some cost expenditures for equipment modifications or enhancements may be
necessary to comply with the Interim Enhanced Surface Water Treatment Rule.
Additional rules are anticipated to be promulgated under the 1996 amendments.
Compliance with such standards could be costly and require substantial changes
in the Water Utilities' operations.
Under a 1991 law enacted by the Indiana legislature, a water utility may
petition the IURC for prior approval of its plans and estimated expenditures
required to comply with the provisions of, and regulations under, the Federal
Clean Water Act and SDWA. Upon obtaining such approval, a water utility may
include such costs in its rate base for rate-making purposes, to the extent of
its estimated costs as approved by the IURC, 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. Such an addition to rate base,
however, would effect a change in water rates. NiSource's principal water
utility, IWC, has agreed to a moratorium on water rate increases until 2002.
Therefore, recovery of any increased costs discussed above may not be timely.
YEAR 2000 COSTS
RISKS. "Year 2000 issues" were concerned with 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
any system could have resulted in material operational and financial risks.
Possible scenarios included a system failure in a generating plant, an operating
disruption of gas, electricity or water, or an inability to interconnect with
the systems of other utilities. Failure to achieve year 2000 readiness could
have had a material adverse effect on results of operations, financial position
and cash flows.
The program to address risks associated with the year 2000 on both
information technology (IT) and non-IT systems was completed in a timely manner.
STATE OF READINESS. The NiSource year 2000 program consisted of four phases:
inventory (identifying systems potentially affected by the year 2000),
assessment (testing identified systems), remediation (correcting or replacing
non-compliant systems) and validation (evaluating and testing remediated systems
to confirm compliance). All phases in all subsidiaries were completed in a
timely manner.
Because NiSource depends on outside suppliers and vendors with similar year
2000 issues, the ability of those suppliers and vendors to provide an
uninterrupted supply of goods and services was assessed. Critical vendors and
suppliers were contacted in order to investigate their year 2000 efforts. In
addition, electricity and gas industry groups such as North American Electric
Reliability Council, Electric Power Research Institute, and the American Gas
Association were helpful in evaluating the potential impact of year 2000
problems upon the electric grid systems and pipeline networks.
COSTS. The total cost of the NiSource year 2000 program was approximately $25.0
million. These costs were funded from operations. Costs related to the
maintenance or modification of existing systems are expensed as
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incurred. Costs related to the acquisition of replacement systems are
capitalized. These costs did not have a material impact on results of
operations.
CONTINGENCY PLANS. NiSource developed its contingency plans to address the
possibility that any mission-critical system would be non-compliant. This
included identifying alternate suppliers and vendors, conducting staff training
and developing communication plans. In addition, NiSource evaluated its ability
to maintain or restore service in the event of a power failure or operating
disruption or delay, along with the limited ability to mitigate the effects of a
network failure by isolating its own network from the non-compliant segments of
the greater network. These contingency plans were completed during the second
quarter of 1999 and reviewed during the fourth quarter of 1999. They were not
needed for the century rollover.
RESULTS. NiSource did not experience any system failures as a result of the year
2000 issue.
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. NiSource cautions that,
while it believes such statements to be based on reasonable assumptions and
makes such statements in good faith, you can not be assured 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. You should be aware of important factors that
could have a material impact on future results. These factors include weather,
the federal and state regulatory environment, the economic climate, regional,
commercial, industrial and residential growth in the service territories served
by NiSource's Utility 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 NiSource's control.
ITEM 2. PROPERTIES.
ELECTRIC. Northern Indiana owns and operates four coal fired electric generating
stations with net capabilities of 3,179,000 kw, two hydroelectric generating
plants with net capabilities of 10,000 kw and four gas fired combustion turbine
generating units with net capabilities of 203,000 kw, for a total system net
capability of 3,392,000 kw. It has 291 substations with an aggregate transformer
capacity of 23,036,200 kilovolts (kva). Its transmission system, with voltages
from 34,500 to 345,000 volts, consists of 3,068 circuit miles of line. The
electric distribution system extends into 21 counties and consists of 7,800
circuit miles of overhead and 1,571 cable miles of underground primary
distribution lines operating at various voltages from 2,400 to 12,500 volts.
Northern Indiana has distribution transformers having an aggregate capacity of
11,367,093 kva and 445,377 electric watt-hour meters.
GAS UTILITIES. See "Item 1. Business-Gas Operations". At December 31, 1999,
Northern Indiana's system consisted of approximately 13,924 miles of gas mains.
At December 31, 1999, BSG's system consisted of approximately 5,450 miles of
distribution mains; 116 vaporization and storage facilities; propane storage
tanks; 268,022 services; and 305,182 meters installed on customers' premises.
The physical properties of the NiSource gas utilities are located throughout
Northern Indiana and New England.
The transmission and distribution system of the gas utilities are for the
most part located on or under public streets, and other public places or on
private property not owned by the Company, with easements from or consent of the
respective owners.
PIPELINES. Crossroads and Granite combined have approximately 300 miles of
interstate gas pipelines located in Indiana, Ohio, Maine, New Hampshire and
Massachusetts.
GAS MARKETING. MHP owns salt caverns used for natural gas storage which are
located in Texas and Louisiana and are described under "Item 1.
Business-Products and Services and Other Subsidiaries".
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WATER. The Water Utilities' properties consist of land, easements, rights
(including water rights), buildings, reservoirs, canals, wells, supply lines,
purification plants, pumping stations, transmission and distribution pipes,
mains and conduits, meters and other facilities used for the collection,
purification and storage of water and the distribution of water to its
customers. The water system extend from well fields and raw water reservoirs on
Cicero Creek and Fall Creek, north and northeast of Indianapolis, and from the
intake structure in Indianapolis' Eagle Creek Reservoir, northwest of
Indianapolis, to the service connections of the ultimate consumer. The Water
Utilities have 30,018 fire hydrants and 3,528 miles of water mains.
PRODUCTS AND SERVICES. Through its subsidiaries, Development owns Southlake
Complex, a 325,000 square foot office building located in Merrillville, Indiana
and a golf course, surrounding residential development and land held for resale
in Chesterton, Indiana. Waterway Holding, Inc. owns parcels of land held for
development.
CHARACTER OF OWNERSHIP. Substantially all of the properties of Northern Indiana
and IWC are subject to the lien of their respective First Mortgage Indentures.
The principal offices and properties of NiSource and its subsidiaries are held
in fee and are free from other encumbrances, subject to minor exceptions, none
of which are of such a nature as to impair substantially the usefulness of such
properties. Many of the offices in various communities served are occupied by
subsidiaries of NiSource under leases. All properties are subject to liens for
taxes, assessments and undetermined charges (if any) incidental to construction.
It is NiSource's practice regularly to pay such amounts, as and when due, unless
contested in good faith. In general, the electric, gas and water lines and mains
are located on land not owned in fee but are covered by necessary consents of
various governmental authorities or by appropriate rights obtained from owners
of private property. NiSource does not, however, generally have specific
easements from the owners of the property adjacent to public highways over, upon
or under which its electric, gas and water lines and mains are located. At the
time each of the principal properties was purchased a title search was made. In
general, no examination of titles as to rights-of-way for electric, gas and
water lines and mains was made, other than examination, in certain cases, to
verify the grantors' ownership and the lien status thereof.
ITEM 3. LEGAL PROCEEDINGS.
NiSource and its subsidiaries are parties to various pending proceedings,
including suits and claims against them for personal injury, death and property
damage. The nature of such proceedings and suits and the amounts involved are
routine for the kinds of businesses conducted by NiSource and its subsidiaries,
except as described under the captions "NESI Energy Marketing Canada Ltd.
Litigation" and "Environmental Matters" in the Notes to Consolidated Financial
Statements in the 1999 Annual Report to Shareholders (see Exhibit 13). No other
material legal proceedings against NiSource or its subsidiaries are pending or,
to the knowledge of NiSource, contemplated by governmental authorities or other
parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
NiSource's common shares are listed and traded on the New York, Chicago and
Pacific stock exchanges. The table below indicates the high and low sales price
of NiSource's common shares, on the composite tape, during the periods
indicated. On December 16, 1997, the Board authorized a two-for-one split of
NiSource's common stock. The stock split was paid on February 20, 1998, to
shareholders of record at the close of business on January 30, 1998. The sales
prices and common dividends reported have been restated to reflect the
two-for-one stock split.
17
<PAGE> 18
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter............................................. 30 1/2 25 7/8 28 1/2 24 21/32
Second Quarter............................................ 28 1/8 25 13/16 28 3/8 25 11/16
Third Quarter............................................. 26 7/8 21 3/4 32 7/8 26 5/8
Fourth Quarter............................................ 23 16 9/16 33 3/4 28
</TABLE>
As of February 29, 2000, NiSource had 40,463 common shareholders of record.
The policy of the Board has been to declare cash dividends on a quarterly
basis payable on or about the 20th day of February, May, August and November.
NiSource paid quarterly common dividends of $0.24 per share during 1998 and
quarterly common dividends of $0.255 per share during 1999. At its December 1999
meeting, the Board increased the quarterly common dividend to $0.27 per share,
payable on February 18, 2000.
Holders of NiSource's common shares are entitled to receive dividends when,
as and if declared by the Board out of funds legally available therefor.
Although the Board currently intends to consider the payment of regular
quarterly cash dividends on common shares, the timing and amount of future
dividends will depend on the earnings of Northern Indiana and other
subsidiaries, their financial condition, cash requirements, any restrictions in
financing agreements and other factors deemed relevant by the Board. During the
next few years, it is expected that the great majority of earnings available for
distribution of dividends will depend upon dividends paid to NiSource by
Northern Indiana.
The following limitations on payment of dividends and issuance of preferred
stock apply to Northern Indiana:
When any bonds are outstanding under its First Mortgage Indenture, Northern
Indiana may not pay cash dividends on its stock (other than preferred or
preference stock) or purchase or retire common shares, except out of earned
surplus or net profits computed as required under the provisions of the
maintenance and renewal fund. At December 31, 1999, Northern Indiana had
approximately $136.1 million of retained earnings (earned surplus) available for
the payment of dividends. Future common share dividends by Northern Indiana will
depend upon adequate retained earnings, adequate future earnings and the absence
of adverse developments.
So long as any shares of Northern Indiana's cumulative preferred stock are
outstanding, no cash dividends shall be paid on its common shares in excess of
75% of the net income available therefor for the preceding calendar year, unless
the aggregate of the capital applicable to stocks subordinate as to assets and
dividends, would equal or exceed 25% of the sum of all obligations evidenced by
bonds, notes, debentures or other securities, plus the total capital and
surplus. At December 31, 1999 , the sum of the capital applicable to stocks
subordinate to the cumulative preferred stock plus the surplus was equal to 43%
of the total capitalization including surplus.
In connection with the foregoing discussion, see "Common Share Dividend" in
the Notes to Consolidated Financial Statements in the 1999 Annual Report to
Shareholders (see Exhibit 13).
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues (000's)......... $3,144,576 $2,932,778 $2,586,541 $1,987,948 $1,769,308
Net income (000's)................. $ 160,414 $ 193,886 $ 190,849 $ 176,734 $ 175,465
Earnings per average common
share -- basic................... $ 1.29 $ 1.60 $ 1.54 $ 1.44 $ 1.36
Earnings per average common
share -- diluted................. $ 1.27 $ 1.59 $ 1.53 $ 1.43 $ 1.35
Total assets (000's).......... $6,835,229 $4,986,503 $4,937,033 $4,288,883 $3,999,520
Long-term obligations and
redeemable preferred stock
(000's).......................... $2,374,214 $1,724,400 $1,726,766 $1,188,352 $1,274,379
Cash dividends declared per common
share............................ $ 1.035 $ 0.975 $ 0.915 $ 0.855 $ 0.795
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information regarding results of operations, liquidity and capital
resources, environmental matters, Year 2000 costs, competition and regulatory
changes and impact of accounting standards is reported in the 1999 Annual Report
to Shareholders under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (see Exhibit 13).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding market risk is reported in the 1999 Annual Report to
Shareholders under "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Market Risk Sensitive Instruments and Positions"
(see Exhibit 13).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements and Supplementary Data are
included in the 1999 Annual Report to Shareholders and are hereby incorporated
by reference and made a part of this report (see Exhibit 13).
(1) Consolidated Financial Statements--
Consolidated Statement of Income for the years ended December 31, 1999,
1998 and 1997
Consolidated Balance Sheet at December 31, 1999 and 1998
Consolidated Statement of Capitalization at December 31, 1999 and 1998
Consolidated Statement of Long-term Debt at December 31, 1999 and 1998
Consolidated Statement of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Consolidated Statement of Common Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) Supplementary Data --
Selected Supplemental Information
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following is a list of the executive officers of NiSource, including
their names, ages and offices held, as of March 25, 2000.
<TABLE>
<CAPTION>
YEARS
WITH
NAME AGE NISOURCE OFFICE(S) HELD IN PAST 5 YEARS
---- --- -------- ------------------------------
<S> <C> <C> <C>
Gary L. Neale**........................ 60 10 Chairman, President and Chief Executive
Officer since March 1993.
Stephen P. Adik........................ 56 13 Senior Executive Vice President, Chief
Financial Officer and Treasurer since
February 1999.
Executive Vice President, Chief
Financial Officer and Treasurer from
January 1994 to January 1999.
Patrick J. Mulchay..................... 58 37 Executive Vice President of NiSource
and President and Chief Operating
Officer at Northern Indiana* since
February 1999.
Executive Vice President and Chief
Operating Officer at Northern
Indiana* from July 1996 to January
1999.
Executive Vice President and Chief
Operating Officer of Electric
Operations at Northern Indiana* from
January 1994 to July 1996.
Jeffrey W. Yundt....................... 54 20 Executive Vice President of NiSource
and President and Chief Executive
Officer at BSG*(a) since February
1999.
Executive Vice President and Chief
Operating Officer of EUSA*, and
President of NI Energy Services,
Inc.(NESI)* from July 1996 to January
1999.
Executive Vice President and Chief
Operating Officer of Gas Services at
Northern Indiana* from January 1994
to June 1996.
Joseph L. Turner, Jr................... 63 14 Senior Vice President of Major Accounts
since July 1996. President of
Primary* since January 1996. Prior
thereto, Group Vice President of
Northern Indiana*.
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
YEARS
WITH
NAME AGE NISOURCE OFFICE(S) HELD IN PAST 5 YEARS
---- --- -------- ------------------------------
<S> <C> <C> <C>
James K. Abcouwer...................... 46 5 Senior Vice President of NiSource and
Executive Vice President at NESI*
since July 1998.
Senior Vice President, Commercial
Operations of Northern Indiana* from
February 1998 to June 1998.
Vice President and General Manager of
Customer Services and Distribution of
Northern Indiana* from July 1996 to
January 1998.
Vice President of Gas Supply at
Northern Indiana* from July 1994 to
June 1996.
David A. Kelly......................... 61 8 Vice President, Taxes at NiSource and
Executive Vice President and Chief
Financial Officer at IWCR* (b) since
April 1997.
Vice President of Administrative
Services at NiSource Corporate
Services Company (NCSC)* from January
1997 to April 1997. Prior thereto,
Vice President of Real Estate and
Taxes at NCSC*.
Thomas J. Aruffo....................... 41 2 Vice President and Chief Information
Officer since February 1999.
Vice President Information Service at
BSG* (a) from October 1997 to
February 1999.
Vice President at Fidelity Investments
from February 1996 to October 1997;
Director Information Systems at
Prudential Insurance Company of
America from March 1993 to February
1997.
Mark T. Maassel........................ 45 22 Vice President, Regulatory and
Governmental Policy since June 1998.
Vice President of Marketing and Sales
at NCSC* from July 1996 to June 1998.
James T. Morris**...................... 56 3 Chairman of the Board, President and
Chief Executive Officer of IWCR* (b)
since May 1991.
Mark D. Wyckoff........................ 37 8 Vice President of Human Resources since
June 1998. Assistant Treasurer since
September 1997. Prior thereto
NiSource Development Principal since
January 1994.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
YEARS
WITH
NAME AGE NISOURCE OFFICE(S) HELD IN PAST 5 YEARS
---- --- -------- ------------------------------
<S> <C> <C> <C>
Arthur A. Paquin....................... 52 29 Controller of NCSC* since July 1996.
Prior thereto, Controller of Northern
Indiana*.
Francis P. Girot, Jr................... 55 19 Treasurer of Northern Indiana* and
NCSC* since July 1996. Prior thereto,
Treasurer of Northern Indiana*.
</TABLE>
- ---------------
* Subsidiary of NiSource.
** Also a Director.
(a) NiSource acquired Bay State in February 1999.
(b) NiSource acquired IWCR in March 1997.
The terms of office of the executive officers of NiSource are established
by NiSource's Board of Directors (Board) each year, and each officer serves
until the next annual meeting of the Board and/or until his/her successor is
duly elected. Throughout the past five years, each of the executive officers of
NiSource has been continuously in the business of NiSource or its subsidiaries,
except for Messrs. Aruffo and Morris.
The following chart gives information about the directors. The dates shown
for service as a director include service as a director of Northern Indiana
prior to the March 3, 1988 share exchange with NiSource.
<TABLE>
<CAPTION>
HAS
BEEN A
NAME, AGE AND PRINCIPAL OCCUPATIONS DIRECTOR
FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD SINCE
-------------------------------------------------- --------
<S> <C> <C>
Directors Whose Terms Expire in 2002
Ian M. Rolland, 66
Director of Wells Fargo & Co., Tokheim Corporation and 1978
Bright Horizons Family Solutions. Prior to his 1998
retirement as an executive officer of Lincoln National
Corporation, Mr. Rolland served as Chairman and Chief
Executive Officer.
John W. Thompson, 50
Chairman, President and Chief Executive Officer of Symantec 1993
Corp. Symantec produces software and provides Internet
security technology. Prior to joining Symantec in 1999, Mr.
Thompson was General Manager of IBM Americas. Mr. Thompson
is also a director of Fortune Brands Inc.
Roger A. Young, 54
Chairman, Bay State Gas Company, Westborough, Massachusetts 1999
since 1996. Bay State Gas Company is an energy services
company serving customers in Massachusetts, New Hampshire
and Maine. Mr. Young also served as Chief Executive Officer
of Bay State Gas Company from 1990 to 1999. Mr. Young also
serves as a regional director of BankBoston Corporation, and
as a director of Watts Industries, Inc.
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
HAS
BEEN A
NAME, AGE AND PRINCIPAL OCCUPATIONS DIRECTOR
FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD SINCE
-------------------------------------------------- --------
<S> <C> <C>
Directors Whose Terms Expire in 2001
Steven C. Beering, 67
President of Purdue University, West Lafayette, Indiana. Dr. 1986
Beering is also a director of Arvin Industries, Inc.,
American United Life Insurance Company and Eli Lilly and
Company.
Dennis E. Foster, 59
Vice Chairman of ALLTEL Corporation, Little Rock, Arkansas, 1999
a full service telecommunications and information service
provider. Mr. Foster is a director of ALLTEL Corporation,
Cellular Telecommunications Industry Association and Salient
3 Communications.
James T. Morris, 56
Chairman and Chief Executive Officer, IWC Resources 1997
Corporation, Indianapolis, Indiana. Mr. Morris is also a
director of Paul Harris Stores, Inc. and National City Bank
(Indianapolis)
Carolyn Y. Woo, 45
Gillen Dean and Siegfried Professor, College of Business 1997
Administration, University of Notre Dame, South Bend,
Indiana. Dr. Woo is also a director of Bindley Western
Industries, Inc. and AON Corporation.
Directors Whose Terms Expire in 2000
Arthur J. Decio, 69
Chairman of the Board and Director of Skyline Corporation, 1991
Elkhart, Indiana, a manufacturer of manufactured housing and
recreational vehicles.
Gary L. Neale, 60
Chairman, President and Chief Executive Officer of NiSource 1991
since March 1, 1993; prior thereto, Executive Vice President
of NiSource, and President and Chief Operating Officer of
Northern Indiana. Mr. Neale is also a director of Modine
Manufacturing Company, Chicago Bridge and Iron Company and
Mercantile National Bank of Indiana
Robert J. Welsh, 64
Chairman and Chief Executive Officer of Welsh, Inc.,
Merrillville, Indiana, a marketer of petroleum products
through convenience stores and travel centers. Mr. Welsh is
also the Chairman of the Board of Aspen, Inc.
</TABLE>
23
<PAGE> 24
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION (1) COMPENSATION
---------------------------------- ----------------------
AWARDS PAYOUTS
------ -------
SECURITIES
OTHER UNDER- LONG-TERM
ANNUAL LYING INCENTIVE
COMPEN- OPTIONS/ PLAN ALL OTHER
SALARY BONUS SATION SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) (#) ($)(4) ($)(5)
--------------------------- ---- ------ ------ ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Neale,....................... 1999 689,583 0 6,436 50,000 484,313 33,465
Chairman, President and Chief 1998 561,250 345,000 7,073 50,000 415,251 31,704
Executive Officer 1997 520,000 390,000 6,711 50,000 -- 42,993
Stephen P. Adik,..................... 1999 343,749 0 2,980 30,000 -- 5,645
Senior Executive Vice President,
Chief 1998 268,750 148,500 2,202 20,000 207,626 5,324
Financial Officer and Treasurer 1997 250,000 171,250 2,575 20,000 -- 5,673
Patrick J. Mulchay, (6).............. 1999 294,166 104,670 2,800 25,000 -- 7,163
Executive Vice President and
President, 1998 225,000 148,350 1,412 20,000 -- 6,666
Chief Operating Officer --
Northern 1997 210,000 150,675 851 20,000 -- 7,506
Indiana Public Service Company
Jeffrey W. Yundt, (6)................ 1999 294,166 62,130 149,415 25,000 -- 3,776
Executive Vice President and
President 1998 225,000 124,200 6,348 20,000 -- 3,485
and Chief Executive Officer --Bay 1997 210,000 143,850 8,905 20,000 -- 3,693
State Gas Company
Joseph L. Turner, (7)................ 1999 208,750 69,968 3,791 10,000 -- 7,396
Senior Vice President, Primary
Energy, 1998 195,000 205,838 2,203 10,000 -- 6,948
Inc. 1997 180,000 113,675 1,175 8,000 -- 7,599
</TABLE>
- ---------------
(1) Compensation deferred at the election of the Named Officer is reported in
the category and year in which such compensation was earned.
(2) All bonuses are paid pursuant to the Bonuses Plan, except for portions of
the bonuses paid to Messrs. Mulchay, Yundt and Turner, which are described
in Notes 6 and 7. The Bonus Plan is designed to supplement a conservative
base salary with incentive bonus payments if targeted financial performance
is attained. The 1999 target aggregate payout for the Bonus Plan for the
Named Officers was $1,212,500, which was more than the actual aggregate
payout for the Named Officers. See "Nominating and Compensation Committee
Report on Executive Compensation."
(3) In accordance with applicable Securities and Exchange Commission rules, the
amounts shown for each of the Named Officers do not include perquisites and
other personal benefits, as the aggregate amount of such benefits is less
than the lesser of $50,000 and 10% of the total salary and bonus of such
Named Officer. In 1999, this amount includes a one-time relocation allowance
of $85,305 and a related tax allowance of $60,412 for Mr. Yundt.
(4) The payouts shown are based on the value, at date of vesting, of restricted
shares awarded under the Long-Term Incentive Plan which vested during the
years shown. Vesting was based on meeting certain performance requirements.
Total restricted shares held (assuming 100% vesting) and aggregate market
value at December 31, 1999 (based on the average of the high and low sale
prices of the Common Shares on that date as reported in The Wall Street
Journal) for the Named Officers were as follows: Mr. Neale, 120,000 shares
valued at $2,148,744; Messrs. Adik, Mulchay and Yundt, 50,000 shares, for
each individual valued at $895,310; and Mr. Turner, 33,200 shares (includes
9,201 shares purchased pursuant to the PE Plan described in footnote 6)
valued at $594,504. Dividends on the restricted shares are paid to the Named
Officers.
24
<PAGE> 25
(5) The Chairman, President and Chief Executive Officer, the Senior Executive
Vice President, the Executive Vice President, the Senior Vice Presidents,
and certain Vice Presidents of NiSource and Northern Indiana have available
to them a supplemental life insurance plan which provides split-dollar
coverage of up to 3.5 times base compensation as of commencement of the plan
in 1991 and could provide life insurance coverage after retirement if there
is adequate cash value in the respective policy. "All other Compensation"
represents Company contributions to the 401(k) Plan and the dollar value of
the benefit to the Named Officers under the supplemental life insurance
plan, as follows: Mr. Neale -- $1,066 401(k) Plan, $28,856 premium value and
$3,543 term insurance cost; Mr. Adik1 -- $1,110 401(k) Plan, $3,474 premium
value and $1,061 term insurance cost; Mr. Mulchay -- $362 401(k) Plan,
$5,671 premium value and $1,130 term insurance cost; Mr. Yundt -- $2,976
premium value and $800 term insurance cost and Mr. Turner -- $5,512 premium
value and $1,884 term insurance cost. The value of the life insurance
premiums paid by NiSource in excess of term insurance cost on behalf of the
Named Officers under the supplemental life insurance plan has been restated
for all periods in accordance with the present value interest-free loan
method.
(6) Messrs. Mulchay and Yundt are also Presidents of Northern Indiana and BSG,
respectively, and 50% of their annual incentive compensation is determined
based on the financial performance of the business unit for which they are
responsible.
(7) Mr. Turner is also President of Primary and participates in the Primary
Energy Incentive Plan ("PE Plan"). The PE Plan provides for a bonus based on
meeting certain financial performance criteria of Primary Energy. Under the
PE Plan, $39,982 of Mr. Turner's bonus for 1999 was used to purchase Common
Shares of NiSource on or about February 29, 2000, the date of payment of the
bonus. The PE Plan provides that the Common Shares are restricted for a
period of five years, and are subject to continued employment, except that
they vest earlier in the event of the employee's retirement, death or
disability.
Option Grants in 1999. The following table sets forth grants of options to
purchase Common Shares made during 1999 to the Named Officers. No stock
appreciation rights were awarded during 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR(2) ($/SH)(3) DATE VALUE ($)(4)
---- -------------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Gary L. Neale................... 50,000 6.71 24.59 8/24/09 183,000
Stephen P. Adik................. 30,000 4.03 24.59 8/24/09 109,800
Patrick J. Mulchay.............. 25,000 3.36 24.59 8/24/09 91,500
Jeffrey W. Yundt................ 25,000 3.36 24.59 8/24/09 91,500
Joseph L. Turner................ 10,000 1.34 24.59 8/24/09 36,000
</TABLE>
- ---------------
(1) All options granted in 1999 are fully exercisable commencing one year from
the date of grant. Vesting may be accelerated as a result of certain events
relating to a change in control of NiSource. The exercise price and tax
withholding obligation related to exercise may be paid by delivery of
already owned Common Shares or by reducing the number of Common Shares
received on exercise, subject to certain conditions.
(2) Based on an aggregate of 744,750 options granted to all employees in 1999.
(3) All options were granted at the average of high and low sale prices of the
Common Shares as reported in The Wall Street Journal on the date of grant.
(4) Grant date present value is determined using the Black-Scholes option
pricing model. The assumptions used in the Black-Scholes option pricing
model were as follows: volatility -- 15.72% (calculated using
25
<PAGE> 26
daily Common Share prices for the twelve-month period preceding the date of
grant); risk-free rate of return -- 5.87% (the rate for a ten-year U.S.
treasury); dividend yield--$1.02; option term -- ten years; vesting -- 100%
one year after date of grant; and an expected option term of 5.4 years. No
assumptions relating to non-transferability or risk of forfeiture were made.
Actual gains, if any, on option exercises and Common Shares are dependent on
the future performance of the Common Shares and overall market conditions.
There can be no assurance that the amounts reflected in this table will be
achieved.
Option Exercises in 1999. The following table sets forth certain
information concerning the exercise of options or stock appreciation rights
("SARs") during 1999 by each of the Named Officers and the number and value of
unexercised options and SARs at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
EXERCISE VALUE ---------------------------- ----------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Neale............ -- -- 310,000 50,000 407,190 0
Stephen P. Adik.......... 12,000 220,499 160,000 30,000 454,376 0
Patrick J. Mulchay....... 4,400 76,862 150,000 25,000 360,626 0
Jeffrey W. Yundt......... 12,000 220,499 160,000 25,000 454,376 0
Joseph L. Turner......... -- 75,000 10,000 122,782 0
</TABLE>
- ---------------
(1) Represents the difference between the option exercise price and $17.9063,
the average of high and low sale prices of the Common Shares on December 31,
1999, as reported in The Wall Street Journal.
Long-Term Incentive Plan Awards in 1999. The following table sets forth
restricted shares awarded pursuant to the Long-Term Incentive Plan during 1999
to each of the Named Officers.
LONG-TERM STOCK INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE ------------------------------------------
NUMBER OF OR OTHER
SHARES, UNITS PERIOD UNTIL
OR OTHER MATURATION
NAME RIGHTS (#) OR PAYOUT* THRESHOLD (#) TARGET (#) MAXIMUM (#)
---- ------------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gary L. Neale.................... 10,000 2 0 10,000 10,000
Stephen P. Adik.................. - - - - -
Patrick J. Mulchay............... - - - - -
Jeffrey W. Yundt................. - - - - -
Joseph L. Turner................. - - - - -
</TABLE>
- ---------------
* Amounts stated in years.
The restrictions on shares awarded during 1999 lapse two years from the
date of grant. The vesting of the restricted shares is variable from 0% to 100%
of the number awarded, based upon meeting certain specific financial performance
objectives. There is a two-year holding period for the shares after the
restrictions lapse.
26
<PAGE> 27
Pension Plan and Supplemental Executive Retirement Plan. The following
table shows estimated annual benefits, giving effect to NiSource's Pension Plan
and Supplemental Executive Retirement Plan (the "Supplemental Plan," as
described below), payable upon retirement to persons in the specified
remuneration and years-of-service classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 350,000.. 144,750 193,000 201,750 210,500 210,500
400,000.. 167,250 223,000 233,000 243,000 243,000
450,000.. 189,750 253,000 264,250 275,500 275,500
500,000.. 212,250 283,000 295,500 308,000 308,000
550,000.. 234,750 313,000 326,750 340,500 340,500
600,000.. 257,250 343,000 358,000 373,000 373,000
650,000.. 279,750 373,000 389,250 405,500 405,500
700,000.. 302,250 403,000 420,500 438,000 438,000
750,000.. 324,750 433,000 451,750 470,500 470,500
800,000.. 347,250 463,000 483,000 503,000 503,000
850,000.. 369,750 493,000 514,250 535,500 535,500
900,000.. 392,250 523,000 545,500 568,000 568,000
950,000.. 414,750 553,000 576,750 600,500 600,500
1,000,000.. 437,250 583,000 608,000 633,000 633,000
1,050,000.. 459,750 613,000 639,250 665,500 665,500
1,100,000.. 482,250 643,000 670,500 698,000 698,000
</TABLE>
The credited years of service for each of the Named Officers, pursuant to
the Supplemental Plan, are as follows: Gary L. Neale -- 25 years; Stephen P.
Adik -- 21 years; Patrick J. Mulchay -- 37 years; Jeffrey W. Yundt -- 20 years;
and Joseph L. Turner -- 28 years.
Upon their retirement, regular employees and officers of NiSource and its
subsidiaries which adopt the plan (including directors who are also full-time
officers) will be entitled to a monthly pension in accordance with the
provisions of NiSource's pension plan, originally effective as of January 1,
1945. The directors who are not and have not been officers of NiSource are not
included in the pension plan. The pensions are payable out of a trust fund
established under the pension plan with The Northern Trust Company, trustee. The
trust fund consists of contributions made by NiSource and the earnings of the
fund. Over a period of years the contributions are intended to result in
over-all actuarial solvency of the trust fund. The pension plan of NiSource has
been determined by the Internal Revenue Service to be qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the "Code").
Pension benefits are determined separately for each participant. The
formula for a monthly payment for retirement at age 65 is 1.7% of average
monthly compensation multiplied by years of service (to a maximum of 30 years)
plus 0.6% of average monthly compensation multiplied by years of service over
30. Average monthly compensation is the average for the 60 consecutive
highest-paid months in the employee's last 120 months of service. Covered
compensation is defined as wages reported as W-2 earnings (up to a limit set
forth in the Code and adjusted periodically) plus any salary reduction
contributions made under the 401(k) Plan, minus any portion of a bonus in excess
of 50% of base pay and any amounts paid for unused vacation time and vacation
days carried forward from prior years. The benefits listed in the Pension Plan
table are not subject to any deduction for Social Security or other offset
amounts.
NiSource also has a Supplemental Plan for officers. Participants in the
Plan are selected by the Board. Benefits from the Plan are to be paid from the
general assets of NiSource. The Supplemental Plan provides the larger of (i) 60%
of five-year average pay less Primary Social Security Benefits (prorated for
less than 20 years of service) and an additional 0.5% of 5-year average pay less
Primary Social Security Benefits per year for participants with between 20 and
30 years of service, or (ii) the benefit formula under NiSource's
27
<PAGE> 28
Pension Plan. In either case, the benefit is reduced by the actual pension
payable from NiSource's Pension Plan. In addition, the Supplemental Plan
provides certain disability and pre-retirement death benefits for the spouse of
a participant.
Change in Control and Termination Agreements. The Board of NiSource has
authorized Change in Control and Termination Agreements ("the Agreements") with
Mr. Neale and the Vice Presidents of NiSource (including each of the Named
Officers) (each such person being an "executive"). NiSource believes that these
Agreements and related shareholder rights protections are in the best interests
of the shareholders, to insure that in the event of extraordinary events,
totally independent judgment is enhanced to maximize shareholder value. The
Agreements, which are terminable upon three years' notice, provide for the
payment of three times then current annual base salary and target incentive
bonus compensation and the continuation of certain employee benefits for a
period of 36 months (the "Severance Period"), and a pro rata portion of the
executive's targeted incentive bonus for the year of termination. These benefits
are payable if the executive terminates employment for "Good Reason" or is
terminated by the company for any reason other than "Good Cause" within
twenty-four months following certain changes in control. Each of these
Agreements also provides for payment of these benefits if the executive
voluntarily terminates employment during a specified period within the
twenty-four months following the change in control.
The executive would receive benefits from NiSource that would otherwise be
earned during the Severance Period under NiSource' Supplemental Plan and
qualified retirement plans. All stock options held by the executive would become
immediately exercisable upon the date of termination of employment, and the
restrictions would lapse on all restricted shares awarded to the executive. If
any penalty tax under the Code is imposed on the payment of amounts under the
contracts, NiSource would increase the payment to the extent necessary to
compensate the executive for the imposition of such tax.
During the Severance Period, the executive and spouse would continue to be
covered by applicable health or welfare plans of NiSource. If the executive died
during the Severance Period, all amounts payable to the executive would be paid
to a named beneficiary. No amounts would be payable under the Agreements if the
executive's employment were terminated by NiSource for Good Cause (as defined in
the Agreements).
The Agreement with Mr. Neale also provides for the same severance payments
as above described in the event his employment is terminated at any time by
NiSource (other than for Good Cause) or due to death or disability, or if he
voluntarily terminates employment with Good Reason (as defined in the
Agreements).
Compensation of Directors. Each director who is not receiving a salary from
NiSource is paid $20,000 per year, $3,000 annually per standing committee on
which the director sits, $1,000 annually for each committee chairmanship, $1,000
for each Board meeting attended and $750 per committee meeting attended.
Directors of NiSource do not receive any additional compensation for services as
a director of any Company subsidiary, including Northern Indiana. Under a
deferred compensation arrangement, directors may have their fees deferred in the
current year and credited to an interest-bearing account or to a phantom stock
account for payment in the future.
NiSource's Nonemployee Director Retirement Plan provides a retirement
benefit for each nonemployee director of NiSource who has completed at least
five years of service on the Board. The benefit will be an amount equal to the
annual retainer for Board service in effect at the time of the director's
retirement from the Board, to be paid for the lesser of ten years or the number
of years of service as a nonemployee director of NiSource.
NiSource's Nonemployee Director Stock Incentive Plan provides for grants of
restricted Common Shares to nonemployee directors of NiSource. The Plan provides
for a grant of 2,000 shares to each person, other than an employee of NiSource,
who is elected or reelected as a director of NiSource at the time of such
election or reelection. The grants of restricted shares vest in 20% annual
increments, with full vesting five years after the date of award. In 1999, 2,000
restricted Common Shares were granted to each of Messrs. Rolland, Thompson and
Foster under this plan.
NiSource's Nonemployee Director Restricted Stock Unit Plan, which was
adopted by the Board in December 1998 and made effective as of January 1, 1999,
is a phantom stock plan that provides for grants to
28
<PAGE> 29
nonemployee directors of restricted stock units that have a value related to
NiSource's Common Shares. Each nonemployee director received an initial grant of
500 units in April 1999. Subsequent grants of 500 units will be made annually to
nonemployee directors upon election or re-election to the Board. The grants of
units vest in 20% annual increments, with full vesting five years after the date
of award, and the units have no voting or stock ownership rights. In 1999, 500
units were granted to Messrs. Decio, Welsh, Rolland, Thompson, Ribordy and
Foster and Drs. Woo and Beering.
NiSource has adopted a Directors' Charitable Gift Program for nonemployee
directors. Under the program, NiSource makes a donation to one or more eligible
tax-exempt organizations as designated by each eligible director. NiSource
contributes up to an aggregate of $125,000 for each nonemployee director who has
served as a director of NiSource for at least five years and up to an additional
$125,000 (for an overall $250,000) for each nonemployee director who has served
ten years or more. Organizations eligible to receive a gift under the program
include charitable organizations and educational institutions located in Indiana
and educational institutions that the director attended or for which he or she
serves on its governing board. Individual directors derive no financial benefit
from the program, as all deductions relating to the charitable donations accrue
solely to NiSource. All current nonemployee directors are eligible to
participate in the program.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
NiSource is not aware of any beneficial owner of more than 5% of its Common
Shares, as of January 30, 2000.
The following table sets forth information as to the beneficial ownership
of Common Shares, as of January 30, 2000, for each of the directors, nominees
and named executive officers, and for all directors and executive officers as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2)
------------------------ --------------------------
<S> <C>
Steven C. Beering................................. 8,992
Arthur J. Decio................................... 8,500
Dennis E. Foster.................................. 3,000
James T. Morris................................... 45,435
Gary L. Neale..................................... 677,069
Ian M. Rolland.................................... 19,384
John W. Thompson.................................. 7,202
Robert J. Welsh................................... 12,000
Carolyn Y. Woo.................................... 2,000
Roger A. Young.................................... 156,567
Stephen P. Adik................................... 343,945
Patrick J. Mulchay................................ 269,666
Jeffrey W. Yundt.................................. 282,189
Joseph L. Turner.................................. 151,417
All directors and executive officers as a group... 2,674,004
</TABLE>
- ---------------
(1) The number of shares owned includes shares held in NiSource's Automatic
Dividend Reinvestment and Share Purchase Plan, shares held in NiSource's Tax
Deferred Savings Plan (the "401(k) Plan") and restricted shares awarded
under NiSource's 1988 and 1994 Long-Term Incentive Plans (the "Incentive
Plans") and Nonemployee Director Stock Incentive Plan, where applicable. The
percentage of Common Shares owned by all directors and officers as a group
is approximately 2.28 percent of the Common Shares outstanding as of January
30, 2000.
(2) The totals include shares for which the following executive officers have a
right to acquire beneficial ownership, within 60 days after January 30,
2000, by exercising stock options granted under the Incentive Plans: Gary L.
Neale -- 310,000 shares; Stephen P. Adik -- 160,000 shares; Patrick J.
29
<PAGE> 30
Mulchay -- 150,000 shares; Jeffrey W. Yundt -- 160,000 shares; Joseph L.
Turner -- 71,000 shares; and all executive officers as a group -- 1,334,826
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 12, 1999, NiSource acquired BSG. Mr. Roger A. Young was
Chairman of the Board and Chief Executive Officer of BSG at the time of the
acquisition and held shares in BSG. Pursuant to the acquisition transaction, Mr.
Young received Common Shares and/or cash in exchange for his BSG shares in the
same proportion as other BSG shareholders. In connection with the BSG
acquisition transaction, Mr. Young was elected as a director of NiSource. BSG
entered into a nine month employment agreement with Mr. Young, guaranteed by
NiSource, and Mr. Young entered into a covenant not to compete with NiSource.
The employment agreement provided Mr. Young with a base compensation and a
performance-based bonus. For the nine month term of the employment contract, Mr.
Young received base compensation of $641,000 and earned a performance-based
bonus of $1,600,000. In consideration of Mr. Young's covenant not to compete, he
was paid $3,200,000. Some of the foregoing payments have been deferred at a
market rate of interest and no interest was paid to Mr. Young in 1999.
30
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The Financial Statements filed herewith as a part of this report on
Form 10-K are listed on the Index to Financial Statements under Item
8 on page 20.
Consolidated Financial Statements --
Consolidated Statement of Income for the years ended December 31,
1999, 1998 and 1997
Consolidated Balance Sheet at December 31, 1999 and 1998
Consolidated Statement of Capitalization at December 31, 1999 and
1998
Consolidated Statement of Long-term Debt at December 31, 1999 and
1998
Consolidated Statement of Cash Flows for the years ended December
31, 1999, 1998 and 1997
Consolidated Statement of Common Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) The following is a list of the Financial Statement Schedules filed
herewith as part of this report on Form 10-K:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION PAGES OF 1999 10-K
-------- ----------- ------------------
<C> <S> <C>
I Condensed Financial Information of Registrant 32, 33, 34, 35, 36,
37 & 38
II Valuation and Qualifying Accounts 39, 40 & 41
</TABLE>
(3) Exhibits --
The exhibits filed herewith as a part of this report on Form 10-K
are listed on the Exhibit Index included on pages 44-47. Each
management contract or compensatory plan or arrangement of NiSource
listed on the Exhibit Index is separately identified by an asterisk.
(b) Reports on Form 8-K
None
31
<PAGE> 32
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Property:
Property in service....................................... $ 14,612 $ 2,681
Work in progress.......................................... 6,334 12,599
Less: accumulated depreciation............................ 4,303 927
---------- ----------
Total property....................................... 16,643 14,353
---------- ----------
Investments (principally investments in wholly-owned
subsidiaries).......................................... 1,960,676 1,410,999
---------- ----------
Current Assets:
Cash and cash equivalents................................. 3,296 10,165
Amounts receivable from subsidiaries...................... 76,516 76,676
Prepayments............................................... 64,389 27,637
---------- ----------
Total current assets................................. 144,201 114,478
---------- ----------
Other (principally notes receivable from associated
companies)................................................ 608,195 355,117
---------- ----------
$2,729,715 $1,894,947
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares............................................. $ 870,930 $ 870,930
Additional paid-in capital................................ 174,405 94,181
Retained earnings......................................... 774,425 744,309
Other..................................................... 7,251 1,856
Less: Treasury shares..................................... 472,553 559,027
Currency translation adjustment........................ 954 2,541
---------- ----------
Total capitalization................................. 1,353,504 1,149,708
Current Liabilities:
Dividends declared on common and preferred stock.......... 33,518 29,970
Amounts payable to subsidiaries........................... 46,028 13,041
Other..................................................... 8,755 1,723
---------- ----------
Total current liabilities............................ 88,301 44,734
---------- ----------
Other (principally notes receivable to associated
companies)................................................ 1,287,910 700,505
---------- ----------
$2,729,715 $1,894,947
========== ==========
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
this statement.
32
<PAGE> 33
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Equity in net earnings of subsidiaries............. $ 221,094 $ 211,525 $ 202,680
------------ ------------ ------------
Other income (deductions):
Administrative and general expense................. (42,341) (14,196) (12,117)
Interest income.................................... 41,075 31,874 27,272
Interest expense................................... (88,127) (48,444) (37,652)
Other, net......................................... (8,108) 1,012 (143)
------------ ------------ ------------
(97,501) (29,754) (22,640)
------------ ------------ ------------
Net income before income taxes..................... 123,593 181,771 180,040
Income taxes....................................... (36,821) (12,115) (10,809)
------------ ------------ ------------
Net income......................................... 160,414 193,886 190,849
------------ ------------ ------------
Balance available for common shareholders.......... $ 160,414 $ 193,886 190,849
============ ============ ============
Average common shares outstanding-basic............ 124,343,117 120,778,077 123,849,126
Basic earnings per average common share............ $ 1.29 $ 1.60 $ 1.54
============ ============ ============
Diluted earnings per average common share.......... $ 1.27 $ 1.59 $ 1.53
============ ============ ============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
this statement.
33
<PAGE> 34
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating activities................... $167,388 $177,487 $147,528
-------- -------- --------
Cash flows provided by (used in) investing activities:
Acquisition of businesses, net of cash acquired........... (550,200) -- (288,932)
Acquisition of minority interest.......................... -- -- (5,461)
Construction work in progress............................. (8,759) (7,451) (5,000)
Sale of property.......................................... -- (56 (5)
Investments at cost....................................... (9,962) -- --
-------- -------- --------
Net cash provided by (used in) investing activities.... (568,921) (7,507) (299,398)
-------- -------- --------
Cash flows provided by (used in) financing activities
Issuance of common shares, net of underwriting fees....... 314,543 10,356 218,566
Increase (decrease) in notes payable to subsidiaries...... 585,225 175,012 205,396
Increase in notes receivable from subsidiaries............ (253,050) (30,993) (21,709)
Cash dividends paid on common shares...................... (125,599) (116,386) (111,593)
Acquisition of treasury shares............................ (126,455) (203,976) (133,073)
-------- -------- --------
Net cash provided by (used in) financing activities......... 394,664 (165,987) 157,587
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (6,869) 3,993 5,717
Cash and cash equivalents at beginning of year.............. 10,165 6,172 455
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 3,296 $ 10,165 $ 6,172
======== ======== ========
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
this statement.
34
<PAGE> 35
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid to NiSource Inc. (NiSource) by its consolidated
subsidiaries were (in thousands of dollars): $239,200, $207,400 and $188,175 in
1999, 1998 and 1997, respectively.
2. SUPPORT AGREEMENT
The financial obligations of NiSource Capital Markets, Inc. (Capital
Markets) are subject to a Support Agreement between NiSource and Capital
Markets, under which NiSource 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 Public Service Company (Northern Indiana) which are owned by NiSource.
Under the terms of the Support Agreement, in addition to the cash flow of cash
dividends paid to NiSource by any of its consolidated subsidiaries, the assets
of NiSource, 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 NiSource, other than the stock and assets of Northern Indiana, as
reflected in the consolidated financial statements of NiSource, was
approximately $3.2 billion at December 31, 1999.
3. CONTINGENCIES
NiSource 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 NiSource and
its subsidiaries.
4. EARNINGS PER SHARE
NiSource determines earnings per share in accordance with the provisions of
SFAS No. 128 "Earnings per Share," which requires NiSource to present basic
earning per share and diluted earnings per share in place of primary earnings
per share.
35
<PAGE> 36
The net income, preferred dividends and shares used to compute basic and
diluted earnings per share is presented in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic
Weighted Average Number of Shares:
Average Common Shares Outstanding................ 124,343,117 120,778,077 123,849,126
------------ ------------ ------------
Net Income to be Used to Compute Basic
Earnings per Average Common Share:
Net Income....................................... $ 160,414 $ 193,886 $ 190,849
Basic Earnings per Average Common Share............ $ 1.29 $ 1.60 $ 1.54
============ ============ ============
Diluted
Weighted Average Number of Shares:
Average Common Shares Outstanding................ 124,343,117 120,778,077 123,849,126
Dilutive Effect for Nonqualified Stock Options... 996,275 556,799 374,344
------------ ------------ ------------
Weighted Average Shares.......................... 125,339,392 121,334,876 124,223,470
Net Income to be Used to Compute Diluted
Earnings per Average Common Share:
Net Income....................................... $ 160,414 $ 193,886 $ 190,849
Diluted Earnings per Average Common Share.......... $ 1.27 $ 1.59 $ 1.53
============ ============ ============
</TABLE>
5. STOCK SPLIT
On December 16, 1997, the Board authorized a two-for-one split of
NiSource's common shares. 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 including per share amounts and stock option data
of NiSource's common shares reflect the two-for-one stock split as if it had
occurred at the beginning of the earliest period.
6. PURCHASE OF IWC RESOURCES CORPORATION
On March 25, 1997, NiSource acquired all the outstanding common stock of
IWCR for $290.5 million. NiSource financed this transaction with debt of
approximately $83.0 million and issuance of approximately 10.6 million
NiSource's common shares. NiSource accounted for the acquisition as a purchase.
The purchase price was allocated to the assets and liabilities acquired based on
their fair values.
7. PURCHASE OF BAY STATE GAS COMPANY
In February 1999, NiSource acquired Bay State Gas Company (BSG) in a
stock-for-stock transaction valued at $40 per BSG share. The transaction was
valued at approximately $551 million. BSG shareholders had the option of
exchanging their shares of BSG stock for cash, up to an aggregate sum of equal
to 50% of the total purchase price (and exercised this option with respect to
approximately 43% of the total purchase price). BSG, one of the largest natural
gas utilities in New England, provides natural gas distribution services to more
than 300,000 customers in Massachusetts, New Hampshire and Maine.
8. PURCHASE OF TPC CORPORATION
On April 1, 1999, NiSource acquired the stock of TPC Corporation (now
renamed EnergyUSA-TPC Corp. (TPC)), a Houston-based natural gas marketing and
storage company, for approximately $150 million in cash. The acquisition was
accounted for as a purchase, with the purchase price allocated to the assets and
liabilities acquired based on their estimated fair values. As a result of the
TPC acquisition, NiSource had an indirect investment in the amount of $126.0
million, representing a 77.3% interest in Market Hub Partners,
36
<PAGE> 37
L.P. (MHP). During the fourth quarter of 1999, subsidiaries of NiSource
purchased the remaining interests in MHP.
9. CORPORATE PREMIUM INCOME EQUITY SECURITIES AND COMPANY-OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF TRUST HOLDING SOLELY COMPANY DEBENTURES
In February 1999 NiSource completed an underwritten public offering of
Corporate PIES. The net proceeds of approximately $334.7 million were primarily
used to fund the cash portion of the consideration payable in the acquisition of
BSG, and to repay short-term indebtedness.
The Corporate PIES were offered as one unit comprised of two separable
instruments. The first component consists of stock purchase contracts to
purchase, four years from the date of issuance, common shares at a face value of
$50. The second component consists of mandatorily redeemable preferred
securities(Preferred Securities) which represent an undivided beneficial
ownership interest in the assets of NIPSCO Capital Trust I (Capital Trust). The
Preferred Securities have a stated liquidation amount of $50. The sole assets of
Capital Trust are subordinated debentures (Debentures) of Capital Markets that
earn interest at the same rates as the Preferred Securities to which they
relate, and certain rights under related guarantees by Capital Markets. The
Preferred Securities have been pledged to secure the holders' obligation to
purchase common shares under the stock purchase contracts.
The face value of the stock purchase contracts is not recorded in the
Consolidated Balance Sheet. A $22.2 million present value contract fee payable
to the stock purchase contract holders has been recorded as a liability and as
reduction to paid-in capital. In addition, paid-in capital has been reduced by
$10.4 million for the issuance costs of the stock purchase contracts.
The distributions paid on Preferred Securities are presented under the
caption "minority interests" in NiSource's Consolidated Statement of Income. The
amounts outstanding are presented under the caption, "Company-obligated
mandatorily redeemable preferred securities of subsidiary trust holding solely
company debentures," in NiSource's Consolidated Balance Sheet. At December 31,
1999, there were 6.9 million 5.9% Preferred Securities outstanding with Capital
Trust assets of $345 million.
10. EQUITY FORWARD SHARE PURCHASE CONTRACT
During the second quarter of 1999, a forward purchase contract was entered
into covering the purchase of up to 5% of NiSource's outstanding common shares.
At the end of each quarterly period during the term of the forward purchase
contract, NiSource has the option, but not the obligation, to settle the forward
purchase contract with respect to all or a portion of the common shares held by
the counterparty. As of December 31, 1999, the counterparty informed NiSource
that approximately 5.6 million shares had been purchased at a weighted average
cost of $26.90 per share. NiSource has the option to settle with the
counterparty by means of physical, net cash or net share settlement. On a
quarterly basis, NiSource will pay the counterparty a fee based on the amount
paid for common shares purchased by the counterparty, and the counterparty will
remit dividends received on shares owned. All such amounts paid and remitted
under the contract are reflected in equity contract costs of common
shareholders' equity. The net amount was a charge of $658,128 for the year
ending December 31, 1999.
NiSource will be obligated to settle the forward purchase contract with
respect to all the remaining common shares in May 2003, or under certain
circumstances after an extension period of up to six months, at NiSource's
option. as of December 31, 1999, the nominal amount and fair value of the equity
forward purchase contract was approximately $150 million and $100 million,
respectively.
11. ACQUISITION OF COLUMBIA ENERGY GROUP
On February 28, 2000, after completion of the bidding process initiated by
CEG, NiSource and CEG announced approval of a merger agreement under which
NiSource will form a new holding company, which will acquire all of the
outstanding shares of CEG valued at approximately $6 billion. The new holding
37
<PAGE> 38
company will also assume approximately $2.5 billion of CEG debt. Under the
agreement, CEG shareholders have the option to receive new holding company stock
for up to 30% of the outstanding CEG shares. Under the common stock option, each
CEG share will be exchanged for $74 in new holding company stock, based on the
average NiSource share price prior to the closing, but not more than 4.4848
shares of new holding company stock for each CEG share. Under the cash option,
each CEG share will be exchanged for $70 in cash plus a $2.60 face value unit
(consisting of a zero coupon debt security with a forward equity contract). A
commitment letter was accepted under which certain financial institutions
agreed, under specified conditions, to provide up to $6.0 billion to finance the
acquisition of CEG. The merger is conditioned upon, among other things, the
approvals of the shareholders of both companies and various regulatory
commissions. If NiSource shareholder approval is not obtained, the merger
agreement provides that the transaction will automatically be restructured to
eliminate the 30% common stock option for CEG shareholders.
38
<PAGE> 39
NISOURCE INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
--------- FOR PURPOSES
BALANCE CHARGED TO CHARGED FOR WHICH BALANCE
JAN. 1, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION 1999 ACQUISITIONS EXPENSES ACCOUNTS WERE CREATED 1999
----------- ------- ------------ ---------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Reserves Deducted in Consolidated
Balance Sheet from Assets to Which
They Apply:
Reserve for accounts
receivable................... $ 8,984 $8,951 $28,401 $ -- $15,717 $30,619
Reserve for investments, at
equity....................... $ 1,033 $ -- $23,847 $ -- $ 163 $24,717
Reserves Classified Under Reserve
Section of Consolidated Balance
Sheet:
Injuries and damages reserve... $ 7,437 $5,215 $ 8,643 $ -- $ 8,307 $12,988
Environmental reserves......... $19,110 $6,000 $ 3,870 $ -- $ 5,167 $23,813
Other.......................... $ 7,128 $ -- $ 203 $ -- $ 3,213 $ 4,118
</TABLE>
39
<PAGE> 40
NISOURCE INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEDUCTIONS
ADDITIONS FOR PURPOSES
--------------------- FOR WHICH
BALANCE CHARGED TO CHARGED RESERVES BALANCE
JAN. 1, COSTS AND TO OTHER WERE DEC. 31,
DESCRIPTION 1998 EXPENSES ACCOUNTS CREATED 1998
----------- ------- ---------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves Deducted in Consolidated
Balance Sheet from Assets to Which They
Apply:
Reserve for accounts receivable........... $ 5,887 $14,635 $-- $11,538 $ 8,984
Reserve for investments, at equity........ $ 1,762 $ -- $-- $ 729 $ 1,033
Reserves Classified Under Reserve Section of
Consolidated Balance Sheet:
Injuries and damages reserve.............. $ 6,499 $ 5,681 $-- $ 4,743 $ 7,437
Environmental reserves.................... $19,366 $ 5,103 $-- $ 5,359 $19,110
Other..................................... $ 3,928 $ 3,243 $-- $ 43 $ 7,128
</TABLE>
40
<PAGE> 41
NISOURCE INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DEDUCTIONS
FOR PURPOSES
ADDITIONS FOR WHICH
BALANCE CHARGED TO CHARGED RESERVES BALANCE
JAN. 1, COSTS AND TO OTHER WERE DEC. 31,
DESCRIPTION 1997 IWCR EXPENSES ACCOUNTS CREATED 1997
----------- ------- ---- ---------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Reserves Deducted in Consolidated
Balance Sheet from Assets to
Which They Apply:
Reserve for accounts receivable.... $ 5,569 $25 $6,573 $-- $6,280 $ 5,887
Reserve for investments, at
equity........................... $ 1,953 $-- $ -- $-- $ 191 $ 1,762
Reserve for investments, at cost... $ -- $--
Reserves Classified Under Reserve
Section of Consolidated Balance Sheet:
Injuries and damages reserve....... $ 4,376 $757 $6,603 $-- $5,237 $ 6,499
Environmental reserves............. $16,789 $-- $9,489 $-- $6,912 $19,366
Other.............................. $ 4,471 $-- $ 30 $-- $ 573 $ 3,928
</TABLE>
41
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF NISOURCE INC.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in NiSource
Inc.'s annual report to shareholders for the year ended December 31, 1999,
incorporated by reference in this Form 10-K, and have issued our report thereon
dated February 18, 2000 (except with respect to the matter discussed in the Note
"Announcement of Merger with Columbia Energy Group," as to which the date is
February 28, 2000). Our audits were made for the purpose of forming an opinion
on those consolidated financial statements taken as a whole. The schedules
listed on Page 31, Item 14(a)(2) are the responsibility of NiSource Inc.'s
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements taken as a whole.
<TABLE>
<S> <C>
Chicago, Illinois
February 18, 2000 Arthur Andersen LLP
(Except with respect to the matter discussed
in the Note "Announcement of Merger Agreement
with Columbia Energy Group,"
as to which the date is February 28, 2000).
</TABLE>
42
<PAGE> 43
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, HEREUNTO DULY AUTHORIZED.
NiSource Inc.
(Registrant)
<TABLE>
<S> <C> <C> <C>
Date March 29, 2000 By /s/ GARY L. NEALE
---------------------------------------- ----------------------------------------
Gary L. Neale, Its Chairman and
President
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY L. NEALE Chairman, President, Principal March 28, 2000
- ----------------------------------- Executive Officer and Director
Gary L. Neale
/s/ STEPHEN P. ADIK Senior Executive Vice President, March 28, 2000
- ----------------------------------- Principal Financial Officer and
Stephen P. Adik Principal Accounting Officer
/s/ STEVEN C. BEERING Director March 28, 2000
- -----------------------------------
Steven C. Beering
/s/ JAMES T. MORRIS Director March 28, 2000
- -----------------------------------
James T. Morris
/s/ ARTHUR J. DECIO Director March 28, 2000
- -----------------------------------
Arthur J. Decio
/s/ DENNIS E. FOSTER Director March 28, 2000
- -----------------------------------
Dennis E. Foster
/s/ IAN M. ROLLAND Director March 28, 2000
- -----------------------------------
Ian M. Rolland
/s/ ROGER A. YOUNG Director March 28, 2000
- -----------------------------------
Roger A. Young
/s/ JOHN W. THOMPSON Director March 28, 2000
- -----------------------------------
John W. Thompson
/s/ ROBERT J. WELSH Director March 28, 2000
- -----------------------------------
Robert J. Welsh
Director March 28, 2000
- -----------------------------------
Dr. Carolyn Y. Woo
</TABLE>
43
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
- ------- -------------------
<C> <S>
(2.1) Agreement and Plan of Merger dated as of February 27, 2000,
by and between NiSource Inc. and Columbia Energy Group
(incorporated by reference to Exhibit 2.1 to the NiSource
Inc. Current Report on Form 8-K filed March 3, 2000).
(3.1) Amended and Restated Articles of Incorporation of NIPSCO
Industries, Inc. dated May 13, 1998 (incorporated by
reference to Exhibit 3 of the NiSource Inc. Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998).
(3.2) Articles of Amendment to the Amended and Restated Articles
of Incorporation of NiSource Inc. dated April 14, 1999.
(3.3) Articles of Amendment to the Amended and Restated Articles
of Incorporation of NiSource Inc. dated March 2, 2000.
(3.4) Amended and Restated By-laws effective January 29, 2000.
(4.1) Indenture dated August 1, 1939 between Northern Indiana
Public Service Company (Northern Indiana) and Trustees
(incorporated by reference to Exhibit 7 to the Northern
Indiana Registration Statement (Registration No. 2-5178)).
(4.2) Third Supplemental Indenture dated August 1, 1943
(incorporated by reference to Exhibit 7-C to the Northern
Indiana Registration Statement (Registration No. 2-5178)).
(4.3) Eighteenth Supplemental Indenture dated September 1, 1967
(incorporated by reference to Exhibit 1 to the Northern
Indiana Current Report on Form 8-K dated October 9, 1967).
(4.4) Nineteenth Supplemental Indenture dated October 1, 1968
(incorporated by reference to Exhibit 1 to the Northern
Indiana Current Report on Form 8-K dated November 8, 1968).
(4.5) Twenty-third Supplemental Indenture dated March 31, 1972
(incorporated by reference to Exhibit 2 to the Northern
Indiana Current Report on Form 8-K dated May 5, 1972).
(4.6) Thirty-third Supplemental Indenture dated June 1, 1980
(incorporated by reference to Exhibit 1 to the Northern
Indiana Quarterly Report on Form 10-Q for the quarter ended
June 30, 1980).
(4.7) Forty-first Supplemental Indenture dated July 1, 1991
(incorporated by reference to Exhibit 1 to the Northern
Indiana Current Report on Form 8-K dated March 25, 1992).
(4.8) Indenture dated as of March 1, 1988, between Northern
Indiana and Manufacturers Hanover Trust Company, as Trustee
(incorporated by reference to Exhibit 4 to the Northern
Indiana Registration Statement (Registration No. 33-44193)).
(4.9) First Supplemental Indenture dated as of December 1, 1991,
between Northern Indiana and Manufacturers Hanover Trust
Company, as Trustee (incorporated by reference to Exhibit
4.1 to the Northern Indiana Registration Statement
(Registration No. 33-63870)).
(4.10) Memorandum of Agreement with City of Michigan City, Indiana
(incorporated by reference to Exhibit 7 to the Northern
Indiana Registration Statement (Registration No. 2-48531)).
(4.11) Financing Agreement No. 1 dated November 1, 1988, between
Northern Indiana and Jasper County, Indiana regarding
$37,000,000 Series 1988A Pollution Control Refunding Revenue
Bonds. Identical Financing agreements between Northern
Indiana and Jasper County, Indiana provide for the issuance
of $47,000,000 Series 1988B, $46,000,000 Series 1988C and
$24,000,000 Series 1988D Pollution Control Refunding Revenue
Bonds (incorporated by reference to Exhibit 8 to the
Northern Indiana Current Report on Form 8-K dated March 16,
1989).
(4.12) Financing Agreement dated July 1, 1991, with Jasper County,
Indiana regarding $55,000,000 Series 1991 Collateralized
Pollution Control Refunding Revenue Bonds (incorporated by
reference to Exhibit 3 to the Northern Indiana Current
Report on Form 8-K dated March 25, 1992).
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
- ------- -------------------
<C> <S>
(4.13) Financing Agreement dated August 1, 1994, with Jasper
County, Indiana regarding $10,000,000 Series 1994A,
$18,000,000 Series 1994B and $41,000,000 Series 1994C
Pollution Control Refunding Revenue Bonds (incorporated by
reference to Exhibit 4.16 to the Northern Indiana Annual
Report on Form 10-K for year ended December 31, 1994).
(4.14) Indenture between NIPSCO Industries, Inc., NIPSCO Capital
Markets, Inc. and Chemical Bank as Trustees dated February
1, 1996 (incorporated by reference to Exhibit 1 to the
NIPSCO Industries, Inc. Registration Statement (Registration
No. 33-65285)).
(4.15) Rights Agreement between NiSource Inc. and Harris Trust and
Savings Bank, dated February 17, 2000 (incorporated by
reference to Exhibit 4.1 to the NiSource Inc. Form 8-A dated
February 24, 2000).
(4.16) Indenture Agreement between NIPSCO Industries, Inc., NIPSCO
Capital Markets, Inc. and Chase Manhattan Bank as trustee
dated February 14, 1997 (incorporated by reference to
Exhibit 4.1 to the NIPSCO Industries, Inc. Registration
Statement (Registration No. 333-22347)).
(4.17) Fourteenth Supplemental Indenture dated as of January 15,
1978, between the Fidelity Bank, and IWC, including as
Appendix A the "Restatement of Principal Indenture of
Indianapolis Water Company," which, except as otherwise
specified, restates the granting clauses and all other
sections contained in the First Mortgage dated July 1, 1936,
between Fidelity-Philadelphia Trust Company and IWC as
amended by the Fourth, Fifth, Sixth, Eighth, Twelfth and
Fourteenth Supplemental Indentures (incorporated by
reference to Exhibit 4-B1 to IWC's Annual Report on Form
10-K for the year ended December 31, 1980).
(4.18) Eleventh Supplemental Indenture dated as of December 1, 1971
(incorporated by reference to Exhibit 4-B6 to IWC's Annual
Report on Form 10-K for the year ended December 31, 1980).
(4.19) Seventeenth Supplemental Indenture dated as of March 1,
1989, between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A9 to the IWC
Resources Corporation (IWCR) Annual Report on Form 10-K for
the year ended December 31, 1988).
(4.20) Eighteenth Supplemental Indenture dated as of March 1, 1989,
between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A10 to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1988).
(4.21) Nineteenth Supplemental Indenture dated as of June 1, 1989,
between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A9 to IWCR's
Registration Statement (Registration No. 33-43939)).
(4.22) Twentieth Supplemental Indenture dated as of December 1,
1992, between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A9 to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1992).
(4.23) Twenty-first Supplemental Indenture dated as of December 1,
1992, between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A10 to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1992).
(4.24) Twenty-second Supplemental Indenture dated as of April 1,
1993, between IWC and Fidelity Bank, National Association
(incorporated by reference to Exhibit 4.15 to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1993).
(4.25) Indenture of Trust dated as of December 1, 1992, between
City of Indianapolis, Indiana, and IWC to National City
Bank, Indiana, as Trustee (incorporated by reference to
Exhibit 10-J to IWCR's Annual Report on Form 10-K for the
year ended December 31, 1992).
(4.26) Loan Agreement dated as of December 1, 1992, between IWC and
City of Indianapolis, Indiana (incorporated by reference to
Exhibit 10-K to IWCR's Annual Report on Form 10-K for the
year ended December 31, 1992).
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
- ------- -------------------
<C> <S>
(4.27) Guaranty Agreement dated as of December 1, 1992, between
IWCR and National City Bank, Indiana, as Trustee
(incorporated by reference to Exhibit 10-L to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1992).
(4.28) Indenture of Trust, City of Indianapolis, Indiana, and IWC
to National City Bank, Indiana, as Trustee, dated as of
April 1, 1993 (incorporated by reference to Exhibit 4.14 to
IWCR's Annual Report on Form 10-K for the year ended
December 31, 1993).
(4.29) Loan Agreement dated as of April 1, 1993, between IWC and
the City of Indianapolis (incorporated by reference to
Exhibit 10.11 to IWCR's Annual Report on Form 10-K for the
year ended December 31, 1993).
(4.30) Guaranty Agreement between IWCR and National City Bank,
Indiana, as Trustee, dated as of April 1, 1993 (incorporated
by reference to Exhibit 10.12 to IWCR's Annual Report on
Form 10-K for the year ended December 31, 1993).
(4.31) Note Agreement dated as of March 1, 1994, between IWCR and
American United Life Insurance Company (incorporated by
reference to Exhibit 10.12 to IWCR's Annual Report on Form
10-K for the year ended December 31, 1992).
(4.32) Indenture of Trust of Town of Fishers and IWC 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)
(incorporated by reference to Exhibit 4.1 to NIPSCO
Industries, Inc.'s Quarterly Report on Form 10-Q for the
period ended September 30, 1998).
(4.33) Indenture of Trust of City of Indianapolis, Indiana and IWC
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) (incorporated by reference to Exhibit 4.2
to NIPSCO Industries, Inc.'s Quarterly Report on Form 10-Q
for the period ended September 30, 1998).
(4.34) Certificate of Trust of NIPSCO Capital Trust I by and among
Chase Manhattan Bank Delaware, The Chase Manhattan Bank,
Stephen P. Adik, Francis P. Girot, Jr., and Arthur A. Paquin
dated December 17, 1998 (incorporated by reference to
Exhibit 4.6 to the NIPSCO Industries, Inc. Registration
Statement on Form S-3 dated December 18, 1998).
(4.35) Amended and Restated Declaration of Trust of NIPSCO Capital
Trust I by and among NIPSCO Capital Markets, Inc., The Chase
Manhattan Bank, Chase Manhattan Bank Delaware, Stephen P.
Adik, Francis P. Girot, Jr., and Arthur A. Paquin dated
February 16, 1999.
(4.36) First Supplemental Indenture dated February 16, 1999, by and
among NIPSCO Capital Markets, Inc., NIPSCO Industries, Inc.,
and the Chase Manhattan Bank, as Trustee.
(4.37) Purchase Contract Agreement by and among NIPSCO Industries,
Inc. and The Chase Manhattan Bank, as Purchase Contract
Agent, dated February 16, 1999.
(4.38) Pledge Agreement by and among NIPSCO Industries, Inc., The
First National Bank of Chicago, as Collateral Agent and
Securities Intermediary, and The Chase Manhattan Bank, as
Purchase Contract Agent dated February 16, 1999.
(4.39) Remarketing Agreement dated February 16, 1999, among NIPSCO
Industries, Inc., NIPSCO Capital Markets, Inc., NIPSCO
Capital Trust I, and Lehman Brothers Inc., as Remarketing
Agent.
(10.1) Supplemental Life Insurance Plan effective January 1, 1991
(incorporated by reference to Exhibit 2 to the NIPSCO
Industries, Inc. Current Report on Form 8-K dated March 25,
1992).*
(10.2) Executive Deferred Compensation Plan effective December 1,
1990 (incorporated by reference to Exhibit 3 to the NIPSCO
Industries, Inc. Current Report on Form 8-K dated March 25,
1992).*
(10.3) Form of Change in Control and Termination Agreements and
Schedule of Parties to the Agreements.*
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
- ------- -------------------
<C> <S>
(10.4) Nonemployee Director Stock Incentive Plan of NIPSCO
Industries, Inc. (As Amended and Restated Effective February
1, 1998, incorporated by reference to exhibit 10.3 to the
NIPSCO Industries, Inc. Annual Report on Form 10-K for the
year ended December 31, 1998)*
(10.5) First Amendment to NiSource Inc. Nonemployee Director Stock
Incentive Plan (Effective April 1, 1999).*
(10.6) NiSource Inc. Long-Term Incentive Plan (As Amended and
Restated Effective April 14, 1999).*
(10.7) Amended and Restated Pension Plan Provisions effective
January 1, 1989 (incorporated by reference to Exhibit 17 to
the Northern Indiana Current Report on Form 8-K dated March
25, 1992).*
(10.8) NiSource Inc. 1994 Long-Term Incentive Plan (As Amended and
Restated Effective April 14, 1999).*
(10.9) NIPSCO Industries, Inc. Directors' Charitable Gift Program
effective September 27, 1994 (incorporated by reference to
Exhibit 10.8 to the NiSource Annual Report on Form 10-K for
the year ended December 31, 1996).*
(10.10) Employment Agreement (incorporated by reference to Exhibit
10.13 to the NIPSCO Industries, Inc. Annual Report on Form
10-K for the year ended December 31, 1997).*
(10.11) Executive Supplemental Pension Agreement (incorporated by
reference to Exhibit 10.14 the NIPSCO Industries, Inc.
Annual Report on Form 10-K for the year ended December 31,
1997).*
(10.12) Agreement dated October 18, 1971, between IWC and Department
of Public Works of the City of Indianapolis, Indiana,
regarding the purchase of water at Eagle Creek Reservoir
(incorporated by reference to Exhibit 5 to IWC's
Registration Statement (Registration Statement No.
2-55201)).
(10.13) Letter Agreement dated October 25, 1999, between Mr. Roger
A. Young and NiSource Inc. (incorporated by reference to
Exhibit 10.1 to NiSource Inc.'s Quarterly Report on Form
10-Q for the period ended September 30, 1999).*
(10.14) Letter Agreement dated April 9, 1999, between Mr. Joseph L.
Turner, Jr. and NiSource Inc. (incorporated by reference to
Exhibit 10.2 to NiSource Inc.'s Quarterly Report on Form
10-Q for the period ended September 30, 1999).*
(10.15) Equity Forward Purchase Transaction dated November 9, 1999,
between Scotia Capital (USA) Inc. and NiSource Inc.
(incorporated by reference to Exhibit 10.3 to NiSource
Inc.'s Quarterly Report on Form 10-Q for the period ended
September 30, 1999).
(10.16) Nonemployee Director Retirement Plan.*
(10.17) Nonemployee Director Restricted Stock Unit Plan (Effective
January 1, 1999).*
(10.18) First Amendment to Nonemployee Director Restricted Stock
Unit Plan (Effective April 1, 1999).*
(10.19) Supplemental Executive Retirement Plan.*
(12) Ratio of Earnings to Fixed Charges.
(13) 1999 Annual Report to Shareholders for pages 24-68.
(21) List of Subsidiaries.
(23) Consent of Arthur Andersen LLP.
(27) Financial Data Schedule.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement of NiSource Inc.
47
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF NiSource, INC.
The exact text of Article I of the Articles of Incorporation is now as
follows:
"Name The name of the Corporation is NiSource Inc."
<PAGE> 1
EXHBIT 3.3
ARTICLES OF AMENDMENT OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF NISOURCE INC.
The exact text of Article V, Section E, Paragraph 2 of the Articles:
"2. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Shares" (the
"Series A Preferred Shares") and the number of shares constituting the
Series A Preferred Shares shall be 4,000,000. Such number of shares may
be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of Series A
Preferred Shares to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Shares."
<PAGE> 1
EXHIBIT 3.4
NISOURCE INC.
BY-LAWS
EFFECTIVE JANUARY 29, 2000
<PAGE> 2
BY-LAWS
OF
NISOURCE INC.
ARTICLE I.
OFFICES.
SECTION 1.1. Registered Office. The registered office of the Corporation in
the State of Indiana shall be at 5265 Hohman Avenue, in the City of Hammond,
County of Lake.
SECTION 1.2. Principal Business Office. The principal business office of
the Corporation shall be at 801 East 86th Avenue, in the Town of Merrillville,
County of Lake, in the State of Indiana.
ARTICLE II.
SHAREHOLDERS' MEETINGS.
SECTION 2.1. Place of Meetings. Meetings of the shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified by the Board of Directors in the notice of such meeting, but
if no such designation is made, then at the principal business office of the
Corporation.
SECTION 2.2. Annual Meetings. The annual meeting of the shareholders shall
be held in each year on the second Wednesday in the month of April, if not a
legal holiday, and if a legal holiday, then on the next succeeding business day
that is not a legal holiday or on such other day as the Board of Directors may
determine; at the hour of ten o'clock a.m. or at such other time as the Board of
Directors may
<PAGE> 3
determine, for the purpose of electing Directors and for the transaction of such
other business as may legally come before the meeting.
If for any reason any annual meeting shall not be held at the time herein
provided, the same may be held at any time thereafter, upon notice as
hereinafter provided, or the business thereof may be transacted at any special
meeting of shareholders called for that purpose.
SECTION 2.3. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Chairman, the President, or the Board of Directors, and shall be called
by the Chairman at the request in writing of a majority of the Board of
Directors, or at the request in writing of the shareholders holding at least
one-fourth of all the shares outstanding and entitled to vote on the business
proposed to be transacted thereat. All requests for special meetings of
shareholders shall state the time, place and the purpose or purposes thereof.
SECTION 2.4. Notice of Shareholders' Meetings. Notice of each meeting of
shareholders, stating the date, time and place, and, in the case of special
meetings, the purpose or purposes for which such meeting is called, shall be
given to each shareholder entitled to vote thereat not less than 10 nor more
than 60 days before the date of the meeting unless otherwise prescribed by
statute.
SECTION 2.5. Record Dates. (a) In order that the Corporation may determine
the shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of shares or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a future date as the record date, which shall not be more
2
<PAGE> 4
than 60 nor less than 10 days before the date of such meeting or any other
action requiring a determination by shareholders.
(b) If a record date has not been fixed as provided in preceding
subsection (a), then:
(i) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held; and
(ii) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(c) Only those who shall be shareholders of record on the record date so
fixed as aforesaid shall be entitled to such notice of, and to vote at, such
meeting and any adjournment thereof, or to receive payment of such dividend or
other distribution, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding the transfer of any shares on the
books of the Corporation after the applicable record date; provided, however,
the Corporation shall fix a new record date if a meeting is adjourned to a date
more than 120 days after the date originally fixed for the meeting.
SECTION 2.6. Quorum and Adjournment. The holders of a majority of all the
capital shares issued and outstanding and entitled to vote at any meeting of the
shareholders, represented by the holders thereof in person or by proxy, shall be
requisite at all meetings of the shareholders to constitute a quorum for the
election of Directors or for the transaction of other business, unless otherwise
provided by law or by
3
<PAGE> 5
the Corporation's Articles of Incorporation, as amended (the "Articles of
Incorporation"). Whether or not there is such a quorum, the chairman of the
meeting or the shareholders present or represented by proxy representing a
majority of the shares present or represented may adjourn the meeting from time
to time without notice other than an announcement at the meeting. At such
adjourned meeting at which the requisite number of voting shares shall be
present or represented, any business may be transacted which might have been
transacted at the meeting originally called.
SECTION 2.7. Voting by Shareholders; Proxies. Every shareholder shall have
the right at every shareholders' meeting to one vote for each share standing in
his name on the books of the Corporation, except as otherwise provided by law or
by the Articles of Incorporation, and except that no share shall be voted at any
meeting upon which any installment is due and unpaid, or which belongs to the
Corporation. Election of directors at all meetings of the shareholders at which
directors are to be elected shall be by ballot, and a plurality of the votes
cast thereat shall be necessary to elect any director. If a quorum exists,
action on a matter (other than the election of directors) submitted to
shareholders entitled to vote thereon at any meeting shall be approved if the
votes cast favoring the action exceed the votes cast opposing the action, unless
a greater number of affirmative votes is required by law or by the Articles of
Incorporation. Each shareholder entitled to vote at a meeting of shareholders
may authorize another person or persons to act for such shareholder by proxy,
but no proxy shall be valid after eleven months from the date of its execution
unless a longer time is expressly provided therein. Without limiting the manner
in which a shareholder may authorize a person or persons to act for such
shareholder as proxy pursuant to the foregoing sentence, a shareholder may
validly grant such authority (i) by executing a writing authorizing another
person or persons to act for such shareholder as proxy or (ii) by authorizing
another person or persons to act for such shareholder as proxy by transmitting
or authorizing the transmission of a telegram, cablegram, or other means of
electronic submission to the person who will be the holder of the proxy or to a
proxy solicitation
4
<PAGE> 6
firm, proxy support service organization or similar agency duly authorized by
the person who will be the holder of the proxy to receive the submission,
provided that any such telegram, cablegram or other means of electronic
submission must either contain or be accompanied by information from which it
can be determined that the telegram, cablegram or other electronic submission
was transmitted by or authorized by the shareholder, or by any other method
allowed under the Indiana Business Corporation Law. All voting at meetings of
shareholders shall be by ballot, except that the presiding officer of the
meeting may call for a viva voce vote on any matter other than the election of
directors, unless the holder or holders of ten percent (10%) or more of the
shares entitled to vote demands or demand a vote by ballot.
SECTION 2.8. List of Shareholders. The Secretary shall make, or cause the
agent having charge of the stock transfer books of the Corporation to make, at
least five (5) days before each meeting of shareholders, a complete list of the
shareholders entitled by the Articles of Incorporation to vote at said meeting,
arranged in alphabetical order, with the address and number of shares so
entitled to vote held by each, which list shall be on file at the principal
business office of the Corporation and subject to inspection by any shareholder
within the usual business hours during said five (5) days either at the
principal business office of the corporation or a place in the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not so specified, at the place where said meeting is to be held. Such
list shall be produced and kept open at the time and place of the meeting and
subject to the inspection of any shareholder during the holding of such meeting.
SECTION 2.9. Conduct of Business. (a) Presiding Officer. The Chairman, when
present, and in the absence of the Chairman the President, shall be the
presiding officer at all meetings of shareholders, and in the absence of the
Chairman and the President, the Board of Directors shall choose a presiding
officer.
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The presiding officer of the meeting shall have plenary power to determine
procedure and rules of order and make definitive rulings at meetings of the
shareholders.
(b) Annual Meetings of Shareholders. (i) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this Section 2.9, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 2.9.
(ii) For nominations or other business to be properly brought before
any annual meeting by a shareholder pursuant to clause (C) of paragraph (b)(i)
of this Section 2.9, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal business office of
the Corporation not later than 150 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, notice by the shareholder to be timely
must be so delivered not later than the 150th day prior to such annual meeting
or the 10th day following the day on which public announcement of the date of
such meeting is first made. Such shareholder's notice shall set forth (A) as to
each person whom the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the
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shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the shareholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (x) the name and
address of such shareholder, as they appear on the Corporation's books, and of
such beneficial owner and (y) the class and number of shares of the Corporation
which are owned beneficially and of record by such shareholder and such
beneficial owner.
(iii) The notice procedures of this Section 2.9 shall not apply to any
annual meeting if (A) with respect to annual meetings of shareholders subsequent
to the 1994 annual meeting of shareholders, the Corporation shall not have set
forth in its proxy statement for the preceding annual meeting of shareholders
the date by which notice of nominations by shareholders of persons for election
as directors or of other business proposed to be brought by shareholders at the
next annual meeting of shareholders must be received by the Corporation to be
considered timely pursuant to this Section 2.9 or (B) with respect to the 1994
annual meeting of shareholders, the Corporation shall have failed to issue a
public announcement setting forth such information not less than 30 days prior
to the date by which a shareholder's notice must be received by the Corporation
to be considered timely pursuant to this Section 2.9.
(c) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (A) by or at the direction of the Board of
Directors or (B) by any shareholder of the Corporation who is a shareholder of
record at the time of giving of notice provided for in this Section 2.9, who is
entitled to vote
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at the meeting and who complies with the notice procedures set forth in this
Section 2.9. Nominations by shareholders of persons for election to the Board of
Directors may be made at such a special meeting of shareholders if a
shareholder's notice containing the information set forth in paragraph (b)(ii)
of this Section 2.9 shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the 150th day prior to such
Special Meeting or the 10th day following the date on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(d) General. (i) Only such persons who are nominated in accordance with
the procedures set forth in this Section 2.9 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.9. The presiding officer at the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 2.9 and, if any proposed nomination or business is not in
compliance with this Section 2.9, to declare that such defective proposal shall
be disregarded.
(ii) For purposes of this Section 2.9, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 2.9, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.9. Nothing in this Section 2.9 shall be deemed to affect
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any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 2.10. Organization of Meetings. The Secretary, who may call on any
officer or officers of the Corporation for assistance, shall make all necessary
and appropriate arrangements for all meetings of shareholders, receive all
proxies and ascertain and report to each meeting of shareholders the number of
shares present, in person and by proxy. In the absence of the Secretary, the
Assistant Secretary shall perform the foregoing duties. The certificate and
report of the Secretary or Assistant Secretary, as to the regularity of such
proxies and as to the number of shares present, in person and by proxy, shall be
received as prima facie evidence of the number of shares present in person and
by proxy for the purpose of establishing the presence of a quorum at such
meeting and for organizing the same, and for all other purposes.
SECTION 2.11. Inspectors. At every meeting of shareholders it shall be the
duty of the presiding officer to appoint three (3) shareholders of the
Corporation inspectors of election to receive and count the votes of
shareholders. Each inspector shall take an oath to fairly and impartially
perform the duties of a inspector of the election and to honestly and truly
report the results thereof. Such inspectors shall be responsible for tallying
and certifying the vote taken on any matter at each meeting which is required to
be tallied and certified by them in the resolution of the Board of Directors
appointing them or the appointment of the presiding officer at such meeting as
the case may be. Except as otherwise provided by these By-Laws or by law, such
inspectors shall also decide all questions touching upon the qualification of
voters, the validity of proxies and ballots, and the acceptance and rejection of
votes. The Board of Directors shall have the authority to make rules
establishing presumptions as to the validity and sufficiency of proxies.
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SECTION 2.12. Minutes of Shareholder Meetings. The presiding officer,
secretary, and inspectors of election serving at a shareholders' meeting shall
constitute a committee to correct and approve the minutes of such meeting. The
approval thereof shall be evidenced by an endorsement thereon signed by a
majority of the committee.
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 3.1. Powers. The Board of Directors shall have the general
direction, management and control of all the property, business and affairs of
the Corporation and shall exercise all the powers that may be exercised or
performed by the Corporation, under the statutes, the Articles of Incorporation,
and these By-Laws.
SECTION 3.2. Number, Election and Term of Office. The Board of Directors
shall consist of ten (10) members, classified with respect to the time for which
they shall severally hold office by dividing them into three classes, and after
being so classified one-third (1/3) of the Directors, or as near as may be,
shall be elected annually for a term of three (3) years.
SECTION 3.3. Vacancies. Any vacancy in the Board of Directors caused by
death, resignation or other reason shall be filled for the remainder of the
Director's term by a majority vote of the remaining Directors although less than
a quorum, or by the sole remaining director, and any director so chosen shall
hold office for a term expiring at the annual meeting of shareholders at which
the term of office of the class of directors to which such director has been
elected expires. All Directors of the Corporation shall hold office until their
successors are duly elected and qualified.
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SECTION 3.4. Annual Meetings. A meeting of the Directors whose terms have
not expired and the newly elected Directors, to be known as the annual meeting
of the Board of Directors, for the election of officers and for the transaction
of such other business as may properly come before the meeting, shall be held on
the same day as the annual meeting of the shareholders, at that time and place
determined by the Board of Directors or at such date, time and place otherwise
set by the Chairman.
SECTION 3.5. Regular Meetings. Regular monthly meetings of the Board of
Directors shall be held from time to time (either within or without the state)
as the Board may by resolution determine, without call and without notice, and
unless otherwise determined all such regular monthly meetings shall be held at
the principal business office of the Corporation on the fourth Tuesday of each
and every month at 10:30 a.m.
SECTION 3.6. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman, by the President, or by the Chairman
upon the written request of any four (4) Directors by giving, or causing the
Secretary to give, to each Director, notice in accordance with Article IV of
these By-Laws.
SECTION 3.7. Quorum. At all meetings of the Board of Directors, a majority
of the Directors shall constitute a quorum for the transaction of business and
the act of a majority of those present shall be necessary and sufficient for the
taking of any action thereat, but a less number may adjourn the meeting from
time to time until a quorum is present.
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SECTION 3.8. Action by Written Consent. Unless otherwise restricted by
statute, the Articles of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all directors or by all members of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the Board
of Directors or of such committee.
SECTION 3.9. Attendance by Conference Telephone. Members of the Board of
Directors or any committee thereof may participate in a meeting of such Board of
Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.10. Committees. (a) The Board of Directors may from time to time,
in its discretion, by resolution passed by a majority of the Board, designate,
and appoint, from the directors, committees of one or more persons which shall
have and may exercise such lawfully delegable powers and duties conferred or
authorized by the resolutions of designation and appointment. The Board of
Directors shall have power at any time to change the members of any such
committee, to fill vacancies, and to discharge any such committee.
(b) Unless the Board of Directors shall provide otherwise, the presence of
one-half of the total membership of any committee of the Board of Directors
shall constitute a quorum for the transaction of business at any meeting of such
committee and the act of a majority of those present shall be necessary and
sufficient for the taking of any action thereat.
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ARTICLE IV.
NOTICES.
SECTION 4.1. Notices. Notices to directors and shareholders shall be in
writing and delivered personally or mailed to their addresses appearing on the
records of the Corporation or, if to directors, by telegram, cable, telephone,
telecopy, facsimile or a nationally recognized overnight delivery service.
Notice to directors of special meetings by mail shall be given at least two days
before the meeting. Notice to directors of special meetings by telegram, cable,
personal delivery, telephone, telecopy or facsimile shall be given a reasonable
time before the meeting, but in no event less than one hour before the meeting.
Notice by mail or recognized overnight delivery service shall be deemed to be
given when sent to the director at his or her address appearing on the records
of the Corporation. Notice by telegram or cable shall be deemed to be given when
the telegram or cable addressed to the director at his or her address appearing
on the records of the Corporation is delivered to the telegraph company. Notice
by telephone, telecopy or facsimile shall be deemed to be given when transmitted
by telephone, telecopy or facsimile to the telephone, telecopy or facsimile
number appearing on the records of the Corporation for the director (regardless
of whether the director shall have personally received such telephone call or
telecopy or facsimile message).
SECTION 4.2. Waiver of Notice. Whenever any notice is required, a waiver
thereof signed by the person entitled to such notice, whether before or after
the time stated therein, and filed with the minutes or corporate records, shall
be deemed equivalent thereto. Attendance of any person at any meeting of
shareholders or directors shall constitute a waiver of notice of such meeting,
except when such person attends only for the express purpose of objecting, at
the beginning of the meeting (or in the case of a director's meeting, promptly
upon such director's arrival), to the transaction of any business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
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ARTICLE V.
OFFICERS.
SECTION 5.1. Designation; Number; Election. The officers of the Corporation
shall be chosen by the Board of Directors and may consist of a Chairman, a
President, one or more Vice Presidents, a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, a Controller, one or
more Assistant Controllers, an Auditor, and an Environmental Officer and
Counsel. One person may hold any two offices except those of Chairman or
President, and Secretary.
SECTION 5.2. Term of Office; Vacancies; Removal. Such officers shall be
elected by the Board of Directors at its annual meeting, and shall hold office
for one year and/or until their respective successors shall have been duly
elected. The Board of Directors may from time to time, elect or appoint such
other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
may be prescribed by the Board of Directors. Vacancies among the officers of the
Corporation shall be filled by the Board of Directors. Any officer or agent
elected or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the whole Board of Directors.
SECTION 5.3. Compensation of Officers. The Board of Directors or a
committee of the Board shall have the authority to fix the compensation of the
officers of the Corporation.
SECTION 5.4. Chairman. The Chairman shall be the chief executive officer of
the Company and shall have general authority and supervision over the management
and direction of the affairs of the
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Company, and supervision of all departments and of all officers of the Company.
The Chairman shall, subject to the other provisions of these by-laws, have such
other powers and perform such other duties as usually devolve upon the chief
executive officer of a company or as may be prescribed by the Board of
Directors, and shall, when present, preside at all meetings of the shareholders
and of the Board of Directors. When the Board of Directors is not in session,
the Chairman shall have authority to suspend the authority of any other officer
or officers, subject, however, to the pleasure of the Board of Directors at its
next meeting. In case of the absence, disability, death, resignation or removal
from office of the Chairman, the powers and duties of the Chairman shall for the
time being devolve upon and be exercised by the President, unless otherwise
ordered by the Board of Directors.
SECTION 5.5. President. The President shall be the chief operating officer
of the Corporation and shall have such general authority and supervision over
the management and direction of the affairs of the Corporation, subject to the
authority of the Chairman, as shall usually devolve upon a chief operating
officer of a corporation. The President shall, subject to the other provisions
of these By-Laws, have such other powers and perform such other duties as
usually devolve upon the President of a corporation, and such further duties as
may be prescribed for the President by the Chairman or the Board of Directors.
In case of the absence, disability, death, resignation or removal from office of
the President, the powers and duties of the President shall, for the time being,
devolve upon and be exercised by the Chairman, and in case of the absence,
disability, death, resignation, or removal from office of both the Chairman and
the President, the powers and duties of the President shall for the time being
devolve upon and be exercised by the Vice President so appointed by the Board of
Directors.
SECTION 5.6. Vice Presidents. Each of the Vice Presidents shall have such
powers and duties as may be prescribed by the Board of Directors, the Chairman
or the President.
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SECTION 5.7. Secretary. The Secretary shall attend and keep the minutes of
all meetings of the Board of Directors and of the shareholders. The Secretary
shall have charge and custody of the corporate records and corporate seal of the
Corporation, and shall in general perform all the duties incident to the office
of secretary of a corporation, subject at all times to the direction and control
of the Board of Directors, the Chairman and the President.
SECTION 5.8. Assistant Secretaries. Each of the Assistant Secretaries
shall have such duties and powers as may be prescribed by the Board of Directors
or be delegated by the Chairman or the President. In the absence or disability
of the Secretary, the powers and duties of the Secretary shall devolve upon such
one of the Assistant Secretaries as the Board of Directors, the Chairman or the
President may designate, or, if there be but one Assistant Secretary, then upon
such Assistant Secretary; and such Assistant Secretary shall thereupon have and
exercise such powers and duties during such absence or disability of the
Secretary.
SECTION 5.9. Treasurer. The Treasurer shall have charge of, and shall be
responsible for, the collection, receipt, custody and disbursement of the funds
of the Corporation, and shall also have the custody of all securities belonging
to the Corporation. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper receipts or making
proper vouchers for such disbursements, and shall at all times preserve the same
during the term of office. When necessary or proper, the Treasurer shall
endorse, on behalf of the Corporation, all checks, notes, or other obligations
payable to the Corporation or coming into possession of the Treasurer for and on
behalf of the Corporation, and shall deposit the funds arising therefrom,
together with all other funds of the Corporation coming into possession of the
Treasurer, in the name and to the credit of the Corporation in such bank or
banks as the Board of Directors shall from time to time by resolution direct.
The Treasurer shall perform all duties which are
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incident to the office of treasurer of a corporation, subject at all time to the
direction and control of the Board of Directors, the Chairman and the President.
The Treasurer shall give the Corporation a bond if required by the Board of
Directors in a sum, and with one or more sureties, satisfactory to the Board,
for the faithful performance of the duties of the office of Treasurer, and for
the restoration to the Corporation, in case of the death, resignation,
retirement or removal from office of the Treasurer, of all books, papers,
vouchers, money or other property of whatever kind in the possession or under
the control of the Treasurer belonging to the Corporation.
SECTION 5.10. Assistant Treasurers. Each of the Assistant Treasurers shall
have such powers and duties as may be prescribed by the Board of Directors or be
delegated by the Chairman or the President. In the absence or disability of the
Treasurer, the powers and duties shall devolve upon such one of the Assistant
Treasurers as the Board of Directors, the Chairman or the President may
designate, or, if there be but one Assistant Treasurer, then upon such Assistant
Treasurer who shall thereupon have and exercise such powers and duties during
such absence or disability of the Treasurer. Each Assistant Treasurer shall
likewise give the Corporation a bond if required by the Board of Directors upon
like terms and conditions as the bond required of the Treasurer.
SECTION 5.11. Controller. The Controller shall have control over all
accounts and records pertaining to moneys, properties, materials and supplies.
The Controller shall have executive direction of the bookkeeping and accounting
departments, and shall have general supervision over the records in all other
departments pertaining to moneys, properties, materials and supplies. The
Controller shall have charge of the preparation of the financial budget, and
such other powers and duties as are commonly incident to the
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office of controller of a corporation, subject at all times to the direction and
control of the Board of Directors, the Chairman and the President.
SECTION 5.12. Assistant Controllers. Each of the Assistant Controllers
shall have such powers and duties as may be prescribed by the Board of Directors
or be delegated by the Chairman or the President. In the absence or disability
of the Controller, the powers and duties of the Controller shall devolve upon
such one of the Assistant Controllers as the Board of Directors, the Chairman or
the President may designate, or, if there be but one Assistant Controller, then
upon such Assistant Controller who shall thereupon have and exercise such powers
and duties during such absence or disability of the Controller.
SECTION 5.13. Auditor. The Auditor shall review and monitor the activities
of the Corporation and its subsidiaries, including development of and compliance
with policies and procedures, and shall in general perform all the duties
incident to the office of auditor of a corporation, subject at all times to
direction and control of the Board of Directors, the Chairman and the President.
SECTION 5.14. Environmental Officer and Counsel. The Environmental Officer
and Counsel shall supervise, review and monitor the environmental affairs of the
Corporation and its subsidiaries, including the development of and compliance
with policies and procedures, and shall in general perform all the duties
incident to such an office, subject at all times to the direction and control of
the Board of Directors, the Chairman and the President.
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ARTICLE VI.
CONDUCT OF BUSINESS.
SECTION 6.1. Contracts, Deeds and Other Instruments. All agreements
evidencing obligations of the Corporation, including but not limited to
contracts, trust deeds, promissory notes, sight drafts, time drafts and letters
of credit (including applications therefor), may be signed by any one of the
Chairman, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary, any Assistant Secretary, any other person authorized
by a resolution of the Board of Directors, and any other person authorized by
the Chairman, as evidenced by a written instrument of delegation. Any such
authorization by the Board of Directors or the Chairman shall remain in effect
until rescinded by action of the Board of Directors or (in the case of a
delegation by the Chairman) by the Chairman and, where it identifies the
authorized signatory by office rather than by name, shall not be rescinded
solely by virtue of a change in the person holding that office or a temporary
vacancy in that office.
A certified copy of these By-Laws and/or any authorization given hereunder
may be furnished as evidence of the authorities herein granted, and all persons
shall be entitled to rely on such authorities in the case of a specific
contract, conveyance or other transaction without the need of a resolution of
the Board of Directors specifically authorizing the transaction involved.
SECTION 6.2. Checks. Checks and other negotiable instruments for the
disbursement of Corporation funds may be signed by any one of the Chairman, the
President, any Vice President, the Treasurer, the Controller and the Secretary
in such manner as shall from time to time be determined by resolution of the
Board of Directors. Electronic or wire transfers to funds may be authorized by
any officer of the Corporation who is authorized pursuant to this Section 6.2 to
disburse Corporation funds by check or other negotiable instrument.
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SECTION 6.3. Deposits. Securities, notes and other evidences of
indebtedness shall be kept in such places, and deposits of checks, drafts and
funds shall be made in such banks, trust companies or depositories, as shall be
recommended and approved by any two of the Chairman, the President, any Vice
President and the Treasurer.
SECTION 6.4. Voting of Stock. Unless otherwise ordered by the Board of
Directors, the Chairman, the President or any Vice President shall have the
power to execute and deliver on behalf of the Corporation proxies on stock owned
by the Corporation appointing a person or persons to represent and vote such
stock at any meeting of stockholders, with full power of substitution, and shall
have power to alter or rescind such appointment. Unless otherwise ordered by the
Board of Directors, the Chairman, the President or any Vice President shall have
the power on behalf of the Corporation to attend and to act and vote at any
meeting of stockholders of any corporation in which the Corporation holds stock
and shall possess and may exercise any and all rights and powers incident to the
ownership of such stock, which, as the owner thereof, the Corporation might have
possessed and exercised if present. The Board may confer like powers upon any
other person or persons.
SECTION 6.5. Transfer of Stock. Such form of transfer or assignment
customary or necessary to effect a transfer of stocks or other securities
standing in the name of the Corporation shall be signed by the Chairman, the
President, any Vice President or the Treasurer, and the Secretary or an
Assistant Secretary shall sign as witness if required on the form. A corporation
or person transferring any such stocks or other securities pursuant to a form of
transfer or assignment so executed shall be fully protected and shall be under
no duty to inquire whether the Board of Directors has taken action in respect
thereof.
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ARTICLE VII.
SHARE CERTIFICATES AND THEIR TRANSFER.
SECTION 7.1. Share Certificates. Certificates for shares of the Corporation
shall be signed by the Chairman, the President or any Vice President, and by the
Secretary or any Assistant Secretary, and shall not be valid unless so signed.
Such certificates shall be appropriately numbered and contain the name of the
registered holder, the number of shares and the date of issue. If such
certificate is countersigned (a) by a transfer agent other than the Corporation
or its employee, or (b) by a registrar other than the Corporation or its
employee, any other signature on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he, she or it were
such officer, transfer agent, or registrar at the date of issue.
SECTION 7.2. Transfer of Shares. Upon surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation and such transfer agent to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction. No certificate shall be issued in
exchange for any certificate until the former certificate for the same number of
shares of the same class and series shall have been surrendered and cancelled,
except as provided in Section 7.4.
SECTION 7.3. Regulations. The Board of Directors shall have authority to
make rules and regulations concerning the issue, transfer and registration of
certificates for shares of the Corporation.
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SECTION 7.4. Lost, Stolen and Destroyed Certificates. The Corporation may
issue a new certificate or certificates for shares in place of any issued
certificate alleged to have been lost, stolen or destroyed upon such terms and
conditions as the Board of Directors may prescribe.
SECTION 7.5. Registered Shareholders. The Corporation shall be entitled to
treat the holder of record (according to the books of the Corporation) of any
share or shares as the holder in fact thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other party whether or not the Corporation shall have express or
other notice thereof, except as expressly provided by law.
SECTION 7.6. Transfer Agents and Registrars. The Board of Directors may
from time to time appoint a transfer agent and a registrar in one or more
cities, may require all certificates evidencing shares of the Corporation to
bear the signatures of a transfer agent and a registrar, may provide that such
certificates shall be transferable in more than one city, and may provide for
the functions of transfer agent and registrar to be combined in one agency.
ARTICLE VIII.
INDEMNIFICATION.
SECTION 8.1. Litigation Brought by Third Parties. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, formal or informal (other than
an action by or in the right of the Corporation) (an "Action") by reasons of the
fact that he or she is or
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was a director, officer, employee or agent of the Corporation (a "Corporate
Person"), or is or was serving at the request of the Corporation as a director,
officer, employee, agent, partner, trustee or member or in another authorized
capacity (collectively, an "Authorized Capacity") of or for another corporation,
unincorporated association, business trust, partnership, joint venture, trust,
individual or other legal entity, whether or not organized or formed for profit
(collectively, "Another Entity"), against expenses (including attorneys' fees),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such Action ("Expenses") if
he or she acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The termination of any Action by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, that the person had reasonable cause to believe
his or her conduct was unlawful.
SECTION 8.2. Litigation by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any action by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a Corporate
Person, or is or was serving at the request of the Corporation in an Authorized
Capacity of or for Another Entity against Expenses actually and reasonably
incurred by him or her in connection with that defense or settlement of such
action if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for willful
negligence or misconduct in the performance of his duty to the Corporation
unless and only
23
<PAGE> 25
to the extent that a court of equity or the court in which such action was
pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
of equity or other court shall deem proper.
SECTION 8.3. Successful Defense. To the extent that a person who is or was
a Corporate Person or is or was serving in an Authorized Capacity of Another
Entity at the request of the Corporation and has been successful on the merits
or otherwise in defense of any action, referred to in Section 8.1 or 8.2 of this
Article, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against Expenses actually and reasonably incurred by him or her in
connection therewith.
SECTION 8.4. Determination of Conduct. Any indemnification under Section
8.1 or 8.2 of this Article (unless ordered by a court) shall be made by the
Corporation only upon a determination that indemnification of the person is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in said Section 8.1 or 8.2. Such determination shall be made
(a) by the Board of Directors by a majority vote of a quorum consisting of
directors not at the time parties to such action, suit or proceeding, or (b) if
a quorum cannot be obtained, by a majority vote of a committee duly designated
by the Board of Directors (in which designation directors who are parties may
participate) consisting of two or more directors not at the time parties to such
action, suit or proceeding, or (c) by special legal counsel, or (d) by the
shareholders; provided, however, that shares owned by or voted under the control
of persons who are at the time parties to such action, suit or proceeding may
not be voted on the determination.
SECTION 8.5. Advance Payment. The Corporation shall advance Expenses
reasonably incurred by any Corporate Person in any Action in advance of the
final disposition thereof upon the undertaking of
24
<PAGE> 26
such party to repay the advance unless it is ultimately determined that such
party is entitled to indemnification hereunder, if (a) the indemnitee furnishes
the Corporation a written affirmation of his or her good faith belief that he or
she has satisfied the standard of conduct in Section 8.1 or 8.2 and (b) a
determination is made by those making the decision pursuant to Section 8.4 that
the facts then known would not preclude indemnification under these By-Laws.
SECTION 8.6. By-Law Not Exclusive. The indemnification provided by this
Article 8 shall not be deemed exclusive of any other rights to which any person
may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 8.7. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a Corporate Person or is or was serving at
the request of the Corporation in an Authorized Capacity of or for Another
Entity against any liability asserted against him or her and incurred by him or
her in any such capacity, or arising out of his or her status as such, whether
or not the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article 8 or the Indiana Business
Corporation Law.
SECTION 8.8. Effect of Invalidity. The invalidity or unenforceability of
any provision of this Article 8 shall not affect the validity or enforceability
of the remaining provisions of this Article 8.
25
<PAGE> 27
SECTION 8.9. Definition of Corporation. For purposes of this Article 8,
references to "the Corporation" shall include, in addition to the surviving or
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger.
SECTION 8.10. Change in Law. Notwithstanding the foregoing provisions of
Article 8, the Corporation shall indemnify any person who is or was a Corporate
Person or is or was serving at the request of the Corporation in an Authorized
Capacity of or for Another Entity to the full extent permitted by the Indiana
Business Corporation Law or by any other applicable law, as may from time to
time be in effect.
ARTICLE IX.
GENERAL.
SECTION 9.1. Fiscal Year. The fiscal year of the Corporation shall begin
on the 1st day of January and end on the 31st day of December in each year.
SECTION 9.2. Corporate Seal. The corporate seal shall be circular in form
and shall have inscribed thereon the words "NiSource Inc. - Corporate Seal -
Indiana."
SECTION 9.3. Amendments. These By-Laws may be altered, amended or repealed
in whole or in part, and new By-Laws may be adopted, at any annual, regular or
special meeting of the Board of Directors by the affirmative vote of a majority
of a quorum of the Board of Directors.
26
<PAGE> 28
SECTION 9.4. Dividends. Subject to any provisions of any applicable statute
or of the Articles of Incorporation, dividends may be declared upon the capital
stock of the Corporation by the Board of Directors at any regular or special
meeting thereof; and such dividends may be paid in cash, property or shares of
the Corporation.
SECTION 9.5. Control Shares. The Terms "control shares" and "control share
acquisition" used in this Section 9.5 shall have the meanings set forth in
Indiana Business Corporation Law Section 23-1-42-1, et seq. (the "Act"). Control
shares of the Corporation acquired in a control share acquisition shall have
only such voting rights as are conferred by the Act.
Control shares of the Corporation acquired in a control share acquisition
with respect to which the acquiring person has not filed with the Corporation
the Statement required by the Act may, at any time during the period ending
sixty days after the last acquisition of control shares by the acquiring person,
be redeemed by the Corporation at the fair value thereof pursuant to procedures
authorized by a resolution of the Board of Directors. Such authority may be
exercised generally or confined to specific instances.
Control shares of the Corporation acquired in a control share acquisition
with respect to which the acquiring person was not granted full voting rights by
the shareholders as provided in the Act may, at any time after the shareholder
vote required by the Act, be redeemed by the Corporation at the fair value
thereof pursuant to procedures authorized by a resolution of the Board of
Directors. Such authority may be exercised generally or confined to specific
instances.
27
<PAGE> 1
EXHIBIT 4.35
===============================================================================
AMENDED AND RESTATED DECLARATION OF TRUST
NIPSCO Capital Trust I
Dated as of February 16, 1999
===============================================================================
<PAGE> 2
CROSS REFERENCE TABLE*
Section of Trust
Indenture Act of Section of
1939, as amended Agreement
- ---------------- ---------
310(a)................................................................6.3
310(b).....................................................6.3(c); 6.3(d)
310(c).......................................................Inapplicable
311(a).............................................................2.2(b)
311(b).............................................................2.2(b)
311(c).......................................................Inapplicable
312(a).............................................................2.2(a)
312(b).............................................................2.2(b)
312(c).......................................................Inapplicable
313(a)................................................................2.3
313(b)................................................................2.3
313(c)................................................................2.3
313(d)................................................................2.3
314(a)................................................................2.4
314(b).......................................................Inapplicable
314(c)................................................................2.5
314(d).......................................................Inapplicable
314(e)................................................................2.5
314(f).......................................................Inapplicable
315(a)....................................................3.9(b); 3.10(a)
315(b).............................................................2.7(a)
315(c).............................................................3.9(a)
315(d).............................................................3.9(b)
316(a)................................................2.6; 7.5(b); 7.6(c)
316(b).......................................................Inapplicable
316(c).......................................................Inapplicable
317(a)...............................................................3.16
317(b).......................................................Inapplicable
318(a).............................................................2.1(c)
- --------
* This Cross-Reference Table does not constitute part of the Agreement and
shall not have any bearing upon the interpretation of any of its terms or
provisions.
<PAGE> 3
TABLE OF CONTENTS
Page
----
ARTICLE 1: INTERPRETATION AND DEFINITIONS....................................1
SECTION 1.1 Interpretation and Definitions...................1
Affiliate .................................................2
Applicable Ownership Interest...............................3
Applicable Principal Amount.................................3
Authorized Officer..........................................3
Beneficial Owner............................................3
Business Day................................................3
Business Trust Act..........................................3
Cash Settlement.............................................3
Certificate.................................................3
Closing Date................................................3
Code .................................................3
Collateral Agent............................................4
Commission .................................................4
Common Security.............................................4
Common Security Certificate.................................4
"Corporate PIES" ...........................................4
Corporate Trust Office......................................4
Covered Person..............................................4
Debentures .................................................4
Debenture Issuer............................................4
Debenture Issuer Indemnified Person.........................4
Depositary .................................................4
Depositary Participant......................................4
Direct Action...............................................4
Distribution................................................4
Exchange Act................................................5
Exchange Notice.............................................5
Failed Remarketing..........................................5
Fiduciary Indemnified Person................................5
Fiscal Year.................................................5
Global Security.............................................5
Guarantee .................................................5
Holder .................................................5
Indemnified Person..........................................5
Indenture .................................................5
Indenture Event of Default..................................5
Indenture Trustee...........................................5
Investment Company..........................................5
Investment Company Act......................................6
Legal Action................................................6
i
<PAGE> 4
Page
----
Liquidation.................................................6
Liquidation Distribution....................................6
List of Holders.............................................6
Majority in Liquidation Amount..............................6
"Moody's" .................................................6
New York Stock Exchange.....................................6
Officers' Certificate.......................................6
Paying Agent................................................7
Payment Amount..............................................7
Person .................................................7
Pledge Agreement............................................7
Preferred Security..........................................7
Preferred Security Certificate..............................7
Primary Treasury Dealer.....................................7
Property Account............................................7
Property Trustee............................................7
Pro Rata .................................................7
Purchase Contract Agent.....................................7
Purchase Contract Agreement.................................7
Purchase Contract Settlement Date...........................7
Quorum .................................................7
Quotation Agent.............................................7
Redemption Amount...........................................8
Redemption Notice...........................................8
Redemption Price............................................8
Regular Trustee.............................................8
Remarketing.................................................8
"Remarketed Securities".....................................8
Remarketing Date............................................8
Reset Rate .................................................8
Responsible Officer.........................................8
Rule 3a-5 .................................................8
"S&P" .................................................8
Securities .................................................8
Securities Act..............................................9
Sponsor .................................................9
Successor Delaware Trustee..................................9
Successor Entity............................................9
Successor Property Trustee..................................9
Successor Security..........................................9
Supermajority...............................................9
Tax Event .................................................9
Tax Event Redemption........................................9
Tax Event Redemption Date...................................9
ii
<PAGE> 5
Page
----
10% in Liquidation Amount...................................9
Termination Event..........................................10
Treasury Portfolio.........................................10
Treasury Portfolio.........................................10
Treasury Regulations.......................................10
Treasury Securities........................................10
Trust ................................................10
Trust Enforcement Event....................................10
Trust Indenture Act........................................11
Trustee ................................................11
"Two-Year Benchmark Treasury Rate".........................11
ARTICLE 2: TRUST INDENTURE ACT..............................................11
SECTION 2.1 Trust Indenture Act; Application......................11
SECTION 2.2 Lists of Holders of the Securities....................12
SECTION 2.3 Reports by the Property Trustee.......................12
SECTION 2.4 Periodic Reports to the Property Trustee..............12
SECTION 2.5 Evidence of Compliance with Conditions Precedent......12
SECTION 2.6 Trust Enforcement Events; Waiver......................12
SECTION 2.7 Trust Enforcement Event; Notice.......................14
ARTICLE 3: ORGANIZATION.....................................................14
SECTION 3.1 Name and Organization.................................14
SECTION 3.2 Office................................................14
SECTION 3.3 Purpose...............................................14
SECTION 3.4 Authority.............................................15
SECTION 3.5 Title to Property of the Trust........................15
SECTION 3.6 Powers and Duties of the Regular Trustees.............15
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees..17
SECTION 3.8 Powers and Duties of the Property Trustee.............18
SECTION 3.9 Certain Duties and Responsibilities of the Property
Trustee...............................................19
SECTION 3.10 Certain Rights of Property Trustee....................21
SECTION 3.11 Delaware Trustee......................................23
SECTION 3.12 Execution of Documents................................23
SECTION 3.13 Not Responsible for Recitals or Issuance of
Securities............................................23
SECTION 3.14 Duration of Trust.....................................23
SECTION 3.15 Mergers...............................................23
SECTION 3.16 Property Trustee May File Proofs of Claim.............25
ARTICLE 4: THE SPONSOR......................................................26
SECTION 4.1 Responsibilities of the Sponsor.................26
SECTION 4.2 Indemnification and Expenses of the Trustees....26
ARTICLE 5: THE HOLDERS OF THE COMMON SECURITIES.............................27
iii
<PAGE> 6
Page
----
SECTION 5.1 Debenture Issuer's Purchase of the Common Securities..27
SECTION 5.2 Covenants of the Debenture Issuer.....................27
ARTICLE 6: THE TRUSTEES.....................................................27
SECTION 6.1 Number of Trustees....................................27
SECTION 6.2 Delaware Trustee; Eligibility.........................28
SECTION 6.3 Property Trustee; Eligibility.........................28
SECTION 6.4 Qualifications of the Regular Trustees Generally......29
SECTION 6.5 Initial Regular Trustees..............................29
SECTION 6.6 Appointment, Removal and Resignation of the Trustees..29
SECTION 6.7 Vacancies among Trustees..............................30
SECTION 6.8 Effect of Vacancies...................................30
SECTION 6.9 Meetings..............................................31
SECTION 6.10 Delegation of Power by the Regular Trustees...........31
SECTION 6.11 Merger, Consolidation, Conversion or
Succession to Business................................31
ARTICLE 7: TERMS OF THE SECURITIES..........................................32
SECTION 7.1 General Provisions Regarding the Securities...........32
SECTION 7.2 Distributions.........................................34
SECTION 7.3 Redemption of Securities..............................35
SECTION 7.4 Redemption Procedures.................................36
SECTION 7.5 Voting Rights of the Preferred Securities.............37
SECTION 7.6 Voting Rights of the Common Securities................39
SECTION 7.7 Place of Payment......................................40
SECTION 7.8 Listing...............................................40
SECTION 7.9 Transfer of the Securities............................40
SECTION 7.10 Mutilated, Destroyed, Lost or Stolen Certificates.....41
SECTION 7.11 Deemed Holders........................................41
SECTION 7.12 Global Securities.....................................41
SECTION 7.13 Remarketing...........................................43
ARTICLE 8: DISSOLUTION AND TERMINATION OF THE TRUST.........................46
SECTION 8.1 Dissolution and Termination of the Trust..............46
SECTION 8.2 Liquidation Distribution Upon
Dissolution of the Trust..............................46
ARTICLE 9: LIMITATION OF LIABILITY OF HOLDERS OF THE SECURITIES, THE
DELAWARE TRUSTEE AND OTHERS.........................................47
SECTION 9.1 Liability.............................................47
SECTION 9.2 Exculpation...........................................48
SECTION 9.3 Fiduciary Duty........................................48
SECTION 9.4 Indemnification.......................................49
SECTION 9.5 Outside Businesses....................................51
ARTICLE 10: ACCOUNTING......................................................52
iv
<PAGE> 7
Page
----
SECTION 10.1 Fiscal Year...........................................52
SECTION 10.2 Certain Accounting Matters............................52
SECTION 10.3 Banking...............................................52
SECTION 10.4 Withholding...........................................53
ARTICLE 11: AMENDMENTS AND MEETINGS........................................ 53
SECTION 11.1 Amendments............................................53
SECTION 11.2 Meetings of the Holders of the Securities;
Action by Written Consent.............................55
ARTICLE 12: REPRESENTATIONS OF THE PROPERTY TRUSTEE AND THE
DELAWARE TRUSTEE...................................... .............56
SECTION 12.1 Representations and Warranties
of the Property Trustee..56
SECTION 12.2 Representations and Warranties
of the Delaware Trustee...............................57
ARTICLE 13: MISCELLANEOUS...................................................57
SECTION 13.1 Notices...............................................57
SECTION 13.2 Governing Law.........................................58
SECTION 13.3 Intention of the Parties..............................59
SECTION 13.4 Headings..............................................59
SECTION 13.5 Successors and Assigns................................59
SECTION 13.6 Partial Enforceability................................59
SECTION 13.7 Counterparts..........................................59
EXHIBITS
Exhibit A Form of Preferred Security Certificate
Exhibit B Form of Common Security Certificate
v
<PAGE> 8
AMENDED AND RESTATED DECLARATION OF TRUST
THIS AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration"), dated as of
February 16, 1999, by and among NIPSCO Capital Markets, Inc., an Indiana
corporation, as Sponsor, Stephen P. Adik, Francis P. Girot, Jr. and Arthur A.
Paquin, as the initial Regular Trustees, The Chase Manhattan Bank, as the
initial Property Trustee, and Chase Manhattan Bank Delaware, as the initial
Delaware Trustee, not in their individual capacities but solely as Trustees, and
the Holders, from time to time, of the Securities representing undivided
beneficial ownership interests in the assets of the Trust to be issued pursuant
to this Declaration.
WHEREAS, the Trustees and the Sponsor established NIPSCO Capital Trust I
(the "Trust"), a business trust under the Business Trust Act, pursuant to a
Declaration of Trust dated as of December 17, 1998 (the "Original Declaration")
and a Certificate of Trust (the "Certificate of Trust") filed with the Secretary
of State of the State of Delaware on December 17, 1998; and
WHEREAS, the sole purpose of the Trust shall be to sell and issue certain
securities representing undivided beneficial ownership interests in the assets
of the Trust, to invest the proceeds from such sales in the Debentures issued by
the Debenture Issuer and to engage in only those activities necessary or
incidental thereto; and
WHEREAS, the parties hereto, by this Declaration, amend and restate each
and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees hereby declare that all assets contributed to the Trust be held in
trust for the benefit of the Holders, from time to time, of the Securities
representing undivided beneficial ownership interests in the assets of the Trust
issued hereunder, subject to the provisions of this Declaration.
ARTICLE 1: INTERPRETATION AND DEFINITIONS
SECTION 1.1 Interpretation and Definitions. Unless the context otherwise
requires:
(a) capitalized terms used in this Declaration but not defined in the
preamble above shall have the meanings assigned to them in this Section 1.1;
(b) a term defined anywhere in this Declaration shall have the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration" shall be
to this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles, Sections, Recitals
and Exhibits shall be to Articles and Sections of, or Recitals and Exhibits to,
this Declaration unless otherwise specified;
(e) unless otherwise defined in this Declaration, a term defined in
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), shall
have the same meaning when used in this Declaration; and
<PAGE> 9
(f) a reference to the singular shall include the plural and vice
versa, and a reference to any masculine form of a term shall include the
feminine form of a term, as applicable.
(g) the following terms shall have the following meanings:
"Affiliate" of any specified Person shall mean any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person shall mean the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" shall have meanings correlative to
the foregoing.
"Applicable Margin" shall mean the spread determined as set forth
below, based on the prevailing rating of the Remarketed Securities in effect at
the close of business on the Business Day immediately preceding the date of a
Failed Remarketing:
Prevailing Rating Spread
- ----------------- ------
AA/ "Aa" ................................... 3.00%
A/ "a" ..................................... 4.00%
BBB/ "Baa" ................................. 5.00%
Below BBB/ "Baa" ........................... 7.00%
For purposes of this definition, the "prevailing rating" of the Remarketed
Securities shall be:
(i) AA/ "Aa" if the Remarketed Securities have a credit rating of
AA- or better by S&P and "Aa3" or better by Moody's or the equivalent
of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected by the Remarketing Agent;
(ii) if not under clause (i) above, then A/ "a" if the Remarketed
Securities have a credit rating of A- or better by S&P and "A3" or
better by Moody's or the equivalent of such ratings by such agencies
or a substitute rating agency or substitute rating agencies selected
by the Remarketing Agent;
(iii) if not under clauses (i) or (ii) above, then BBB/ "Baa" if
the Remarketed Securities have a credit rating of BBB- or better by
S&P and "Baa3" or better by Moody's or the equivalent of such ratings
by such agencies or a substitute rating agency or substitute rating
agencies selected by the Remarketing Agent; or
(iv) if not under clauses (i) - (iii) above, then Below BBB/
"Baa."
Notwithstanding the foregoing, (A) if (i) the credit rating of the Remarketed
Securities by S&P shall be on the "Credit Watch" of S&P with a designation of
"negative implications" or "developing," or (ii) the credit rating of the
Remarketed Securities by Moody's shall be on the "Corporate Credit Watch List"
of Moody's with a designation of "downgrade" or "uncertain," or, in each case,
on any successor list of S&P or Moody's with a comparable designation, the
prevailing ratings of the Remarketed Securities shall be deemed to be
2
<PAGE> 10
within a range one full level lower in the above table than those actually
assigned to the Remarketed Securities by Moody's and S&P and (B) if the
Remarketed Securities are rated by only one rating agency on or before the
Remarketing Date, the prevailing rating shall at all times be determined without
reference to the rating of any other rating agency; provided that if no such
rating agency shall have in effect a rating for the Remarketed Securities and
the Remarketing Agent is unable to identify a substitute rating agency or rating
agencies, the prevailing rating shall be Below BBB/ "baa."
"Applicable Ownership Interest" shall mean, with respect to a
Corporate PIES and the U.S. treasury securities in the Treasury Portfolio, (A) a
1/20, or 5%, undivided beneficial ownership interest in a $1,000 face amount of
a principal or interest strip in a U.S. treasury security included in the
Treasury Portfolio that matures on or prior to February 18, 2003 and (B) for
each scheduled interest payment date on the Debentures after the Tax Event
Redemption Date, a 1/20, or 5%, undivided beneficial ownership interest in a
$1,000 face amount of such U.S. treasury security that is a principal or
interest strip maturing on such date.
"Applicable Principal Amount" shall mean either (A) if the Tax Event
Redemption Date occurs prior to the Purchase Contract Settlement Date, the
aggregate principal amount of the Debentures corresponding to the aggregate
stated liquidation amount of the Preferred Securities that are components of the
Corporate PIES on the Tax Event Redemption Date or (B) if the Tax Event
Redemption Date occurs on or after the Purchase Contract Settlement Date, the
aggregate principal amount of the Debentures corresponding to the aggregate
stated liquidation amount of the Preferred Securities outstanding on such Tax
Event Redemption Date.
"Authorized Officer" of a Person shall mean any Person that is
authorized to bind such Person.
"Beneficial Owner" shall mean, with respect to a Global Security, a
Person who is the beneficial owner of such book-entry interest as reflected on
the books of the Depositary or on the books of a Person maintaining an account
with such Depositary (directly as a Depositary Participant or as an indirect
participant, in each case in accordance with the rules of such Depositary).
"Business Day" shall mean any day other than a Saturday or Sunday or a
day on which banking institutions in New York City are authorized or required by
law or executive order to remain closed or a day on which the principal office
of the Indenture Trustee or the Property Trustee is closed for business.
"Business Trust Act" shall mean Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time,
or any successor legislation.
"Cash Settlement" shall have the meaning specified in the Purchase
Contract Agreement.
"Certificate" shall mean a Common Security Certificate or a Preferred
Security Certificate.
"Closing Date" shall mean the date on which the Preferred Securities
are first issued and sold.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor legislation. A reference to a specific section of
the Code refers not only to such specific section but also to any corresponding
provision of any federal tax statute enacted after the date of this Declaration,
as such specific section or corresponding provision is in effect on the date of
application of the provisions of this Declaration containing such reference.
3
<PAGE> 11
"Collateral Agent" shall mean The First National Bank of Chicago, in
its capacity as collateral agent under the Pledge Agreement, until a successor
is appointed thereunder, and thereafter shall mean such successor collateral
agent.
"Commission" shall mean the Securities and Exchange Commission.
"Common Security" shall have the meaning specified in Section 7.1.
"Common Security Certificate" shall mean a definitive certificate in
fully registered form representing a Common Security, substantially in the form
of Exhibit B hereto.
"Corporate PIES" shall mean a stock purchase unit consisting of (A) a
stock purchase contract under which (i) the holder of the unit will purchase
from Industries, for $50.00 in cash, a certain number of common shares of
Industries and (ii) Industries will pay such holder contract adjustment payments
and (B) beneficial ownership of a Preferred Security or Debenture, or in certain
circumstances following the occurrence of a Tax Event, the appropriate
Applicable Ownership Interest of the Treasury Portfolio.
"Corporate Trust Office" shall mean the principal office of the
Property Trustee at which, at any particular time, its corporate trust business
shall be administered, which office at the date hereof is located at 450 West
33rd Street, 15th Floor, New York, New York 10001.
"Covered Person" shall mean (A) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates and (B) any Holder.
"Debentures" shall mean the series of debentures to be issued by the
Debenture Issuer under the Indenture and to be purchased by the Trust and held
by the Property Trustee.
"Debenture Issuer" shall mean NIPSCO Capital Markets, Inc., an Indiana
corporation, in its capacity as issuer of the Debentures under the Indenture.
"Debenture Issuer Indemnified Person" shall mean (A) any Regular
Trustee, (B) any Affiliate of any Regular Trustee, (C) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Regular Trustee or any Affiliate thereof or (D) any officer, employee or agent
of the Trust or its Affiliates.
"Depositary" shall mean, with respect to Preferred Securities issuable
in whole or in part in the form of one or more Global Securities, a clearing
agency registered under the Exchange Act that is designated to act as depositary
for such Preferred Securities, and initially shall be The Depository Trust
Company.
"Depositary Participant" shall mean a member of, or participant in,
the Depositary.
"Direct Action" shall have the meaning specified in Section 3.8(e).
"Distribution" shall mean a distribution payable to the Holders in
accordance with Section 7.2.
"Exchange Act" shall mean the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time, and the
rules and regulations promulgated thereunder.
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"Exchange Notice" shall have the meaning specified in Section 8.2(c).
"Failed Remarketing" shall have the meaning specified in Section
7.13(h).
"Fiduciary Indemnified Person" shall have the meaning set forth in
Section 9.4(b).
"Fiscal Year" shall have the meaning specified in Section 10.1.
"Global Security" shall mean a global Preferred Security Certificate
registered in the name of a Depositary or its nominee.
"Guarantee" shall mean the Guarantee Agreement, dated as of February
16, 1999, of the Sponsor in respect of the Securities.
"Holder" shall mean any holder of Preferred Securities or Common
Securities, as registered on the books and records of the Trust, such holder
being a beneficial owner within the meaning of the Business Trust Act, provided
that in determining whether the Holders of the requisite liquidation amount of
Preferred Securities have voted on any matter provided for in this Declaration,
then for the purpose of such determination only (and not for any other purpose
hereunder), if the Preferred Securities remain in the form of one or more Global
Securities and if the Depositary that is the holder of such Global Securities
has sent an omnibus proxy to the Depositary Participants to whose accounts the
Preferred Securities are credited on the record date, the term "Holders" shall
mean such Depositary Participants acting at the direction of the Beneficial
Owners.
"Indemnified Person" shall mean a Debenture Issuer Indemnified Person
or a Fiduciary Indemnified Person.
"Indenture" shall mean the Indenture, dated as of February 14, 1997,
among the Debenture Issuer, Industries and the Indenture Trustee, as amended and
supplemented (including the provisions of the Trust Indenture Act that are
deemed incorporated therein), pursuant to which the Debentures are to be issued.
"Indenture Event of Default" shall have the meaning given to the term
"Event of Default" in the Indenture.
"Indenture Trustee" shall mean The Chase Manhattan Bank, in its
capacity as trustee under the Indenture, until a successor is appointed
thereunder, and thereafter shall mean such successor trustee.
"Industries" shall mean NIPSCO Industries, Inc., an Indiana
corporation, the parent of the Debenture Issuer and an Affiliate of the Trust.
"Investment Company" shall mean an investment company as defined in
the Investment Company Act and the regulations promulgated thereunder.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Legal Action" shall have the meaning specified in Section 3.6(f).
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"Liquidation" shall have the meaning specified in Section 8.2(a).
"Liquidation Distribution" shall have the meaning specified in Section
8.2(b).
"List of Holders" shall have the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount" shall mean, except as provided in the
terms of the Preferred Securities or by the Trust Indenture Act, Holders of
outstanding Securities, voting together as a single class, or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accumulated and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Securities or all outstanding
Securities of the relevant class, as the case may be.
"Moody's" shall mean Moody's Investors Service, Inc.
"New York Stock Exchange" shall mean the New York Stock Exchange, Inc.
or any successor thereto.
"Officers' Certificate" shall mean, when delivered by the Trust, a
certificate signed by a majority of the Regular Trustees of the Trust and, when
delivered by the Sponsor, a certificate signed by (A) the Chairman of the Board,
the President or a Vice President of the Sponsor and (B) the Treasurer, an
Assistant Treasurer or the Secretary of the Sponsor. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Declaration shall include, where applicable:
(i) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions
relating thereto;
(ii) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Officers'
Certificate;
(iii) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Over-allotment Option" shall mean any over-allotment option contained
in an underwriting agreement pursuant to which the Preferred Securities or the
Corporate PIES are sold.
"Paying Agent" shall have the meaning specified in Section 3.8(h).
"Payment Amount" shall have the meaning specified in Section 7.2(c).
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"Person" shall mean a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Pledge Agreement" shall mean the Pledge Agreement dated as of
February 16, 1999 among Industries, the Collateral Agent, The First National
Bank of Chicago, as Securities Intermediary, and the Purchase Contract Agent.
"Preferred Security" shall have the meaning specified in Section 7.1.
"Preferred Security Certificate" shall mean a definitive certificate
in fully registered form representing a Preferred Security, substantially in the
form of Exhibit A.
"Primary Treasury Dealer" shall mean a primary U.S. government
securities dealer in New York City.
"Property Account" shall mean a segregated non-interest bearing trust
account maintained with a banking institution, the rating on whose long-term
unsecured indebtedness is at least equal to the rating assigned to the Preferred
Securities by a "nationally recognized statistical rating organization" within
the meaning of Rule 436(g)(2) under the Securities Act.
"Property Trustee" shall mean the Trustee meeting the eligibility
requirements set forth in Section 6.3.
"Pro Rata" shall mean pro rata to each Holder according to the
aggregate liquidation amount of the Securities held by such Holder in relation
to the aggregate liquidation amount of all Securities outstanding.
"Purchase Contract Agent" shall mean The Chase Manhattan Bank, in its
capacity as purchase contract agent under the Purchase Contract Agreement, until
a successor is appointed thereunder, and thereafter shall mean such successor
purchase contract agent.
"Purchase Contract Agreement" shall mean the Purchase Contract
Agreement dated as of February 16, 1999 between Industries and The Chase
Manhattan Bank, as Purchase Contract Agent.
"Purchase Contract Settlement Date" shall mean February 19, 2003.
"Quorum" shall mean a majority of the Regular Trustees or, if there
are only two Regular Trustees, both of them.
"Quotation Agent" shall mean (A) Lehman Brothers Inc. and any
respective successor, provided that if Lehman Brothers Inc. or any respective
successor ceases to be a Primary Treasury Dealer, the Sponsor
shall substitute another Primary Treasury Dealer therefor or (B) any other
Primary Treasury Dealer selected by the Sponsor.
"Redemption Amount" shall mean, for each Debenture, the product of the
principal amount of such Debenture and a fraction, the numerator of which shall
be the Treasury Portfolio Purchase Price and the denominator of which shall be
the Applicable Principal Amount, as calculated by the Debenture Issuer.
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"Redemption Notice" shall have the meaning specified in Section
7.4(a).
"Redemption Price" shall mean the amount for which the Securities will
be redeemed, which amount will equal the lesser of (i) the redemption price paid
by the Debenture Issuer to repay or redeem, in whole or in part, the Debentures
held by the Trust plus an amount equal to accumulated and unpaid Distributions
on such Securities through the date of their redemption or (ii) the amount
received by the Trust in respect of the Debentures so repaid or redeemed.
"Regular Trustee" shall mean any Trustee other than the Property
Trustee and the Delaware Trustee.
"Remarketing" shall mean the operation of the procedures for
remarketing specified in Section 7.13.
"Remarketed Securities" shall mean (A) so long as the Trust has not
been liquidated, the Preferred Securities or (B) if the Trust has been
liquidated, the Debentures.
"Remarketing Agent" shall mean Lehman Brothers Inc. or any successor
remarketing agent selected by the Sponsor.
"Remarketing Agreement" shall mean the Remarketing Agreement dated as
of February 16, 1999 among Industries, the Debenture Issuer, the Trust and the
Remarketing Agent.
"Remarketing Date" shall mean the third Business Day preceding the
Purchase Contract Settlement Date.
"Reset Rate" shall mean the distribution rate per annum that results
from the Remarketing pursuant to Section 7.13.
"Responsible Officer" shall mean, with respect to the Property
Trustee, any officer with direct responsibility for the administration of this
Declaration and also shall mean, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred due to that officer's
knowledge of and familiarity with the particular subject.
"Rule 3a-5" shall mean Rule 3a-5 under the Investment Company Act or
any successor rule thereunder.
"S&P" shall mean Standard & Poor's Ratings Services, a division of
McGraw-Hill Corporation.
"Securities" shall mean the Common Securities and the Preferred
Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"662/3% in Liquidation Amount" shall mean Holders of outstanding
Securities, voting together as a single class, or, as the context may require,
Holders of outstanding Preferred Securities or Holders of outstanding Common
Securities voting separately as a class, who are the record owners of 662/3% or
more of the aggregate liquidation amount (including the stated amount that would
be paid on redemption,
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liquidation or otherwise, plus accumulated and unpaid Distributions to the date
upon which the voting percentages are determined) of all outstanding Securities
or all outstanding Securities of the relevant class, as the case may be.
"Sponsor" shall mean NIPSCO Capital Markets, Inc., an Indiana
corporation, or any successor entity in a merger, consolidation, conversion,
amalgamation or replacement by or conveyance, transfer or lease of its
properties substantially as an entirety, in its capacity as sponsor of the
Trust.
"Successor Delaware Trustee" shall have the meaning specified in
Section 6.6(b).
"Successor Entity" shall have the meaning specified in Section
3.15(b)(i).
"Successor Property Trustee" shall have the meaning specified in
Section 6.6(b).
"Successor Security" shall have the meaning specified in Section
3.15(b)(i)(B).
"Supermajority" shall have the meaning specified in Section
2.6(a)(ii).
"Tax Event" shall mean the receipt by the Sponsor and the Trust of an
opinion of counsel, rendered by a law firm having a recognized national tax
practice, to the effect that, as a result of any amendment to, change in or
announced proposed change in the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative decision, pronouncement,
judicial decision or action interpreting or applying such laws or regulations,
which amendment or change is effective or which proposed change, pronouncement,
action or decision is announced on or after the Closing Date, there is more than
an insubstantial risk that (A) the Trust is, or within 90 days of the date of
such opinion will be, subject to United States federal income tax with respect
to income received or accumulated on the Debentures, (B) interest payable by the
Debenture Issuer on the Debentures is not, or within 90 days of the date of such
opinion will not be, deductible by the Debenture Issuer, in whole or in part,
for United States federal income tax purposes, or (C) the Trust is, or within 90
days of the date of such opinion will be, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
"Tax Event Redemption" shall mean that a Tax Event has occurred and is
continuing and the Debentures have been called for redemption pursuant to the
Indenture.
"Tax Event Redemption Date" shall mean the date of the Tax Event
Redemption specified by the Debenture Issuer.
"10% in Liquidation Amount" shall mean, except as provided in the
terms of the Preferred Securities or by the Trust Indenture Act, Holder(s) of
outstanding Securities, voting together as a single class, or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities, voting separately as a class, who are the record
owners of 10% or more of the aggregate liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus
accumulated and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Securities, or all outstanding
Securities of the relevant class, as the case may be.
"Termination Event" shall have the meaning set forth in Section 1.1 of
the Purchase Contract Agreement.
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"Treasury PIES" shall mean a stock purchase unit resulting from the
substitution, with respect to a Corporate PIES, of a 1/20 undivided beneficial
interest in a Treasury Security for the Preferred Security, Debenture or
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, component of a Corporate PIES.
"Treasury Portfolio" shall mean, with respect to the Applicable
Principal Amount of Debentures, (A) if the Tax Event Redemption Date occurs
prior to the Purchase Contract Settlement Date, a portfolio of zero-coupon U.S.
treasury securities consisting of (i) principal or interest strips of U.S.
treasury securities that mature on or prior to the Purchase Contract Settlement
Date in an aggregate amount equal to the Applicable Principal Amount and (ii)
with respect to each scheduled interest payment date on the Debentures that
occurs after the Tax Event Redemption Date, principal or interest strips of U.S.
treasury securities that mature on or prior to such date in an aggregate amount
equal to the aggregate interest payment that would have been due on the
Applicable Principal Amount of the Debentures on such date and (B) if the Tax
Event Redemption Date occurs on or after the Purchase Contract Settlement Date,
a portfolio of zero-coupon U.S. treasury securities consisting of (i) principal
or interest strips of U.S. treasury securities that mature on or prior to
February 18, 2005 in an aggregate amount equal to the Applicable Principal
Amount and (ii) with respect to each scheduled interest payment date on the
Debentures that occurs after the Tax Event Redemption Date, principal or
interest strips of such U.S. treasury securities that mature on or prior to such
date in an aggregate amount equal to the aggregate interest payment that would
have been due on the Applicable Principal Amount of the Debentures on such date.
"Treasury Portfolio Purchase Price" shall mean the lowest aggregate
price quoted by a Primary Treasury Dealer to the Quotation Agent on the third
Business Day preceding the Tax Event Redemption Date for the purchase of the
Treasury Portfolio for settlement on the Tax Event Redemption Date.
"Treasury Regulations" shall mean the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by the
United States Department of the Treasury, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
"Treasury Securities" shall mean zero-coupon U.S. Treasury Securities
(CUSIP Number 912820BF3) that are the principal strip of the 6.25% U.S. Treasury
Securities that mature on or prior to February 18, 2003.
"Trust" shall have the meaning specified in the Recitals hereto.
"Trust Enforcement Event" in respect of the Securities shall mean that
an Indenture Event of Default has occurred and is continuing in respect of the
Debentures.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
"Trustee" or "Trustees" shall mean each Person that has signed this
Declaration as a trustee, so long as such Person continues in office in
accordance with the terms hereof, and all other Persons that from time to time
may be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
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"Two-Year Benchmark Treasury Rate" shall mean direct obligations of
the United States (which may be obligations traded on a when-issued basis only)
having a maturity comparable to the remaining term to maturity of the Remarketed
Securities, as agreed upon by Industries and the Remarketing Agent. The rate for
the Two-Year Benchmark Treasury will be the bid side rate displayed at 10:00
A.M., New York City time, on the third Business Day immediately preceding the
Purchase Contract Settlement Date in the Telerate system (or if the Telerate
system is (A) no longer available on the third Business Day immediately
preceding the Purchase Contract Settlement Date or (B) in the opinion of the
Remarketing Agent (after consultation with Industries) no longer an appropriate
system from which to obtain such rate, such other nationally recognized
quotation system as, in the opinion of the Remarketing Agent (after consultation
with Industries) is appropriate). If such rate is not so displayed, the rate for
the Two-Year Benchmark Treasury shall be, as calculated by the Remarketing
Agent, the yield to maturity for the Two-Year Benchmark Treasury, expressed as a
bond equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis, and computed by taking the arithmetic mean of the
secondary market bid rates, as of 10:30 A.M., New York City time, on the third
Business Day immediately preceding the Purchase Contract Settlement Date of
three leading United States government securities dealers selected by the
Remarketing Agent (after consultation with Industries) (which may include the
Remarketing Agent or an affiliate thereof).
ARTICLE 2: TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and, to the
extent applicable, shall be governed by such provisions.
(b) The Property Trustee shall be the only Trustee that is a trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
conflicts with the duties imposed by Sections 310 to 317, inclusive, of the
Trust Indenture Act, such imposed duties of the Trust Indenture Act shall
control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the Trust's classification as a grantor trust for United States
federal income tax purposes and shall not affect the nature of the Securities as
equity securities representing undivided beneficial ownership interests in the
assets of the Trust.
SECTION 2.2 Lists of Holders of the Securities.
(a) Each of the Sponsor and the Regular Trustees on behalf of the
Trust shall provide the Property Trustee a list of the names and addresses of
the Holders of the Securities in such form as the Property Trustee may
reasonably require ("List of Holders") (i) as of the record date relating to the
payment of any Distribution, at least one Business Day prior to the date for
payment of such Distribution, except while the Preferred Securities are
represented by one or more Global Securities, and (ii) at any other time, within
30 days of receipt by the Trust of a written request from the Property Trustee
for a List of Holders as of a date no more than 15 days before such List of
Holders is provided to the Property Trustee. If at any time the List of Holders
does not differ from the most recent List of Holders provided to the Property
Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, then
neither the Sponsor nor the Regular Trustees shall be obligated to deliver such
List of Holders. The Property Trustee shall preserve, in as current a form
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as is reasonably practicable, all information contained in Lists of Holders
provided to it or that it receives in its capacity as Paying Agent (if acting in
such capacity); provided that the Property Trustee may destroy any List of
Holders previously provided to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under, and
shall be entitled to the benefits of, Sections 311(a), 311(b) and 312(b) of the
Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year (commencing with the year of
the first anniversary of the issuance of the Preferred Securities), the Property
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Property
Trustee also shall comply with the requirements of Section 313(d) of the Trust
Indenture Act.
SECTION 2.4 Periodic Reports to the Property Trustee.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 Trust Enforcement Events; Waiver.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities may waive, by vote or written consent, on behalf of the Holders of
all of the Preferred Securities, any past Trust Enforcement Event in respect of
the Preferred Securities and its consequences, provided that if the underlying
Indenture Event of Default:
(i) is not waivable under the Indenture, then the Trust
Enforcement Event under this Declaration also shall not be waivable;
and
(ii) requires the vote or consent of the holders of greater than
a majority in principal amount of the Debentures (a "Supermajority")
to be waived under the Indenture, the related Trust Enforcement Event
under this Declaration only may be waived by the vote or written
consent of the Holders of at least the same Supermajority in aggregate
stated liquidation amount of the Preferred Securities outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act, and Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this
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Declaration and the Securities, as permitted by the Trust Indenture Act. Upon
such waiver, any such Trust Enforcement Event in respect of the Preferred
Securities shall be deemed to have been cured for every purpose of this
Declaration and the Preferred Securities, but no such waiver shall extend to any
subsequent or other Trust Enforcement Event with respect to the Preferred
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Preferred Securities of a Trust Enforcement Event with respect to the
Preferred Securities also shall be deemed to constitute a waiver by the Holders
of the Common Securities of any such Trust Enforcement Event with respect to the
Common Securities for all purposes of this Declaration without any further act,
vote or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may waive, by vote or written consent, any past Trust Enforcement
Event in respect of the Common Securities and its consequences, provided that if
the underlying Indenture Event of Default is not waivable under the Indenture,
then, except where the Holders of the Common Securities are deemed to have
waived such Trust Enforcement as provided below in this Section 2.6(b), the
related Trust Enforcement Event under this Declaration also shall not be
waivable. The Holders of the Common Securities shall be deemed to have waived
any and all Trust Enforcement Events in respect of the Common Securities and the
consequences thereof until all Trust Enforcement Events in respect of the
Preferred Securities shall have been cured, waived or otherwise eliminated.
Until all Trust Enforcement Events in respect of the Preferred Securities shall
have been so cured, waived or otherwise eliminated, the Property Trustee shall
be deemed to be acting solely on behalf of the Holders of the Preferred
Securities, and only the Holders of the Preferred Securities shall have the
right to direct the Property Trustee. The foregoing provisions of this Section
2.6(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act, and Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture
Act are hereby expressly excluded from this Declaration and the Securities, as
permitted by the Trust Indenture Act. Subject to the foregoing provisions of
this Section 2.6(b), upon such cure, waiver or other elimination, any Trust
Enforcement Event in respect of the Common Securities shall be deemed to have
been cured for every purpose of this Declaration and the Common Securities, but
no such waiver shall extend to any subsequent or other Trust Enforcement Event
with respect to the Common Securities or impair any right consequent thereon.
(c) A waiver of an Indenture Event of Default under the Indenture by
the Property Trustee at the direction of the Holders of the Preferred Securities
shall constitute a waiver of the corresponding Trust Enforcement Event under
this Declaration. Any such waiver by the Holders of the Preferred Securities
also shall be deemed to constitute a waiver by the Holders of the Common
Securities of any such Trust Enforcement Event with respect to the Common
Securities for all purposes of this Declaration without any further act, vote or
consent of the Holders of the Common Securities. The foregoing provisions of
this Section 2.6(c) shall be in lieu of Section 316(a)(1)(B) of the Trust
Indenture Act, and Section 316(a)(1)(B) of the Trust Indenture Act is hereby
expressly excluded from this Declaration and the Securities, as permitted by the
Trust Indenture Act.
SECTION 2.7 Trust Enforcement Event; Notice.
(a) Within 90 days after the occurrence of a Trust Enforcement Event
actually known to a Responsible Officer of the Property Trustee, the Property
Trustee shall transmit by mail, first class postage prepaid, to the Holders of
the Securities, notice of such Trust Enforcement Event, unless such Trust
Enforcement Event has been cured before the giving of such notice; provided
that, except for a default in the payment of principal of (or premium, if any)
or interest on any of the Debentures, the Property Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Property
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Securities.
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(b) The Property Trustee shall not be deemed to have knowledge of any
Trust Enforcement Event except for:
(i) a default under Sections 501(1) and 501(2) of the Indenture;
or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of the
Property Trustee charged with the administration of this Declaration
shall have actual knowledge.
ARTICLE 3: ORGANIZATION
SECTION 3.1 Name and Organization.
The Trust hereby continued is named "NIPSCO Capital Trust I," as such
name may be modified from time to time by the Regular Trustees following written
notice to the Holders of the Securities. The Trust's activities may be conducted
under the name of the Trust or any other name deemed advisable by the Regular
Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is in care of NIPSCO
Capital Markets, Inc., 801 East 86th Avenue, Merrillville, Indiana 46410. On ten
Business Days' written notice to the Holders of the Securities, the Regular
Trustees may designate another principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and
sell the Securities, (b) to use the gross proceeds from such sale to acquire the
Debentures and (c) except as otherwise limited herein, to engage in only those
other activities necessary or incidental thereto. The Trust shall not borrow
money, issue debt or reinvest proceeds derived from investments, pledge any of
its assets or otherwise undertake (or permit to be undertaken) any activity that
would cause the Trust not to be classified as a grantor trust for United States
federal income tax purposes.
By the acceptance of this Trust, none of the Trustees, the Sponsor,
the Holders of the Preferred Securities or the Common Securities or the
Beneficial Owners of the Preferred Securities will take any position that is
contrary to the classification of the Trust as a grantor trust for United States
federal income tax purposes.
SECTION 3.4 Authority.
(a) Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Regular Trustees shall have
exclusive authority to carry out the purposes of the Trust. Any action taken by
the Regular Trustees in accordance with their powers shall constitute the act of
and shall serve to bind the Trust, and any action taken by the Property Trustee
in accordance with its powers shall constitute the act of and shall serve to
bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no
Person shall be required to inquire into the authority of the Trustees to bind
the Trust. Persons
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dealing with the Trust are entitled to rely conclusively on the power and
authority of the Trustees as set forth in this Declaration.
(b) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by or with the consent of any one such Regular Trustee.
(c) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any Regular
Trustee may delegate to any other natural person over the age of 21, by power of
attorney consistent with applicable law, his or her power for the purposes of
signing any documents that the Regular Trustees have power and authority to
cause the Trust to execute pursuant to Section 3.6.
SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Debentures and
the Property Account or as otherwise provided in this Declaration, legal title
to all assets of the Trust shall be vested in the Trust. The Holders of the
Securities shall not have legal title to any part of the assets of the Trust but
shall have undivided beneficial ownership interests in the assets of the Trust.
SECTION 3.6 Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:
(a) to establish the terms and forms of the Securities in the manner
specified in Section 7.1 and to issue and sell the Securities in accordance with
this Declaration; provided that the Trust may issue no more than one series of
Preferred Securities and no more than one series of Common Securities; and
provided further that there shall be no interests in the Trust other than the
Securities, and the issuance of the Securities shall be limited to a one-time,
simultaneous issuance of both Preferred Securities and Common Securities on the
Closing Date, subject to the issuance of additional Securities pursuant to the
exercise of any Over-allotment Option;
(b) to acquire the Debentures with the proceeds of the sale of the
Securities; provided that the Regular Trustees shall cause legal title to the
Debentures to be held of record in the name of the Property Trustee for the
benefit of the Holders of the Securities;
(c) to give the Sponsor and the Property Trustee prompt written notice
of the occurrence of a Tax Event; provided that the Regular Trustees shall
consult with the Sponsor and the Property Trustee before taking or refraining
from taking any action in relation to any such Tax Event;
(d) to establish a record date with respect to all actions to be taken
hereunder that require a record date to be established, including and with
respect to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of the Securities as to such actions and applicable
record dates;
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(e) to take all actions and perform such duties as may be required of
the Regular Trustees pursuant to the terms of this Declaration and the
Securities;
(f) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(g) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors and
consultants to conduct only those services that the Regular Trustees have
authority to conduct directly, and to pay reasonable compensation for such
services;
(h) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(i) to give to the Property Trustee the certificate required by
Section 314(a)(4) of the Trust Indenture Act, which certificate may be executed
by any Regular Trustee;
(j) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(k) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(l) to take all action that may be necessary or appropriate for the
preservation and continuation of the Trust's valid existence, rights, franchises
and privileges as a statutory business trust under the laws of the State of
Delaware and of each other jurisdiction in which such existence is necessary to
protect the limited liability of the Holders of the Securities or to enable the
Trust to effect the purposes for which it was created;
(m) to take any action not inconsistent with applicable law that the
Regular Trustees determine in their discretion to be necessary or desirable in
carrying out the purposes and functions of the Trust as set forth in Section 3.3
or the activities of the Trust as set forth in this Section 3.6, including:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified as a grantor trust for
United States federal income tax purposes; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes.
(n) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed; and
(o) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing.
The Regular Trustees shall exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Regular Trustees shall have no power
to, and shall not, take any action that is inconsistent with the purposes and
functions of the Trust set forth in Section 3.3.
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Subject to this Section 3.6, the Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
Any expenses incurred by the Regular Trustees pursuant to this Section
3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) shall cause the Trust not to, engage in any activity other than as
required or authorized by this Declaration. In particular, the Trust shall not
and the Trustees (including the Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust in connection with
its ownership of the Debentures, but shall cause the Trust to
distribute all such proceeds to the Holders of the Securities pursuant
to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided herein;
(iii) possess property for any purpose other than a Trust
purpose;
(iv) make any loans or incur any indebtedness;
(v) possess any power or otherwise act in such a way as to vary
the Trust's assets;
(vi) possess any power or otherwise act in such a way as to vary
the terms of the Securities in any way whatsoever (except to the
extent expressly authorized in this Declaration or by the terms of the
Securities);
(vii) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities;
(viii) other than as provided in this Declaration or by the terms
of the Securities, (A) direct the time, method and place of exercising
any trust or power conferred upon the Indenture Trustee with respect
to the Debentures, (B) waive any past default that is waivable under
the Indenture, (C) exercise any right to rescind or annul any
declaration that the principal of all the Debentures shall be due and
payable or (D) consent to any amendment, modification or termination
of the Indenture or the Debentures where such consent is required,
unless the Trust has received an opinion of counsel to the effect that
such modification will not cause more than an insubstantial risk that
the Trust will not be classified as a grantor trust for United States
federal income tax purposes;
(ix) take any action inconsistent with the status of the Trust as
a grantor trust for United States federal income tax purposes; or
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(x) revoke any action previously authorized or approved by vote
of the Holders of the Preferred Securities.
SECTION 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the Trust
and the Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person that hereafter
may be appointed as Property Trustee in accordance with Section 6.6. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees nor to the Delaware Trustee
(if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain the Property Account in the name of
and under the exclusive control of the Property Trustee on behalf of
the Holders of the Securities and, upon the receipt of payments of
funds made in respect of the Debentures, deposit such funds into the
Property Account and make payments to the Holders of the Securities
from the Property Account in accordance with Section 7.2 (funds in the
Property Account to be held uninvested until disbursed in accordance
with this Declaration);
(ii) engage in such ministerial activities as shall be necessary
or appropriate to effect the redemption of the Securities to the
extent the Debentures are redeemed or mature; and
(iii) upon written direction by the Sponsor to dissolve the
Trust, to engage in such ministerial activities as shall be necessary
or appropriate to effect the distribution of the Debentures to the
Holders of the Securities in exchange for the Securities.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of this Declaration and the Securities.
(e) The Property Trustee shall take any Legal Action that arises out
of or in connection with (i) a Trust Enforcement Event of which a Responsible
Officer of the Property Trustee has actual knowledge or (ii) the Property
Trustee's duties and obligations under this Declaration or the Trust Indenture
Act; provided that if a Trust Enforcement Event has occurred and is continuing
and such event is attributable to the failure of the Debenture Issuer to pay
interest or principal on the Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, on the redemption date),
then a Holder of Preferred Securities may institute a proceeding directly
against the Debenture Issuer to enforce payment to such Holder of the principal
or interest on Debentures having an aggregate principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such Holder (a
"Direct Action").
(f) The Property Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds of
the liquidation have been distributed to the Holders of the Securities
pursuant to the terms of the Securities; or
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(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 6.6.
(g) The Property Trustee shall have the legal power to exercise all of
the rights, powers and privileges of a holder of Debentures under the Indenture
and, if a Trust Enforcement Event actually known to a Responsible Officer of the
Property Trustee occurs and is continuing, the Property Trustee shall enforce,
for the benefit of the Holders of the Securities, its rights as holder of the
Debentures subject to the rights of the Holders of the Securities pursuant to
the terms of the Securities.
(h) The Property Trustee may authorize one or more Persons (each, a
"Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all Securities, and any such
Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Property Trustee at any time, and a successor
Paying Agent or additional Paying Agents may be appointed at any time by the
Property Trustee.
(i) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Property Trustee shall exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall have no power
to, and shall not, take any action that is inconsistent with the purposes and
functions of the Trust set out in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Trust
Enforcement Event and after the cure or waiver of all Trust Enforcement Events
that may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Declaration, and no implied covenants shall be
read into this Declaration against the Property Trustee. If a Trust Enforcement
Event has occurred (that has not been cured or waived pursuant to Section 2.6)
of which a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such of the rights and powers vested in it by
this Declaration and shall use the same degree of care and skill in its exercise
as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of a Trust Enforcement Event and
after the cure or waiver of all such Trust Enforcement Events that may
have occurred:
(A) the duties and obligations of the Property Trustee shall
be determined solely by the express provisions of this
Declaration, and the Property Trustee shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Declaration, and no implied
covenants or obligations shall be read into this Declaration
against the Property Trustee; and
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(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to
the Property Trustee and conforming to the requirements of this
Declaration; but in the case of any such certificates or opinions
that by any provision hereof are specifically required to be
furnished to the Property Trustee, the Property Trustee shall be
under a duty to examine such certificates or opinions to
determine whether or not they conform to the requirements of this
Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it has been proven that the Property Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it without negligence, in
good faith in accordance with the direction of the Holders of not less
than a Majority in Liquidation Amount of the Securities relating to
the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or exercising any trust or power
conferred upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it has reasonable grounds
for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or
indemnity reasonably satisfactory to the Property Trustee against such
risk or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the custody,
safe-keeping and physical preservation of the Debentures and the
Property Account shall be to deal with such property in a similar
manner as the Property Trustee deals with similar property for its own
account, subject to the protections and limitations on liability
afforded to the Property Trustee under this Declaration and the Trust
Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or sufficiency of
the Debentures or the payment of any taxes or assessments levied
thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any interest
on any money received by it except as it otherwise may agree with the
Sponsor, and money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Property Account
maintained by the Property Trustee pursuant to Section 3.8(c)(i) and
except to the extent otherwise required by law; and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the Property
Trustee be liable for any default or misconduct of the Regular
Trustees or the Sponsor.
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SECTION 3.10 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) The Property Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed, sent or presented by the proper party or
parties.
(ii) Any direction or act of the Sponsor contemplated by this
Declaration shall be sufficiently evidenced by an Officers'
Certificate.
(iii) Whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence is herein specifically
prescribed) may request, in the absence of bad faith on its part, and
conclusively rely upon an Officers' Certificate which, upon receipt of
such request, shall be promptly delivered by the Sponsor.
(iv) The Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration thereof.
(v) The Property Trustee may consult with counsel of its choice
or other experts, and the advice or opinion of such counsel and
experts with respect to legal matters or advice within the scope of
such experts' area of expertise shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such
advice or opinion. Such counsel may be counsel to the Sponsor or any
of its Affiliates and may include any of its employees. The Property
Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of
competent jurisdiction.
(vi) The Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration
at the request or direction of any Holder of Securities, unless such
Holder of Securities has provided to the Property Trustee security and
indemnity, reasonably satisfactory to the Property Trustee, against
the costs, expenses (including attorneys' fees and expenses and the
expenses of the Property Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such
request or direction, including such reasonable advances as may be
requested by the Property Trustee; provided that nothing contained in
this Section 3.10(a) shall be taken to relieve the Property Trustee,
upon the occurrence of an Indenture Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Declaration.
(vii) The Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it sees fit.
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(viii) The Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents, custodians, nominees or attorneys, and the Property
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it
hereunder.
(ix) Any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and
the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action, and no third
party shall be required to inquire as to the authority of the Property
Trustee to so act or as to its compliance with any of the terms and
provisions of this Declaration, both of which shall be evidenced
conclusively by the Property Trustee's or its agent's taking such
action.
(x) Whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Property Trustee (A) may request instructions from the
Holders of the Securities, which instructions only may be given by the
Holders of the same proportion in liquidation amount of the Securities
as would be entitled to direct the Property Trustee under the terms of
the Securities in respect of such remedy, right or action, (B) may
refrain from enforcing such remedy or right or taking such other
action until such instructions are received and (C) shall be protected
in conclusively relying on or acting in accordance with such
instructions.
(xi) Except as otherwise expressly provided by this Declaration,
the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Declaration.
(xii) The Property Trustee shall not be liable for any action
taken, suffered or omitted to be taken by it without negligence, in
good faith and reasonably believed by it to be authorized or within
the discretion, rights or powers conferred upon it by this
Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other than
Section 6.2, the Delaware Trustee shall not be entitled to exercise any powers
of, nor shall the Delaware Trustee have any of the duties and responsibilities
of, the Regular Trustees or the Property Trustee described in this Declaration.
Except as set forth in Section 6.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Business Trust Act.
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SECTION 3.12 Execution of Documents.
Except as otherwise required by the Business Trust Act or applicable
law, any Regular Trustee is authorized to execute on behalf of the Trust any
documents that the Regular Trustees have the power and authority to execute
pursuant to Section 3.6.
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration, the Securities, the Debentures or the Indenture.
SECTION 3.14 Duration of Trust.
The Trust shall exist until dissolved pursuant to the provisions of
Article 8 hereof.
SECTION 3.15 Mergers.
(a) The Trust may not consolidate with, convert into, amalgamate or
merge with or into, be replaced by or convey, transfer or lease its properties
and assets substantially as an entirety to any corporation or other body, except
as described in Section 3.15(b) and (c).
(b) At the request of the Sponsor and with the consent of the Regular
Trustees or, if there are more than two, a majority of the Regular Trustees and
without the consent of the Holders of the Preferred Securities, the Delaware
Trustee or the Property Trustee, the Trust may consolidate with, convert into,
amalgamate or merge with or into, be replaced by or convey, transfer or lease
its properties substantially as an entirety to a trust organized as such under
the laws of any state; provided that:
(i) if the Trust is not the successor entity, such successor
entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust
with respect to the Securities; or
(B) substitutes for the Securities other securities having
substantially the same terms as the Securities (the "Successor
Securities"), so long as such Successor Securities rank the same
as the Securities with respect to Distributions and payments upon
liquidation, redemption and otherwise;
(ii) the Debenture Issuer expressly appoints a trustee of such
Successor Entity that possesses the same powers and duties as the
Property Trustee as the holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities are
or, upon notification of issuance will be, listed on any national
securities exchange or with any other or organization on which the
Preferred Securities are then listed or quoted;
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(iv) such consolidation, conversion, amalgamation, merger,
replacement, conveyance, transfer or lease does not cause the
Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating
organization;
(v) such consolidation, conversion, amalgamation, merger,
replacement, conveyance, transfer or lease does not adversely affect
the rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material
respect;
(vi) such Successor Entity has a purpose substantially identical
to that of the Trust;
(vii) prior to such consolidation, conversion, amalgamation,
merger, replacement, conveyance, transfer or lease, the Sponsor has
received an opinion of independent counsel to the Trust experienced in
such matters to the effect that:
(A) such consolidation, conversion, amalgamation, merger,
replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of
the Securities (including any Successor Securities) in any
material respect;
(B) following such consolidation, conversion, amalgamation,
merger, replacement, conveyance, transfer or lease, neither the
Trust nor such Successor Entity will be required to register as
an Investment Company under the Investment Company Act; and
(C) following such consolidation, conversion, amalgamation
or merger, replacement, conveyance, transfer or lease, the Trust
(or such Successor Entity) will continue to be classified as a
grantor trust for United States federal income tax purposes;
(viii) the Sponsor or any permitted successor or assignee owns
all of the Common Securities and guarantees the obligations of such
Successor Entity under the Successor Securities, at least to the
extent provided by the Guarantee; and
(ix) such Successor Entity expressly assumes all of the
obligations of the Trust.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in aggregate liquidation amount of the
Securities, consolidate with, convert into, amalgamate or merge with or into, be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other entity or permit any other entity to consolidate
with, amalgamate, merge with or into, or replace it, if such consolidation,
conversion, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Trust or any Successor Entity to be classified as other than a
grantor trust for United States federal income tax purposes or would cause each
Holder of Securities not to be treated as owning an undivided beneficial
ownership interest in the Debentures.
SECTION 3.16 Property Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Securities are then due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Property Trustee has made
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any demand on the Trust for the payment of any past due Distributions) shall be
entitled and empowered, to the fullest extent permitted by law, by intervention
in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any
Distributions owing and unpaid in respect of the Securities (or, if the
Securities are original issue discount securities, such portion of the
liquidation amount as may be specified in the terms of such securities) and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Property Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel) and of the Holders of the Securities allowed in such
judicial proceeding; and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Securities to make such payments to the Property Trustee and, in
the event the Property Trustee consents to the making of such payments directly
to the Holders, to pay to the Property Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Property
Trustee, its agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt, on behalf of any Holder
of Securities, any plan of reorganization, arrangement, adjustment or
compensation affecting the Securities or the rights of any Holder thereof or to
authorize the Property Trustee to vote in respect of the claim of any Holder of
Securities in any such proceeding.
ARTICLE 4: THE SPONSOR
SECTION 4.1 Responsibilities of the Sponsor.
In connection with the sale and issuance of the Preferred Securities,
the Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare, execute and file with the Commission, on behalf of the
Trust, a registration statement on Form S-3 in relation to the Preferred
Securities, including any amendments or supplements thereto, and to take any
other action relating to the registration and sale of the Preferred Securities
under federal and state securities laws;
(b) if necessary, to determine the states in which to take appropriate
action to qualify or register for sale all or part of the Corporate PIES and to
do any and all such acts, other than actions that must be taken by the Trust,
and advise the Trust of actions it must take; to prepare, execute and file, on
behalf of the Trust, any documents it deems necessary or advisable in order to
comply with the applicable laws of any such states; and to prepare, execute and
file, on behalf of the Trust, any such documents or take any acts determined by
it to be necessary in order to qualify or register all or part of the Corporate
PIES in any state in which it has determined to qualify or register such
Corporate PIES for sale;
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(c) if necessary, to prepare, execute and file on behalf of the Trust,
an application to the New York Stock Exchange or any other national stock
exchange or the Nasdaq National Market for listing upon notice of issuance of
any Preferred Securities;
(d) if necessary, to prepare, execute and file with the Commission, on
behalf of the Trust, a registration statement on Form 8-A relating to the
registration of the Preferred Securities under Section 12(b) of the Exchange
Act, including any amendments thereto; and
(e) to negotiate the terms of, and execute and enter into, an
underwriting agreement providing for the sale of the Corporate PIES and a
remarketing agreement providing for the Remarketing.
SECTION 4.2 Indemnification and Expenses of the Trustees.
The Sponsor, in its capacity as Debenture Issuer, agrees to indemnify
the Property Trustee and the Delaware Trustee for, and to hold each of them
harmless against, any loss, liability or expense incurred without negligence or
bad faith on the part of the Property Trustee or the Delaware Trustee, as the
case may be, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending either of them against any claim or liability in
connection with the exercise or performance of any of their respective powers or
duties hereunder. The provisions of this Section 4.2 shall survive the
resignation or removal of the Delaware Trustee or the Property Trustee and the
termination of this Declaration.
ARTICLE 5: THE HOLDERS OF THE COMMON SECURITIES
SECTION 5.1 Debenture Issuer's Purchase of the Common Securities.
On the Closing Date, the Debenture Issuer shall purchase all of the
Common Securities issued by the Trust, in an aggregate liquidation amount equal
to at least three percent of the total capital of the Trust, at such time as the
Preferred Securities are sold and issued. If any additional Securities are
issued pursuant to the exercise of any Over-allotment Option, then the Debenture
Issuer shall purchase, on the date of such issuance, an additional number of
Common Securities such that the aggregate liquidation amount of the Common
Securities to be held by the Debenture Issuer, upon such issuance and purchase,
will equal at least three percent of the total capital of the Trust.
The aggregate stated liquidation amount of the Common Securities
outstanding at any time shall not be less than three percent of the total
capital of the Trust.
SECTION 5.2 Covenants of the Debenture Issuer.
For so long as the Preferred Securities remain outstanding, the
Debenture Issuer shall covenant:
(a) to maintain, directly or indirectly, 100% ownership of the Common
Securities;
(b) to cause the Trust to remain a statutory business trust and not to
voluntarily dissolve, wind up, liquidate or be terminated, except as permitted
by this Declaration;
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(c) to use its commercially reasonable efforts to ensure that the
Trust will not be an Investment Company required to be registered under the
Investment Company Act; and
(d) not to take any action that would be reasonably likely to cause
the Trust to be classified as an association or a publicly traded partnership
taxable as a corporation for United States federal income tax purposes.
ARTICLE 6: THE TRUSTEES
SECTION 6.1 Number of Trustees.
The number of Trustees initially shall be five, and:
(a) at any time before the issuance of any Securities, the Sponsor may
increase or decrease the number of Trustees by written instrument; and
(b) after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities at a meeting of the Holders of the Common
Securities or by written consent in lieu of such meeting; provided that the
number of Trustees shall be at least three; and provided further that: (i) the
Delaware Trustee, in the case of a natural person, shall be a person who is a
resident of the State of Delaware or, if not a natural person, shall be an
entity that has its principal place of business in the State of Delaware and
otherwise meets the requirements of applicable law; (ii) at least one Regular
Trustee shall be an employee or officer of, or shall be affiliated with, the
Sponsor; and (iii) one Trustee shall be the Property Trustee, which, for as long
as this Declaration is required to qualify as an indenture under the Trust
Indenture Act, shall meet the requirements of applicable law, provided that the
Property Trustee also may serve as Delaware Trustee if it meets the applicable
requirements.
SECTION 6.2 Delaware Trustee; Eligibility.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity that has its principal place of
business in the State of Delaware and otherwise meets the requirements of
applicable law, provided that if the Property Trustee has its principal place of
business in the State of Delaware and otherwise meets the requirements of
applicable law, then the Property Trustee also shall be the Delaware Trustee and
Section 3.11 shall have no application.
SECTION 6.3 Property Trustee; Eligibility.
(a) There shall be at all times one Trustee (which may be the Delaware
Trustee) that shall act as Property Trustee. The Property Trustee shall:
(i) not be an Affiliate of the Sponsor; and
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(ii) be a corporation organized and doing business under the laws
of the United States of America or any state or territory thereof or
of the District of Columbia, or a corporation or other Person
permitted by the Commission to act as an institutional trustee under
the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000) and subject to supervision
or examination by federal, state, territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then for the purposes of this
Section 6.3(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 6.3(a), the Property Trustee immediately shall resign in
the manner and with the effect set forth in Section 6.6(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holders of the Common Securities (as if it were the
obligor referred to in Section 310(b) of the Trust Indenture Act) shall comply
in all respects with the provisions of Section 310(b) of the Trust Indenture
Act.
(d) The Guarantee shall be deemed to be specifically described in this
Declaration for purposes of clause (i) of the first proviso contained in Section
310(b) of the Trust Indenture Act.
SECTION 6.4 Qualifications of the Regular Trustees Generally.
Each Regular Trustee shall be either a natural person who is at least
21 years of age or a legal entity that shall act through one or more Authorized
Officers.
SECTION 6.5 Initial Regular Trustees.
The initial Regular Trustees shall be Stephen P. Adik, Francis P.
Girot, Jr. and Arthur A. Paquin, the business address of all of whom is in care
of NIPSCO Capital Markets, Inc., 801 East 86th Avenue, Merrillville, Indiana
46410.
SECTION 6.6 Appointment, Removal and Resignation of the Trustees.
(a) Subject to Section 6.6(b), the Trustees may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by a vote of the
Holders of a Majority in Liquidation Amount of the Common Securities
at a meeting of the Holders of the Common Securities or by written
consent in lieu of such meeting.
(b) The Property Trustee shall not be removed in accordance with
Section 6.6(a) until a successor Trustee possessing the qualifications to act as
Property Trustee under Section 6.3(a) (a "Successor Property Trustee") has been
appointed and has accepted such appointment by written instrument executed by
such Successor Property Trustee and delivered to the Regular Trustees and the
Sponsor. The Delaware
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Trustee shall not be removed in accordance with Section 6.6(a) until a successor
Trustee possessing the qualifications to act as Delaware Trustee under Sections
6.2 and 6.4 (a "Successor Delaware Trustee") has been appointed and has accepted
such appointment by written instrument executed by such Successor Delaware
Trustee and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until a successor
has been appointed, until death or dissolution or until removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by written instrument executed by such Trustee and delivered to the
Sponsor and the other Trustees, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided that:
(i) no such resignation of the Property Trustee shall be
effective:
(A) until a Successor Property Trustee has been appointed
and has accepted such appointment by written instrument executed
by such Successor Property Trustee and delivered to the Regular
Trustees, the Sponsor and the resigning Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the Holders of
the Securities; and
(ii) no such resignation of the Delaware Trustee shall be
effective until a Successor Delaware Trustee has been appointed and
has accepted such appointment by written instrument executed by such
Successor Delaware Trustee and delivered to the Regular Trustees, the
Sponsor and the resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 6.6.
(e) If no Successor Property Trustee or Successor Delaware Trustee, as
the case may be, has been appointed and accepted appointment as provided in this
Section 6.6 within 60 days after delivery of an instrument of resignation or
removal, the resigning or removed Property Trustee or Delaware Trustee, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee, as applicable. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Property Trustee or Successor Delaware Trustee, as
the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 6.7 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 6.1, or if the number of Trustees is
increased pursuant to Section 6.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 6.6.
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SECTION 6.8 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul, dissolve or terminate the Trust nor to terminate this
Declaration. Whenever a vacancy in the number of Regular Trustees shall occur,
until such vacancy is filled by the appointment of a Regular Trustee in
accordance with Section 6.6, the Regular Trustees in office, regardless of their
number, shall have all the powers granted to the Regular Trustees and shall
discharge all the duties imposed upon the Regular Trustees by this Declaration.
SECTION 6.9 Meetings.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice
of such meeting except where a Regular Trustee attends a meeting for the express
purpose of objecting to the transaction of any activity on the ground that the
meeting has not been lawfully called or convened. Unless provided otherwise in
this Declaration, any action of the Regular Trustees may be taken at a meeting
by vote of a majority of the Regular Trustees present (whether in person or by
telephone) and eligible to vote with respect to such matter, provided a Quorum
is present, or without a meeting by the unanimous written consent of the Regular
Trustees. In the event there is only one Regular Trustee, any and all action of
such Regular Trustee shall be evidenced by a written consent of such Regular
Trustee.
SECTION 6.10 Delegation of Power by the Regular Trustees.
(a) Any Regular Trustee may delegate to any natural person over the
age of 21, by power of attorney consistent with applicable law, his, her or its
power for the purpose of executing any documents contemplated in Section 3.6.
(b) The Regular Trustees shall have the power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Regular Trustees or otherwise as the Regular Trustees may deem
expedient, to the extent such delegation is not prohibited by applicable law or
contrary to the provisions of the Trust, as set forth herein.
SECTION 6.11 Merger, Consolidation, Conversion or Succession to Business.
Any entity into which the Property Trustee, the Delaware Trustee or
any Regular Trustee that is not a natural person may be merged or converted or
with which such Trustee may be consolidated, or any entity resulting from any
merger, conversion or consolidation to which such Trustee is a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such entity otherwise is qualified and eligible
under this Article.
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ARTICLE 7: TERMS OF THE SECURITIES
SECTION 7.1 General Provisions Regarding the Securities.
(a) The Regular Trustees shall issue, on behalf of the Trust, one
class of preferred securities representing undivided beneficial ownership
interests in the assets of the Trust and one class of common securities
representing undivided beneficial ownership interests in the assets of the
Trust.
(i) The Preferred Securities of the Trust shall have an aggregate
stated liquidation amount with respect to the assets of the Trust of
three hundred million dollars ($300,000,000) (subject to increase to
not more than three hundred forty-five million dollars ($345,000,000)
in the event of the exercise of any Over-allotment Option) and a
stated liquidation amount with respect to the assets of the Trust of
$50 per Preferred Security. The Preferred Securities are hereby
designated for identification purposes only as the Preferred
Securities. The Preferred Security Certificates shall be substantially
in the form of Exhibit A hereto, with such changes and additions
thereto or deletions therefrom as may be required by ordinary usage,
custom or practice.
(ii) The Common Securities of the Trust shall have an aggregate
liquidation amount with respect to the assets of the Trust of nine
million two hundred seventy-eight thousand four hundred dollars
($9,278,400) (subject to increase to not more than ten million seven
hundred thousand dollars ($10,700,000) in the event of the exercise of
any Over-allotment Option) and a liquidation amount with respect to
the assets of the Trust of $50 per Common Security. The Common
Securities are hereby designated for identification purposes only as
the Common Securities (the "Common Securities"). The Common Security
Certificates shall be substantially in the form of Exhibit B hereto,
with such changes and additions thereto or deletions therefrom as may
be required by ordinary usage, custom or practice.
(b) Payment of Distributions on, and any payment of the Redemption
Price upon a redemption of, the Preferred Securities and the Common Securities,
as applicable, shall be made Pro Rata based on the liquidation amount of such
Preferred Securities and Common Securities; provided that if, on any date on
which payment of a Distribution or the Redemption Price is to be made, an
Indenture Event of Default has occurred and is continuing, then such payment
shall not be made on any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of such Common
Securities shall be made, until all accumulated and unpaid Distributions, or
payments of the Redemption Price, as the case may be, on all of the outstanding
Preferred Securities for which Distributions are to be paid or that have been
called for redemption, as the case may be, are fully paid. All funds available
to the Property Trustee shall first be applied to the payment in full in cash of
all Distributions on, or the Redemption Price of, the Preferred Securities then
due and payable.
(c) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(d) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be validly issued, fully paid and non-assessable
beneficial ownership interests in the assets of the Trust.
(e) Every Person, by virtue of having become a Holder of Securities or
a Beneficial Owner of Preferred Securities in accordance with the terms of this
Declaration, shall be deemed to have expressly
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assented and agreed to the terms of, and shall be bound by, this Declaration,
the Guarantee, the Indenture and the Debentures.
(f) The Holders of the Securities shall not have any preemptive or
similar rights.
(g) The Certificates shall be signed on behalf of the Trust by a
Regular Trustee. Such signature shall be the manual or facsimile signature of
any present or any future Regular Trustee. If a Regular Trustee of the Trust who
has signed any of the Certificates ceases to be a Regular Trustee before such
signed Certificates have been delivered by the Trust, such Certificates
nevertheless may be delivered as though the Person who signed such Certificates
had not ceased to be a Regular Trustee. Any Certificate may be signed on behalf
of the Trust by such Persons who, at the actual date of execution of such
Certificate, shall be the Regular Trustees of the Trust, although at the date of
the execution and delivery of this Declaration any such Person was not such a
Regular Trustee. Certificates shall be printed, lithographed or engraved or may
be produced in any other manner as is reasonably acceptable to the Regular
Trustees, as evidenced by their execution thereof, and may have such letters,
numbers or other marks of identification or designation and such legends or
endorsements as the Regular Trustees may deem appropriate, or as may be required
to comply with any law or with any rule or regulation of any stock exchange on
which the Securities may be listed, or to conform to usage.
A Preferred Security Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the Property
Trustee. Such signature shall be conclusive evidence that such Preferred
Security Certificate has been authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular Trustee, the
Property Trustee shall authenticate the Preferred Security Certificates for
original issue. The aggregate number of Preferred Securities outstanding at any
time shall not exceed the aggregate stated liquidation amount set forth in
Section 7.1(a)(i).
The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Certificates. An authenticating agent may authenticate
Certificates whenever the Property Trustee may do so. Each reference in this
Declaration to authentication by the Property Trustee shall include
authentication by such agent. An authenticating agent shall have the same rights
as the Property Trustee to deal with the Sponsor or an Affiliate of the Sponsor.
(h) Unless otherwise specified in the terms of the Preferred
Securities, the Preferred Securities Certificates, upon original issuance
(including Preferred Securities, if any, issued pursuant to the exercise of any
Over-allotment Option), shall be issued as Global Securities in the form of one
or more fully registered global Preferred Security Certificates (each a "Global
Certificate"), to be delivered to The Depository Trust Company, the initial
Depositary, by or on behalf of the Trust. Such Global Certificates initially
shall be registered on the books and records of the Trust in the name of "Cede &
Co.," the nominee of the initial Depositary. No Beneficial Owner of Preferred
Securities shall receive a definitive Preferred Security Certificate
representing such Beneficial Owner's interest in such Global Certificates,
except as provided in Section 7.12. Unless and until definitive, fully
registered Preferred Security Certificates have been issued to the Beneficial
Owners of Preferred Securities pursuant to Section 7.12,
(i) the provisions of this Section 7.1(h) shall be in full force
and effect;
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(ii) the Trust and the Trustees shall be entitled to deal with
the Depositary for all purposes of this Declaration (including the
payment of Distributions on the Global Certificates and receiving
approvals, votes or consents thereunder) as the Holder of the
Preferred Securities and the sole of holder of the Global Certificates
and, except as set forth herein or in Rule 3a-7 (if the Trust is
excluded from the definition of an Investment Company solely by reason
of Rule 3a-7) with respect to the Property Trustee, shall have no
obligation to the Beneficial Owners of the Preferred Securities;
(iii) to the extent that the provisions of this Section 7.1(h)
conflict with any other provisions of this Declaration, the provisions
of this Section 7.1(h) shall control; and
(iv) the rights of the Beneficial Owners of the Preferred
Securities shall be exercised only through the Depositary and shall be
limited to those established by law and agreements between such
Beneficial Owners and the Depositary and/or the Depositary
Participants. The Depositary shall make book-entry transfers among
Depositary Participants and receive and transmit Distributions on the
Global Certificates to such Depositary Participants; provided that
solely for the purposes of determining whether the Holders of the
requisite amount of Preferred Securities have voted on any matter
provided for in this Declaration, so long as definitive Preferred
Security Certificates have not been issued, the Trustees may rely
conclusively on, and shall be protected in relying on, any written
instrument (including a proxy) delivered to the Trustees by the
Depositary setting forth the votes of the Beneficial Owners of the
Preferred Securities or assigning the right to vote on any matter to
any other Persons either in whole or in part.
Whenever a notice or other communication to the Holder of the
Preferred Securities is required to be given under this Declaration, unless and
until definitive Preferred Security Certificates have been issued pursuant to
Section 7.1, the Trustees shall deliver all such notices and communications
specified herein to be given to the Holders of the Preferred Securities to the
Depositary, and, with respect to any Preferred Security Certificate registered
in the name of a Depositary or the nominee of a Depositary, the Trustees may
conclusively rely on, and shall be protected in relying on, any written
instrument (including a proxy) delivered to the Trustees by the Depositary
setting forth the votes of the Beneficial Owners of the Preferred Securities or
assigning the right to vote on any matter or any other Persons either in whole
or in part.
SECTION 7.2 Distributions.
(a) Holders of the Securities shall be entitled to receive
Distributions that shall accumulate and be payable at the rate per annum of
5.90% of the stated liquidation amount of $50 per Security until February 19,
2003, and at the Reset Rate thereafter. The amount of Distributions payable for
any period shall be computed (i) for any full quarterly distribution period, on
the basis of a 360-day year of twelve 30-day months and (ii) for any period
shorter than a full quarterly distribution period, on the basis of a 30-day
month and, for any period of less than one month, on the basis of the actual
number of days elapsed per 30-day month. Subject to Section 7.1(b),
Distributions shall be made on the Securities on a Pro Rata basis. Distributions
on the Securities shall accumulate from the date of original issue, shall be
cumulative and shall be payable quarterly, in arrears, on February 19, May 19,
August 19 and November 19 of each year, commencing May 19, 1999, when, as and if
available for payment, by the Property Trustee, except as otherwise described
below. Distributions shall be payable only to the extent that payments are made
to the Trust in respect of the Debentures held by the Property Trustee and to
the extent that the Trust has funds available for the payment of such
Distributions in the Property Account.
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(b) Distributions not paid on the scheduled payment date shall
accumulate and compound quarterly at the rate of 5.90% per annum through and
including February 18, 2003, and at the Reset Rate thereafter ("Compounded
Distributions"). "Distributions" shall mean ordinary cumulative distributions
together with any Compounded Distributions.
(c) If and to the extent that the Debenture Issuer makes a payment of
principal of and any premium or interest on the Debentures held by the Property
Trustee (the amount of any such payment being a "Payment Amount"), the Property
Trustee shall and is directed, to the extent funds are available for that
purpose, to make a distribution of the Payment Amount to the Holders of the
Securities, on a Pro Rata basis, subject to Section 7.1(b).
(d) Distributions on the Securities shall be payable to the Holders
thereof as they appear on the register of the Trust as of the close of business
on the relevant record dates. If the Preferred Securities are represented by one
or more Global Securities, the relevant record dates shall be the close of
business on the Business Day preceding each Distribution payment date, unless a
different regular record date is established or provided for the corresponding
interest payment date on the Debentures. The relevant record dates for the
Common Securities shall be the same as for the Preferred Securities. If the
Preferred Securities are not represented by one or more Global Securities, the
relevant record dates for the Preferred Securities shall be the fifteenth
Business Day prior to the Distribution payment dates, or such other dates as may
be selected by the Regular Trustees. At all times, the Distribution payment
dates shall correspond to the interest payment dates on the Debentures.
Distributions payable on any Securities that are not punctually paid on any
Distribution payment date, as a result of the Debenture Issuer having failed to
make a payment on the Debentures, shall cease to be payable to the Person in
whose name such Securities are registered on the relevant record date, and such
defaulted Distribution instead shall be payable to the Person in whose name such
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture for payment of the corresponding
defaulted interest on the Debentures. If any date on which a Distribution is
payable on the Securities is not a Business Day, then payment of the
Distribution payable on such date shall be made on the next day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that if such Business Day is in the next calendar year, such
payment shall be made on the preceding Business Day, with the same force and
effect as if made on such payment date.
(e) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata among the Holders of the Securities, subject to Section
7.1(b).
SECTION 7.3 Redemption of Securities.
Upon the repayment or redemption, in whole or in part, of the
Debentures held by the Trust, whether at the stated maturity of the Debentures
or upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be simultaneously applied Pro Rata (subject to
Section 7.1(b)) to redeem, at the Redemption Price, Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Debentures so repaid or redeemed. Holders of the Securities shall be given not
less than 30 nor more than 60 days notice of such redemption in accordance with
Section 7.4.
SECTION 7.4 Redemption Procedures.
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(a) Notice of any redemption of the Securities (a "Redemption
Notice"), which notice shall be irrevocable, shall be given by the Trust by mail
to each Holder of Securities to be redeemed at least 30 but no more than 60 days
before the date fixed for redemption thereof, which shall be the date fixed for
redemption of the Debentures. For purposes of the calculation of the date of
redemption and the dates on which notices are given pursuant to this Section
7.4(a), a Redemption Notice shall be deemed to be given on the day such notice
is first mailed by first-class mail, postage prepaid, to the Holders of the
Securities. Each Redemption Notice shall be addressed to the Holders of the
Securities at the address of each such Holder appearing in the register of the
Trust. No defect in the Redemption Notice or in the mailing of either thereof
with respect to any Holder shall affect the validity of the redemption
proceedings with respect to any other Holder.
(b) Subject to the Trust's fulfillment of the notice requirements set
forth in Section 7.4(a), if Securities are to be redeemed, then (provided that
the Debenture Issuer has paid the Property Trustee a sufficient amount of cash
in connection with the related repayment or redemption of the Debentures) (i)
with respect to the Preferred Securities represented by one or more Global
Securities, by 12:00 noon, New York City time, on the redemption date, the
Property Trustee will deposit irrevocably with the Depositary or its nominee
funds sufficient to pay the applicable Redemption Price, and, subject to Section
7.4(c), the Property Trustee shall give the Depositary irrevocable instructions
and authority to pay the Redemption Price to the Beneficial Owners of the
Preferred Securities, and (ii) with respect to Securities not represented by one
or more Global Securities, subject to Section 7.4(c), the Property Trustee shall
pay the applicable Redemption Price to the Holders of such Securities by check
mailed to the address of each Holder appearing on the register of the Trust on
the redemption date. If any date fixed for redemption of Securities is not a
Business Day, then payment of the Redemption Price payable on such date shall be
made on the next Business Day (without any interest thereon), except that if
such Business Day falls in the next calendar year, such payment shall be made on
the preceding Business Day, in each case with the same force and effect as if
made on such date fixed for redemption. If payment of the Redemption Price in
respect of any Securities is improperly withheld or refused and not paid either
by the Trust or by the Sponsor as guarantor pursuant to the Guarantee, then
Distributions on such Securities shall continue to accumulate at the then
applicable rate, from the original redemption date to the actual date of
payment, in which case the actual payment date shall be the date fixed for
redemption for purposes of calculating the Redemption Price. For these purposes,
the applicable Redemption Price shall not include Distributions that are being
paid to Holders of Securities who were Holders of Securities on a relevant
record date. If a Redemption Notice has been given and funds have been deposited
or paid as required, then immediately prior to the close of business on the date
of such deposit or payment, Distributions will cease to accumulate on the
Securities called for redemption, and all rights of Holders of such Securities
so called for redemption shall cease, except the right of the Holders of such
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and from and after the date fixed for redemption, such
Securities will cease to be outstanding.
(c) If any Preferred Securities to be redeemed shall then be pledged
pursuant to the Pledge Agreement, the applicable Redemption Price for such
Preferred Securities shall be credited to the collateral account maintained by
the Collateral Agent on or prior to 12:30 p.m., New York City time, and applied
by the Securities Intermediary in accordance with Section 5.8 of the Pledge
Agreement.
(d) Neither the Regular Trustees nor the Trust shall be required to
register or cause to be registered the transfer of any Securities that have been
called for redemption, except for the unredeemed portion of any Securities being
redeemed in part.
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(e) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Debenture Issuer or its
Affiliates may purchase, at any time and from time to time, outstanding
Preferred Securities by tender, in the open market or by private agreement.
SECTION 7.5 Voting Rights of the Preferred Securities.
(a) Except as provided under this Section 7.5 and Section 11.1 and as
otherwise required by the Business Trust Act, the Trust Indenture Act and other
applicable law, the Holders of the Preferred Securities shall have no voting
rights.
(b) Subject to the requirement of the Property Trustee obtaining a tax
opinion in certain circumstances set forth in Section 7.5(d), the Holders of a
Majority in Liquidation Amount of the Preferred Securities, voting separately as
a class, shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Property Trustee, or to direct
the exercise of any trust or power conferred upon the Property Trustee under
this Declaration, including the right to direct the Property Trustee, as Holder
of the Debentures, to (i) exercise the remedies available to it under the
Indenture, (ii) consent to any amendment or modification of the Indenture or the
Debentures where such consent is required or (iii) waive any past default and
its consequences that are waivable under Section 513 of the Indenture; provided
that if an Indenture Event of Default has occurred and is continuing, then the
Holders of at least 25% of the aggregate stated liquidation amount of the
Preferred Securities may direct the Property Trustee to declare the principal of
and interest on the Debentures due and payable; and provided further that where
a consent or action under the Indenture would require the consent or act of the
Holders of a Supermajority of the aggregate principal amount of Debentures
affected thereby, the Property Trustee may give such consent or take such action
only at the direction of the Holders of at least the same Supermajority in
aggregate stated liquidation amount of the Preferred Securities.
(c) If the Property Trustee fails to enforce its rights under the
Debentures after a Holder of Preferred Securities has made a written request,
such Holder of Preferred Securities may institute, to the fullest extent
permitted by law, a legal proceeding directly against the Debenture Issuer to
enforce the Property Trustee's rights under the Indenture without first
instituting any legal proceeding against the Property Trustee or any other
Person. In addition, if a Trust Enforcement Event has occurred and is continuing
and such event is attributable to the failure of the Debenture Issuer to make
any interest, principal or other required payments when due under the Indenture,
then a Holder of Preferred Securities may institute a Direct Action against the
Debenture Issuer on or after the respective due date specified in the
Debentures.
(d) The Property Trustee shall notify all Holders of the Preferred
Securities of any notice of any Indenture Event of Default received from the
Debenture Issuer with respect to the Debentures. Such notice shall state that
such Indenture Event of Default also constitutes a Trust Enforcement Event.
Except with respect to directing the time, method and place of conducting a
proceeding for a remedy, the Property Trustee shall be under no obligation to
take any of the actions described in clauses (i) and (ii) of Section 7.5(b),
unless the Property Trustee has obtained an opinion of independent tax counsel
to the effect that the Trust will not fail to be classified as a grantor trust
for United States federal income tax purposes as a result of such action, and
that each Holder of Preferred Securities shall be treated as owning an undivided
beneficial ownership interest in the Debentures.
(e) If the consent of the Property Trustee, as the Holder of the
Debentures, is required under the Indenture with respect to any amendment or
modification of the Indenture, the Property Trustee shall request the direction
of the Holders of the Securities with respect to such amendment or modification
and shall vote
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with respect to such amendment or modification as directed by a Majority in
Liquidation Amount of the Securities voting together as a single class; provided
that where a consent under the Indenture would require the consent of the
Holders of a Supermajority of the aggregate principal amount of the Debentures,
the Property Trustee may give such consent only at the direction of the Holders
of at least the same Supermajority in aggregate stated liquidation amount of the
Securities. The Property Trustee shall not take any such action in accordance
with the directions of the Holders of the Securities unless the Property Trustee
has obtained an opinion of independent tax counsel to the effect that the Trust
will not fail to be classified as a grantor trust for United States federal
income tax purposes as a result of such action, and that each Holder of
Preferred Securities will be treated as owning an undivided beneficial ownership
interest in the Debentures.
(f) A waiver of an Indenture Event of Default with respect to the
Debentures shall constitute a waiver of the corresponding Trust Enforcement
Event.
(g) Any required approval or direction of the Holders of the Preferred
Securities may be given at a separate meeting of the Holders of the Preferred
Securities convened for such purpose, at a meeting of all of the Holders of the
Securities or pursuant to written consent. The Regular Trustees shall cause a
notice of any meeting at which Holders of the Preferred Securities are entitled
to vote to be mailed to each Holder of record of Preferred Securities. Each such
notice shall include a statement setting forth: (i) the date of such meeting;
(ii) a description of any resolution proposed for adoption at such meeting on
which such Holders are entitled to vote; and (iii) instructions for the delivery
of proxies.
(h) No vote or consent of the Holders of the Preferred Securities
shall be required for the Trust to redeem and cancel the Preferred Securities or
distribute the Debentures in accordance with this Declaration and the terms of
the Securities.
(i) Notwithstanding that the Holders of the Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Preferred Securities that are owned at such time by the Debenture Issuer,
the Trustees or any entity directly or indirectly controlled by, or under direct
or indirect common control with, the Debenture Issuer or any Trustee shall not
be entitled to vote or consent and shall be treated, for purposes of such vote
or consent, as if such Preferred Securities were not outstanding.
(j) Except as provided under Section 7.5(k), the Holders of the
Preferred Securities shall have no rights to appoint or remove the Trustees, who
may be appointed, removed or replaced solely by the Holders of the Common
Securities.
(k) If an Indenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed and replaced by a
Majority in Liquidation Amount of the Preferred Securities.
SECTION 7.6 Voting Rights of the Common Securities.
(a) Except as provided in Section 6.1(b), this Section 7.6 and Section 11.1
and as otherwise required by the Business Trust Act, the Trust Indenture Act or
other applicable law, the Holders of the Common Securities shall have no voting
rights.
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(b) Subject to Section 7.5(k), the Holders of the Common Securities
shall be entitled to vote to appoint, remove or replace any Trustee or to
increase or decrease the number of Trustees in accordance with Article 6.
(c) Subject to Section 2.6 and only after all Trust Enforcement Events
with respect to the Preferred Securities have been cured, waived or otherwise
eliminated and subject to the requirement of the Property Trustee obtaining a
tax opinion in certain circumstances set forth in this paragraph (c), the
Holders of the Common Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Property
Trustee, or to direct the exercise of any trust or power conferred upon the
Property Trustee under this Declaration, including the right to direct the
Property Trustee, as the holder of the Debentures, to (i) exercise the remedies
available to it under the Indenture, (ii) consent to any amendment or
modification of the Indenture or the Debentures where such consent is required
or (iii) waive any past default and its consequences that are waivable under
Section 513 of the Indenture; provided that where a consent or action under the
Indenture would require the consent or act of the Holders of a Supermajority of
the aggregate principal amount of Debentures affected thereby, only the Holders
of at least the same Supermajority of the aggregate stated liquidation amount of
the Common Securities may direct the Property Trustee to give such consent or
take such action. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Property Trustee shall be under no
obligation to take any of the actions described in clauses (i) and (ii) of
Section 7.6(c) unless the Property Trustee has obtained an opinion of
independent tax counsel to the effect that the Trust will not fail to be
classified as a grantor trust for United States federal income tax purposes as a
result of such action, and each Holder will be treated as owning an undivided
beneficial ownership interest in the Debentures.
(d) If the Property Trustee fails to enforce its rights under the
Debentures after the Holders of the Common Securities have made a written
request pursuant to Section 7.6(c), the Holders of the Common Securities may
institute, to the fullest extent permitted by law, a legal proceeding directly
against the Debenture Issuer to enforce the Property Trustee's rights under the
Debentures without first instituting any legal proceeding against the Property
Trustee or any other Person.
(e) A waiver of an Indenture Event of Default with respect to the
Debentures shall constitute a waiver of the corresponding Trust Enforcement
Event.
(f) Any required approval or direction of the Holders of the Common
Securities may be given at a separate meeting of the Holders of the Common
Securities convened for such purpose, at a meeting of all of the Holders of the
Securities or pursuant to written consent. The Regular Trustees shall cause a
notice of any meeting at which the Holders of the Common Securities are entitled
to vote to be mailed to the Holders of the Common Securities. Such notice shall
include a statement setting forth: (i) the date of such meeting; (ii) a
description of any resolution proposed for adoption at such meeting on which the
Holders of the Common Securities are entitled to vote; and (iii) instructions
for the delivery of proxies.
(g) No vote or consent of the Holders of the Common Securities shall
be required for the Trust to redeem and cancel the Common Securities or to
distribute the Debentures in accordance with this Declaration and the terms of
the Securities.
SECTION 7.7 Place of Payment.
If any Preferred Securities are not represented by one or more Global
Securities, the Trust shall maintain in the Borough of Manhattan, New York City,
State of New York, an office or agency where the
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Preferred Securities may be presented for payment. If the Trust fails to appoint
or maintain a different office or agency, such place of payment shall be the
Corporate Trust Office. The Regular Trustees shall give prompt written notice to
the Property Trustee and the Holders of any change in the location of such
office or agency.
SECTION 7.8 Listing.
The Sponsor shall use its best efforts to cause the Preferred
Securities to be listed on the New York Stock Exchange.
SECTION 7.9 Transfer of the Securities.
(a) The Preferred Securities initially shall be, and from time to time
may be, pledged, pursuant to the terms of the Pledge Agreement, as collateral to
secure the obligations of the holders of the Corporate PIES to purchase common
shares of Industries in accordance with the terms of the Purchase Contract
Agreement.
(b) The Preferred Securities may be transferred, in whole or in part,
only in accordance with the terms and conditions set forth in this Declaration
and the Preferred Securities. To the fullest extent permitted by law, any
transfer or purported transfer of any Preferred Security not made in accordance
with this Declaration shall be null and void.
(c) Subject to this Section 7.9 and Section 7.12, the Preferred
Securities shall be freely transferable.
(d) The Trust shall cause to be kept at the Corporate Trust Office a
register in which, subject to such reasonable regulations as it may prescribe,
the Trust shall provide for the registration of Preferred Securities and of
transfers of Preferred Securities. The Property Trustee is hereby appointed
"Security Registrar" for the purpose of registering Preferred Securities and
transfers of Preferred Securities as herein provided.
(e) Upon surrender for registration of transfer of any Preferred
Securities at an office or agency of the Trust designated for such purpose, a
Regular Trustee shall execute, and the Property Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Preferred Securities of any authorized denominations and of a like aggregate
principal amount.
(f) At the option of the Holder, Preferred Securities may be exchanged
for other Preferred Securities of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Preferred Securities to be
exchanged at such office or agency. Whenever any Preferred Securities are so
surrendered for exchange, a Regular Trustee shall execute, and the Property
Trustee shall authenticate and deliver, the Preferred Securities that the Holder
making the exchange is entitled to receive.
(g) If so required by the Property Trustee, every Preferred Security
presented or surrendered for registration of transfer or for exchange shall be
duly endorsed, or accompanied by a duly executed written instrument of transfer
in form satisfactory to the Property Trustee and the Security Registrar, by the
Holder thereof or his attorney duly authorized in writing.
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(h) No service charge shall be made for any registration of transfer
or exchange of Preferred Securities, but the Trust may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Preferred
Securities.
(i) The Common Securities shall not be transferable except as provided
in the Indenture.
SECTION 7.10 Mutilated, Destroyed, Lost or Stolen Certificates.
If:
(a) any mutilated Certificates are surrendered to the Regular
Trustees, or if the Regular Trustees receive evidence to their satisfaction of
the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Regular Trustees such security or
indemnity as may be required by them to keep each of the Sponsor and the Trust
harmless, then, in the absence of notice that such Certificate has been acquired
by a bona fide purchaser, any Regular Trustee shall execute and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like denomination. In connection with the
issuance of any new Certificate under this Section 7.10, the Regular Trustees
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section 7.10 shall constitute conclusive
evidence of an ownership interest in the relevant Securities, as if originally
issued, whether or not the lost, stolen or destroyed Certificate is found at any
time.
SECTION 7.11 Deemed Holders.
The Trustees may treat the Person in whose name any Securities are
registered on the register of the Trust as the sole holder of such Securities
for purposes of receiving Distributions and for all other purposes whatsoever.
Accordingly, the Trustees shall not be bound to recognize any equitable or other
claim to or interest in the Securities represented on the part of any Person,
whether or not the Trust has actual or other notice thereof.
SECTION 7.12 Global Securities.
(a) The Preferred Securities initially shall be issued in the form of
one or more Global Securities. A Regular Trustee shall execute, and the Property
Trustee shall authenticate and deliver, one or more Global Securities that (i)
shall represent and be denominated in an amount equal to the aggregate stated
liquidation amount of all of the Preferred Securities to be issued in the form
of Global Securities and not yet canceled, (ii) shall be registered in the name
of the Depositary for the Preferred Securities or the nominee of such Depositary
and (iii) shall be delivered by the Property Trustee to such Depositary or
pursuant to such Depositary's instructions. Global Securities shall bear a
legend substantially to the following effect:
"This Preferred Security is a Global Security within the meaning of
the Declaration hereinafter referred to and is registered in the
name of The Depository Trust Company, a New York corporation (the
"Depositary"), or a nominee of the Depositary. This Preferred
Security is exchangeable for Preferred Securities registered in the
name of a person other than the Depositary or its nominee only in
the limited circumstances
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described in the Declaration, and no transfer of this Preferred
Security (other than a transfer of this Preferred Security as a
whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of
the Depositary) may be registered except in limited
circumstances.
Unless this certificate is presented by an authorized
representative of the Depositary to NIPSCO Capital Trust I or its
agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or
such other name as requested by an authorized representative of
the Depositary (and any payment hereon is made to Cede & Co. or
to such other entity as is requested by an authorized
representative of the Depositary), and except as otherwise
provided in the Declaration, ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
since the registered owner hereof, Cede & Co., has an interest
herein."
(b) Preferred Securities not represented by a Global Security issued
in exchange for all or a part of a Global Security pursuant to this Section 7.12
shall be registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Property Trustee. Upon execution and
authentication, the Property Trustee shall deliver any Preferred Securities not
represented by a Global Security to the Persons in whose names such definitive
Preferred Securities are so registered.
(c) At such time as all interests in Global Securities have been
redeemed, repurchased or canceled, such Global Securities shall be canceled,
upon receipt thereof, by the Property Trustee in accordance with standing
procedures of the Depositary. At any time prior to such cancellation, if any
interest in a Global Security is exchanged for Preferred Securities not
represented by a Global Security, redeemed, canceled or transferred to a
transferee who receives Preferred Securities not represented by a Global
Security, or if any Preferred Security not represented by a Global Security is
exchanged or transferred for part of a Global Security, then, in accordance with
the standing procedures of the Depositary, the aggregate stated liquidation
amount of such Global Security shall be reduced or increased, as the case may
be, and an endorsement shall be made on such Global Security by the Property
Trustee to reflect such reduction or increase.
(d) The Trust and the Property Trustee, as the authorized
representative of the Holders of the Preferred Securities, may deal with the
Depositary for all purposes of this Declaration, including the making of
payments due on the Preferred Securities and exercising the rights of Holders of
the Preferred Securities hereunder. The rights of any Beneficial Owners shall be
limited to those established by law and agreements between such owners and
Depository Participants; provided that no such agreement shall give to any
Person any rights against the Trust or the Property Trustee without the written
consent of the parties so affected. Multiple requests and directions from and
votes of the Depositary as the Holder of the Preferred Securities represented by
Global Securities with respect to any particular matter shall not be deemed
inconsistent to the extent they do not represent an amount of Preferred
Securities in excess of those held in the name of the Depositary or its nominee.
(e) If at any time the Depositary notifies the Trust that it is
unwilling or unable to continue as Depositary for the Preferred Securities or if
at any time the Depositary no longer is eligible to serve as Depositary, the
Regular Trustees shall appoint a successor Depositary with respect to the
Preferred Securities. If a successor Depositary is not appointed by the Trust
within 90 days after the Trust receives
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such notice or becomes aware of such ineligibility, the Trust's election that
the Preferred Securities be represented by one or more Global Securities shall
no longer be effective, and a Regular Trustee shall execute, and the Property
Trustee will authenticate and deliver, Preferred Securities in definitive
registered form, in any authorized denominations, in an aggregate stated
liquidation amount equal to the aggregate stated liquidation amount of the
Global Securities representing the Preferred Securities, in exchange for such
Global Securities.
(f) The Regular Trustees at any time and in its sole discretion may
determine that the Preferred Securities issued in the form of one or more Global
Securities shall no longer be represented by Global Securities. In such event a
Regular Trustee on behalf of the Trust shall execute, and the Property Trustee
shall authenticate and deliver, Preferred Securities in definitive registered
form, in any authorized denominations, in an aggregate stated liquidation amount
equal to the aggregate stated liquidation amount of the Global Securities
representing the Preferred Securities, in exchange for such Global Securities.
(g) Notwithstanding any other provisions of this Declaration (other
than the provisions set forth in Section 7.9), Global Securities may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.
(h) Interests of Beneficial Owners may be transferred or exchanged for
Preferred Securities not represented by a Global Security, and Preferred
Securities not represented by a Global Security may be transferred or exchanged
for a Global Security or Securities, in accordance with rules of the Depositary
and the provisions of Section 7.9.
SECTION 7.13 Remarketing.
(a) The Debenture Issuer shall request, not later than 15 nor more
than 30 calendar days prior to the Remarketing Date, that the Depositary notify
the Holders of the Preferred Securities and the holders of Corporate PIES of the
Remarketing and of the procedures that must be followed if a Holder of Corporate
PIES wishes to make a Cash Settlement.
(b) Not later than 5:00 P.M., New York City time, on the seventh
Business Day preceding the Purchase Contract Settlement Date, each Holder of
Preferred Securities may elect to have the Preferred Securities held by such
Holder remarketed in the Remarketing. Under Section 5.4 of the Purchase Contract
Agreement, holders of Corporate PIES that do not give notice of their intention
to make a Cash Settlement of the Purchase Contract component of their Corporate
PIES prior to such time in the manner specified in such Section, or that give
such notice but fail to deliver cash prior to 11:00 A.M., New York City time, on
or prior to the fifth Business Day preceding the Purchase Contract Settlement
Date, shall be deemed to have consented to the disposition of the Preferred
Securities component of their Corporate PIES in the Remarketing. Holders of the
Preferred Securities that are not a component of Corporate PIES wishing to have
their Preferred Securities remarketed shall give to the Purchase Contract Agent
notice of their election prior to 11:00 A.M., New York City time on such fifth
Business Day. Any such notice shall be irrevocable and may not be conditioned
upon the level at which the Reset Rate is established in the Remarketing.
Promptly after 11:00 A.M., New York City time, on such fifth Business Day, the
Purchase Contract Agent, based on the notices received by it prior to such time
(including notices from the Purchase Contract Agent as to Purchase Contracts for
which Cash Settlement has been elected and cash received), shall notify the
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Trust, the Sponsor and the Remarketing Agent of the number of Preferred
Securities to be tendered for purchase in the Remarketing.
(c) If any Holder of Preferred Securities does not give a notice of
its intention to make a Cash Settlement or gives such notice but fails to
deliver cash as described in Section 7.13(b), or gives a notice of election to
have Preferred Securities that are not a component of Corporate PIES remarketed,
then the Preferred Securities of such Holder shall be deemed tendered for
purchase in the Remarketing, notwithstanding any failure by such Holder to
deliver or properly deliver such Preferred Securities to the Remarketing Agent
for purchase.
(d) The right of each Holder to have Preferred Securities tendered for
purchase shall be limited to the extent that (i) the Remarketing Agent conducts
a remarketing pursuant to the terms of the Remarketing Agreement, (ii) the
Preferred Securities tendered have not been called for redemption, (iii) the
Remarketing Agent is able to find a purchaser or purchasers for the tendered
Preferred Securities and (iv) such purchaser or purchasers deliver the purchase
price therefor to the Remarketing Agent.
(e) On the Remarketing Date, the Remarketing Agent shall use
commercially reasonable efforts to remarket, at a price equal to 100% of the
aggregate stated liquidation amount thereof, the Preferred Securities tendered
or deemed tendered for purchase.
(f) If, as a result of the efforts described in 7.13(e), the
Remarketing Agent determines that it will be able to remarket all of the
Preferred Securities tendered or deemed tendered for purchase at a price of 100%
of the aggregate stated liquidation amount of such Preferred Securities prior to
4:00 P.M., New York City time, on the Remarketing Date, the Remarketing Agent
shall determine the Reset Rate, which shall be the rate per annum (rounded to
the nearest one-thousandth (0.001) of one percent per annum) that the
Remarketing Agent determines, in its sole judgment, to be the lowest rate per
annum that will enable it to remarket all of the Preferred Securities tendered
or deemed tendered for Remarketing.
(g) If none of the Holders of the Preferred Securities or the holders
of the Corporate PIES elects to have Preferred Securities remarketed in the
Remarketing, the Reset Rate shall be the rate determined by the Remarketing
Agent, in its sole discretion, as the rate that would have been established had
a Remarketing been held on the Remarketing Date.
(h) If, by 4:00 P.M., New York City time, on the Remarketing Date, the
Remarketing Agent is unable to remarket all of the Preferred Securities tendered
or deemed tendered for purchase, a "Failed Remarketing" shall be deemed to have
occurred and the Remarketing Agent shall so advise by telephone the Depositary,
the Property Trustee, the Debenture Trustee, the Trust and the Sponsor. In the
event of a Failed Remarketing, the Reset Rate shall equal the Two-Year Benchmark
Treasury Rate plus the Applicable Margin.
(i) By approximately 4:30 P.M., New York City time, on the Remarketing
Date, provided that there has not been a Failed Remarketing, the Remarketing
Agent shall advise, by telephone (i) the Depositary, the Property Trustee, the
Debenture Trustee, the Trust and the Sponsor of the Reset Rate determined in the
Remarketing and the number of Preferred Securities sold in the Remarketing, (ii)
each purchaser (or the Depositary Participant thereof) of the Reset Rate and the
number of Preferred Securities such purchaser is to purchase and (iii) each
purchaser to give instructions to its Depositary Participant to pay the purchase
price on the Purchase Contract Settlement Date in same day funds against
delivery of the Preferred Securities purchased through the facilities of the
Depositary.
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(j) In accordance with the Depositary's normal procedures, on the
Purchase Contract Settlement Date, the transactions described above with respect
to each Preferred Security tendered for purchase and sold in the Remarketing
shall be executed through the Depositary, and the accounts of the respective
Depositary Participants shall be debited and credited and such Preferred
Securities delivered by book-entry as necessary to effect purchases and sales of
such Preferred Securities. The Depositary shall make payment in accordance with
its normal procedures.
(k) If any Holder of the Preferred Securities selling Preferred
Securities in the Remarketing fails to deliver such Preferred Securities, the
Depositary Participant of such selling holder and of any other Person that was
to have purchased Preferred Securities in the Remarketing may deliver to any
such other Person a number of Preferred Securities that is less than the number
of Preferred Securities that otherwise was to be purchased by such Person. In
such event, the number of Preferred Securities to be so delivered shall be
determined by such Depositary Participant, and delivery of such lesser number of
Preferred Securities shall constitute good delivery.
(l) The Remarketing Agent is not obligated to purchase any Preferred
Securities that otherwise would remain unsold in the Remarketing. Neither the
Trust, any Trustee, the Sponsor nor the Remarketing Agent shall be obligated in
any case to provide funds to make payment upon tender of the Preferred
Securities for Remarketing.
(m) Under the Remarketing Agreement, the Sponsor, in its capacity as
Debenture Issuer, shall be liable for, and shall pay, any and all costs and
expenses incurred in connection with the Remarketing, and the Trust shall not
have any liabilities for such costs and expenses.
(n) The tender and settlement procedures set in this Section 7.13,
including provisions for payment by purchasers of the Preferred Securities in
the Remarketing, shall be subject to modification to the extent required by the
Depositary or if the book-entry system is no longer available for the Preferred
Securities at the time of the Remarketing, to facilitate the tendering and
remarketing of the Preferred Securities in certificated form. In addition, the
Remarketing Agent may modify the settlement procedures set forth herein in order
to facilitate the settlement process.
ARTICLE 8: DISSOLUTION AND TERMINATION OF THE TRUST
SECTION 8.1 Dissolution and Termination of the Trust.
(a) The Trust shall dissolve upon the earliest of:
(i) the bankruptcy of the Debenture Issuer, the Sponsor or
Industries;
(ii) the filing of a certificate of dissolution or its equivalent
with respect to the Sponsor; the receipt by the Trust of the consent
of the Holders of at least a Majority in Liquidation Amount of the
Securities to dissolve the Trust and file a certificate of
cancellation with respect to the Trust; or the revocation of the
Sponsor's charter and the expiration of 90 days after the date of
revocation without a reinstatement thereof;
(iii) the entry of a decree of judicial dissolution of the
Sponsor or the Trust;
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(iv) the time when all of the Securities shall have been called
for redemption and the amounts then due shall have been paid to the
Holders of the Securities;
(v) upon the direction of the Sponsor, in its sole discretion, by
notice to the Property Trustee to distribute the Debentures to the
Holders of the Securities in exchange for all of the Securities;
provided that the Sponsor has provided to the Property Trustee an
opinion of counsel that the distribution of the Debentures will not be
taxable to the Holders of the Preferred Securities for United States
federal income tax purposes; or
(vi) the time when all of the Regular Trustees and the Sponsor
have consented to dissolution of the Trust, provided such action is
taken before the issuance of any Securities.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a) and upon completion of the winding up and
liquidation of the Trust, the Trustees shall terminate the Trust by executing
and filing a certificate of cancellation with the Secretary of State of the
State of Delaware.
(c) The provisions of Section 4.2 and Article 9 shall survive the
termination of the Trust.
SECTION 8.2 Liquidation Distribution Upon Dissolution of the Trust.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Trust pursuant to Section 8.1(a)(i), (ii),
(iii) or (v) (each a "Liquidation"), the Holders of the Securities on the date
of the Liquidation shall be entitled to receive, out of the assets of the Trust
available for distribution to the Holders of the Securities after satisfaction
of the Trust's liabilities to creditors, if any, Debentures in an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accumulated and unpaid Distributions on, such Securities in
exchange for such Securities; provided if any Preferred Securities shall then be
pledged pursuant to the Pledge Agreement, the Debentures to be distributed with
respect to such Preferred Securities will be transfered to the collateral
account maintained by the Collateral Agent.
(b) If, notwithstanding the other provisions of this Section 8.2,
distribution of the Debentures in the manner provided herein is determined by
the Property Trustee not to be practical, the assets of the Trust shall be
liquidated, and the Trust shall be wound-up by the Property Trustee in such
manner as the Property Trustee determines. In such event, the Holders will be
entitled to receive out of the assets of the Trust available for distribution to
the Holders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the stated liquidation amount of
$50 per Security plus accumulated and unpaid Distributions thereon to the date
of payment (such amount being the "Liquidation Distribution"). If, upon any such
Liquidation, the Liquidation Distribution can be paid only in part because the
Trust has insufficient assets available to pay the aggregate Liquidation
Distribution in full, then the amounts payable directly by the Trust on the
Securities shall be paid on a Pro Rata basis, provided that if an Indenture
Event of Default has occurred and is continuing, then the Preferred Securities
shall have a preference over the Common Securities with regard to the
Liquidation Distribution.
(c) Notice of any distribution of Debentures in exchange for the
Securities (an "Exchange Notice"), which notice shall be irrevocable, shall be
given by the Regular Trustees on behalf of the Trust by mail to each Holder of
Securities at least 30 but no more than 60 days before the date fixed for such
distribution. For purposes of the calculation of the date of distribution and
the dates on which notices are given pursuant to this Section 8.2(c), an
Exchange Notice shall be deemed to be given on the day such notice
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is first mailed by first-class mail, postage prepaid, to the Holders of the
Securities. Each Exchange Notice shall be addressed to the Holders of the
Securities at the address of each such Holder appearing in the register of the
Trust. No defect in the Exchange Notice or in the mailing of either thereof with
respect to any Holder shall affect the validity of the distribution proceedings
with respect to any other Holder.
(d) After the date fixed for any distribution of Debentures upon
dissolution of the Trust, (i) the Securities no longer shall be deemed to be
outstanding and (ii) the Certificates shall be deemed to represent the
Debentures in a principal amount equal to the stated liquidation amount of the
Securities, bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Securities, until such Certificates
are presented to the Regular Trustees or agent for transfer or reissuance.
ARTICLE 9: LIMITATION OF LIABILITY OF
HOLDERS OF THE SECURITIES, THE DELAWARE TRUSTEE AND OTHERS
SECTION 9.1 Liability.
(a) Except as expressly set forth in this Declaration, the Guarantee
and the terms of the Securities, the Sponsor:
(i) shall not be personally liable for the return of any portion
of the capital contributions (or any return thereon) of the Holders of
the Securities that will be made solely from assets of the Trust; and
(ii) shall not be required to pay to the Trust or to any Holder
of the Securities any deficit, upon dissolution of the Trust or
otherwise.
(b) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Common Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware; provided
that the Holders of the Common Securities shall be liable for all of the debts
and obligations of the Trust (other than with respect to the Securities) to the
extent such debts and obligations are not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Preferred Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
SECTION 9.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Trust or to any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith on behalf of the Trust and in a manner
that such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence (or, in
the case of the Property Trustee, negligence) or willful misconduct with respect
to such acts or omissions.
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(b) Each Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters such
Indemnified Person reasonably believes to be within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses or any other facts pertinent to the existence and amount of assets from
which distributions to Holders of the Securities might properly be paid.
SECTION 9.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between a
Covered Person and an Indemnified Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests
and factors as it desires, including its own interests, and shall have
no duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this
Declaration or by applicable law.
SECTION 9.4 Indemnification.
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(a) (i) Pursuant to the Indenture, the Debenture Issuer shall
indemnify, to the full extent permitted by law, any Debenture Issuer
Indemnified Person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust), by reason of
the fact that he or she is or was a Debenture Issuer Indemnified
Person against expenses (including attorney fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner that he or she reasonably believed to be
in or not opposed to the best interests of the Trust and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the Debenture Issuer Indemnified
Person did not act in good faith and in a manner that he or she
reasonably believed to be in or not opposed to the best interests of
the Trust and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(ii) Pursuant to the Indenture, the Debenture Issuer shall
indemnify, to the full extent permitted by law, any Debenture Issuer
Indemnified Person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in
the right of the Trust to procure a judgment in its favor by reason of
the fact that he or she is or was a Debenture Issuer Indemnified
Person against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter
as to which such Debenture Issuer Indemnified Person was adjudged to
be liable to the Trust, unless and only to the extent that the Court
of Chancery of Delaware or the court in which such action or suit was
brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses that such Court of Chancery or such other court shall deem
proper.
(iii) Any indemnification under paragraphs (i) and (ii) of this
Section 9.4(a) (unless ordered by a court) shall be made by the
Debenture Issuer only as authorized in the specific case upon a
determination that indemnification of the Debenture Issuer Indemnified
Person is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in paragraphs (i) and (ii).
Such determination shall be made (A) by a majority vote of a quorum of
the Regular Trustees who were not parties to such action, suit or
proceeding, (B) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs,
by independent legal counsel in a written opinion, or (C) by the
Holders of the Common Securities.
(iv) Expenses (including attorneys' fees) incurred by a Debenture
Issuer Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to
in paragraphs (i) and (ii) of this Section 9.4(a) shall be paid by the
Debenture Issuer in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of
such Debenture Issuer Indemnified Person to repay such amount if it
shall ultimately be determined that he or she is not entitled to be
indemnified by the Debenture Issuer as authorized in this Section
9.4(a). Notwithstanding the foregoing, no advance
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shall be made by the Debenture Issuer if a determination is reasonably
and promptly made (A) by a majority vote of a quorum of disinterested
Regular Trustees, (B) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs,
by independent legal counsel in a written opinion or (C) the Holders
of the Common Securities, that, based upon the facts known to the
Regular Trustees, counsel or the Holders of the Common Securities at
the time such determination is made, such Debenture Issuer Indemnified
Person acted in bad faith or in a manner that such Person did not
believe to be in or not opposed to the best interests of the Trust,
or, with respect to any criminal proceeding, that such Debenture
Issuer Indemnified Person believed or had reasonable cause to believe
his or her conduct was unlawful. In no event shall any advance be made
in instances where the Regular Trustees, independent legal counsel or
the Holders of the Common Securities reasonably determine that such
Person deliberately breached his or her duty to the Trust or to the
Holders of the Securities.
(v) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other paragraphs of this Section 9.4(a)
shall not be deemed exclusive of any other rights to which those
seeking indemnification and advancement of expenses may be entitled
under any agreement, vote of stockholders or disinterested directors
of the Debenture Issuer or the Holders of the Preferred Securities or
otherwise, both as to action in an official capacity and as to action
in another capacity while holding such office. All rights to
indemnification under this Section 9.4(a) shall be deemed to be
provided by a contract between the Debenture Issuer and each Debenture
Issuer Indemnified Person who serves in such capacity at any time
while this Section 9.4(a) is in effect. Any repeal or modification of
this Section 9.4(a) shall not affect any rights or obligations then
existing.
(vi) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any Person who is or was a Debenture Issuer
Indemnified Person against any liability asserted against him or her
and incurred by him or her in any such capacity, or arising out of his
or her status as such, whether or not the Debenture Issuer would have
the power to indemnify him or her against such liability under the
provisions of this Section 9.4(a).
(vii) For purposes of this Section 9.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving
entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any Person
who is or was a director, trustee, officer or employee of such
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent
of another entity, shall stand in the same position under the
provisions of this Section 9.4(a) with respect to the resulting or
surviving entity as he or she would have had with respect to such
constituent entity if its separate existence had continued.
(viii) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 9.4(a) shall continue, unless
otherwise provided when authorized or ratified, as to a Person who has
ceased to be a Debenture Issuer Indemnified Person and shall inure to
the benefit of the heirs, executors and administrators of such a
Person. The obligation to indemnify as set forth in this Section
9.4(a) shall survive the resignation or removal of the Delaware
Trustee or the Property Trustee or the termination of this
Declaration.
(b) Pursuant to the Indenture, the Debenture Issuer agrees to
indemnify, to the fullest extent permitted by law, the (i) Property Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Property
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Trustee or the Delaware Trustee and (iv) any officers, directors, shareholders,
members, partners, employees, representatives, custodians, nominees or agents of
the Property Trustee and the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without gross negligence (or, in the case of the Property
Trustee, negligence) or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses (including reasonable legal fees and expenses)
of defending itself against or investigating any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 9.4(b) shall
survive the satisfaction and discharge of this Declaration.
SECTION 9.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee (subject to Section 6.3(c)) may engage in or possess an interest in
other business ventures of any nature or description, independently or with
others, similar or dissimilar to the activities of the Trust, and the Trust and
the Holders of the Securities shall have no rights by virtue of this Declaration
in and to such independent ventures or the income or profits derived therefrom,
and the pursuit of any such venture, even if competitive with the activities of
the Trust, shall not be deemed wrongful or improper. Each Covered Person, the
Sponsor, the Delaware Trustee and the Property Trustee shall not be obligated to
present any particular investment or other opportunity to the Trust even if such
opportunity is of a character that, if presented to the Trust, could be taken by
the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity. Any Covered Person, the Delaware Trustee and
the Property Trustee may engage or be interested in any financial or other
transaction with the Sponsor or any Affiliate of the Sponsor, or may act as
depositary for, trustee or agent for, or act on any committee or body of holders
of, securities or other obligations of the Sponsor or its Affiliates.
ARTICLE 10: ACCOUNTING
SECTION 10.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 10.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or shall cause to be kept, full books of account, records
and supporting documents, which shall reflect in reasonable detail each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year of the Trust by a firm of independent certified public
accountants selected by the Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered to
each Holder of Securities, within 90 days after the end of each Fiscal Year of
the Trust, annual financial statements of the Trust,
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including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss.
(c) The Regular Trustees shall cause to be duly prepared and
delivered to each Holder of Securities an annual United States federal income
tax information statement, required by the Code, containing such information
with regard to the Securities held by each Holder as is required by the Code and
the Treasury Regulations. Notwithstanding any right under the Code to deliver
any such statement at a later date, the Regular Trustees shall endeavor to
deliver all such statements within 30 days after the end of each Fiscal Year of
the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed
with the appropriate taxing authority an annual United States federal income tax
return, on Form 1041 or such other form required by United States federal income
tax law, and any other annual income tax returns required to be filed on behalf
of the Trust with any state or local taxing authority.
SECTION 10.3 Banking.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided that all payments of funds in respect of
the Debentures held by the Property Trustee shall be made directly to the
Property Account and no other funds of the Trust shall be deposited in the
Property Account. The sole signatories for such accounts shall be designated by
the Regular Trustees; provided that the Property Trustee shall designate the
signatories for the Property Account.
SECTION 10.4 Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Regular
Trustees shall request, and the Holders of the Securities shall provide to the
Trust, such forms or certificates as are necessary to establish an exemption
from withholding with respect to each Holder of Securities and any
representations and forms as shall reasonably be requested by the Regular
Trustees to assist them in determining the extent of, and in fulfilling, the
Trust's withholding obligations. The Regular Trustees shall file required forms
with applicable jurisdictions and, unless an exemption from withholding is
properly established by a Holder of Securities, shall remit amounts withheld
with respect to such Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder of Securities, the amount
withheld shall be deemed to be a distribution in the amount of the withholding
to such Holder. In the event of any claimed over withholding, a Holder shall be
limited to an action against the applicable jurisdiction. If the amount required
to be withheld was not withheld from actual Distributions made, the Trust may
reduce subsequent Distributions by the amount of such withholding.
ARTICLE 11: AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may be amended only by a
written instrument approved and executed by (i) the Sponsor and (ii) the Regular
Trustees (or, if there are more than two Regular Trustees, a majority of the
Regular Trustees) and (iii) the Property Trustee (if the amendment affects the
rights, powers, duties, obligations or immunities
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of the Property Trustee) and (iv) the Delaware Trustee (if the amendment affects
the rights, powers, duties, obligations or immunities of the Delaware Trustee).
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property
Trustee first has received an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Securities);
(ii) unless, in the case of any proposed amendment that affects
the rights, powers, duties, obligations or immunities of the Property
Trustee, the Property Trustee first has received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the
Securities); and
(B) an opinion of counsel (which may be counsel to the
Sponsor or the Trust) that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms
of the Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to be classified other than as a grantor
trust for United States federal income tax purposes;
(B) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act.
(c) At such time after the Trust has issued any Securities that
remain outstanding, (i) any amendment that would (A) adversely affect the
powers, preferences or special rights of the Securities, whether by way of
amendment to this Declaration or otherwise or (B) result in the dissolution,
winding-up or termination of the Trust other than pursuant to the terms of this
Declaration shall not be effective except with the approval of the Holders of at
least a 662/3% in Liquidation Amount of the Securities; provided that if any
amendment or proposal referred to in clause (A) above would adversely affect
only the Preferred Securities or the Common Securities, then only the Holders of
the affected class will be entitled to vote on such amendment or proposal, and
such amendment or proposal shall not be effective except with the approval of a
662/3% in Liquidation Amount of the Holders of the class of Securities affected
thereby; and (ii) any amendment that would (A) change the amount or timing of
any distribution of the Securities or otherwise adversely affect the amount of
any distribution required to be made in respect of the Securities as of a
specified date or (B) restrict the right of a Holder of Securities to institute
suit for the enforcement of any such payment on or after such date shall not be
effective except with the approval of each Holder of Securities affected
thereby.
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(d) This Section 11.1 shall not be amended without the consent of all
of the Holders of the Securities.
(e) Article 4 shall not be amended without the consent of the Holders
of a Majority in Liquidation Amount of the Common Securities.
(f) The rights of the Holders of the Common Securities under Article
5 to increase or decrease the number of, and appoint and remove, Trustees shall
not be amended without the consent of the Holders of a Majority in Liquidation
Amount of the Common Securities.
(g) Notwithstanding Section 11.1(c), this Declaration may be amended
without the consent of the Holders of the Securities, provided that such
amendment does not have a material adverse effect on the rights, preferences or
privileges of the Holders of the Securities:
(i) to cure any ambiguity;
(ii) to correct or supplement any provision in this Declaration
that may be defective or inconsistent with any other provision of this
Declaration;
(iii) to add to the covenants, restrictions or obligations of the
Sponsor;
(iv) to conform to any change in Rule 3a-5 or written change in
interpretation or application of Rule 3a-5 by any legislative body,
court, government agency or regulatory authority;
(v) to modify, eliminate and add to any provision of this
Declaration to ensure that the Trust will be classified as a grantor
trust for United States federal income tax purposes at all times that
any Securities are outstanding or to ensure that the Trust will not be
required to register as an Investment Company under the Investment
Company Act; provided that such modification, elimination or addition
would not adversely affect in any material respect the rights,
privileges or preferences of any Holder of Securities; or
(vi) to facilitate the tendering, remarketing and settlement of
the Preferred Securities as contemplated by Section 7.13(n).
SECTION 11.2 Meetings of the Holders of the Securities; Action by Written
Consent.
(a) Meetings of the Holders of any class of Securities may be called
at any time by the Regular Trustees to consider and act on any matter on which
Holders of such class of Securities are entitled to act under the terms of this
Declaration, the terms of the Securities or the rules of any stock exchange on
which the Preferred Securities are listed or admitted for trading. The Regular
Trustees shall call a meeting of the Holders of such class if directed to do so
by the Holders of at least 10% in Liquidation Amount of such class of
Securities. Such direction shall be given by delivering to the Regular Trustees
a writing stating that the signing Holders of the Securities wish to call a
meeting and indicating the general or specific purpose for which the meeting is
to be called. The Holder or Holders of the Securities calling a meeting shall
specify in writing the Securities held by such Holder or Holders, and only those
Securities specified shall be counted for purposes of determining whether the
required percentage set forth in the second sentence of this paragraph has been
met.
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(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of the Holders of
the Securities:
(i) Notice of any such meeting shall be given to all the Holders
of the Securities having a right to vote thereat at least seven days
and not more than 60 days before the date of such meeting. Whenever a
vote, consent or approval of the Holders of the Securities is
permitted or required under this Declaration or the rules of any stock
exchange on which the Preferred Securities are listed or admitted for
trading, such vote, consent or approval may be given at a meeting of
the Holders of the Securities. Any action that may be taken at a
meeting of the Holders of the Securities may be taken without a
meeting and without prior notice if a consent in writing setting forth
the action so taken is signed by the Holders of the Securities owning
not less than the minimum amount of Securities in liquidation amount
that would be necessary to authorize or take such action at a meeting
at which all Holders of the Securities having a right to vote thereon
were present and voting. Prompt notice of the taking of action without
a meeting shall be given to the Holders of the Securities entitled to
vote who have not consented in writing. The Regular Trustees may
specify that any written ballot submitted to the Holders of the
Securities for the purpose of taking any action without a meeting
shall be returned to the Trust within the time specified by the
Regular Trustees.
(ii) Each Holder of the Securities may authorize any Person to
act for it by proxy on any or all matters in which such Holder is
entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. No proxy shall be valid after
the expiration of 11 months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure
of the Holder of Securities executing such proxy. Except as otherwise
provided herein, all matters relating to the giving, voting or
validity of proxies shall be governed by the General Corporation Law
of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware
corporation and the Holders of the Securities were stockholders of a
Delaware corporation.
(iii) Each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the
Regular Trustees may designate.
(iv) Unless the Business Trust Act, this Declaration, the terms
of the Securities, the Trust Indenture Act or the listing rules of any
stock exchange on which the Preferred Securities are then listed for
trading otherwise provides, the Regular Trustees, in their sole
discretion, shall establish all other provisions relating to meetings
of Holders of the Securities, including notice of the time, place or
purpose of any meeting at which any matter is to be voted on by any
Holders of the Securities, waiver of any such notice, action by
consent without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
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ARTICLE 12: REPRESENTATIONS OF THE PROPERTY TRUSTEE
AND THE DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of the Property Trustee.
The initial Property Trustee represents and warrants to the Trust and
to the Sponsor at the date of this Declaration, and each Successor Property
Trustee represents and warrants to the Trust and the Sponsor at the time of such
Successor Property Trustee's acceptance of its appointment as Property Trustee,
that:
(a) the Property Trustee is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, this
Declaration;
(b) the Property Trustee satisfies the requirements set forth in
Section 6.3(a);
(c) the execution, delivery and performance by the Property Trustee
of this Declaration have been duly authorized by all necessary corporate action
on the part of the Property Trustee; this Declaration has been duly executed and
delivered by the Property Trustee, and it constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(d) the execution, delivery and performance of this Declaration by
the Property Trustee do not conflict with, nor constitute a breach of, the
articles of association or incorporation, as the case may be, or the by-laws (or
other similar organizational documents) of the Property Trustee; and
(e) no consent, approval or authorization of, or registration with
or notice to, any state or federal banking authority is required for the
execution, delivery or performance by the Property Trustee of this Declaration.
SECTION 12.2 Representations and Warranties of the Delaware Trustee.
The initial Delaware Trustee represents and warrants to the Trust and
to the Sponsor at the date of this Declaration, and each Successor Delaware
Trustee represents and warrants to the Trust and the Sponsor at the time of such
Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee,
that:
(a) the Delaware Trustee satisfies the requirements set forth in
Section 6.2 and has the power and authority to execute and deliver, and to carry
out and perform its obligations under the terms of, this Declaration and, if it
is not a natural person, is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization;
(b) the Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and this Declaration; and this
Declaration constitutes a legal, valid and binding obligation of the Delaware
Trustee under Delaware law, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, reorganization, moratorium, insolvency and
other similar laws affecting creditors'
55
<PAGE> 63
rights generally and to general principles of equity and the discretion of the
court (regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law); and
(c) no consent, approval or authorization of, or registration with or
notice to, any state or federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee of this Declaration.
ARTICLE 13: MISCELLANEOUS
SECTION 13.1 Notices.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust may
give notice of to the Property Trustee, the Delaware Trustee and the Holders of
the Securities):
c/o NIPSCO Capital Markets, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
Attention: Francis P. Girot, Jr.
Telecopy No: (219) 853-5352
(b) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as the Delaware Trustee may give notice of to
the Regular Trustees, the Property Trustee and the Holders of the Securities):
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopy No: (302) 984-4903
(c) if given to the Property Trustee, at its Corporate Trust Office
(or such other address as the Property Trustee may give notice of to the Regular
Trustees, the Delaware Trustee and the Holders of the Securities);
(d) if given to the Holders of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holders of
the Common Securities may give notice of to the Property Trustee, the Delaware
Trustee and the Trust):
c/o NIPSCO Capital Markets, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
Attention: Francis P. Girot, Jr.
Telecopy No: (219) 853-5352
56
<PAGE> 64
(e) if given to any Holder of Preferred Securities, at such Holder's
address as set forth in the register of the Trust.
All such notices shall be deemed to have been given when received in person,
telecopied with receipt confirmed or mailed by first class mail, postage
prepaid, except that if a notice or other document is refused delivery or cannot
be delivered because of a changed address of which no notice was given, such
notice or other document shall be deemed to have been delivered on the date of
such refusal or inability to deliver.
SECTION 13.2 Governing Law.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to principles of conflicts of laws.
SECTION 13.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The provisions
of this Declaration shall be interpreted in a manner consistent with such
classification.
SECTION 13.4 Headings.
The headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 13.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 13.6 Partial Enforceability.
If any provision of this Declaration or the application of such
provision to any Person or circumstance is held invalid, the remainder of this
Declaration, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
SECTION 13.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page, and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All such counterpart signature pages shall be read as though one, and they shall
have the same force and effect as though all of the signers had signed a single
signature page.
57
<PAGE> 65
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
NIPSCO CAPITAL MARKETS, INC.,
as Sponsor, Debenture Issuer and Common
Securities Holder
By: /s/ Stephen P. Adik
---------------------------------------
Stephen P. Adik
President
THE CHASE MANHATTAN BANK,
as Property Trustee
By: /s/ R. Lorenzen
---------------------------------------
R. Lorenzen
Senior Trust Officer
CHASE MANHATTAN BANK DELAWARE,
as Delaware Trustee
By: /s/ John J. Cashin
---------------------------------------
John J. Cashin
Vice-President
/s/ Stephen P. Adik
--------------------------------------------
STEPHEN P. ADIK, as Regular Trustee
/s/ Francis P. Girot, Jr.
--------------------------------------------
FRANCIS P. GIROT, JR., as Regular Trustee
/s/ Arthur A. Paquin
--------------------------------------------
ARTHUR A. PAQUIN, as Regular Trustee
[AMENDED AND RESTATED DECLARATION OF TRUST SIGNATURE PAGE]
58
<PAGE> 66
EXHIBIT A
[IF THE PREFERRED SECURITY IS TO BE A GLOBAL SECURITY, INSERT THE
FOLLOWING: THIS PREFERRED SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"), OR A
NOMINEE OF THE DEPOSITARY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION, AND NO
TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED
SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED, EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS PREFERRED SECURITY CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REGISTERED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), AND EXCEPT AS OTHERWISE PROVIDED
IN THE DECLARATION, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.]
CERTIFICATE NO. ______ NUMBER OF PREFERRED SECURITIES: _____
CUSIP NO. 654639 20 2
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
NIPSCO CAPITAL TRUST I
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $50 PER PREFERRED SECURITY)
NIPSCO Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that __________
(the "Holder") is the registered owner of ________ preferred securities of the
Trust representing an undivided beneficial ownership interest in the assets of
the Trust designated the Preferred Securities (liquidation amount $50 per
Preferred Security) (the "Preferred Securities"). The Preferred Securities are
transferable on the register of the Trust, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in proper form
for transfer as provided in the Declaration (as defined below). The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Preferred Securities represented hereby are issued and shall in all respects
be subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust, dated as of February 16, 1999 (as the same may be amended from time
to time (the "Declaration"), among NIPSCO Capital Markets, Inc., as Sponsor,
Stephen P. Adik, Francis P. Girot, Jr. and Arthur A. Paquin, as Regular
Trustees, The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank
Delaware, as Delaware Trustee, and the holders from time to time of undivided
beneficial ownership interests in the assets of the Trust. Capitalized terms
used herein but not defined shall have the meaning given them in the
Declaration. The Holder is entitled to the benefits of the Guarantee Agreement,
dated as of February 16, 1999, of NIPSCO Capital Markets, Inc., in respect of
the Preferred Securities. The Sponsor will provide a copy of the Declaration,
the Guarantee and the Indenture (as defined in the Declaration) to a Holder
without charge upon written request to the Sponsor at its principal place of
business.
<PAGE> 67
Upon receipt of this certificate, the Holder is bound by the terms of
the Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of undivided indirect beneficial ownership interests in the
Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of ___________, 1999.
NIPSCO CAPITAL TRUST I
By:
-----------------------------
Regular Trustee
2
<PAGE> 68
This is one of the Securities referred to in the within-mentioned
Declaration.
THE CHASE MANHATTAN BANK
By:
-----------------------------
Senior Trust Officer
3
<PAGE> 69
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN
THE DECLARATION (AS DEFINED BELOW)
CERTIFICATE NO. 1 NUMBER OF COMMON SECURITIES: 214,000
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
NIPSCO CAPITAL TRUST I
COMMON SECURITIES
(LIQUIDATION AMOUNT $50 PER COMMON SECURITY)
NIPSCO Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that NIPSCO
CAPITAL MARKETS, INC. (the "Holder") is the registered owner of 214,000 common
securities of the Trust representing an undivided beneficial ownership interest
in the assets of the Trust designated the Common Securities (liquidation amount
$50 per Common Security) (the "Common Securities"). Except as provided in the
Declaration (as defined below), the Common Securities are not transferable, and
any attempted transfer thereof shall be void. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust, dated as of February 16, 1999 (as the same may be amended from time
to time, the "Declaration"), among NIPSCO Capital Markets, Inc., as Sponsor,
Stephen P. Adik, Francis P. Girot and Arthur A. Paquin, as Regular Trustees, The
Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank Delaware, as
Delaware Trustee, and the holders, from time to time, of undivided beneficial
ownership interests in the assets of the Trust. The Holder is entitled to the
benefits of the Guarantee Agreement, dated as of February 16, 1999, of NIPSCO
Capital Markets, Inc., in respect of the Common Securities. The Sponsor will
provide a copy of the Declaration, the Guarantee and the Indenture (as defined
in the Declaration) to the Holder without charge upon written request to the
Sponsor at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the terms of
the Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of an undivided indirect beneficial ownership interest in the
Debentures.
<PAGE> 70
IN WITNESS WHEREOF, the Trust has executed this certificate this ____
day of ____________, 1999.
NIPSCO CAPITAL TRUST I
By:
-----------------------------
Regular Trustee
2
<PAGE> 71
This is one of the Securities referred to in the within-mentioned
Declaration.
THE CHASE MANHATTAN BANK
By:
-----------------------------
Senior Trust Officer
3
<PAGE> 1
EXHIBIT 4.36
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, dated as of February 16, 1999
(this "First Supplemental Indenture"), among NIPSCO Capital Markets, Inc., an
Indiana corporation ("Capital Markets"), NIPSCO Industries, Inc., an Indiana
corporation ("Industries"), and The Chase Manhattan Bank, as trustee (the
"Trustee"), under the Indenture dated as of February 14, 1997 among Capital
Markets, Industries and the Trustee (the "Indenture").
WHEREAS, Industries and Capital Markets executed and delivered
the Indenture to the Trustee to provide for the issuance from time to time of
Capital Markets' unsecured debentures, notes or other evidences of indebtedness
(collectively the "Securities," and individually, a "Security") to be issued in
one or more series as might be determined by Capital Markets under the
Indenture, in an unlimited aggregate principal amount which may be authenticated
and delivered as provided in the Indenture;
WHEREAS, pursuant to the terms of the Indenture, Capital
Markets desires to provide for the establishment of a new series of Securities
to be known as the 5.90% Senior Debentures due 2005 (the "Debentures"), the form
and substance of such Debentures and the terms, provisions and conditions
thereof to be as set forth in the Indenture and this First Supplemental
Indenture;
WHEREAS, NIPSCO Capital Trust I, a Delaware statutory business
trust (the "Trust"), has offered to the public up to $345,000,000 in aggregate
liquidation amount of its 5.90% Trust Preferred Securities (the "Preferred
Securities") and, in connection therewith, Capital Markets has agreed to
purchase up to $10,700,000 in aggregate liquidation amount of the Trust's common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities"), each representing an undivided beneficial interest in
the assets of the Trust, and proposes to invest the proceeds from such offerings
in up to $355,700,000 aggregate principal amount of the Debentures;
WHEREAS, Capital Markets and Industries have requested that
the Trustee execute and deliver this First Supplemental Indenture, all
requirements necessary to make this First Supplemental Indenture a valid
instrument in accordance with its terms (and to make the Debentures, when
executed by Capital Markets and authenticated and delivered by the Trustee, the
valid obligations of Capital Markets) have been performed, and the execution and
delivery of this First Supplemental Indenture has been duly authorized in all
respects;
NOW, THEREFORE, in consideration of the purchase and
acceptance of the Debentures by the Holders thereof, and for the purpose of
setting forth, as provided in the Indenture, the form and substance of the
Debentures and the terms, provisions and conditions thereof, Capital Markets and
Industries covenant and agree with the Trustee as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definition of Terms.
Unless the context otherwise requires:
<PAGE> 2
(a) a term not defined herein that is defined in the
Indenture has the same meaning when used in this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental
Indenture has the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) a reference to a Section or Article is to a Section
or Article of this First Supplemental Indenture;
(e) headings are for convenience of reference only and do
not affect interpretation;
(f) the following terms have the meanings given to them in the
Declaration: (i) Applicable Margin; (ii) Applicable Principal Amount; (iii)
Delaware Trustee; (iv) Guarantee; (v) Preferred Securities; (vi) Preferred
Security Certificate; (vii) Property Trustee; (viii) Redemption Amount; (ix)
Regular Trustees; (x) Remarketing Agreement; (xi) Remarketing Date; (xii)
Treasury Portfolio Purchase Price; and (xiii) Two-Year Benchmark Treasury Rate;
(g) the following terms have the meanings given to them
in the Purchase Contract Agreement: (i) Cash Settlement; (ii) Corporate PIES;
(iii) Purchase Contract and (iv) Purchase Contract Settlement Date; and
(h) the following terms have the meanings given to them in
this Section 1.1(h): "Business Day" means any day other than a Saturday or
Sunday or a day on which banking institutions in New York City are authorized or
required by law or executive order to remain closed or a day on which the
principal office of the Trustee or the Property Trustee is closed for business.
"Declaration" means the Amended and Restated Declaration of
Trust of the Trust, dated as of February 16, 1999, as amended and restated from
time to time.
"Direct Action" has the meaning specified in Section 7.2.
"Primary Treasury Dealer" means a primary U.S. government
securities dealer in New York City.
"Purchase Contract Agreement" means the Purchase Contract
Agreement dated as of February 16, 1999 between Industries and The Chase
Manhattan Bank, as Purchase Contract Agent.
"Quotation Agent" means (i) Lehman Brothers Inc. and its
respective successors, provided that if Lehman Brothers Inc. ceases to be a
Primary Treasury Dealer, Capital Markets will substitute another Primary
Treasury Dealer therefor, or (ii) any other Primary Treasury Dealer selected by
Capital Markets.
"Redemption Price" means, for each Debenture, the sum of the
Redemption Amount plus accrued and unpaid interest thereon to the Tax Event
Redemption Date.
2
<PAGE> 3
"Remarketing" means (i) as long as the Trust has not been
liquidated, the operation of the procedures for remarketing specified in Section
7.13 of the Declaration and (ii) if the Trust has been liquidated, the operation
of the procedures for remarketing specified in Article VIII.
"Remarketing Agent" shall mean Lehman Brothers Inc. or any
successor remarketing agent engaged by Capital Markets.
"Reset Rate" means the rate per annum that results from the
remarketing of the Preferred Securities that are a part of the Corporate PIES as
to which the holders have not given notice of their election to settle the
related Purchase Contracts with cash, or have given such notice but failed to
deliver cash, and the Preferred Securities that are not a part of the Corporate
PIES as to which the holders have requested remarketing.
"Tax Event" means the receipt by Capital Markets and the Trust
of an opinion of counsel, rendered by a law firm having a recognized national
tax practice, to the effect that, as a result of any amendment to, change in or
announced proposed change in the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative decision, pronouncement,
judicial decision or action interpreting or applying such laws or regulations,
which amendment or change is effective or which proposed change, pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that (i) the
Trust is, or within 90 days of the date of such opinion will be, subject to
United States federal income tax with respect to income received or accrued on
the Debentures, (ii) interest payable by Capital Markets on the Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by
Capital Markets, in whole or in part, for United States federal income tax
purposes, or (iii) the Trust is, or within 90 days of the date of such opinion
will be, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
"Tax Event Redemption Date" has the meaning specified in
Section 2.5(a).
"Treasury Portfolio" means, with respect to the Applicable
Principal Amount of Debentures (i) if the Tax Event Redemption Date occurs prior
to the Purchase Contract Settlement Date, a portfolio of zero-coupon U.S.
Treasury Securities consisting of (a) principal or interest strips of U.S.
Treasury Securities that mature on or prior to the Purchase Contract Settlement
Date in an aggregate amount at maturity equal to the Applicable Principal Amount
and (b) with respect to each scheduled interest payment date on the Debentures
that occurs after the Tax Event Redemption Date, principal or interest strips of
U.S. Treasury Securities that mature on or prior to such date in an aggregate
amount at maturity equal to the aggregate interest payment that would be due on
the Applicable Principal Amount of the Debentures on such date and (ii) if the
Tax Event Redemption Date occurs after the Purchase Contract Settlement Date, a
portfolio of zero-coupon U.S. Treasury Securities consisting of (a) principal or
interest strips of U.S. Treasury Securities that mature on or prior to February
18, 2005, in an aggregate amount at maturity equal to the Applicable Principal
Amount and (b) with respect to each scheduled interest payment date on the
Debentures that occurs after the Tax Event Redemption Date, principal or
interest strips of such U.S. Treasury Securities that mature on or prior to such
date in an aggregate amount at maturity equal to the aggregate interest payment
that would be due on the Applicable Principal Amount of the Debentures on such
date.
3
<PAGE> 4
ARTICLE II
TERMS AND CONDITIONS OF THE DEBENTURES
Section 2.1 Designation and Principal Amount.
There is hereby authorized a series of Securities designated
the "5.90% Senior Debentures due 2005," limited in aggregate principal amount to
$355,700,000.
Section 2.2 Maturity.
The Stated Maturity will be February 19, 2005.
Section 2.3 Global Debentures.
If distributed to holders of Preferred Securities in
connection with the involuntary or voluntary dissolution of the Trust:
(a) The Debentures in certificated form may be presented to
the Trustee by the Property Trustee in exchange for a Global Security in an
aggregate principal amount equal to all Outstanding Debentures (a "Global
Debenture"). The Depositary for the Debentures will be The Depository Trust
Company. The Global Debentures will be registered in the name of the Depositary
or its nominee, Cede & Co., and delivered by the Trustee to the Depositary or a
custodian appointed by the Depositary for crediting to the accounts of its
participants pursuant to the instructions of the Regular Trustees. Capital
Markets upon any such presentation shall execute a Global Debenture in such
aggregate principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with the Indenture and this First
Supplemental Indenture. Payments on the Debentures issued as a Global Debenture
will be made to the Depositary or its nominee.
(b) If any Preferred Securities are held in non book-entry
certificated form, the Debentures in certificated form may be presented to the
Trustee by the Property Trustee, and any Preferred Security Certificate which
represents Preferred Securities other than Preferred Securities held by the
depositary for the Preferred Securities or its nominee ("Non Book-Entry
Preferred Securities") will be deemed to represent beneficial interests in
Debentures presented to the Trustee by the Property Trustee having an aggregate
principal amount equal to the aggregate liquidation amount of the Non Book-Entry
Preferred Securities until such Preferred Security Certificates are presented to
the Security Registrar for transfer or reissuance, at which time such Preferred
Security Certificates will be canceled and a Debenture registered in the name of
the holder of the Preferred Security Certificate or the transferee of the holder
of such Preferred Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the Preferred
Security Certificate canceled will be executed by Capital Markets and delivered
to the Trustee for authentication and delivery in accordance with the Indenture
and this First Supplemental Indenture. On issue of such Debentures, Debentures
with an equivalent aggregate principal amount that were presented by the
Property Trustee to the Trustee will be deemed to have been canceled.
4
<PAGE> 5
Section 2.4 Interest.
(a) Each Debenture will bear interest at the rate of 5.90% per
annum from February 16, 1999 until the Purchase Contract Settlement Date, and at
the Reset Rate thereafter, payable quarterly in arrears on the Interest Payment
Dates, which shall be February 19, May 19, August 19 and November 19 of each
year, commencing May 19, 1999.
(b) Interest not paid on the scheduled payment date will
accumulate and compound quarterly at the rate of 5.90% per annum until February
16, 2003, and at the Reset Rate thereafter.
(c) The Regular Record Dates for the Debentures shall be (i)
as long as the Debentures are represented by a Global Debenture, the Business
Day preceding each Interest Payment Date or (ii) if the Debentures are issued in
certificated form, the 15th Business Day prior to each Interest Payment Date.
(d) The interest rate on the Debentures outstanding on and
after the Purchase Contract Settlement Date will be reset on the third Business
Day preceding the Purchase Contract Settlement Date to the Reset Rate. The Reset
Rate will be equal to the rate per annum that results from the Remarketing,
provided that if a Failed Remarketing occurs, the Reset Rate will be equal to
(i) the Two-Year Benchmark Treasury Rate plus (ii) the Applicable Margin.
(e) The amount of interest payable on the Debentures for any
period will be computed (i) for any full quarterly period on the basis of a
360-day year of twelve 30-day months and (ii) for any period shorter than a full
quarterly period, on the basis of a 30-day month and, for any period less than a
month, on the basis of the actual number of days elapsed per 30-day month. In
the event that any date on which interest is payable on the Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next day that is a Business Day (and without interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
calendar year, then such payment will be made on the preceding Business Day.
Section 2.5 Redemption.
(a) If a Tax Event occurs and is continuing, Capital Markets
may, at its option and upon not less than 30 nor more than 60 days' notice to
the Holders of the Debentures, redeem the Debentures in whole (but not in part)
within 90 days following the occurrence of such Tax Event, at a price equal to,
for each Debenture, the Redemption Price. The Redemption Amount shall be paid
prior to 12:00 noon, New York City time, on the date of redemption (the "Tax
Event Redemption Date") or such earlier time as Capital Markets determines,
provided that Capital Markets shall have deposited with the Trustee an amount
sufficient to pay the Redemption Amount by 10:00 a.m. on the Tax Event
Redemption Date. Such redemption shall otherwise be in accordance with the
provisions of Article Eleven of the Indenture.
(b) Except as provided in Section 2.5(a), Capital Markets
will have no right to redeem the Debentures.
(c) The Debentures will not be subject to a sinking fund
provision.
5
<PAGE> 6
Section 2.6 Events of Default.
It shall be an Event of Default with respect to the Debentures
if the Trust shall have voluntarily or involuntarily dissolved, wound up its
business or otherwise terminated its existence except in connection with (i) the
distribution of the Securities held by the Trust to the holders of the Trust
Securities in liquidation of their interests in the Trust, (ii) the redemption
of all of the outstanding Trust Securities or (iii) a consolidation, conversion,
amalgamation, merger or other transaction involving the Trust that is permitted
under Section 3.15 of the Declaration.
Section 2.7 Paying Agent; Security Registrar.
If the Debentures are issued in certificated form, the Paying
Agent and the Security Registrar for the Debentures shall be the Corporate Trust
Office.
ARTICLE III
FORM OF DEBENTURE
SECTION 3.1. Form of Debenture.
The Debentures and the Trustee's Certificate of Authentication
to be endorsed thereon are to be substantially in the following forms:
(FORM OF FACE OF DEBENTURE)
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT: This Debenture is a
Global Security within the meaning of the Indenture hereinafter referred to and
is registered in the name of The Depository Trust Company, a New York
corporation (the "Depositary"), or a nominee of the Depositary. This Debenture
is exchangeable for Debentures registered in the name of a person other than the
Depositary or its nominee only in the limited circumstances described in the
Indenture, and no transfer of this Debenture (other than a transfer of this
Debenture as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary) may be registered except in limited circumstances.
Unless this Debenture is presented by an authorized representative of the
Depositary to the issuer or its agent for registration of transfer, exchange or
payment, and any Debenture issued is registered in the name of Cede & Co. or
such other name as requested by an authorized representative of the Depositary,
and any payment hereon is made to Cede & Co., or to such other entity as is
requested by an authorized representative of the Depositary), and, except as
otherwise provided in the Indenture, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered
owner hereof, Cede & Co., has an interest herein.]
6
<PAGE> 7
No. 1
------- --------
$355,700,000
CUSIP No. 654638 AC9
5.90% SENIOR DEBENTURE DUE 2005
NIPSCO Capital Markets, Inc., an Indiana corporation ("Capital
Markets", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to The
Chase Manhattan Bank, as Property trustee under the Declaration or registered
assigns, the principal sum of $355,700,000 Dollars on February 19, 2005, and to
pay interest on said principal sum from February 16, 1999, or from the most
recent interest payment date (each such date, an "Interest Payment Date") to
which interest has been paid or duly provided for, quarterly in arrears on
February 19, May 19, August 19 and November 19 of each year, commencing May 19,
1999, at the rate of 5.90% per annum until February 19, 2003, and at the Reset
Rate thereafter, until the principal hereof shall have become due and payable,
and on any overdue principal and premium, if any, and (without duplication and
to the extent that payment of such interest is enforceable under applicable law)
on any overdue installment of interest at the same rate per annum compounded
quarterly. The amount of interest payable for any period will be computed (1)
for any full quarterly period on the basis of a 360-day year of twelve 30-day
months and (2) for any period shorter than a full quarterly period, on the basis
of a 30-day month and, for any period less than a month, on the basis of the
actual number of days elapsed per 30-day month. In the event that any date on
which interest is payable is not a Business Day, then payment of the interest
payable on such date will be made on the next day that is a Business Day (and
without any interest or other payment in respect of such delay), except that, if
such Business Day is in the next calendar year, then such payment will be made
on the preceding Business Day. The interest installment so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture referred to on the reverse side hereof, be paid to the
person in whose name this Debenture (or one or more Predecessor Securities, as
defined in said Indenture) is registered at the close of business on the Regular
Record Date for such interest installment, which, if this Debenture is a Global
Security, shall be the close of business on the Business Day preceding such
Interest Payment Date or, if this Debenture is not a Global Security, shall be
the close of business on the 15th Business Day preceding such Interest Payment
Date; provided that interest paid at maturity shall be paid to the Person to
whom principal is paid. Any such interest installment not punctually paid or
duly provided for shall forthwith cease to be payable to the registered Holder
on such Regular Record Date and may be paid to the Person in whose name this
Debenture (or one or more Predecessor Securities) is registered at the close of
business on a special record date to be fixed by the Trustee referred to on the
reverse side hereof for the payment of such defaulted interest, notice whereof
shall be given to the registered Holders of the Debentures not less than 10 days
prior to such special record date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture. The principal of
and interest on this Debenture shall be payable at the office or agency of the
Trustee maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of Capital Markets by check mailed to the registered Holder at such
address as shall appear in the Security Register. Notwithstanding the foregoing,
so long as the Holder of this Debenture is the Property Trustee, the payment of
the principal of (and premium, if any) and interest on this Debenture will be
made at such place and to such account as may be designated by the Property
Trustee.
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This Debenture is, to the extent provided in the Indenture,
senior and unsecured and will rank in right of payment on a parity with all
other senior unsecured obligations of Capital Markets.
Unless the Certificate of Authentication hereon has been
executed by the Trustee, this Debenture shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose. The provisions of
this Debenture are continued on the reverse side hereof, and such continued
provisions shall for all purposes have the same effect as though fully set forth
at this place.
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IN WITNESS WHEREOF, Capital Markets has caused this instrument
to be executed.
NIPSCO CAPITAL MARKETS, INC
By:
----------------------------
Attest:
By:
------------------------------------
Secretary
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This is one of the Securities of the series referred to in the within-mentioned
Indenture.
Dated: THE CHASE MANHATTAN BANK, as Trustee
---------------------
By:
----------------------------
Authorized Officer
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This Debenture is one of a duly authorized series of
Securities of Capital Markets (herein sometimes referred to as the
"Debentures"), all issued under and pursuant to an Indenture dated as of
February 14, 1997, duly executed and delivered among NIPSCO Industries, Inc.
("Industries"), NIPSCO Capital Markets, Inc. ("Capital Markets") and The Chase
Manhattan Bank, as Trustee (the "Trustee"), as supplemented by the First
Supplemental Indenture thereto dated as of February 16, 1999, among Industries,
Capital Markets and the Trustee (such Indenture as so supplemented, the
"Indenture"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, Capital Markets,
Industries and the Holders of the Debentures. By the terms of the Indenture, the
Securities are issuable in series that may vary as to amount, date of maturity,
rate of interest and in other respects as provided in the Indenture. This series
of Securities is limited in aggregate principal amount to $355,700,000.
All terms used in this Debenture that are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
If a Tax Event occurs and is continuing, Capital Markets may,
at its option and upon not less than 30 nor more than 60 days' notice to the
Holders of the Debentures, redeem the Debentures in whole (but not in part)
within 90 days following the occurrence of such Tax Event at the Redemption
Price. The Redemption Price shall be paid prior to 12:00 noon, New York City
time, on the Tax Event Redemption Date, by check or wire transfer in immediately
available funds at such place and to such account as may be designated by each
such Holder.
The Debentures will not be subject to a sinking fund
provision.
In case an Event of Default shall have occurred and be
continuing, the principal of all of the Debentures may be declared, and upon
such declaration shall become, due and payable, in the manner, with the effect
and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting Capital Markets
and the Trustee, without the consent of any Holder, to execute supplemental
indentures modifying certain provisions of the Indenture and, with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Debentures and all other series of Securities affected at the time Outstanding,
as defined in the Indenture, to execute supplemental indentures for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or of modifying in
any manner the rights of the Holders of the Debentures; provided, however, that
no such supplemental indenture may, without the consent of the Holder of each
outstanding Debenture, among other things, (i) change the stated maturity of the
principal of, or any installment of interest on, any Debenture, (ii) reduce the
principal amount of, or the rate of interest on or any premium payable upon the
redemption of, the Debentures, (iii) impair the right to institute suit for the
enforcement of any such payment on or after the stated maturity of or any
redemption date for the Debentures or (iv) reduce the above-stated percentage of
principal amount of Debentures, the Holders of which are required to modify or
amend the Indenture, to consent to any waiver thereunder or to approve any
supplemental indenture. The Indenture also contains provisions permitting the
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Holders of a majority in aggregate principal amount of the Debentures at the
time Outstanding affected thereby, on behalf of all of the Holders of the
Debentures, to waive any past default in the performance of any of the covenants
contained in the Indenture, or established pursuant to the Indenture with
respect to the Debentures, and its consequences, except a default in the payment
of the principal of or interest on any of the Debentures (unless cured as
provided in the Indenture) or in respect of a covenant or provision that cannot
be modified or amended without the consent of the Holders of each Debenture then
Outstanding. Any such consent or waiver by the registered Holder of this
Debenture (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such Holder and upon all future Holders and owners of this
Debenture and of any Debenture issued in exchange herefor or in place hereof
(whether by registration of transfer or otherwise), irrespective of whether or
not any notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of Capital
Markets, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Debenture at the time and place and at the
rate and in the money herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, this Debenture is transferable by the registered
Holder hereof on the Security Register of Capital Markets, upon surrender of
this Debenture for registration of transfer at the office or agency of Capital
Markets in the City and State of New York accompanied by a written instrument or
instruments of transfer in form satisfactory to Capital Markets or the Trustee
duly executed by the registered Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Debentures of authorized denominations
and for the same aggregate principal amount will be issued to the designated
transferee or transferees. No service charge will be made for any such transfer,
but Capital Markets may require payment of a sum sufficient to cover any tax or
other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this
Debenture, Capital Markets, the Trustee, any paying agent and any Security
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Debenture shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the Security
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and premium, if any, and interest due hereon and for all other
purposes, and neither Capital Markets nor the Trustee nor any paying agent nor
any Security Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of
or the interest on this Debenture, or for any claim based hereon, or otherwise
in respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of Capital Markets or of any predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance hereof,
expressly waived and released.
The Indenture imposes certain limitations on the ability of
Capital Markets and Industries to, among other things, merge, consolidate or
sell, assign, transfer or lease all or substantially all of its properties or
assets. Such covenants and limitations are subject to a number of important
qualifications and exceptions. Capital Markets and Industries must report
periodically to the Trustee on compliance with the covenants in the Indenture.
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The Debentures of this series are issuable only in registered
form without coupons in denominations of $50 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, Debentures of this series so issued are exchangeable for a
like aggregate principal amount of Debentures of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
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ARTICLE IV
EXPENSES
Section 4.1 Payment of Expenses.
In connection with the offering, sale and issuance of the
Debentures to the Trust in connection with the sale of the Preferred Securities
by the Trust, Capital Markets will:
(a) pay for all costs and expenses relating to the offering,
sale and issuance of the Debentures, including compensation to the underwriters
payable pursuant to the Underwriting Agreement and compensation of the Trustee
under the Indenture in accordance with the provisions of Section 607 of the
Indenture; and
(b) pay for all costs and expenses of the Trust, including,
but not limited to, costs and expenses relating to the organization of the
Trust, the offering, sale and issuance of the Trust Securities (including
compensation to the underwriters payable pursuant to the Underwriting Agreement
in connection therewith); the fees and expenses of the Property Trustee
(including, without limitation, those incurred in connection with the
enforcement by the Property Trustee of the rights of the holders of the
Preferred Securities), the Delaware Trustee and the Regular Trustees; the costs
and expenses relating to the operation of the Trust (including, without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses); and
costs and expenses incurred in connection with the acquisition, financing and
disposition of Trust assets;
(c) be primarily liable for any indemnification
obligations arising with respect to the Declaration; and
(d) pay any and all taxes (other than United States
withholding taxes), duties, assessments or governmental charges of whatever
nature imposed on the Trust by the United States or any other taxing authority
and all liabilities, costs and expenses with respect to such taxes of the Trust.
ARTICLE V
COVENANTS
Section 5.1 Covenant to List on Exchange.
If the Debentures are distributed to the holders of the
Preferred Securities upon dissolution of the Trust, Industries and Capital
Markets will use their best efforts to list such Debentures on the New York
Stock Exchange or on such other exchange as the Preferred Securities are then
listed.
Section 5.2 Covenants in the Event of an Event of Default.
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If an Event of Default occurs and written notice of such event
has been given to Capital Markets, then neither Capital Markets nor Industries
may:
(a) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
its capital stock; or
(b) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities that rank on a parity
with or junior in interest to the Debentures or make any guarantee payments with
respect to any guarantee of the debt securities of any subsidiary of Capital
Markets or Industries if such guarantee ranks on a parity with or junior in
interest to the Debentures;
in each case, other than (i) purchases or acquisitions of capital stock of
Capital Markets or Industries in connection with the satisfaction by Capital
Markets or Industries of its obligations under any employee benefit plans or the
satisfaction by Capital Markets or Industries of its obligations pursuant to any
contract or security outstanding on the date of such event requiring Capital
Markets or Industries to purchase capital stock of Capital Markets or
Industries, (ii) as a result of a reclassification of Capital Markets' or
Industries' capital stock for another class or series of Capital Markets' or
Industries' capital stock, (iii) the purchase of fractional interests in shares
of Capital Markets' or Industries' capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of Capital Markets
or Industries, (v) redemptions or repurchases of any rights pursuant to a rights
agreement and (vi) payments under the Guarantee.
Section 5.3 Additional Covenants Relating to the Trust.
For as long as the Preferred Securities remain outstanding,
Capital Markets will:
(a) maintain, directly or indirectly, 100% ownership of
the Common Securities;
(b) cause the Trust to remain a statutory business trust
and not to voluntarily dissolve, wind up, liquidate or be terminated, except as
permitted by the Declaration;
(c) use its commercially reasonable efforts to ensure
that the Trust will not be an "investment company" required to be registered
under the Investment Company Act of 1940;
(d) not take any action that would be reasonably likely to
cause the Trust to be classified as an association or a publicly traded
partnership taxable as a corporation for United States federal income tax
purposes; and
(e) pay all of the debts and obligations of the Trust (other
than with respect to the securities issued by the Trust) and all costs and
expenses of the Trust (including, but not limited to, all costs and expenses
relating to the organization of the Trust, the fees and expenses of the trustees
and all costs and expenses relating to the operation of the Trust) and any and
all taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed on the Trust by the United States, or any other
taxing authority, so that the net amounts received and retained by the Trust
after paying such expenses will be equal to the amounts the Trust would have
received had no such costs or expenses been incurred by or imposed on the Trust.
The obligations of Capital Markets in Section 5.3(e) are for the benefit of, and
shall be enforceable by, any Person to whom any such debts, obligations, costs,
expenses and taxes are owed whether or not such Person has received notice
thereof. Any such Person may enforce such obligations of
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Capital Markets directly against Capital Markets, and Capital Markets
irrevocably waives any right or remedy to require that any such Person take any
action against the Trust or any other Person before proceeding against Capital
Markets.
Section 5.4 Additional Covenant Relating to the Guarantee.
If an event of default under the Guarantee occurs and written
notice of such event has been given to Capital Markets, then Capital Markets and
Industries will be subject to the limitations and restrictions set forth in
Section 5.2 relating to an Event of Default.
ARTICLE VI
ORIGINAL ISSUE OF DEBENTURES
Section 6.1 Original Issue of Debentures.
Debentures in an aggregate principal amount of up to
$355,700,000 may, upon execution of this First Supplemental Indenture, be
executed by Capital Markets and delivered to the Trustee for authentication, and
the Trustee shall thereupon authenticate and deliver said Debentures upon
receipt of a Company Order, without any further action by Industries or Capital
Markets.
ARTICLE VII
RIGHTS OF HOLDERS OF PREFERRED SECURITIES
Section 7.1 Preferred Security Holders' Rights.
Notwithstanding Section 507 of the Indenture, if the Property
Trustee fails to enforce its rights under the Debentures after a holder of
Preferred Securities has made a written request, the holder of Preferred
Securities may, to the fullest extent permitted by law, institute a legal
proceeding directly against Capital Markets to enforce the Property Trustee's
rights under the Indenture without first instituting any legal proceeding
against the Property Trustee or any other person or entity.
Section 7.2 Direct Action.
Notwithstanding any other provision of the Indenture, for as
long as any Preferred Securities remain outstanding, to the fullest extent
permitted by law, if an Event of Default has occurred and is continuing and such
event is attributable to the failure of Capital Markets to pay interest or
principal on the Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, the redemption date), then a holder of
Preferred Securities may institute a proceeding directly against Capital Markets
(a "Direct Action") to enforce payment to such holder of the principal or
interest on Debentures having an aggregate principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder.
Section 7.3 Payments Pursuant to Direct Actions.
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Capital Markets will have the right to set off against its
obligations to the Trust, as Holder of the Debentures, any payment made to a
holder of Preferred Securities in connection with a Direct Action.
ARTICLE VIII
REMARKETING
Section 8.1 Effectiveness of this Article.
This Article VIII will become effective only upon a
distribution of the Debentures upon dissolution of the Trust which occurs prior
to the Remarketing of the Preferred Securities pursuant to the Declaration.
Until such a distribution, or if such distribution occurs after the Remarketing
of the Preferred Securities pursuant to the Declaration, this Article VIII will
have no effect.
Section 8.2 Remarketing.
(a) Capital Markets shall request, not later than 15 nor more
than 30 calendar days prior to the Remarketing Date, that the Depositary notify
the Holders of the Debentures and the holders of the Corporate PIES of the
Remarketing and of the procedures that must be followed if a holder of Corporate
PIES wishes to make a Cash Settlement.
(b) Not later than 5:00 p.m., New York City time, on the
seventh Business Day preceding the Purchase Contract Settlement Date, each
Holder of Debentures may elect to have the Debentures held by such Holder
remarketed in the Remarketing. Under Section 5.4 of the Purchase Contract
Agreement, holders of Corporate PIES that do not give notice of their intention
to make a Cash Settlement of the Purchase Contract component of their Corporate
PIES prior to such time in the manner specified in such Section, or that give
such notice but fail to deliver cash prior to 11:00 a.m., New York City time, on
or prior to the fifth Business Day preceding the Purchase Contract Settlement
Date, shall be deemed to have consented to the disposition of the Debenture
component of their Corporate PIES in the Remarketing. Holders of Debentures that
are not a component of Corporate PIES wishing to have their Debentures
remarketed shall give to the Purchase Contract Agent notice of their election
prior to 11:00 a.m., New York City time, on such fifth Business Day. Any such
notice shall be irrevocable and may not be conditioned upon the level at which
the Reset Rate is established in the Remarketing. Promptly after 11:00 a.m., New
York City time, on such fifth Business Day, the Purchase Contract Agent, based
on the notices received by it prior to such time (including notices from the
Purchase Contract Agent as to Purchase Contracts for which Cash Settlement has
been elected and cash received), shall notify Capital Markets and the
Remarketing Agent of the amount of Debentures to be tendered for purchase in the
Remarketing.
(c) If any Holder of Debentures does not give a notice of its
intention to make a Cash Settlement or gives such notice but fails to deliver
cash as described in the foregoing subsection (b), or gives a notice of election
to have Debentures that are not a component of Corporate PIES remarketed, then
the Debentures of such Holder shall be deemed tendered for purchase in the
Remarketing, notwithstanding any failure by such Holder to deliver or properly
deliver such Debentures to the Remarketing Agent for purchase.
(d) The right of each Holder to have Debentures tendered for
purchase will be limited to the extent that (i) the Remarketing Agent conducts a
remarketing pursuant to the terms of the Remarketing Agreement, (ii) the
Debentures tendered have not been called for redemption, (iii) the Remarketing
Agent is able to find a purchaser or purchasers for the tendered Debentures and
(iv) such purchaser or purchasers deliver the purchase price therefor to the
Remarketing Agent.
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(e) On the Remarketing Date, the Remarketing Agent will use
commercially reasonable efforts to remarket, at a price equal to 100% of the
aggregate principal amount thereof, the Debentures tendered or deemed tendered
for purchase.
(f) If, as a result of the efforts described in the foregoing
subsection (e), the Remarketing Agent determines that it will be able to
remarket all of the Debentures tendered or deemed tendered for purchase at a
price of 100% of their aggregate principal amount prior to 4:00 p.m., New York
City time, on the Remarketing Date, the Remarketing Agent shall determine the
Reset Rate, which shall be the rate per annum (rounded to the nearest
one-thousandth (0.001) of one percent per annum) that the Remarketing Agent
determines, in its sole judgment, to be the lowest rate per annum that will
enable it to remarket all of the Debentures tendered or deemed tendered for
Remarketing.
(g) If none of the Holders of the Debentures or the holders of
the Corporate PIES elects to have Debentures remarketed in the Remarketing, the
Reset Rate shall be the rate determined by the Remarketing Agent, in its sole
discretion, as the rate that would have been established had a Remarketing been
held on the Remarketing Date.
(h) If, by 4:00 p.m., New York City time, on the Remarketing
Date, the Remarketing Agent is unable to remarket all of the Debentures tendered
or deemed tendered for purchase, a "Failed Remarketing" shall be deemed to have
occurred, and the Remarketing Agent shall so advise by telephone the Depositary,
the Debenture Trustee and Capital Markets. In the event of a Failed Remarketing,
the Reset Rate shall equal the Two-Year Benchmark Treasury Rate plus the
Applicable Margin.
(i) By approximately 4:30 p.m., New York City time, on the
Remarketing Date, provided that there has not been a Failed Remarketing, the
Remarketing Agent shall advise, by telephone (i) the Depositary, the Debenture
Trustee and Capital Markets of the Reset Rate determined in the Remarketing and
the amount of Debentures sold in the Remarketing, (ii) each purchaser (or the
Depositary participant thereof) of the Reset Rate and the amount of Debentures
such purchaser is to purchase and (iii) each purchaser to give instructions to
its Depositary participant to pay the purchase price on the Purchase Contract
Settlement Date in same day funds against delivery of the Debentures purchased
through the facilities of the Depositary.
(j) In accordance with the Depositary's normal procedures, on
the Purchase Contract Settlement Date, the transactions described above with
respect to each Debenture tendered for purchase and sold in the Remarketing
shall be executed through the Depositary, and the accounts of the respective
Depositary participants shall be debited and credited and such Debentures
delivered by book-entry as necessary to effect purchases and sales of such
Debentures. The Depositary shall make payment in accordance with its normal
procedures.
(k) If any Holder of Debentures selling Debentures in the
Remarketing fails to deliver such Debentures, the Depositary participant of such
selling holder and of any other Person that was to have purchased Debentures in
the Remarketing may deliver to any such other Person an amount of Debentures
that is less than the amount of Debentures that otherwise was to be purchased by
such Person. In such event, the amount of Debentures to be so delivered shall be
determined by such Depositary participant, and delivery of such lesser amount of
Debentures shall constitute good delivery.
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(l) The Remarketing Agent is not obligated to purchase any
Debentures that otherwise would remain unsold in the Remarketing. Neither
Capital Markets nor the Remarketing Agent shall be obligated in any case to
provide funds to make payment upon tender of the Debentures for Remarketing.
(m) Under the Remarketing Agreement, Capital Markets, in its
capacity as issuer of the Debentures, shall be liable for, and shall pay, any
and all costs and expenses incurred in connection with the Remarketing.
(n) The tender and settlement procedures set in this Section
8.2, including provisions for payment by purchasers of the Debentures in the
Remarketing, shall be subject to modification to the extent required by the
Depositary or if the book-entry system is no longer available for the Debentures
at the time of the Remarketing, to facilitate the tendering and remarketing of
the Debentures in certificated form. In addition, the Remarketing Agent may
modify the settlement procedures set forth herein in order to facilitate the
settlement process.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Ratification of Indenture.
The Indenture, as supplemented by this First Supplemental
Indenture, is in all respects ratified and confirmed, and this First
Supplemental Indenture shall be deemed part of the Indenture in the manner and
to the extent herein and therein provided.
SECTION 9.2. Trustee Not Responsible for Recitals.
The recitals herein contained are made by Industries and
Capital Markets and not by the Trustee, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no representation
as to the validity or sufficiency of this First Supplemental Indenture.
SECTION 9.3. Governing Law.
This First Supplemental Indenture and each Debenture shall be
deemed to be a contract made under the internal laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
SECTION 9.4. Severability.
In case any one or more of the provisions contained in this
First Supplemental Indenture or in the Debentures shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
First Supplemental Indenture or of the Debentures, but this First Supplemental
Indenture and the Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
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SECTION 9.5. Counterparts.
This First Supplemental Indenture may be executed in any
number of counterparts each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, on the date or dates indicated in the
acknowledgments and as of the day and year first above written.
NIPSCO INDUSTRIES, INC.
By: /s/ Gary L. Neale
-------------------------------------
Name: Gary L. Neale
Title: President, Chairman, and Chief
Attest: Executive Officer
/s/ Stephen P. Adik
- -----------------------------------
Name: Stephen P. Adik
Title: Executive Vice President, Chief
Financial Officer, and Treasurer
NIPSCO CAPITAL MARKETS, INC.
By: /s/ Stephen P. Adik
-------------------------------------
Name: Stephen P. Adik
Title: President
Attest:
/s/ Nina M. Rausch
- -----------------------------------
Name: Nina M. Rausch
Title: Secretary
THE CHASE MANHATTAN BANK, as Trustee
By: /s/ R. Lorenzen
-------------------------------------
Name: R. Lorenzen
Title: Senior Trust Officer
Attest:
/s/ William G. Keenan
- -----------------------------------
Name: William G. Keenan
Title: Trust Officer
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EXHIBIT 4.37
================================================================================
NIPSCO INDUSTRIES, INC.
AND
THE CHASE MANHATTAN BANK,
As Purchase Contract Agent
PURCHASE CONTRACT AGREEMENT
Dated as of February 16, 1999
================================================================================
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RECITALS .........................................................................................................1
ARTICLE I
Definitions and Other Provisions
of General Applications
Section 1.1. Definitions.................................................................................1
Section 1.2. Compliance Certificates and Opinions.......................................................11
Section 1.3. Form of Documents Delivered to Agent.......................................................12
Section 1.4. Acts of Holders; Record Dates..............................................................12
Section 1.5. Notices....................................................................................13
Section 1.6. Notice to Holders; Waiver..................................................................15
Section 1.7. Effect of Headings and Table of Contents...................................................15
Section 1.8. Successors and Assigns.....................................................................15
Section 1.9. Separability Clause........................................................................15
Section 1.10. Benefits of Agreement......................................................................15
Section 1.11. Governing Law..............................................................................16
Section 1.12. Legal Holidays.............................................................................16
Section 1.13. Counterparts...............................................................................16
Section 1.14. Inspection of Agreement....................................................................16
ARTICLE II
Certificate Forms
Section 2.1. Forms of Certificates Generally............................................................16
Section 2.2. Form of Agent's Certificate of Authentication..............................................18
ARTICLE III
The Securities
Section 3.1. Amount; Form and Denominations.............................................................18
Section 3.2. Rights and Obligations Evidenced by the Certificates.......................................18
Section 3.3. Execution, Authentication, Delivery and Dating.............................................19
Section 3.4. Temporary Certificates.....................................................................20
Section 3.5. Registration; Registration of Transfer and Exchange........................................20
Section 3.6. Book-Entry Interests.......................................................................21
Section 3.7. Notices to Holders.........................................................................22
Section 3.8. Appointment of Successor Clearing Agency...................................................22
Section 3.9. Definitive Certificates....................................................................22
Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates.........................................23
Section 3.11. Persons Deemed Owners......................................................................24
Section 3.12. Cancellation...............................................................................24
Section 3.13. Substitution of Securities.................................................................25
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Section 3.14. Reestablishment of Corporate PIES..........................................................26
Section 3.15. Transfer of Collateral upon Occurrence of Termination Event................................28
Section 3.16. No Consent to Assumption...................................................................28
ARTICLE IV
The Preferred Securities
Section 4.1. Payment of Distribution; Rights to Distributions Preserved; Distribution Rate
Reset; Notice..............................................................................29
Section 4.2. Notice and Voting..........................................................................30
Section 4.3. Distribution of Debentures; Tax Event Redemption...........................................30
ARTICLE V
The Purchase Contracts
Section 5.1. Purchase of Shares of Common Stock.........................................................32
Section 5.2. Contract Adjustment Payments...............................................................33
Section 5.3. [Intentionally omitted]....................................................................34
Section 5.4. Payment of Purchase Price..................................................................34
Section 5.5. Issuance of Shares of Common Stock.........................................................37
Section 5.6. Adjustment of Settlement Rate..............................................................38
Section 5.7. Notice of Adjustments and Certain Other Events.............................................43
Section 5.8. Termination Event; Notice..................................................................43
Section 5.9. Early Settlement...........................................................................44
Section 5.10. No Fractional Shares.......................................................................45
Section 5.11. Charges and Taxes..........................................................................46
ARTICLE VI
Remedies
Section 6.1. Unconditional Right of Holders to Receive Contract Adjustment Payments and
to Purchase Common Stock...................................................................46
Section 6.2. Restoration of Rights and Remedies.........................................................46
Section 6.3. Rights and Remedies Cumulative.............................................................46
Section 6.4. Delay or Omission Not Waiver...............................................................47
Section 6.5. Undertaking for Costs......................................................................47
Section 6.6. Waiver of Stay or Extension Laws...........................................................47
ARTICLE VII
The Agent
Section 7.1. Certain Duties and Responsibilities........................................................48
Section 7.2. Notice of Default..........................................................................49
Section 7.3. Certain Rights of Agent....................................................................49
Section 7.4. Not Responsible for Recitals or Issuance of Securities.....................................50
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Section 7.5. May Hold Securities........................................................................50
Section 7.6. Money Held in Custody......................................................................50
Section 7.7. Compensation and Reimbursement.............................................................50
Section 7.8. Corporate Agent Required; Eligibility......................................................51
Section 7.9. Resignation and Removal; Appointment of Successor..........................................51
Section 7.10. Acceptance of Appointment by Successor.....................................................52
Section 7.11. Merger, Conversion, Consolidation or Succession to Business................................52
Section 7.12. Preservation of Information; Communications to Holders.....................................53
Section 7.13. No Obligations of Agent....................................................................53
Section 7.14. Tax Compliance.............................................................................53
ARTICLE VIII
Supplemental Agreements
Section 8.1. Supplemental Agreements Without Consent of Holders.........................................54
Section 8.2. Supplemental Agreements With Consent of Holders............................................54
Section 8.3. Execution of Supplemental Agreements.......................................................56
Section 8.4. Effect of Supplemental Agreements..........................................................56
Section 8.5. Reference to Supplemental Agreements.......................................................56
ARTICLE IX
Consolidation, Merger, Sale or Conveyance
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey Property Except Under
Certain Conditions.........................................................................56
Section 9.2. Rights and Duties of Successor Corporation.................................................57
Section 9.3. Opinion of Counsel Given to Agent..........................................................57
ARTICLE X
Covenants
Section 10.1. Performance Under Purchase Contracts.......................................................57
Section 10.2. Maintenance of Office or Agency............................................................57
Section 10.3. Company to Reserve Common Stock............................................................58
Section 10.4. Covenants as to Common Stock...............................................................58
Section 10.5. Statements of Officers of the Company as to Default........................................58
Section 10.6. ERISA......................................................................................59
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EXHIBIT A Form of Corporate PIES Certificate
EXHIBIT B Form of Treasury PIES Certificate
EXHIBIT C Instruction to Purchase Contract Agent
EXHIBIT D Notice from Purchase Contract Agent to Holders (Transfer of
Collateral upon Occurrence of a Termination Event)
EXHIBIT E Notice to Settle by Separate Cash
EXHIBIT F Notice from Purchase Contract Agent to Collateral Agent and
Indenture Trustee (Payment of Purchase Contract Settlement Price)
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PURCHASE CONTRACT AGREEMENT, dated as of February 16, 1999, between NIPSCO
INDUSTRIES, INC., an Indiana corporation (the "Company"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, acting as purchase contract
agent for the Holders of Securities from time to time (the "Agent").
RECITALS
The Company has duly authorized the execution and delivery of this
Agreement and the Certificates evidencing the Securities.
All things necessary to make the Purchase Contracts, when the Certificates
are executed by the Company and authenticated, executed on behalf of the Holders
and delivered by the Agent, as provided in this Agreement, the valid obligations
of the Company, and to constitute these presents a valid agreement of the
Company, in accordance with its terms, have been done.
W I T N E S S E T H :
- - - - - - - - - -
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed as follows:
ARTICLE I
Definitions and Other Provisions
of General Applications
Section 1.1. Definitions.
For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular, and nouns and
pronouns of the masculine gender include the feminine and neuter genders;
(b) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
the United States;
(c) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section, Exhibit or other subdivision;
<PAGE> 7
(d) the following terms have the meanings given to them in the Declaration:
(i) Applicable Ownership Interest; (ii) Applicable Principal Amount; (iii)
Authorized Newspaper; (iv) Guarantee; (v) Primary Treasury Dealer; (vi)
Quotation Agent; (vii) Redemption Amount; (viii) Redemption Price; (ix)
Remarketing; (x) Reset Rate; (xi) Tax Event; (xii) Tax Event Redemption; (xiii)
Tax Event Redemption Date; (xiv) Two-Year Benchmark Treasury Rate; (xv) Treasury
Portfolio; and (xvi) Treasury Portfolio Purchase Price; and
(e) the following terms have the meanings given to them in this Section
1.1(e):
"Act," when used with respect to any Holder, has the meaning specified in
Section 1.4.
"Adjusted Contract Adjustment Payment Rate," with respect to any Reset
Transaction, means the rate per annum that is the arithmetic average of the
rates quoted by two Reference Dealers selected by the Company or its successor
as the rate at which Contract Adjustment Payments should accrue so that the fair
market value, expressed in dollars, of a Corporate PIES immediately after the
later of (i) public announcement of such Reset Transaction or (ii) public
announcement of a change in dividend policy in connection with such Reset
Transaction will equal the average Trading Price of a Corporate PIES for the 20
Trading Days immediately preceding the date of public announcement of such Reset
Transaction; provided that the Adjusted Contract Adjustment Payment Rate shall
not be less than 1.85% per annum.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means the Person named as the "Agent" in the first paragraph of
this instrument until a successor Agent shall have become such pursuant to the
applicable provisions of this Agreement, and thereafter "Agent" shall mean such
Person.
"Agreement" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more agreements supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Applicable Market Value" has the meaning specified in Section 5.1.
"Bankruptcy Code" means title 11 of the United States Code, or any other
law of the United States that from time to time provides a uniform system of
bankruptcy laws.
"Beneficial Owner" means, with respect to a Global Certificate, a Person
who is the beneficial owner of such Book-Entry Interest as reflected on the
books of the Clearing Agency or on the books of a Person maintaining an account
with such Clearing Agency (directly as a Clearing Agency Participant or as an
indirect participant, in each case in accordance with the rules of such Clearing
Agency).
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"Board of Directors" means the board of directors of the Company or a duly
authorized committee of that board.
"Board Resolution" means one or more resolutions of the Board of Directors,
a copy of which has been certified by the Secretary or an Assistant Secretary of
the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification and delivered to the
Agent.
"Book-Entry Interest" means a beneficial interest in a Global Certificate,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 3.6.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in The City of New York are authorized or required by
law or executive order to remain closed or a day on which the Indenture Trustee,
or the principal office of the Property Trustee under the Declaration, is closed
for business; provided that for purposes of the second paragraph of Section 1.12
only, the term "Business Day" shall also be deemed to exclude any day on which
trading on the New York Stock Exchange, Inc. is closed or suspended.
"Cash Settlement" has the meaning set forth in Section 5.4(a)(i).
"Certificate" means a Corporate PIES Certificate or a Treasury PIES
Certificate.
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as a depositary for
the Securities and in whose name, or in the name of a nominee of that
organization, shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time the Clearing Agency
effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Price" has the meaning specified in Section 5.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning specified in the Pledge Agreement.
"Collateral Account" has the meaning specified in the Pledge Agreement.
"Collateral Agent" means The First National Bank of Chicago, as Collateral
Agent under the Pledge Agreement until a successor Collateral Agent shall have
become such pursuant to the applicable provisions of the Pledge Agreement, and
thereafter "Collateral Agent" shall mean the Person who is then the Collateral
Agent thereunder.
"Collateral Substitution" has the meaning specified in Section 3.13.
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<PAGE> 9
"Common Stock" means the Common Shares, without par value, of the Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor shall have become such pursuant to the
applicable provision of this Agreement, and thereafter "Company" shall mean such
successor.
"Contract Adjustment Payments" means, (a) if a Reset Transaction has not
occurred, the fee payable by the Company in respect of each Purchase Contract,
equal to 1.85% per annum of the Stated Amount, or (b) following the occurrence
of a Reset Transaction, the Adjusted Contract Adjustment Payment Rate related to
such Reset Transaction until any succeeding Reset Transaction shall occur,
computed (i) for any full quarterly period on the basis of a 360-day year of
twelve 30-day months and (ii) for any period shorter than a full quarterly
period for which such payments are calculated, on the basis of a 30-day month
and, for periods of less than a month, the actual number of days elapsed per
30-day month.
"Corporate PIES" means the collective rights and obligations of a Holder of
a Corporate PIES Certificate in respect of a Preferred Security, the Debentures
or an appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, subject in each case to the Pledge thereof, and the related
Purchase Contract; provided that the appropriate Applicable Ownership Interest
(as specified in clause (B) of the definition of such term) of the Treasury
Portfolio shall not be subject to the Pledge.
"Corporate PIES Certificate" means a certificate evidencing the rights and
obligations of a Holder in respect of the number of Corporate PIES specified on
such certificate.
"Corporate PIES Register" and "Corporate PIES Registrar" have the
respective meanings specified in Section 3.5.
"Corporate Trust Office" means the principal corporate trust office of the
Agent at which, at any particular time, its corporate trust business shall be
administered, which office at the date hereof is located at 450 West 33rd St.,
New York, New York, 10001 Attention: Corporate Trust Group.
"Coupon Rate" means the percentage rate per annum at which each Debenture
will bear interest initially.
"Current Market Price" has the meaning specified in Section 5.6(a)(8).
"Debentures" means the series of debentures to be issued by the Finance
Subsidiary under the Indenture and held by the Property Trustee.
"Declaration" means the Amended and Restated Declaration of Trust of NIPSCO
Capital Trust I, dated as of February 16, 1999, among the Finance Subsidiary, as
the sponsor, the trustees named therein and the holders from time to time of
undivided beneficial interests in the assets of the Trust.
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"Depositary" means DTC until another Clearing Agency becomes its successor.
"Dividend Yield," on any security for any period, means the dividends paid
or proposed to be paid pursuant to an announced dividend policy on such security
for such period divided by, if with respect to dividends paid on such security,
the average Closing Price of such security during such period and, if with
respect to dividends so proposed to be paid on such security, the Closing Price
of such security on the effective date of the related Reset Transaction.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Early Settlement" has the meaning specified in Section 5.9(a).
"Early Settlement Amount" has the meaning specified in Section 5.9(a).
"Early Settlement Date" has the meaning specified in Section 5.9(a).
"Early Settlement Rate" has the meaning specified in Section 5.9(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time, and the rules and
regulations promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.4.
"Expiration Time" has the meaning specified in Section 5.6(a)(6).
"Finance Subsidiary" means NIPSCO Capital Markets, Inc., an Indiana
corporation, until a successor shall have become such pursuant to the Indenture,
and thereafter "Finance Subsidiary" shall mean such successor.
"Global Certificate" means a Certificate that evidences all or part of the
Securities and is registered in the name of a Clearing Agency or a nominee
thereof.
"Holder," when used with respect to a Security, means the Person in whose
name the Security evidenced by a Corporate PIES Certificate and/or a Treasury
PIES Certificate is registered in the related Corporate PIES Register and/or the
Treasury PIES Register, as the case may be; provided, however, that in
determining whether the Holders of the requisite number of Corporate PIES and/or
Treasury PIES have voted on any matter, then for the purpose of such
determination only (and not for any other purpose hereunder), if the Security
remains in the form of one or more Global Certificates and if the Clearing
Agency which is the holder of such Global Certificate has sent an omnibus proxy
assigning voting rights to the Clearing Agency Participants to whose accounts
the Securities are credited on the record date, the term "Holder" shall mean
such Clearing Agency Participant acting at the direction of the Beneficial
Owners.
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"Indenture" means the Indenture, dated as of February 14, 1997, between the
Finance Subsidiary, the Company and the Indenture Trustee, as amended and
supplemented (including any provisions of the TIA that are deemed incorporated
therein), pursuant to which the Debentures are to be issued.
"Indenture Trustee" means The Chase Manhattan Bank, a New York banking
corporation, as trustee under the Indenture, or any successor thereto.
"Issuer Order" or "Issuer Request" means a written request or order signed
in the name of the Company by its Chairman of the Board, its President or one of
its Vice Presidents, and by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Agent.
"NYSE" has the meaning specified in Section 5.1.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, its President or one of its Vice Presidents, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company,
and delivered to the Agent. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Agreement shall
include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company (and who may be an employee of the Company), and who shall be
reasonably acceptable to the Agent. An opinion of counsel may rely on
certificates as to matters of fact.
"Outstanding Securities," with respect to any Corporate PIES or Treasury
PIES, means, as of the date of determination, all Corporate PIES or Treasury
PIES evidenced by Certificates theretofore authenticated, executed and delivered
under this Agreement, except:
(i) If a Termination Event has occurred, (A) Treasury PIES and
(B) Corporate PIES for which the underlying Preferred Securities or
Debentures or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, has been theretofore deposited
with the Agent in trust for the Holders of such Corporate PIES;
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<PAGE> 12
(ii) Corporate PIES and Treasury PIES evidenced by
Certificates theretofore cancelled by the Agent or delivered to the
Agent for cancellation or deemed cancelled pursuant to the provisions
of this Agreement; and
(iii) Corporate PIES and Treasury PIES evidenced by
Certificates in exchange for or in lieu of which other Certificates
have been authenticated, executed on behalf of the Holder and delivered
pursuant to this Agreement, other than any such Certificate in respect
of which there shall have been presented to the Agent proof
satisfactory to it that such Certificate is held by a bona fide
purchaser in whose hands the Corporate PIES or Treasury PIES evidenced
by such Certificate are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
number of the Corporate PIES or Treasury PIES have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Corporate PIES or
Treasury PIES owned by the Company or any Affiliate of the Company shall be
disregarded and deemed not to be Outstanding Securities, except that, in
determining whether the Agent shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Corporate PIES or Treasury PIES which a Responsible Officer of the Agent knows
to be so owned shall be so disregarded. Corporate PIES or Treasury PIES so owned
which have been pledged in good faith may be regarded as Outstanding Securities
if the pledgee establishes to the satisfaction of the Agent the pledgee's right
so to act with respect to such Corporate PIES or Treasury PIES and that the
pledgee is not the Company or any Affiliate of the Company.
"Payment Date" means each February 19, May 19, August 19 and November 19,
commencing May 19, 1999.
"Permitted Investments" has the meaning set forth in Section 1 of the
Pledge Agreement.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company, limited
liability company, trust, unincorporated organization or government or any
agency or political subdivision thereof or any other entity of whatever nature.
"PIES" means the collective reference to the Corporate PIES and the
Treasury PIES.
"Plan" means an employee benefit plan that is subject to ERISA, a plan or
individual retirement account that is subject to Section 4975 of the Code or any
entity whose assets are considered assets of any such plan.
"Pledge" means the pledge under the Pledge Agreement of the Preferred
Securities, the Debentures, the Treasury Securities or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, in each case constituting a part of the
Securities.
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<PAGE> 13
"Pledge Agreement" means the Pledge Agreement, dated as of the date hereof,
by and among the Company, the Collateral Agent, the Securities Intermediary and
the Agent, on its own behalf and as attorney-in-fact for the Holders from time
to time of the Securities.
"Pledged Debentures" has the meaning set forth in the Pledge Agreement.
"Pledged Preferred Securities" has the meaning set forth in the Pledge
Agreement.
"Predecessor Certificate" means a Predecessor Corporate PIES Certificate or
a Predecessor Treasury PIES Certificate.
"Predecessor Corporate PIES Certificate" of any particular Corporate PIES
Certificate means every previous Corporate PIES Certificate evidencing all or a
portion of the rights and obligations of the Company and the Holder under the
Corporate PIES evidenced thereby; and, for the purposes of this definition, any
Corporate PIES Certificate authenticated and delivered under Section 3.10 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Corporate PIES
Certificate shall be deemed to evidence the same rights and obligations of the
Company and the Holder as the mutilated, destroyed, lost or stolen Corporate
PIES Certificate.
"Predecessor Treasury PIES Certificate" of any particular Treasury PIES
Certificate means every previous Treasury PIES Certificate evidencing all or a
portion of the rights and obligations of the Company and the Holder under the
Treasury PIES evidenced thereby; and, for the purposes of this definition, any
Treasury PIES Certificate authenticated and delivered under Section 3.10 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Treasury PIES
Certificate shall be deemed to evidence the same rights and obligations of the
Company and the Holder as the mutilated, destroyed, lost or stolen Treasury PIES
Certificate.
"Preferred Securities" means the Preferred Securities of the Trust, each
having a stated liquidation amount of $50, representing preferred undivided
beneficial interests in the assets of the Trust.
"Proceeds" has the meaning set forth in Section 1 of the Pledge Agreement.
"Property Trustee" means The Chase Manhattan Bank, as property trustee
under the Declaration, or any successor thereto that is a financial institution
unaffiliated with the Company.
"Purchase Contract," when used with respect to any Security, means the
contract forming a part of such Security and obligating the Company to (i) sell
and the Holder of such Security to purchase Common Stock and (ii) pay the Holder
Contract Adjustment Payments, if any, on the terms and subject to the conditions
set forth in Article Five hereof.
"Purchase Contract Settlement Date" means February 19, 2003.
"Purchase Contract Settlement Fund" has the meaning specified in Section
5.5.
"Purchase Price" has the meaning specified in Section 5.1.
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<PAGE> 14
"Purchased Shares" has the meaning specified in Section 5.6(a)(6).
"Record Date" for the Contract Adjustment Payments payable on any Payment
Date means, as to any Global Certificate, the Business Day next preceding such
Payment Date, and as to any other Certificate, a day selected by the Company
which shall be more than one Business Day but less than 60 Business Days prior
to such Payment Date.
"Reference Dealer" means a dealer engaged in the trading of convertible
securities.
"Register" means the Corporate PIES Register and the Treasury PIES
Register.
"Registrar" means the Corporate PIES Registrar and the Treasury PIES
Registrar.
"Remarketing Agent" has the meaning specified in Section 5.4(b).
"Remarketing Agreement" means the Remarketing Agreement dated as of
February 16, 1999 by and between the Company, the Finance Subsidiary, the Trust
and the Remarketing Agent.
"Reorganization Event" has the meaning specified in Section 5.6(b).
"Reset Transaction" means a merger, consolidation or statutory share
exchange to which the Person that is the issuer of the common stock for which
the Purchase Contracts are then to be settled is a party, a sale of all or
substantially all assets of such Person, a recapitalization of such common stock
or a distribution described in Section 5.6(a)(4) by such Person, after the
effective date of which the Purchase Contracts are then to be settled for shares
of a Person (i) the common stock of which had a Dividend Yield for the four
fiscal quarters immediately preceding the public announcement thereof which was,
or (ii) that announces a dividend policy prior to the effective date thereof
which policy, if implemented, would result in a Dividend Yield on such common
stock for the next four fiscal quarters which would be, more than 250 basis
points higher than the Dividend Yield on the common stock for which the Purchase
Contracts are to be settled prior to such effective date for the four fiscal
quarters immediately preceding such public announcement.
"Responsible Officer," when used with respect to the Agent, means any
officer of the Agent assigned by the Agent to administer its corporate trust
matters.
"Security" means a Corporate PIES or a Treasury PIES.
"Securities Intermediary" means The First National Bank of Chicago, as
Securities Intermediary under the Pledge Agreement until a successor Securities
Intermediary shall have become such pursuant to the applicable provisions of the
Pledge Agreement, and thereafter "Securities Intermediary" shall mean such
successor.
"Settlement Rate" has the meaning specified in Section 5.1.
"Stated Amount" means $50.
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<PAGE> 15
"Termination Date" means the date, if any, on which a Termination Event
occurs.
"Termination Event" means the occurrence of any of the following events:
(i) at any time on or prior to the Purchase Contract Settlement Date, a
judgment, decree or court order shall have been entered granting relief under
the Bankruptcy Code, adjudicating the Company to be insolvent, or approving as
properly filed a petition seeking reorganization or liquidation of the Company
or any other similar applicable Federal or State law, and, unless such judgment,
decree or order shall have been entered within 60 days prior to the Purchase
Contract Settlement Date, such decree or order shall have continued undischarged
and unstayed for a period of 60 days; or (ii) a judgment, decree or court order
for the appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of the Company or of its property, or for the winding
up or liquidation of its affairs, shall have been entered, and, unless such
judgment, decree or order shall have been entered within 60 days prior to the
Purchase Contract Settlement Date, such judgment, decree or order shall have
continued undischarged and unstayed for a period of 60 days; or (iii) at any
time on or prior to the Purchase Contract Settlement Date, the Company shall
file a petition for relief under the Bankruptcy Code, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or answer
or consent seeking reorganization or liquidation under the Bankruptcy Code or
any other similar applicable Federal or State law, or shall consent to the
filing of any such petition, or shall consent to the appointment of a receiver
or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its
property, or shall make an assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts generally as they become due.
"Threshold Appreciation Price" has the meaning specified in Section 5.1.
"TIA" means the Trust Indenture Act of 1939, as amended from time to time,
or any successor legislation.
"Trading Day" has the meaning specified in Section 5.1.
"Trading Price" of a security on any date of determination means (i) the
closing sale price (or, if no closing price is reported, the last reported sale
price) of a security (regular way) on the NYSE on such date, (ii) if such
security is not listed for trading on the NYSE on any such date, the closing
sale price as reported in the composite transactions for the principal United
States securities exchange on which such security is so listed, (iii) if such
security is not so listed on a United States national or regional securities
exchange, the closing sale price as reported by the NASDAQ Stock Market, Inc.,
(iv) if such security is not so reported, the price quoted by Interactive Data
Corporation for such security or, if Interactive Data Corporation is not quoting
such price, a similar quotation service selected by the Company, (v) if such
security is not so quoted, the average of the mid-point of the last bid and ask
prices for such security from at least two dealers recognized as market-makers
for such security, or (vi) if such security is not so quoted, the average of the
last bid and ask prices for such security from a Reference Dealer.
"Treasury PIES" means, following the substitution of one or more Treasury
Securities for Preferred Securities, Debentures or for the Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, as the case may be, as collateral to
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<PAGE> 16
secure a holder's obligations under a Purchase Contract, the collective rights
and obligations of a Holder of a Treasury PIES Certificate in respect of such
Treasury Securities, subject in each case to the Pledge thereof, and the related
Purchase Contract.
"Treasury PIES Certificate" means a certificate evidencing the rights and
obligations of a Holder in respect of the number of Treasury PIES specified on
such certificate.
"Treasury PIES Register" and "Treasury PIES Registrar" have the respective
meanings specified in Section 3.5.
"Treasury Security" means zero-coupon U.S. Treasury Securities (Cusip
Number 912820BF3) which are the principal strip of the 6.25% U. S. Treasury
Securities which mature on February 15, 2003.
"Trust" means NIPSCO Capital Trust I, a statutory business trust formed
under the laws of the State of Delaware, or any successor thereto by merger or
consolidation.
"Underwriting Agreement" means the Underwriting Agreement dated February 9,
1999 among the Company, the Trust, the Finance Subsidiary and Lehman Brothers
Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated.
"Vice President" means any vice president, whether or not designated by a
number or a word or words added before or after the title "vice president."
Section 1.2. Compliance Certificates and Opinions.
Except as otherwise expressly provided by this Agreement, upon any
application or request by the Company to the Agent to take any action in
accordance with any provision of this Agreement, the Company shall furnish to
the Agent an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Agreement relating to the proposed action have been
complied with and, if requested by the Agent, an Opinion of Counsel stating
that, in the opinion of such counsel, all such conditions precedent, if any,
have been complied with, except that in the case of any such application or
request as to which the furnishing of such documents is specifically required by
any provision of this Agreement relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Agreement shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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<PAGE> 17
(3) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Agent.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 1.4. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Agent and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
and (subject to Section 7.1) conclusive in favor of the Agent and the Company,
if made in the manner provided in this Section.
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<PAGE> 18
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved in any manner which the Agent deems sufficient.
(c) The ownership of Securities shall be proved by the Corporate PIES
Register or the Treasury PIES Register, as the case may be.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Certificate shall bind every future Holder of
the same Certificate and the Holder of every Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Agent or the
Company in reliance thereon, whether or not notation of such action is made upon
such Certificate.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Agreement to be given, made or taken by
Holders of Securities. If any record date is set pursuant to this paragraph, the
Holders of the Outstanding Corporate PIES and the Outstanding Treasury PIES, as
the case may be, on such record date, and no other Holders, shall be entitled to
take the relevant action with respect to the Corporate PIES or the Treasury
PIES, as the case may be, whether or not such Holders remain Holders after such
record date; provided that no such action shall be effective hereunder unless
taken on or prior to the applicable Expiration Date by Holders of the requisite
number of Outstanding Securities on such record date. Nothing in this paragraph
shall be construed to prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and be of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite number of Outstanding Securities on the date such action is
taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Agent in writing and to each Holder of Securities in the manner set forth in
Section 1.6.
With respect to any record date set pursuant to this Section, the Company
may designate any date as the "Expiration Date" and from time to time may change
the Expiration Date to any earlier or later day; provided that no such change
shall be effective unless notice of the proposed new Expiration Date is given to
the Agent in writing, and to each Holder of Securities in the manner set forth
in Section 1.6, on or prior to the existing Expiration Date. If an Expiration
Date is not designated with respect to any record date set pursuant to this
Section, the Company shall be deemed to have initially designated the 180th day
after such record date as the Expiration Date with respect thereto, subject to
its right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date.
Section 1.5. Notices.
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<PAGE> 19
Any notice or communication is duly given if in writing and delivered in
Person or mailed by first class mail (registered or certified, return receipt
requested), telecopier (with receipt confirmed) or overnight air courier
guaranteeing next day delivery, to the others' address; provided that notice
shall be deemed given to the Agent only upon receipt thereof:
If to the Agent:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Telecopier No.: 212-946-8159
Attention: Corporate Trust Group
If to the Company:
NIPSCO Industries, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
Telecopier No.:
Attention:
If to the Collateral Agent:
The First National Bank of Chicago
1 First National Plaza, Suite 0126
Chicago, Illinois 60670
Telecopier No.: 312-407-1708
Attention: Corporate Trust Administration Department
If to the Property Trustee:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Telecopier No.: 212-946-8159
Attention: Corporate Trust Group
If to the Indenture Trustee:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Telecopier No.: 212-946-8159
Attention: Corporate Trust Group
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<PAGE> 20
Section 1.6. Notice to Holders; Waiver.
Where this Agreement provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at its address as it appears in the applicable Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Agreement provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Agent, but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Agent shall constitute a
sufficient notification for every purpose hereunder.
Section 1.7. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.8. Successors and Assigns.
All covenants and agreements in this Agreement by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 1.9. Separability Clause.
In case any provision in this Agreement or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof and thereof shall not in any way be affected or
impaired thereby.
Section 1.10. Benefits of Agreement.
Nothing in this Agreement or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and, to the extent provided hereby, the Holders, any benefits or any legal or
equitable right, remedy or claim under this Agreement. The Holders from time to
time shall be beneficiaries of this Agreement and shall be bound by all of the
terms and conditions hereof and of the Securities evidenced by their
Certificates by their acceptance of delivery of such Certificates.
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<PAGE> 21
Section 1.11. Governing Law.
This Agreement and the Securities shall be governed by and construed
in accordance with the laws of the State of New York.
Section 1.12. Legal Holidays.
In any case where any Payment Date shall not be a Business Day, then
(notwithstanding any other provision of this Agreement or the Corporate PIES
Certificates or the Treasury PIES Certificates) payment of the Contract
Adjustment Payments, if any, shall not be made on such date, but such payments
shall be made on the next succeeding Business Day with the same force and effect
as if made on such Payment Date, provided that no interest shall accrue or be
payable by the Company or any Holder for the period from and after any such
Payment Date, except that, if such next succeeding Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day with the same force and effect as if made on such Payment
Date.
In any case where any Purchase Contract Settlement Date shall not be a
Business Day, then (notwithstanding any other provision of this Agreement, the
Corporate PIES Certificates or the Treasury PIES Certificates) Purchase
Contracts shall not be performed on such date, but the Purchase Contracts shall
be performed on the immediately following Business Day with the same force and
effect as if performed on the Purchase Contract Settlement Date.
Section 1.13. Counterparts.
This Agreement may be executed in any number of counterparts by the
parties hereto on separate counterparts, each of which, when so executed and
delivered, shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
Section 1.14. Inspection of Agreement.
A copy of this Agreement shall be available at all reasonable times
during normal business hours at the Corporate Trust Office for inspection by any
Holder or Beneficial Owner.
ARTICLE II
Certificate Forms
Section 2.1. Forms of Certificates Generally.
The Corporate PIES Certificates (including the form of Purchase
Contract forming part of the Corporate PIES evidenced thereby) shall be in
substantially the form set forth in Exhibit A hereto, with such letters, numbers
or other marks of identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Corporate PIES are listed or any depositary
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<PAGE> 22
therefor, or as may, consistently herewith, be determined by the officers of the
Company executing such Corporate PIES Certificates, as evidenced by their
execution of the Corporate PIES Certificates.
The definitive Corporate PIES Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing the
Corporate PIES evidenced by such Corporate PIES Certificates, consistent with
the provisions of this Agreement, as evidenced by their execution thereof.
The Treasury PIES Certificates (including the form of Purchase
Contracts forming part of the Treasury PIES evidenced thereby) shall be in
substantially the form set forth in Exhibit B hereto, with such letters, numbers
or other marks of identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Treasury PIES may be listed or any depositary
therefor, or as may, consistently herewith, be determined by the officers of the
Company executing such Treasury PIES Certificates, as evidenced by their
execution of the Treasury PIES Certificates.
The definitive Treasury PIES Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing the
Treasury PIES evidenced by such Treasury PIES Certificates, consistent with the
provisions of this Agreement, as evidenced by their execution thereof.
Every Global Certificate authenticated, executed on behalf of the
Holders and delivered hereunder shall bear a legend in substantially the
following form:
"THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED
IN THE NAME OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
(THE "DEPOSITARY"), OR A NOMINEE OF THE DEPOSITARY. THIS CERTIFICATE
IS EXCHANGEABLE FOR CERTIFICATES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT AND NO
TRANSFER OF THIS CERTIFICATE (OTHER THAN A TRANSFER OF THIS
CERTIFICATE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REQUESTED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS REGISTERED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS
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<PAGE> 23
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN."
Section 2.2. Form of Agent's Certificate of Authentication.
The form of the Agent's certificate of authentication of the Corporate
PIES shall be in substantially the form set forth on the form of the Corporate
PIES Certificates.
The form of the Agent's certificate of authentication of the Treasury
PIES shall be in substantially the form set forth on the form of the Treasury
PIES Certificates.
ARTICLE III
The Securities
Section 3.1. Amount; Form and Denominations.
The aggregate number of Securities evidenced by Certificates
authenticated, executed on behalf of the Holders and delivered hereunder is
limited to 6,900,000 except for Certificates authenticated, executed and
delivered upon registration of transfer of, in exchange for, or in lieu of,
other Certificates pursuant to Section 3.4, 3.5, 3.10, 3.13, 3.14, 5.9 or 8.5.
The Certificates shall be issuable only in registered form and only in
denominations of a single Corporate PIES or Treasury PIES and any integral
multiple thereof.
Section 3.2. Rights and Obligations Evidenced by the Certificates.
Each Corporate PIES Certificate shall evidence the number of Corporate
PIES specified therein, with each such Corporate PIES representing the ownership
by the Holder thereof of a beneficial interest in a Preferred Security, a
Debenture or the Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, subject to the Pledge of such Preferred Security, such Debenture or
the Applicable Ownership Interest (as specified in clause (A) of the definition
of such term) of the Treasury Portfolio, as the case may be, by such Holder
pursuant to the Pledge Agreement, and the rights and obligations of the Holder
thereof and the Company under one Purchase Contract. The Agent as
attorney-in-fact for, and on behalf of, the Holder of each Corporate PIES shall
pledge, pursuant to the Pledge Agreement, the Preferred Security, the Debenture
or the Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, forming
a part of such Corporate PIES, to the Collateral Agent and grant to the
Collateral Agent a security interest in the right, title and interest of such
Holder in such Preferred Security, such Debenture or the Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, as the case may be, for the benefit of the Company, to
secure the obligation of the Holder under each Purchase Contract to purchase the
Common Stock of the Company. Prior to the purchase of
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<PAGE> 24
shares of Common Stock under each Purchase Contract, such Purchase Contracts
shall not entitle the Holder of a Corporate PIES Certificate to any of the
rights of a holder of shares of Common Stock, including, without limitation, the
right to vote or receive any dividends or other payments or to consent or to
receive notice as a stockholder in respect of the meetings of stockholders or
for the election of directors of the Company or for any other matter, or any
other rights whatsoever as a stockholder of the Company.
Each Treasury PIES Certificate shall evidence the number of Treasury
PIES specified therein, with each such Treasury PIES representing the ownership
by the Holder thereof of a 1/20 undivided beneficial interest in a Treasury
Security with a principal amount equal to $1,000, subject to the Pledge of such
Treasury Security by such Holder pursuant to the Pledge Agreement, and the
rights and obligations of the Holder thereof and the Company under one Purchase
Contract. Prior to the purchase, if any, of shares of Common Stock under each
Purchase Contract, such Purchase Contract shall not entitle the Holder of a
Treasury PIES Certificate to any of the rights of a holder of shares of Common
Stock, including, without limitation, the right to vote or receive any dividends
or other payments or to consent or to receive notice as a stockholder in respect
of the meetings of stockholders or for the election of directors of the Company
or for any other matter, or any other rights whatsoever as a stockholder of the
Company.
Section 3.3. Execution, Authentication, Delivery and Dating.
Subject to the provisions of Sections 3.13 and 3.14 hereof, upon the
execution and delivery of this Agreement, and at any time and from time to time
thereafter, the Company may deliver Certificates executed by the Company to the
Agent for authentication, execution on behalf of the Holders and delivery,
together with its Issuer Order for authentication of such Certificates, and the
Agent in accordance with such Issuer Order shall authenticate, execute on behalf
of the Holders and deliver such Certificates.
The Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents. The
signature of any of these officers on the Certificates may be manual or
facsimile.
Certificates bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates.
No Purchase Contract evidenced by a Certificate shall be valid until
such Certificate has been executed on behalf of the Holder by the manual
signature of an authorized signatory of the Agent, as such Holder's
attorney-in-fact. Such signature by an authorized signatory of the Agent shall
be conclusive evidence that the Holder of such Certificate has entered into the
Purchase Contracts evidenced by such Certificate.
Each Certificate shall be dated the date of its authentication.
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<PAGE> 25
No Certificate shall be entitled to any benefit under this Agreement
or be valid or obligatory for any purpose unless there appears on such
Certificate a certificate of authentication substantially in the form provided
for herein executed by an authorized signatory of the Agent by manual signature,
and such certificate upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and delivered
hereunder.
Section 3.4. Temporary Certificates.
Pending the preparation of definitive Certificates, the Company shall
execute and deliver to the Agent, and the Agent shall authenticate, execute on
behalf of the Holders, and deliver, in lieu of such definitive Certificates,
temporary Certificates which are in substantially the form set forth in Exhibit
A or Exhibit B hereto, as the case may be, with such letters, numbers or other
marks of identification or designation and such legends or endorsements printed,
lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Corporate PIES or Treasury PIES are listed, or
as may, consistently herewith, be determined by the officers of the Company
executing such Certificates, as evidenced by their execution of the
Certificates.
If temporary Certificates are issued, the Company will cause
definitive Certificates to be prepared without unreasonable delay. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates upon surrender of the temporary
Certificates at the Corporate Trust Office, at the expense of the Company and
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Certificates, the Company shall execute and deliver to the Agent, and
the Agent shall authenticate, execute on behalf of the Holder, and deliver in
exchange therefor, one or more definitive Certificates of like tenor and
denominations and evidencing a like number of Corporate PIES or Treasury PIES,
as the case may be, as the temporary Certificate or Certificates so surrendered.
Until so exchanged, the temporary Certificates shall in all respects evidence
the same benefits and the same obligations with respect to the Corporate PIES or
Treasury PIES, as the case may be, evidenced thereby as definitive Certificates.
Section 3.5. Registration; Registration of Transfer and Exchange.
The Agent shall keep at the Corporate Trust Office a register (the
"Corporate PIES Register") in which, subject to such reasonable regulations as
it may prescribe, the Agent shall provide for the registration of Corporate PIES
Certificates and of transfers of Corporate PIES Certificates (the Agent, in such
capacity, the "Corporate PIES Registrar") and a register (the "Treasury PIES
Register") in which, subject to such reasonable regulations as it may prescribe,
the Agent shall provide for the registration of the Treasury PIES Certificates
and transfers of Treasury PIES Certificates (the Agent, in such capacity, the
"Treasury PIES Registrar").
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Company shall execute and deliver to the Agent, and
the Agent shall authenticate, execute on behalf of the designated transferee or
transferees, and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of any authorized
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<PAGE> 26
denominations, like tenor, and evidencing a like number of Corporate PIES or
Treasury PIES, as the case may be.
At the option of the Holder, Certificates may be exchanged for other
Certificates, of any authorized denominations and evidencing a like number of
Corporate PIES or Treasury PIES, as the case may be, upon surrender of the
Certificates to be exchanged at the Corporate Trust Office. Whenever any
Certificates are so surrendered for exchange, the Company shall execute and
deliver to the Agent, and the Agent shall authenticate, execute on behalf of the
Holder, and deliver the Certificates which the Holder making the exchange is
entitled to receive.
All Certificates issued upon any registration of transfer or exchange
of a Certificate shall evidence the ownership of the same number of Corporate
PIES or Treasury PIES, as the case may be, and be entitled to the same benefits
and subject to the same obligations, under this Agreement as the Corporate PIES
or Treasury PIES, as the case may be, evidenced by the Certificate surrendered
upon such registration of transfer or exchange.
Every Certificate presented or surrendered for registration of
transfer or for exchange shall (if so required by the Agent) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Agent duly executed, by the Holder thereof or its attorney
duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of a Certificate, but the Company and the Agent may require payment
from the Holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates, other than any exchanges pursuant to Sections 3.6 and
8.5 not involving any transfer.
Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenticate, execute on behalf of the Holder and deliver any Certificate in
exchange for any other Certificate presented or surrendered for registration of
transfer or for exchange on or after the Business Day immediately preceding the
earlier of the Purchase Contract Settlement Date or the Termination Date. In
lieu of delivery of a new Certificate, upon satisfaction of the applicable
conditions specified above in this Section and receipt of appropriate
registration or transfer instructions from such Holder, the Agent shall (i) if
the Purchase Contract Settlement Date has occurred, deliver the shares of Common
Stock issuable in respect of the Purchase Contracts forming a part of the
Securities evidenced by such other Certificate or (ii) if a Termination Event
shall have occurred prior to the Purchase Contract Settlement Date, transfer the
Preferred Securities, the Debentures, the Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio or the Treasury Securities, as the case may be, evidenced thereby, in
each case subject to the applicable conditions and in accordance with the
applicable provisions of Article Five hereof.
Section 3.6. Book-Entry Interests.
The Certificates, on original issuance, will be issued in the form of
one or more fully registered Global Certificates, to be delivered to the
Depositary by, or on behalf of, the Company.
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<PAGE> 27
Such Global Certificate shall initially be registered on the books and records
of the Company in the name of Cede & Co., the nominee of the Depositary, and no
Beneficial Owner will receive a definitive Certificate representing such
Beneficial Owner's interest in such Global Certificate, except as provided in
Section 3.9. The Agent shall enter into an agreement with the Depositary if so
requested by the Company. Unless and until definitive, fully registered
Certificates have been issued to Beneficial Owners pursuant to Section 3.9:
(a) the provisions of this Section 3.6 shall be in full force and
effect;
(b) the Company shall be entitled to deal with the Clearing Agency
for all purposes of this Agreement (including the payment of Contract Adjustment
Payments, if any, and receiving approvals, votes or consents hereunder) as the
Holder of the Securities and the sole holder of the Global Certificate(s) and
shall have no obligation to the Beneficial Owners;
(c) to the extent that the provisions of this Section 3.6 conflict
with any other provisions of this Agreement, the provisions of this Section 3.6
shall control; and
(d) the rights of the Beneficial Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by law and
agreements between such Beneficial Owners and the Clearing Agency and/or the
Clearing Agency Participants.
Section 3.7. Notices to Holders.
Whenever a notice or other communication to the Holders is required to
be given under this Agreement, the Company or the Company's agent shall give
such notices and communications to the Holders and, with respect to any
Securities registered in the name of a Clearing Agency or the nominee of a
Clearing Agency, the Company or the Company's agent shall, except as set forth
herein, have no obligations to the Beneficial Owners.
Section 3.8. Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Securities, the Company may, in its
sole discretion, appoint a successor Clearing Agency with respect to the
Securities.
Section 3.9. Definitive Certificates.
If (i) a Clearing Agency elects to discontinue its services as
securities depositary with respect to the Securities and a successor Clearing
Agency is not appointed within 90 days after such discontinuance pursuant to
Section 3.8 or (ii) there shall have occurred and be continuing a default by the
Company in respect of its obligations under one or more Purchase Contracts, then
upon surrender of the Global Certificates representing the Securities by the
Clearing Agency, accompanied by registration instructions, the Company shall
cause definitive Certificates to be delivered to Beneficial Owners in accordance
with the instructions of the Clearing Agency. The Company shall not be liable
for any delay in delivery of such instructions and may conclusively rely on and
shall be protected in relying on, such instructions.
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Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates.
If any mutilated Certificate is surrendered to the Agent, the Company
shall execute and deliver to the Agent, and the Agent shall authenticate,
execute on behalf of the Holder, and deliver in exchange therefor, a new
Certificate, evidencing the same number of Corporate PIES or Treasury PIES, as
the case may be, and bearing a Certificate number not contemporaneously
outstanding.
If there shall be delivered to the Company and the Agent (i) evidence
to their satisfaction of the destruction, loss or theft of any Certificate, and
(ii) such security or indemnity as may be required by them to hold each of them
and any agent of any of them harmless, then, in the absence of notice to the
Company or the Agent that such Certificate has been acquired by a bona fide
purchaser, the Company shall execute and deliver to the Agent, and the Agent
shall authenticate, execute on behalf of the Holder, and deliver to the Holder,
in lieu of any such destroyed, lost or stolen Certificate, a new Certificate,
evidencing the same number of Corporate PIES or Treasury PIES, as the case may
be, and bearing a Certificate number not contemporaneously outstanding.
Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenticate, execute on behalf of the Holder, and deliver to the Holder, a
Certificate on or after the Business Day immediately preceding the earlier of
the Purchase Contract Settlement Date or the Termination Date. In lieu of
delivery of a new Certificate, upon satisfaction of the applicable conditions
specified above in this Section and receipt of appropriate registration or
transfer instructions from such Holder, the Agent shall (i) if the Purchase
Contract Settlement Date has occurred, deliver the shares of Common Stock
issuable in respect of the Purchase Contracts forming a part of the Securities
evidenced by such Certificate, or (ii) if a Termination Event shall have
occurred prior to the Purchase Contract Settlement Date, transfer the Preferred
Securities, the Debentures, the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio or the Treasury Securities, as the case may be, evidenced thereby, in
each case subject to the applicable conditions and in accordance with the
applicable provisions of Article Five hereof.
Upon the issuance of any new Certificate under this Section, the
Company and the Agent may require the payment by the Holder of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Agent)
connected therewith.
Every new Certificate issued pursuant to this Section in lieu of any
destroyed, lost or stolen Certificate shall constitute an original additional
contractual obligation of the Company and of the Holder in respect of the
Security evidenced thereby, whether or not the destroyed, lost or stolen
Certificate (and the Securities evidenced thereby) shall be at any time
enforceable by anyone, and shall be entitled to all the benefits and be subject
to all the obligations of this Agreement equally and proportionately with any
and all other Certificates delivered hereunder.
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The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Certificates.
Section 3.11. Persons Deemed Owners.
Prior to due presentment of a Certificate for registration of
transfer, the Company and the Agent, and any agent of the Company or the Agent,
may treat the Person in whose name such Certificate is registered as the owner
of the Corporate PIES or Treasury PIES evidenced thereby, for the purpose of
receiving distributions on the Preferred Securities, the Debentures, or on the
maturing quarterly interest strips of the Treasury Portfolio, as applicable,
receiving payments of Contract Adjustment Payments, performance of the Purchase
Contracts and for all other purposes whatsoever, whether or not any
distributions on the Preferred Securities, the Debentures, Treasury Portfolio or
the Contract Adjustment Payments payable in respect of the Purchase Contracts
constituting a part of the Corporate PIES or Treasury PIES evidenced thereby
shall be overdue and notwithstanding any notice to the contrary, and neither the
Company nor the Agent, nor any agent of the Company or the Agent, shall be
affected by notice to the contrary.
Notwithstanding the foregoing, with respect to any Global Certificate,
nothing herein shall prevent the Company, the Agent or any agent of the Company
or the Agent, from giving effect to any written certification, proxy or other
authorization furnished by any Clearing Agency (or its nominee), as a Holder,
with respect to such Global Certificate or impair, as between such Clearing
Agency and owners of beneficial interests in such Global Certificate, the
operation of customary practices governing the exercise of rights of such
Clearing Agency (or its nominee) as Holder of such Global Certificate.
Section 3.12. Cancellation.
All Certificates surrendered for delivery of shares of Common Stock on
or after the Purchase Contract Settlement Date, upon the transfer of Preferred
Securities, Debentures, the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio or Treasury Securities, as the case may be, after the occurrence of a
Termination Event or pursuant to an Early Settlement, or upon the registration
of a transfer or exchange of a Security, or a Collateral Substitution or the
re-establishment of a Corporate PIES shall, if surrendered to any Person other
than the Agent, be delivered to the Agent and, if not already cancelled, shall
be promptly cancelled by it. The Company may at any time deliver to the Agent
for cancellation any Certificates previously authenticated, executed and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Certificates so delivered shall, upon Issuer Order, be
promptly cancelled by the Agent. No Certificates shall be authenticated,
executed on behalf of the Holder and delivered in lieu of or in exchange for any
Certificates cancelled as provided in this Section, except as expressly
permitted by this Agreement. All cancelled Certificates held by the Agent shall
be destroyed by the Agent unless otherwise directed by Issuer Order.
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If the Company or any Affiliate of the Company shall acquire any
Certificate, such acquisition shall not operate as a cancellation of such
Certificate unless and until such Certificate is delivered to the Agent
cancelled or for cancellation.
Section 3.13. Substitution of Securities.
A Holder may separate the Preferred Securities, the Debentures or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, from the related Purchase Contracts in respect of a Corporate PIES
by substituting for such Preferred Securities, Debentures or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
Treasury Securities in an aggregate principal amount equal to the aggregate
liquidation amount of such Preferred Securities, the aggregate principal amount
of such Debentures or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as applicable (a "Collateral Substitution"), at any time from and
after the date of this Agreement and on or prior to the seventh Business Day
immediately preceding the Purchase Contract Settlement Date in the case of the
Preferred Securities and the Debentures and on or prior to the second Business
Day immediately preceding the Purchase Contract Settlement Date in the case of
the appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, in each case by (a)
depositing with the Securities Intermediary Treasury Securities having an
aggregate principal amount equal to the aggregate liquidation amount of the
Preferred Securities or the aggregate principal amount of the Debentures
comprising part of such Corporate PIES or the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio comprising part of such Corporate PIES, as the case may be,
and (b) transferring the related Corporate PIES to the Agent accompanied by a
notice to the Agent, substantially in the form of Exhibit C hereto, stating that
the Holder has transferred the relevant amount of Treasury Securities to the
Securities Intermediary and requesting that the Agent instruct the Collateral
Agent to release the Preferred Securities, the Debentures or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, as the case may be, underlying such
Corporate PIES, whereupon the Agent shall promptly give such instruction to the
Collateral Agent, substantially in the form of Exhibit A to the Pledge
Agreement. Upon receipt of the Treasury Securities described in clause (a) above
and the instruction described in clause (b) above, in accordance with the terms
of the Pledge Agreement, the Collateral Agent will cause the Securities
Intermediary to release to the Agent, on behalf of the Holder, Preferred
Securities, Debentures or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as the case may be, having a corresponding aggregate liquidation
amount of such Preferred Securities, aggregate principal amount of such
Debentures, or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, from the Pledge, free and clear of the Company's security interest
therein, and upon receipt thereof the Agent shall promptly:
(i) cancel the related Corporate PIES;
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(ii) transfer the Preferred Securities, the Debentures or the
appropriate Applicable Ownership Interest of the Treasury Portfolio,
as the case may be, to the Holder; and
(iii) authenticate, execute on behalf of such Holder and deliver
a Treasury PIES Certificate executed by the Company in accordance with
Section 3.3 evidencing the same number of Purchase Contracts as were
evidenced by the cancelled Corporate PIES.
Holders who elect to separate the Preferred Securities, the Debentures
or the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, from the related Purchase Contract and to substitute Treasury
Securities for such Preferred Securities or Debentures or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, as the case may be, shall be responsible
for any fees or expenses payable to the Collateral Agent for its services as
Collateral Agent in respect of the substitution, and the Company shall not be
responsible for any such fees or expenses.
Holders may make Collateral Substitutions (i) only in integral
multiples of 20 Corporate PIES if Treasury Securities are being substituted for
Preferred Securities or Debentures, or (ii) only in integral multiples of
160,000 Corporate PIES if Treasury Securities are being substituted for the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio.
In the event a Holder making a Collateral Substitution pursuant to
this Section 3.13 fails to effect a book-entry transfer of the Corporate PIES or
fails to deliver a Corporate PIES Certificate(s) to the Agent after depositing
Treasury Securities with the Collateral Agent, the Preferred Securities, the
Debentures or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, constituting a part of such Corporate PIES, and
any distributions on such Preferred Securities, Debentures or the Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, shall be held
in the name of the Agent or its nominee in trust for the benefit of such Holder,
until such Corporate PIES is so transferred or the Corporate PIES Certificate is
so delivered, as the case may be, or, with respect to a Corporate PIES
Certificate, such Holder provides evidence satisfactory to the Company and the
Agent that such Corporate PIES Certificate has been destroyed, lost or stolen,
together with any indemnity that may be required by the Agent and the Company.
Except as described in this Section 3.13, for so long as the Purchase
Contract underlying a Corporate PIES remains in effect, such Corporate PIES
shall not be separable into its constituent parts, and the rights and
obligations of the Holder in respect of the Preferred Securities, the Debentures
or the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, and the Purchase Contract comprising such Corporate PIES may be
acquired, and may be transferred and exchanged, only as a Corporate PIES.
Section 3.14. Reestablishment of Corporate PIES.
A Holder of a Treasury PIES may recreate Corporate PIES at any time
(i) on or prior to the seventh Business Day immediately preceding the Purchase
Contract Settlement Date, if a Tax
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Event Redemption has not occurred, and (ii) on or prior to the second Business
Day immediately preceding the Purchase Contract Settlement Date, if a Tax Event
Redemption has occurred, in each case by (a) depositing with the Securities
Intermediary Preferred Securities, Debentures or the appropriate Applicable
Ownership Interest (as defined in clause (A) of the definition of such term) of
the Treasury Portfolio, as the case may be, having an aggregate liquidation
amount in the case of the Preferred Securities, an aggregate principal amount in
the case of the Debentures or an aggregate Applicable Ownership Interest (as
defined in clause (A) of the definition of such term) of the Treasury Portfolio,
as the case may be, equal to the aggregate principal amount at maturity of the
Treasury Securities comprising part of the Treasury PIES and (b) transferring
the related Treasury PIES to the Agent accompanied by a notice to the Agent,
substantially in the form of Exhibit C hereto, stating that the Holder has
transferred the relevant amount of Preferred Securities, Debentures or the
appropriate Applicable Ownership Interest (as defined in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, to the
Securities Intermediary and requesting that the Agent instruct the Collateral
Agent to release the Treasury Securities underlying such Treasury PIES,
whereupon the Agent shall promptly give such instruction to the Collateral
Agent, substantially in the form of Exhibit C to the Pledge Agreement. Upon
receipt of the Preferred Securities, the Debentures or the appropriate
Applicable Ownership Interest (as defined in clause (A) of the definition of
such term) of the Treasury Portfolio, as the case may be, described in clause
(a) above and the instruction described in clause (b) above, in accordance with
the terms of the Pledge Agreement, the Collateral Agent will cause the
Securities Intermediary to effect the release of the Treasury Securities having
a corresponding aggregate principal amount at maturity from the Pledge to the
Agent free and clear of the Company's security interest therein, and upon
receipt thereof the Agent shall promptly:
(i) cancel the related Treasury PIES;
(ii) transfer the Treasury Securities to the Holder; and
(iii) authenticate, execute on behalf of such Holder and deliver
a Corporate PIES Certificate executed by the Company in accordance
with Section 3.3 evidencing the same number of Purchase Contracts as
were evidenced by the cancelled Treasury PIES.
Holders who elect to recreate Corporate PIES shall be responsible for
any fees or expenses payable to the Collateral Agent for its services as
Collateral Agent in respect of the substitution, and the Company shall not be
responsible for any such fees or expenses.
Holders of Treasury PIES may reestablish Corporate PIES in integral
multiples of 20 Treasury PIES for 20 Corporate PIES if a Tax Event Redemption
has not occurred, and in integral multiples of 160,000 Treasury PIES for 160,000
Corporate PIES if a Tax Event Redemption has occurred.
Except as provided in this Section 3.14, for so long as the Purchase
Contract underlying a Treasury PIES remains in effect, such Treasury PIES shall
not be separable into its constituent parts and the rights and obligations of
the Holder of such Treasury PIES in respect of the 1/20 of
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a Treasury Security and the Purchase Contract comprising such Treasury PIES may
be acquired, and may be transferred and exchanged, only as a Treasury PIES.
Section 3.15. Transfer of Collateral upon Occurrence of Termination Event.
Upon the occurrence of a Termination Event and the transfer to the
Agent of the Preferred Securities, the Debentures, the appropriate Applicable
Ownership Interest of the Treasury Portfolio or the Treasury Securities, as the
case may be, underlying the Corporate PIES and the Treasury PIES pursuant to the
terms of the Pledge Agreement, the Agent shall request transfer instructions
with respect to such Preferred Securities or Debentures or the appropriate
Applicable Ownership Interest of the Treasury Portfolio or Treasury Securities,
as the case may be, from each Holder by written request, substantially in the
form of Exhibit D hereto, mailed to such Holder at its address as it appears in
the Corporate PIES Register or the Treasury PIES Register, as the case may be.
Upon book-entry transfer of the Corporate PIES or Treasury PIES or delivery of a
Corporate PIES Certificate or Treasury PIES Certificate to the Agent with such
transfer instructions, the Agent shall transfer the Preferred Securities, the
Debentures, the appropriate Applicable Ownership Interest of the Treasury
Portfolio or Treasury Securities, as the case may be, underlying such Corporate
PIES or Treasury PIES, as the case may be, to such Holder by book-entry
transfer, or other appropriate procedures, in accordance with such instructions.
In the event a Holder of Corporate PIES or Treasury PIES fails to effect such
transfer or delivery, the Preferred Securities, the Debentures, the appropriate
Applicable Ownership Interest of the Treasury Portfolio or Treasury Securities,
as the case may be, underlying such Corporate PIES or Treasury PIES, as the case
may be, and any distributions thereon, shall be held in the name of the Agent or
its nominee in trust for the benefit of such Holder, until the earlier of (a)
such Corporate PIES or Treasury PIES are transferred or the Corporate PIES
Certificate or Treasury PIES Certificate is surrendered or such Holder provides
satisfactory evidence that such Corporate PIES Certificate or Treasury PIES
Certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Agent and the Company and (b) the expiration of the time
period specified in the abandoned property laws of the relevant State.
Section 3.16. No Consent to Assumption.
Each Holder of a Security, by acceptance thereof, shall be deemed
expressly to have withheld any consent to the assumption under Section 365 of
the Bankruptcy Code or otherwise, of the Purchase Contract by the Company or its
trustee, receiver, liquidator or a person or entity performing similar functions
in the event that the Company becomes the debtor under the Bankruptcy Code or
subject to other similar state or federal law providing for reorganization or
liquidation.
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ARTICLE IV
The Preferred Securities
Section 4.1. Payment of Distribution; Rights to Distributions Preserved;
Distribution Rate Reset; Notice.
A distribution on any Preferred Security, any Debenture or on the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, which is paid on any Payment Date shall, subject to receipt thereof by
the Agent from the Collateral Agent as provided by the terms of the Pledge
Agreement, be paid to the Person in whose name the Corporate PIES Certificate
(or one or more Predecessor Corporate PIES Certificates) of which such Preferred
Security, such Debenture or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, is a part is registered at the close of
business on the Record Date for such Payment Date.
Each Corporate PIES Certificate evidencing Preferred Securities or
Debentures delivered under this Agreement upon registration of transfer of or in
exchange for or in lieu of any other Corporate PIES Certificate shall carry the
rights to distributions accrued and unpaid, and to accrue distributions, which
were carried by the Preferred Securities or Debentures or the appropriate
Applicable Ownership Interest of the Treasury Portfolio underlying such other
Corporate PIES Certificate.
In the case of any Corporate PIES with respect to which Cash
Settlement of the underlying Purchase Contract is effected on or prior to the
fifth Business Day immediately preceding the Purchase Contract Settlement Date
pursuant to prior notice, or with respect to which Early Settlement of the
underlying Purchase Contract is effected on an Early Settlement Date, or with
respect to which a Collateral Substitution is effected, in each case on a date
that is after any Record Date and on or prior to the next succeeding Payment
Date, distributions on the Preferred Securities, the Debentures or on the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, underlying such Corporate PIES otherwise payable on such Payment Date
shall be payable on such Payment Date notwithstanding such Cash Settlement or
Early Settlement or Collateral Substitution, and such distributions shall,
subject to receipt thereof by the Agent, be payable to the Person in whose name
the Corporate PIES Certificate (or one or more Predecessor Corporate PIES
Certificates) was registered at the close of business on the Record Date. Except
as otherwise expressly provided in the immediately preceding sentence, in the
case of any Corporate PIES with respect to which Cash Settlement or Early
Settlement of the underlying Purchase Contract is effected on or prior to the
fifth Business Day immediately preceding the Purchase Contract Settlement Date
or an Early Settlement Date, as the case may be, or with respect to which a
Collateral Substitution has been effected, distributions on the related
Preferred Securities or Debentures or on the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, that would otherwise be
payable after the Purchase Contract Settlement Date or Early Settlement Date
shall not be payable hereunder to the Holder of such Corporate PIES; provided,
however, that to the extent that such Holder continues to hold the separated
Preferred Securities or Debentures that formerly
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comprised a part of such Holder's Corporate PIES, such Holder shall be entitled
to receive the distributions on such separated Preferred Securities or
Debentures.
The applicable Coupon Rate on the Debentures on and after the Purchase
Contract Settlement Date shall be reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date equal to the Reset Rate (such
Reset Rate to be in effect on and after the Purchase Contract Settlement Date).
Not later than 15 calendar days nor more than 30 calendar days prior
to the third Business Day immediately preceding the Purchase Contract Settlement
Date, the Company shall request DTC (or any successor Clearing Agency), to
notify the Beneficial Owners or Clearing Agency Participants holding Corporate
PIES or Treasury PIES of the procedures to be followed by Holders of Corporate
PIES who intend to effect the settlement of their obligations under the Purchase
Contracts underlying such Corporate PIES with separate cash on or prior to the
fifth Business Day prior to the Purchase Contract Settlement Date.
Section 4.2. Notice and Voting.
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Pledged
Preferred Securities or Pledged Debentures, as the case may be, but only to the
extent instructed in writing by the Holders as described below. Upon receipt of
notice of any meeting at which holders of Preferred Securities or Debentures are
entitled to vote or upon any solicitation of consents, waivers or proxies of
holders of Preferred Securities or Debentures, the Agent shall, as soon as
practicable thereafter, mail to the Holders of Corporate PIES a notice (a)
containing such information as is contained in the notice or solicitation, (b)
stating that each Holder on the record date set by the Agent therefor (which, to
the extent possible, shall be the same date as the record date for determining
the holders of Preferred Securities or Debentures, as the case may be, entitled
to vote) shall be entitled to instruct the Agent as to the exercise of the
voting rights pertaining to such Preferred Securities or Debentures underlying
their Corporate PIES and (c) stating the manner in which such instructions may
be given. Upon the written request of the Holders of Corporate PIES on such
record date received by the Agent at least six days prior to such meeting, the
Agent shall endeavor insofar as practicable to vote or cause to be voted, in
accordance with the instructions set forth in such requests, the maximum number
of Preferred Securities or Debentures, as the case may be, as to which any
particular voting instructions are received. In the absence of specific
instructions from the Holder of a Corporate PIES, the Agent shall abstain from
voting the Preferred Securities or Debentures underlying such Corporate PIES.
The Company hereby agrees, if applicable, to solicit Holders of Corporate PIES
to timely instruct the Agent in order to enable the Agent to vote such Preferred
Securities or Debentures and the Trust shall covenant to such effect in the
Declaration.
Section 4.3. Distribution of Debentures; Tax Event Redemption.
Upon the liquidation of the Trust in accordance with the Declaration,
a principal amount at maturity of Debentures constituting the assets of the
Trust and underlying the Preferred Securities equal to the aggregate liquidation
amount of the Pledged Preferred Securities shall be
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delivered to the Securities Intermediary in exchange for the Pledged Preferred
Securities. Thereafter, the Debentures will be substituted for the Pledged
Preferred Securities as the Collateral, and will be held by the Securities
Intermediary in the Collateral Account in accordance with the terms of the
Pledge Agreement to secure the obligations of each Holder of a Corporate PIES to
purchase the Common Stock of the Company under the Purchase Contracts
constituting a part of such Corporate PIES. Following the liquidation of the
Trust, the Holders and the Collateral Agent shall have such security interests,
rights and obligations with respect to the Debentures as the Holders and the
Collateral Agent had in respect of the Preferred Securities subject to the
Pledge thereof as provided in Articles II, III, IV, V and VI of the Pledge
Agreement. The Company may cause to be made in any Corporate PIES Certificates
thereafter to be issued such change in phraseology and form (but not in
substance) as may be appropriate to reflect the liquidation of the Trust and the
substitution of Debentures for Preferred Securities as Collateral.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount shall be
deposited in the Collateral Account in exchange for the Pledged Preferred
Securities or the Pledged Debentures. Thereafter, pursuant to the terms of the
Pledge Agreement, the Collateral Agent shall cause the Securities Intermediary
to apply an amount equal to the Redemption Amount of such Redemption Price to
purchase on behalf of the Holders of Corporate PIES the Treasury Portfolio and
promptly remit the remaining portion of such Redemption Price, if any, to the
Agent for payment to the Holders of such Corporate PIES. The Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio will be substituted as Collateral for the Pledged
Preferred Securities or the Pledged Debentures, and will be held by the
Collateral Agent in accordance with the terms of the Pledge Agreement to secure
the obligation of each Holder of a Corporate PIES to purchase the Common Stock
of the Company under the Purchase Contract constituting a part of such Corporate
PIES. The Applicable Ownership Interest (as specified in clause (B) of the
definition of such term) of the Treasury Portfolio shall be transferred by the
Securities Intermediary to the Purchase Contract Agent, free and clear of any
lien, pledge or security interest created by the Pledge Agreement. Following the
occurrence of a Tax Event Redemption prior to the Purchase Contract Settlement
Date, the Holders of Corporate PIES and the Collateral Agent shall have such
security interest rights and obligations with respect to the Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio as the Holders of Corporate PIES and the Collateral
Agent had in respect of the Preferred Securities or Debentures, as the case may
be, subject to the Pledge thereof as provided in Articles II, III, IV, V, and VI
of the Pledge Agreement, and any reference herein to the Preferred Securities or
the Debentures shall be deemed to be reference to such Treasury Portfolio. The
Company may cause to be made in any Corporate PIES Certificates thereafter to be
issued such change in phraseology and form (but not in substance) as may be
appropriate to reflect the liquidation of the Trust and the substitution of the
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio for Preferred Securities or Debentures as
Collateral.
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ARTICLE V
The Purchase Contracts
Section 5.1. Purchase of Shares of Common Stock.
Each Purchase Contract shall, unless an Early Settlement has occurred
in accordance with Section 5.9 hereof, obligate the Holder of the related
Security to purchase, and the Company to sell, on the Purchase Contract
Settlement Date at a price equal to the Stated Amount (the "Purchase Price"), a
number of newly issued shares of Common Stock equal to the Settlement Rate
unless, on or prior to the Purchase Contract Settlement Date, there shall have
occurred a Termination Event with respect to the Security of which such Purchase
Contract is a part. The "Settlement Rate" is equal to (a) if the Applicable
Market Value (as defined below) is equal to or greater than $31.0500 (the
"Threshold Appreciation Price"), 1.6103 shares of Common Stock per Purchase
Contract, (b) if the Applicable Market Value is less than the Threshold
Appreciation Price, but is greater than $26.3125, the number of shares of Common
Stock equal to the Stated Amount divided by the Applicable Market Value and (c)
if the Applicable Market Value is less than or equal to $26.3125, 1.9002 share
of Common Stock per Purchase Contract, in each case subject to adjustment as
provided in Section 5.6 (and in each case rounded upward or downward to the
nearest 1/10,000th of a share). As provided in Section 5.10, no fractional
shares of Common Stock will be issued upon settlement of Purchase Contracts.
The "Applicable Market Value" means the average of the Closing Price
per share of Common Stock on each of the 20 Trading Days ending on the third
Trading Day immediately preceding the Purchase Contract Settlement Date. The
"Closing Price" of the Common Stock on any date of determination means (i) the
closing sale price (or, if no closing price is reported, the last reported sale
price) of the Common Stock on the New York Stock Exchange (the "NYSE") on such
date, (ii) if the Common Stock is not listed for trading on the NYSE on any such
date, the closing sale price as reported in the composite transactions for the
principal United States securities exchange on which the Common Stock is so
listed, (iii) if the Common Stock is not so listed on a United States national
or regional securities exchange, the closing sale price as reported by The
Nasdaq Stock Market, (iv) if the Common Stock is not so reported, the last
quoted bid price for the Common Stock in the over-the-counter market as reported
by the National Quotation Bureau or similar organization, or (v) if such bid
price is not available, the average of the mid-point of the last bid and ask
prices of the Common Stock on such date from at least three nationally
recognized independent investment banking firms retained for this purpose by the
Company. A "Trading Day" means a day on which the Common Stock (A) is not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the Common Stock.
Each Holder of a Corporate PIES or a Treasury PIES, by its acceptance
thereof, irrevocably authorizes the Agent to enter into and perform the related
Purchase Contract on its behalf as its attorney-in-fact (including the execution
of Certificates on behalf of such Holder),
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agrees to be bound by the terms and provisions thereof, covenants and agrees to
perform its obligations under such Purchase Contracts, and consents to the
provisions hereof, irrevocably authorizes the Agent as its attorney-in-fact to
enter into and perform this Agreement and the Pledge Agreement on its behalf as
its attorney-in-fact, and consents to and agrees to be bound by the Pledge of
the Preferred Securities, the Debentures, the Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio or the Treasury Securities pursuant to the Pledge Agreement; provided
that upon a Termination Event, the rights of the Holder of such Security under
the Purchase Contract may be enforced without regard to any other rights or
obligations. Each Holder of a Corporate PIES or a Treasury PIES, by its
acceptance thereof, further covenants and agrees, that to the extent and in the
manner provided in Section 5.4 and the Pledge Agreement, but subject to the
terms thereof, payments in respect of the Preferred Securities or the Debentures
or the Proceeds of the Treasury Securities or the Applicable Ownership Interest
(as specified in clause (A) of the definition of such term) of the Treasury
Portfolio on the Purchase Contract Settlement Date shall be paid by the
Collateral Agent to the Company in satisfaction of such Holder's obligations
under such Purchase Contract and such Holder shall acquire no right, title or
interest in such payments.
Upon registration of transfer of a Certificate, the transferee shall
be bound (without the necessity of any other action on the part of such
transferee) by the terms of this Agreement, the Purchase Contracts underlying
such Certificate and the Pledge Agreement and the transferor shall be released
from the obligations under this Agreement, the Purchase Contracts underlying the
Certificates so transferred and the Pledge Agreement. The Company covenants and
agrees, and each Holder of a Certificate, by its acceptance thereof, likewise
covenants and agrees, to be bound by the provisions of this paragraph.
Section 5.2. Contract Adjustment Payments.
The Company shall pay, on each Payment Date, the Contract Adjustment
Payments payable in respect of each Purchase Contract to the Person in whose
name a Certificate (or one or more Predecessor Certificates) is registered at
the close of business on the Record Date next preceding such Payment Date. The
Contract Adjustment Payments will be payable at the office of the Agent in The
City of New York maintained for that purpose or, at the option of the Company,
by check mailed to the address of the Person entitled thereto at such Person's
address as it appears on the Corporate PIES Register or Treasury PIES Register.
If any date on which Contract Adjustment Payments are to be made on the Purchase
Contracts related to the PIES is not a Business Day, then payment of the
Contract Adjustment Payments payable on such date will be made on the next day
that is a Business Day (and without any interest in respect of any such delay),
except that, if such Business Day is in the next calendar year, such payment
will be made on the preceding Business Day.
Upon the occurrence of a Termination Event, the Company's obligation
to pay Contract Adjustment Payments (including any accrued Contract Adjustment
Payments) shall cease.
Each Certificate delivered under this Agreement upon registration of
transfer of or in exchange for or in lieu of (including as a result of a
Collateral Substitution or the re-establishment of a Corporate PIES) any other
Certificate shall carry the rights to Contract
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Adjustment Payments accrued and unpaid, and to accrue Contract Adjustment
Payments, which were carried by the Purchase Contracts underlying such other
Certificates.
Subject to Section 5.9, in the case of any Security with respect to
which Early Settlement of the underlying Purchase Contract is effected on an
Early Settlement Date that is after any Record Date and on or prior to the next
succeeding Payment Date, Contract Adjustment Payments, if any, otherwise payable
on such Payment Date shall be payable on such Payment Date notwithstanding such
Early Settlement, and such Contract Adjustment Payments shall be paid to the
Person in whose name the Certificate evidencing such Security (or one or more
Predecessor Certificates) is registered at the close of business on such Record
Date. Except as otherwise expressly provided in the immediately preceding
sentence, in the case of any Security with respect to which Early Settlement of
the underlying Purchase Contract is effected on an Early Settlement Date,
Contract Adjustment Payments that would otherwise be payable after the Early
Settlement Date with respect to such Purchase Contract shall not be payable.
Section 5.3. [Intentionally omitted].
Section 5.4. Payment of Purchase Price.
(a) (i) Unless a Tax Event Redemption has occurred or a Holder settles
the underlying Purchase Contract through the early delivery of cash to the
Purchase Contract Agent in the manner described in Section 5.9, each Holder of a
Corporate PIES who intends to pay in cash shall notify the Agent by use of a
notice in substantially the form of Exhibit E hereto of its intention to pay in
cash ("Cash Settlement") the Purchase Price for the shares of Common Stock to be
purchased pursuant to a Purchase Contract. Such notice shall be given prior to
5:00 p.m., New York City time, on the seventh Business Day immediately preceding
the Purchase Contract Settlement Date. Prior to 11:00 a.m., New York City time,
on the next succeeding Business Day, the Agent shall notify the Collateral Agent
and the Indenture Trustee of the receipt of such notices from Holders intending
to make a Cash Settlement.
(ii) A Holder of a Corporate PIES who has so notified the Agent
of its intention to make a Cash Settlement shall pay the Purchase Price to the
Securities Intermediary for deposit in the Collateral Account prior to 11:00
a.m., New York City time, on the fifth Business Day immediately preceding the
Purchase Contract Settlement Date in lawful money of the United States by
certified or cashiers' check or wire transfer, in each case in immediately
available funds payable to or upon the order of the Securities Intermediary. Any
cash received by the Collateral Agent shall be invested promptly by the
Securities Intermediary in Permitted Investments and paid to the Company on the
Purchase Contract Settlement Date in settlement of the Purchase Contract in
accordance with the terms of this Agreement and the Pledge Agreement. Any funds
received by the Securities Intermediary in respect of the investment earnings
from the investment in such Permitted Investments, shall be distributed to the
Agent when received for payment to the Holder of the related Corporate PIES.
(iii) If a Holder of a Corporate PIES fails to notify the Agent
of its intention to make a Cash Settlement in accordance with paragraph (a)(i)
above, or does notify the Agent as provided in paragraph (a)(i) above of its
intention to pay the Purchase Price in cash, but fails to make such
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payment as required by paragraph (a)(ii) above, such Holder shall be deemed to
have consented to the disposition of the Pledged Preferred Securities or the
Pledged Debentures pursuant to the Remarketing as described in paragraph (b)
below.
(iv) Promptly after 11:00 a.m., New York City time, on the fifth
Business Day preceding the Purchase Contract Settlement Date, the Agent, based
on notices received by the Agent pursuant to Section 5.4(a) hereof and notice
from the Securities Intermediary regarding cash received by it prior to such
time, shall notify the Collateral Agent and the Indenture Trustee of the number
of Preferred Securities or Debentures to be tendered for purchase in the
Remarketing in a notice substantially in the form of Exhibit F hereto.
(b) In order to dispose of the Preferred Securities or Debentures,
as the case may be, of Corporate PIES Holders who have not notified the Agent of
their intention to effect a Cash Settlement as provided in paragraph (a)(i)
above, or who have so notified the Agent but fail to make such payment as
required by paragraph (a)(ii) above, the Company shall engage Lehman Brothers,
Inc. (the "Remarketing Agent") pursuant to the Remarketing Agreement to sell
such Preferred Securities or Debentures. In order to facilitate the remarketing,
the Agent, based on the notices specified in Section 5.4(a)(iv), shall notify
the Remarketing Agent, promptly after 11:00 a.m., New York City time, on the
fifth Business Day immediately preceding the Purchase Contract Settlement Date,
of the aggregate number of Preferred Securities or Debentures that are a
component of Corporate PIES to be remarketed. Concurrently, the Collateral
Agent, pursuant to the terms of the Pledge Agreement, shall cause such Preferred
Securities or Debentures to be presented to the Remarketing Agent for
remarketing. Upon receipt of such notice from the Agent and such Preferred
Securities or Debentures, the Remarketing Agent shall, on the third Business Day
immediately preceding the Purchase Contract Settlement Date, use commercially
reasonable efforts to remarket such Preferred Securities or Debentures on such
date at a price of 100% of the aggregate stated liquidation amount of such
Preferred Securities or principal amount at maturity of such Debentures. The
proceeds equal thereto shall automatically be applied by the Collateral Agent,
in accordance with the Pledge Agreement, to satisfy in full such Corporate PIES
Holders' obligations to pay the Purchase Price for the Common Stock under the
related Purchase Contracts on the Purchase Contract Settlement Date. Corporate
PIES Holders whose Preferred Securities or Debentures are so remarketed shall
not be responsible for the payment of any remarketing fee in connection
therewith. If, in spite of using their reasonable efforts, the Remarketing Agent
cannot remarket the related Preferred Securities or Debentures of such Holders
of Corporate PIES at a price of 100% of the aggregate stated liquidation amount
of such Preferred Securities or principal amount at maturity of such Debentures,
the remarketing shall be deemed to have failed (a "Failed Remarketing") and in
accordance with the terms of the Pledge Agreement the Collateral Agent, for the
benefit of the Company, shall exercise its rights as a secured party with
respect to such Preferred Securities or Debentures, including those actions
specified in paragraph (c) below; provided, that if upon a Failed Remarketing
the Collateral Agent exercises such rights for the benefit of the Company with
respect to such Preferred Securities or Debentures, any accrued and unpaid
distributions on such Preferred Securities or Debentures shall become payable by
the Company to the Agent for payment to the Beneficial Owner of the Corporate
PIES to which such Preferred Securities or Debentures relate. The Company shall
cause a notice of such Failed Remarketing to be published on the second Business
Day immediately preceding the Purchase Contract Settlement Date in a daily
newspaper
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in the English language of general circulation in The City of New York, which is
expected to be The Wall Street Journal.
(c) With respect to any Preferred Securities or Debentures which
are subject to a Failed Remarketing, the Collateral Agent for the benefit of the
Company reserves all of its rights as a secured party with respect thereto and,
subject to applicable law and paragraph (g) below, may, among other things, (i)
retain the Preferred Securities or Debentures in full satisfaction of the
Holders' obligations under the Purchase Contracts or (ii) sell the Preferred
Securities or Debentures in one or more public or private sales.
(d) (i) Unless a Holder of Treasury PIES or Corporate PIES (if a Tax
Event Redemption has occurred) settles the underlying Purchase Contract through
the early delivery of cash to the Purchase Contract Agent in the manner
described in Section 5.9, each Holder of a Treasury PIES or Corporate PIES (if a
Tax Event Redemption has occurred) who intends to pay in cash shall notify the
Agent by use of a notice in substantially the form of Exhibit E hereto of its
intention to pay in cash the Purchase Price for the shares of Common Stock to be
purchased pursuant to a Purchase Contract. Such notice shall be given on or
prior to 5:00 p.m., New York City time, on the second Business Day immediately
preceding the Purchase Contract Settlement Date.
(ii) A Holder of a Treasury PIES or Corporate PIES (if a Tax Event
Redemption has occurred) who has so notified the Agent of its intention to make
a Cash Settlement in accordance with paragraph (d)(i) above shall pay the
Purchase Price to the Securities Intermediary for deposit in the Collateral
Account prior to 11:00 a.m., New York City time, on the Business Day immediately
preceding the Purchase Contract Settlement Date in lawful money of the United
States by certified or cashiers' check or wire transfer, in each case in
immediately available funds payable to or upon the order of the Securities
Intermediary. Any cash received by the Collateral Agent shall be invested
promptly by the Securities Intermediary in Permitted Investments and paid to the
Company on the Purchase Contract Settlement Date in settlement of the Purchase
Contract in accordance with the terms of this Agreement and the Pledge
Agreement. Any funds received by the Securities Intermediary in respect of the
investment earnings from the investment in such Permitted Investments shall be
distributed to the Agent when received for payment to the Holder.
(iii) If a Holder of a Treasury PIES or a Holder of a Corporate PIES
(if a Tax Event Redemption has occurred) fails to notify the Agent of its
intention to make a Cash Settlement in accordance with paragraph (d)(i) above,
or does notify the Agent as provided in paragraph (d)(i) above of its intention
to pay the Purchase Price in cash, but fails to make such payment as required by
paragraph (d)(ii) above, then upon the maturity of the Pledged Treasury
Securities or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, held by the Securities Intermediary on the Business Day immediately
prior to the Purchase Contract Settlement Date, the principal amount of the
Treasury Securities or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as the case may be, received by the Securities Intermediary shall be
invested promptly in Permitted Investments. On the Purchase Contract Settlement
Date an amount equal to the Purchase Price shall be remitted to the Company as
payment thereof without receiving any instructions from the Holder. In the event
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the sum of the proceeds from the related Pledged Treasury Securities or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, and the
investment earnings earned from such investments is in excess of the aggregate
Purchase Price of the Purchase Contracts being settled thereby, the Collateral
Agent shall cause the Securities Intermediary to distribute such excess to the
Agent for the benefit of the Holder of the related Treasury PIES or Corporate
PIES when received.
(e) Any distribution to Holders of excess funds and interest
described above shall be payable at the office of the Agent in The City of New
York maintained for that purpose or, at the option of the Holder, by check
mailed to the address of the Person entitled thereto at such address as it
appears on the Register.
(f) Upon Cash Settlement of any Purchase Contract, (i) the Collateral
Agent will in accordance with the terms of the Pledge Agreement cause the
Pledged Preferred Securities, the Pledged Debentures, the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio or the Pledged Treasury Securities, as the case may
be, underlying the relevant Security to be released from the Pledge free and
clear of any security interest of the Company and transferred to the Agent for
delivery to the Holder thereof or its designee as soon as practicable and (ii)
subject to the receipt thereof, the Agent shall, by book-entry transfer, or
other appropriate procedures, in accordance with written instructions provided
by the Holder thereof, transfer such Preferred Securities or Debentures, the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio or such Treasury Securities,
as the case may be (or, if no such instructions are given to the Agent by the
Holder, the Agent shall hold such Preferred Securities or Debentures or the
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio or such Treasury Securities, as the case
may be, and any distribution thereon, in the name of the Agent or its nominee in
trust for the benefit of such Holder until the expiration of the time period
specified in the abandoned property laws of the relevant State).
(g) The obligations of the Holders to pay the Purchase Price are
non-recourse obligations and, except to the extent paid by Early Settlement or
Cash Settlement, are payable solely out of the proceeds of any Collateral
pledged to secure the obligations of the Holders and in no event will Holders be
liable for any deficiency between the proceeds of the disposition of Collateral
and the Purchase Price.
Section 5.5. Issuance of Shares of Common Stock.
Unless a Termination Event or an Early Settlement shall have occurred,
subject to Section 5.6(b), the Company shall issue and deposit with the Agent,
for the benefit of the Holders of the Outstanding Securities, one or more
certificates representing the newly issued shares of Common Stock registered in
the name of the Agent (or its nominee) as custodian for the Holders (such
certificates for shares of Common Stock, together with any dividends or
distributions for which a record date and payment date for such dividend or
distribution has occurred after the Purchase Contract Settlement Date, being
hereinafter referred to as the "Purchase Contract Settlement Fund") to which the
Holders are entitled hereunder. Subject to the foregoing, upon surrender of a
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Certificate to the Agent on or after the Purchase Contract Settlement Date,
together with settlement instructions thereon duly completed and executed, the
Holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Common Stock which such
Holder is entitled to receive pursuant to the provisions of this Article Five
(after taking into account all Securities then held by such Holder), together
with cash in lieu of fractional shares as provided in Section 5.10 and any
dividends or distributions with respect to such shares constituting part of the
Purchase Contract Settlement Fund, but without any interest thereon, and the
Certificate so surrendered shall forthwith be cancelled. Such shares shall be
registered in the name of the Holder or the Holder's designee as specified in
the settlement instructions provided by the Holder to the Agent. If any shares
of Common Stock issued in respect of a Purchase Contract are to be registered to
a Person other than the Person in whose name the Certificate evidencing such
Purchase Contract is registered, no such registration shall be made unless the
Person requesting such registration has paid any transfer and other taxes
required by reason of such registration in a name other than that of the
registered Holder of the Certificate evidencing such Purchase Contract or has
established to the satisfaction of the Company that such tax either has been
paid or is not payable.
Section 5.6. Adjustment of Settlement Rate.
(a) Adjustments for Dividends, Distributions, Stock Splits, Etc.
(1) In case the Company shall pay or make a dividend or other
distribution on the Common Stock in Common Stock, the Settlement Rate in effect
at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be increased by dividing such Settlement Rate by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this paragraph (1), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include any shares issuable
in respect of any scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company.
(2) In case the Company shall issue rights, options or warrants
to all holders of its Common Stock (not being available on an equivalent basis
to Holders of the Securities upon settlement of the Purchase Contracts
underlying such Securities) entitling them, for a period expiring within 45 days
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants, to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price per share of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants (other than pursuant to a dividend
reinvestment plan), the Settlement Rate in effect at the opening of business on
the day following the date fixed for such determination shall be increased by
dividing such Settlement Rate by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination
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plus the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such Current Market Price and the denominator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription or purchase, such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this paragraph (2), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include any shares issuable
in respect of any scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company shall not issue any such rights, options or warrants
in respect of shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be
subdivided or split into a greater number of shares of Common Stock, the
Settlement Rate in effect at the opening of business on the day following the
day upon which such subdivision or split becomes effective shall be
proportionately increased, and, conversely, in case outstanding shares of Common
Stock shall each be combined into a smaller number of shares of Common Stock,
the Settlement Rate in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be proportionately
reduced, such increase or reduction, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision, split or combination becomes effective.
(4) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding any rights or warrants referred to
in paragraph (2) of this Section, any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to in paragraph (1) of this
Section), the Settlement Rate shall be adjusted so that the same shall equal the
rate determined by dividing the Settlement Rate in effect immediately prior to
the close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the numerator shall
be the Current Market Price per share of the Common Stock on the date fixed for
such determination less the then fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution) of the portion of the assets or evidences of indebtedness so
distributed applicable to one share of Common Stock and the denominator shall be
such Current Market Price per share of the Common Stock, such adjustment to
become effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such distribution. In any case in which this paragraph (4) is
applicable, paragraph (2) of this Section shall not be applicable.
(5) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock (I) cash (excluding any cash that
is distributed in a Reorganization Event to which Section 5.6(b) applies or as
part of a distribution referred to in paragraph (4) of this Section) in an
aggregate amount that, combined together with the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash (other
than in connection with a Reorganization Event) within the 12 months preceding
the date of payment of such distribution and in respect of which no adjustment
pursuant to this paragraph (5) or
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paragraph (6) of this Section has been made and (II) the aggregate of any cash
plus the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) of
consideration payable in respect of any tender or exchange offer by the Company
or any of its subsidiaries for all or any portion of the Common Stock concluded
within the 12 months preceding the date of payment of the distribution described
in Clause (I) above and in respect of which no adjustment pursuant to this
paragraph (5) or paragraph (4) or paragraph (6) of this Section has been made,
exceeds 15% of the product of the Current Market Price per share of the Common
Stock on the date for the determination of holders of shares of Common Stock
entitled to receive such distribution times the number of shares of Common Stock
outstanding on such date, then, and in each such case, immediately after the
close of business on such date for determination, the Settlement Rate shall be
increased so that the same shall equal the rate determined by dividing the
Settlement Rate in effect immediately prior to the close of business on the date
fixed for determination of the stockholders entitled to receive such
distribution by a fraction (i) the numerator of which shall be equal to the
Current Market Price per share of the Common Stock on the date fixed for such
determination less an amount equal to the quotient of (x) the combined amount
distributed or payable in the transactions described in clauses (I) and (II)
above and (y) the number of shares of Common Stock outstanding on such date for
determination and (ii) the denominator of which shall be equal to the Current
Market Price per share of the Common Stock on such date for determination.
(6) In case a tender or exchange offer made by the Company or any
subsidiary of the Company for all or any portion of the Common Stock shall
expire and such tender or exchange offer (as amended upon the expiration
thereof) shall require the payment to stockholders (based on the acceptance (up
to any maximum specified in the terms of the tender or exchange offer) of
Purchased Shares) of (I) an aggregate consideration having a fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) that combined together with the
aggregate of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer, by the
Company or any subsidiary of the Company for all or any portion of the Common
Stock expiring within the 12 months preceding the expiration of such tender or
exchange offer and in respect of which no adjustment pursuant to paragraph (5)
of this Section or this paragraph (6) has been made and (II) the aggregate
amount of any distributions to all holders of the Company's Common Stock made
exclusively in cash within the 12 months preceding the expiration of such tender
or exchange offer and in respect of which no adjustment pursuant to paragraph
(5) of this Section or this paragraph (6) has been made, exceeds 15% of the
product of the Current Market Price per share of the Common Stock as of the last
time (the "Expiration Time") tenders could have been made pursuant to such
tender or exchange offer (as it may be amended) times the number of shares of
Common Stock outstanding (including any tendered shares) on the Expiration Time,
then, and in each such case, immediately prior to the opening of business on the
day after the date of the Expiration Time, the Settlement Rate shall be adjusted
so that the same shall equal the rate determined by dividing the Settlement Rate
immediately prior to the close of business on the date of the Expiration Time by
a fraction (i) the numerator of which shall be equal to (A) the product of (I)
the Current Market Price per share of the Common Stock on the date of the
Expiration
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Time and (II) the number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time less (B) the amount of cash plus the
fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the transactions described in clauses (I) and
(II) above (assuming in the case of clause (I) the acceptance, up to any maximum
specified in the terms of the tender or exchange offer, of Purchased Shares),
and (ii) the denominator of which shall be equal to the product of (A) the
Current Market Price per share of the Common Stock as of the Expiration Time and
(B) the number of shares of Common Stock outstanding (including any tendered
shares) as of the Expiration Time less the number of all shares validly tendered
and not withdrawn as of the Expiration Time (the shares deemed so accepted, up
to any such maximum, being referred to as the "Purchased Shares").
(7) The reclassification of Common Stock into securities
including securities other than Common Stock (other than any reclassification
upon a Reorganization Event to which Section 5.6(b) applies) shall be deemed to
involve (a) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of stockholders entitled
to receive such distribution" and the "date fixed for such determination" within
the meaning of paragraph (4) of this Section), and (b) a subdivision, split or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of shares
of Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such subdivision
or split becomes effective" or "the day upon which such combination becomes
effective", as the case may be, and "the day upon which such subdivision, split
or combination becomes effective" within the meaning of paragraph (3) of this
Section).
(8) The "Current Market Price" per share of Common Stock on any
day means the average of the daily Closing Prices for the five consecutive
Trading Days selected by the Company commencing not more than 30 Trading Days
before, and ending not later than, the earlier of the day in question and the
day before the "ex date" with respect to the issuance or distribution requiring
such computation. For purposes of this paragraph, the term "ex date", when used
with respect to any issuance or distribution, shall mean the first date on which
the Common Stock trades regular way on such exchange or in such market without
the right to receive such issuance or distribution.
(9) All adjustments to the Settlement Rate shall be calculated to
the nearest 1/10,000th of a share of Common Stock (or if there is not a nearest
1/10,000th of a share, to the next lower 1/10,000th of a share). No adjustment
in the Settlement Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent thereof; provided, however, that
any adjustments which by reason of this subparagraph are not required to be made
shall be carried forward and taken into account in any subsequent adjustment. If
an adjustment is made to the Settlement Rate pursuant to paragraph (1), (2),
(3), (4), (5), (6), (7) or (10) of this Section 5.6(a), an adjustment shall also
be made to the Applicable Market Value solely to determine which of clauses (a),
(b) or (c) of the definition of Settlement Rate in Section 5.1 will apply on the
Purchase Contract Settlement Date. Such adjustment shall be made by multiplying
the Applicable Market Value by a fraction of which the numerator shall be the
Settlement Rate
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immediately after such adjustment pursuant to paragraph (1), (2), (3), (4), (5),
(6), (7) or (10) of this Section 5.6(a) and the denominator shall be the
Settlement Rate immediately before such adjustment; provided, however, that if
such adjustment to the Settlement Rate is required to be made pursuant to the
occurrence of any of the events contemplated by paragraph (1), (2), (3), (4),
(5), (7) or (10) of this Section 5.6(a) during the period taken into
consideration for determining the Applicable Market Value, appropriate and
customary adjustments shall be made to the Settlement Rate.
(10) The Company may make such increases in the Settlement Rate,
in addition to those required by this Section, as it considers to be advisable
in order to avoid or diminish any income tax to any holders of shares of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes or for any other reason.
(b) Adjustment for Consolidation, Merger or Other Reorganization
Event.
In the event of (i) any consolidation or merger of the Company
with or into another Person (other than a merger or consolidation in which the
Company is the continuing corporation and in which the Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged for cash,
securities or other property of the Company or another corporation), (ii) any
sale, transfer, lease or conveyance to another Person of the property of the
Company as an entirety or substantially as an entirety, (iii) any statutory
exchange of securities of the Company with another Person (other than in
connection with a merger or acquisition) or (iv) any liquidation, dissolution or
winding up of the Company other than as a result of or after the occurrence of a
Termination Event (any such event, a "Reorganization Event"), the Settlement
Rate will be adjusted to provide that each Holder of Securities will receive on
the Purchase Contract Settlement Date with respect to each Purchase Contract
forming a part thereof, the kind and amount of securities, cash and other
property receivable upon such Reorganization Event (without any interest
thereon, and without any right to dividends or distribution thereon which have a
record date that is prior to the Purchase Contract Settlement Date) by a Holder
of the number of shares of Common Stock issuable on account of each Purchase
Contract if the Purchase Contract Settlement Date had occurred immediately prior
to such Reorganization Event assuming such Holder of Common Stock is not a
Person with which the Company consolidated or into which the Company merged or
which merged into the Company or to which such sale or transfer was made, as the
case may be (any such Person, a "Constituent Person"), or an Affiliate of a
Constituent Person to the extent such Reorganization Event provides for
different treatment of Common Stock held by Affiliates of the Company and
non-affiliates and such Holder failed to exercise his rights of election, if
any, as to the kind or amount of securities, cash and other property receivable
upon such Reorganization Event (provided that if the kind or amount of
securities, cash and other property receivable upon such Reorganization Event is
not the same for each share of Common Stock held immediately prior to such
Reorganization Event by other than a Constituent Person or an Affiliate thereof
and in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this Section the kind and amount
of securities, cash and other property receivable upon such Reorganization Event
by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). In the event of
such a Reorganization Event, the Person
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formed by such consolidation, merger or exchange or the Person which acquires
the assets of the Company or, in the event of a liquidation or dissolution of
the Company, the Company or a liquidating trust created in connection therewith,
shall execute and deliver to the Agent an agreement supplemental hereto
providing that the Holders of each Outstanding Security shall have the rights
provided by this Section 5.6(b). Such supplemental agreement shall provide for
adjustments which, for events subsequent to the effective date of such
supplemental agreement, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section. The above provisions of this
Section shall similarly apply to successive Reorganization Events.
Section 5.7. Notice of Adjustments and Certain Other Events.
(a) Whenever the Settlement Rate is adjusted as herein provided, the
Company shall:
(i) forthwith compute the adjusted Settlement Rate in accordance
with Section 5.6 and prepare and transmit to the Agent an Officers'
Certificate setting forth the Settlement Rate, the method of
calculation thereof in reasonable detail, and the facts requiring such
adjustment and upon which such adjustment is based; and
(ii) within 10 Business Days following the occurrence of an event
that requires an adjustment to the Settlement Rate pursuant to Section
5.6 (or if the Company is not aware of such occurrence, as soon as
practicable after becoming so aware), provide a written notice to the
Holders of the Securities of the occurrence of such event and a
statement in reasonable detail setting forth the method by which the
adjustment to the Settlement Rate was determined and setting forth the
adjusted Settlement Rate.
(b) The Agent shall not at any time be under any duty or
responsibility to any Holder of Securities to determine whether any facts exist
which may require any adjustment of the Settlement Rate, or with respect to the
nature or extent or calculation of any such adjustment when made, or with
respect to the method employed in making the same. The Agent shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at the time
be issued or delivered with respect to any Purchase Contract; and the Agent
makes no representation with respect thereto. The Agent shall not be responsible
for any failure of the Company to issue, transfer or deliver any shares of
Common Stock pursuant to a Purchase Contract or to comply with any of the
duties, responsibilities or covenants of the Company contained in this Article.
Section 5.8. Termination Event; Notice.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay any Contract
Adjustment Payments, if the Company shall have such obligation, and the rights
and obligations of Holders to purchase Common Stock, shall immediately and
automatically terminate, without the necessity of any notice or action by any
Holder, the Agent or the Company, if, on or prior to the Purchase Contract
Settlement Date, a Termination Event shall have occurred. Upon and after the
occurrence of a Termination Event,
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the Securities shall thereafter represent the right to receive the Preferred
Securities or the Debentures or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, forming a part of such Securities in
the case of Corporate PIES, or Treasury Securities in the case of Treasury PIES,
in accordance with the provisions of Section 5.4 of the Pledge Agreement. Upon
the occurrence of a Termination Event, the Company shall promptly but in no
event later than two Business Days thereafter give written notice to the Agent,
the Collateral Agent and the Holders, at their addresses as they appear in the
Register.
Section 5.9. Early Settlement.
(a) Subject to and upon compliance with the provisions of this
Section 5.9, at the option of the Holder thereof, Purchase Contracts underlying
Securities may be settled early ("Early Settlement") in the case of Corporate
PIES (unless a Tax Event Redemption has occurred) on or prior to the seventh
Business Day immediately preceding the Purchase Contract Settlement Date and in
the case of Treasury PIES on or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date, in each case, as provided
herein; and if a Tax Event Redemption has occurred and the Treasury Portfolio
has become a component of the Corporate PIES, Purchase Contracts underlying
Corporate PIES may be settled early on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date, but only in an
aggregate amount of $8,000,000 or in an integral multiple thereof. In order to
exercise the right to effect Early Settlement with respect to any Purchase
Contracts, the Holder of the Certificate evidencing Securities shall deliver
such Certificate to the Agent at the Corporate Trust Office duly endorsed for
transfer to the Company or in blank with the form of Election to Settle Early on
the reverse thereof duly completed and accompanied by payment (payable to the
Company in immediately available funds) in an amount (the "Early Settlement
Amount") equal to (i) the product of (A) the Stated Amount times (B) the number
of Purchase Contracts with respect to which the Holder has elected to effect
Early Settlement plus (ii) if such delivery is made with respect to any Purchase
Contracts during the period from the close of business on any Record Date next
preceding any Payment Date to the opening of business on such Payment Date, an
amount equal to the sum of (x) the Contract Adjustment Payments payable on such
Payment Date with respect to such Purchase Contracts plus (y) in the case of a
Corporate PIES Certificate, the distributions on the related Preferred
Securities or Debentures payable on such Payment Date. Except as provided in the
immediately preceding sentence and subject to the second to last paragraph of
Section 5.2, no payment or adjustment shall be made upon Early Settlement of any
Purchase Contract on account of any Contract Adjustment Payments accrued on such
Purchase Contract or on account of any dividends on the Common Stock issued upon
such Early Settlement. If the foregoing requirements are first satisfied with
respect to Purchase Contracts underlying any Securities at or prior to 5:00
p.m., New York City time, on a Business Day, such day shall be the "Early
Settlement Date" with respect to such Securities and if such requirements are
first satisfied after 5:00 p.m., New York City time, on a Business Day or on a
day that is not a Business Day, the "Early Settlement Date" with respect to such
Securities shall be the next succeeding Business Day.
(b) Upon Early Settlement of Purchase Contracts by a Holder of the
related Securities, the Company shall issue, and the Holder shall be entitled to
receive, 1.6103 shares of Common Stock on account of each Purchase Contract as
to which Early Settlement is effected
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(the "Early Settlement Rate"). The Early Settlement Rate shall be adjusted in
the same manner and at the same time as the Settlement Rate is adjusted.
(c) No later than the third Business Day after the applicable Early
Settlement Date the Company shall cause (i) the shares of Common Stock issuable
upon Early Settlement of Purchase Contracts to be issued and delivered, together
with payment in lieu of any fraction of a share, as provided in Section 5.10,
and (ii) the related Preferred Securities or Debentures or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, in the case of Corporate PIES, or the
related Treasury Securities, in the case of Treasury PIES, to be released from
the Pledge by the Collateral Agent and transferred, in each case, to the Agent
for delivery to the Holder thereof or its designee.
(d) Upon Early Settlement of any Purchase Contracts, and subject to
receipt of shares of Common Stock from the Company and the Preferred Securities,
the Debentures, the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio or Treasury
Securities, as the case may be, from the Securities Intermediary, as applicable,
the Agent shall, in accordance with the instructions provided by the Holder
thereof on the applicable form of Election to Settle Early on the reverse of the
Certificate evidencing the related Securities, (i) transfer to the Holder the
Preferred Securities, the Debentures, the Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio or Treasury Securities, as the case may be, forming a part of such
Securities, and (ii) deliver to the Holder a certificate or certificates for the
full number of shares of Common Stock issuable upon such Early Settlement,
together with payment in lieu of any fraction of a share, as provided in Section
5.10.
(e) In the event that Early Settlement is effected with respect to
Purchase Contracts underlying less than all the Securities evidenced by a
Certificate, upon such Early Settlement the Company shall execute and the Agent
shall authenticate, countersign and deliver to the Holder thereof, at the
expense of the Company, a Certificate evidencing the Securities as to which
Early Settlement was not effected.
Section 5.10. No Fractional Shares.
No fractional shares or scrip representing fractional shares of Common
Stock shall be issued or delivered upon settlement on the Purchase Contract
Settlement Date or upon Early Settlement of any Purchase Contracts. If
Certificates evidencing more than one Purchase Contract shall be surrendered for
settlement at one time by the same Holder, the number of full shares of Common
Stock which shall be delivered upon settlement shall be computed on the basis of
the aggregate number of Purchase Contracts evidenced by the Certificates so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be deliverable upon settlement of any Purchase Contracts on the
Purchase Contract Settlement Date or upon Early Settlement, the Company, through
the Agent, shall make a cash payment in respect of such fractional interest in
an amount equal to the value of such fractional shares times the Applicable
Market Value. The Company shall provide the Agent from time to time with
sufficient funds to permit the Agent to make all cash payments required by this
Section 5.10 in a timely manner.
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Section 5.11. Charges and Taxes.
The Company will pay all stock transfer and similar taxes attributable
to the initial issuance and delivery of the shares of Common Stock pursuant to
the Purchase Contracts; provided, however, that the Company shall not be
required to pay any such tax or taxes which may be payable in respect of any
exchange of or substitution for a Certificate evidencing a Security or any
issuance of a share of Common Stock in a name other than that of the registered
Holder of a Certificate surrendered in respect of the Securities evidenced
thereby, other than in the name of the Agent, as custodian for such Holder, and
the Company shall not be required to issue or deliver such share certificates or
Certificates unless or until the Person or Persons requesting the transfer or
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
ARTICLE VI
Remedies
Section 6.1. Unconditional Right of Holders to Receive Contract Adjustment
Payments and to Purchase Common Stock.
In the event that Contract Adjustment Payments shall constitute a
component of Corporate PIES or Treasury PIES, the Holder of any Corporate PIES
or Treasury PIES shall have the right, which is absolute and unconditional
(subject to the payment by a holder of Contract Adjustment Payments pursuant to
Section 5.9(a)), to receive payment of each installment of the Contract
Adjustment Payments with respect to the Purchase Contract constituting a part of
such Security on the respective Payment Date for such Security and to purchase
Common Stock pursuant to such Purchase Contract and, in each such case, to
institute suit for the enforcement of any such payment and right to purchase
Common Stock, and such rights shall not be impaired without the consent of such
Holder.
Section 6.2. Restoration of Rights and Remedies.
If any Holder has instituted any proceeding to enforce any right or
remedy under this Agreement and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company and such Holder shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of such Holder
shall continue as though no such proceeding had been instituted.
Section 6.3. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates in the last
paragraph of Section 3.10, no right or remedy herein conferred upon or reserved
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in
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addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.4. Delay or Omission Not Waiver.
No delay or omission of any Holder to exercise any right or remedy
upon a default shall impair any such right or remedy or constitute a waiver of
any such right. Every right and remedy given by this Article or by law to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by such Holders.
Section 6.5. Undertaking for Costs.
All parties to this Agreement agree, and each Holder of Corporate PIES
or Treasury PIES, by its acceptance of such Corporate PIES or Treasury PIES
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Agreement, or in
any suit against the Agent for any action taken, suffered or omitted by it as
Agent, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; provided that the provisions of
this Section shall not apply to any suit instituted by the Company, to any suit
instituted by the Agent, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of distributions on
any Preferred Securities or Contract Adjustment Payments, if any, on any
Purchase Contract on or after the respective Payment Date therefor in respect of
any Security held by such Holder, or for enforcement of the right to purchase
shares of Common Stock under the Purchase Contracts constituting part of any
Security held by such Holder.
Section 6.6. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Agreement; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Agent or the Holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.
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ARTICLE VII
The Agent
Section 7.1. Certain Duties and Responsibilities.
(a) (1) The Agent undertakes to perform, with respect to the
Securities, such duties and only such duties as are specifically set forth in
this Agreement and the Pledge Agreement, and no implied covenants or obligations
shall be read into this Agreement or the Pledge Agreement against the Agent; and
(2) in the absence of bad faith or negligence on its part, the
Agent may, with respect to the Securities, conclusively rely, as to
the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the
Agent and conforming to the requirements of this Agreement or the
Pledge Agreement, as applicable, but in the case of any certificates
or opinions which by any provision hereof are specifically required to
be furnished to the Agent, the Agent shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Agreement or the Pledge Agreement, as applicable.
(b) No provision of this Agreement or the Pledge Agreement shall be
construed to relieve the Agent from liability for its own negligent action, its
own negligent failure to act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Agent shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that
the Agent was negligent in ascertaining the pertinent facts; and
(3) no provision of this Agreement or the Pledge Agreement shall
require the Agent to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if
adequate indemnity is not provided to it.
(c) Whether or not therein expressly so provided, every provision of
this Agreement and the Pledge Agreement relating to the conduct or affecting the
liability of or affording protection to the Agent shall be subject to the
provisions of this Section.
(d) The Agent is authorized to execute and deliver the Pledge
Agreement in its capacity as Agent.
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Section 7.2. Notice of Default.
Within 30 days after the occurrence of any default by the Company
hereunder of which a Responsible Officer of the Agent has actual knowledge, the
Agent shall transmit by mail to the Company and the Holders of Securities, as
their names and addresses appear in the Register, notice of such default
hereunder, unless such default shall have been cured or waived.
Section 7.3. Certain Rights of Agent.
Subject to the provisions of Section 7.1:
(a) the Agent may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Officers' Certificate, Issuer Order or Issuer
Request, and any resolution of the Board of Directors of the Company may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Agreement or the Pledge
Agreement the Agent shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder, the
Agent (unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officers' Certificate of the
Company;
(d) the Agent may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Agent shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the Agent,
in its discretion, may make reasonable further inquiry or investigation into
such facts or matters related to the execution, delivery and performance of the
Purchase Contracts as it may see fit, and, if the Agent shall determine to make
such further inquiry or investigation, it shall be given a reasonable
opportunity to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(f) the Agent may execute any of the powers hereunder or perform any
duties hereunder either directly or by or through agents or attorneys or an
Affiliate and the Agent shall not be responsible for any misconduct or
negligence on the part of any agent or attorney or an Affiliate appointed with
due care by it hereunder.
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Section 7.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Certificates shall be taken
as the statements of the Company, and the Agent assumes no responsibility for
their accuracy. The Agent makes no representations as to the validity or
sufficiency of either this Agreement or of the Securities, or of the Pledge
Agreement or the Pledge. The Agent shall not be accountable for the use or
application by the Company of the proceeds in respect of the Purchase Contracts.
Section 7.5. May Hold Securities.
Any Registrar or any other agent of the Company, or the Agent and its
Affiliates, in their individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with the Company, the Collateral
Agent or any other Person with the same rights it would have if it were not
Registrar or such other agent, or the Agent.
Section 7.6. Money Held in Custody.
Money held by the Agent in custody hereunder need not be segregated
from the other funds except to the extent required by law or provided herein.
The Agent shall be under no obligation to invest or pay interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
Section 7.7. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Agent from time to time reasonable compensation
for all services rendered by it hereunder and under the Pledge
Agreement;
(2) except as otherwise expressly provided for herein, to
reimburse the Agent upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Agent in accordance
with any provision of this Agreement and the Pledge Agreement
(including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or
bad faith; and
(3) to indemnify the Agent and any predecessor Agent for, and to
hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of its duties
hereunder, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
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Section 7.8. Corporate Agent Required; Eligibility.
There shall at all times be an Agent hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having (or being a member of a bank
holding company having) a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority and having a
Corporate Trust Office in the Borough of Manhattan, The City of New York, if
there be such a corporation in the Borough of Manhattan, The City of New York,
qualified and eligible under this Article and willing to act on reasonable
terms. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Agent shall cease to be eligible in accordance with the provisions
of this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 7.9. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Agent and no appointment of a
successor Agent pursuant to this Article shall become effective until the
acceptance of appointment by the successor Agent in accordance with the
applicable requirements of Section 7.10.
(b) The Agent may resign at any time by giving written notice thereof
to the Company 60 days prior to the effective date of such resignation. If the
instrument of acceptance by a successor Agent required by Section 7.10 shall not
have been delivered to the Agent within 30 days after the giving of such notice
of resignation, the resigning Agent may petition any court of competent
jurisdiction for the appointment of a successor Agent.
(c) The Agent may be removed at any time by Act of the Holders of a
majority in number of the Outstanding Securities delivered to the Agent and the
Company.
(d) If at any time
(1) the Agent fails to comply with Section 310(b) of the TIA, as
if the Agent were an indenture trustee under an indenture qualified
under the TIA, after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Agent shall cease to be eligible under Section 7.8 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Agent shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Agent or of its
property shall be appointed or any public officer shall take charge or
control of the Agent or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
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then, in any such case, (i) the Company by a Board Resolution may remove the
Agent, or (ii) any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Agent and
the appointment of a successor Agent.
(e) If the Agent shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Agent for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Agent and
shall comply with the applicable requirements of Section 7.10. If no successor
Agent shall have been so appointed by the Company and accepted appointment in
the manner required by Section 7.10, any Holder who has been a bona fide Holder
of a Security for at least six months may, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Agent.
(f) The Company shall give, or shall cause such successor Agent to
give, notice of each resignation and each removal of the Agent and each
appointment of a successor Agent by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders as their names and addresses
appear in the applicable Register. Each notice shall include the name of the
successor Agent and the address of its Corporate Trust Office.
Section 7.10. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Agent, every
such successor Agent so appointed shall execute, acknowledge and deliver to the
Company and to the retiring Agent an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Agent shall become
effective and such successor Agent, without any further act, deed or conveyance,
shall become vested with all the rights, powers, agencies and duties of the
retiring Agent; but, on the request of the Company or the successor Agent, such
retiring Agent shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Agent all the rights, powers and
trusts of the retiring Agent and shall duly assign, transfer and deliver to such
successor Agent all property and money held by such retiring Agent hereunder.
(b) Upon request of any such successor Agent, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Agent all such rights, powers and agencies referred
to in paragraph (a) of this Section.
(c) No successor Agent shall accept its appointment unless at the
time of such acceptance such successor Agent shall be qualified and eligible
under this Article.
Section 7.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Agent may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Agent shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Agent, shall be the successor of the Agent hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article, with
the execution or filing of any paper or any further act on the part of any of
the parties hereto. In case any
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Certificates shall have been authenticated and executed on behalf of the
Holders, but not delivered, by the Agent then in office, any successor by
merger, conversion or consolidation to such Agent may adopt such authentication
and execution and deliver the Certificates so authenticated and executed with
the same effect as if such successor Agent had itself authenticated and executed
such Securities.
Section 7.12. Preservation of Information; Communications to Holders.
(a) The Agent shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders received by the Agent in its
capacity as Registrar.
(b) If three or more Holders (herein referred to as "applicants")
apply in writing to the Agent, and furnish to the Agent reasonable proof that
each such applicant has owned a Security for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Agreement or under the Securities and is accompanied by a copy of the
form of proxy or other communication which such applicants propose to transmit,
then the Agent shall mail to all the Holders copies of the form of proxy or
other communication which is specified in such request, with reasonable
promptness after a tender to the Agent of the materials to be mailed and of
payment, or provision for the payment, of the reasonable expenses of such
mailing.
Section 7.13. No Obligations of Agent.
Except to the extent otherwise expressly provided in this Agreement,
the Agent assumes no obligations and shall not be subject to any liability under
this Agreement, the Pledge Agreement or any Purchase Contract in respect of the
obligations of the Holder of any Security thereunder. The Company agrees, and
each Holder of a Certificate, by his acceptance thereof, shall be deemed to have
agreed, that the Agent's execution of the Certificates on behalf of the Holders
shall be solely as agent and attorney-in-fact for the Holders, and that the
Agent shall have no obligation to perform such Purchase Contracts on behalf of
the Holders, except to the extent expressly provided in Article Five hereof.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Agent or its officers, employees or agents be liable under this Agreement to
any third party for indirect, special, punitive, or consequential loss or damage
of any kind whatsoever, including lost profits, whether or not the likelihood of
such loss or damage was known to the Agent, incurred without any act or deed
that is found to be attributable to gross negligence or willful misconduct on
the part of the Agent.
Section 7.14. Tax Compliance.
(a) The Company will comply with all applicable certification,
information reporting and withholding (including "backup" withholding)
requirements imposed by applicable tax laws, regulations or administrative
practice with respect to (i) any payments made with respect to the Securities or
(ii) the issuance, delivery, holding, transfer, redemption or exercise of rights
under the Securities. Such compliance shall include, without limitation, the
preparation and timely filing of required returns and the timely payment of all
amounts required to be withheld to the appropriate taxing authority or its
designated agent.
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(b) The Agent shall comply in accordance with the terms hereof with
any written direction received from the Company with respect to the execution or
certification of any required documentation and the application of such
requirements to particular payments or Holders or in other particular
circumstances, and may for purposes of this Agreement rely on any such direction
in accordance with the provisions of Section 7.1(a)(2) hereof.
(c) The Agent shall maintain all appropriate records documenting
compliance with such requirements, and shall make such records available, on
written request, to the Company or its authorized representative within a
reasonable period of time after receipt of such request.
ARTICLE VIII
Supplemental Agreements
Section 8.1. Supplemental Agreements Without Consent of Holders.
Without the consent of any Holders, the Company and the Agent, at any
time and from time to time, may enter into one or more agreements supplemental
hereto, in form satisfactory to the Company and the Agent, for any of the
following purposes:
(1) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the covenants of the
Company herein and in the Certificates; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Agent; or
(4) to make provision with respect to the rights of Holders
pursuant to the requirements of Section 5.6(b); or
(5) except as provided for in Section 5.6, to cure any ambiguity,
to correct or supplement any provisions herein which may be
inconsistent with any other provisions herein, or to make any other
provisions with respect to such matters or questions arising under
this Agreement, provided such action shall not adversely affect the
interests of the Holders.
Section 8.2. Supplemental Agreements With Consent of Holders.
With the consent of the Holders of not less than a majority of the
outstanding Purchase Contracts voting together as one class, by Act of said
Holders delivered to the Company and the Agent, the Company, when authorized by
a Board Resolution, and the Agent may enter into an agreement or agreements
supplemental hereto for the purpose of modifying in any manner the
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terms of the Purchase Contracts, or the provisions of this Agreement or the
rights of the Holders in respect of the Securities; provided, however, that,
except as contemplated herein, no such supplemental agreement shall, without the
unanimous consent of the Holders of each outstanding Purchase Contract affected
thereby,
(1) change any Payment Date;
(2) change the amount or the type of Collateral required to be
Pledged to secure a Holder's obligations under the Purchase Contract,
impair the right of the Holder of any Purchase Contract to receive
distributions on the related Collateral (except for the rights of
Holders of Corporate PIES to substitute the Treasury Securities for
the Pledged Preferred Securities or Pledged Debentures or the
Applicable Ownership Interest of the Treasury Portfolio or the rights
of holders of Treasury PIES to substitute Preferred Securities,
Debentures or the Applicable Ownership Interest of the Treasury
Portfolio for the Pledged Treasury Securities) or otherwise adversely
affect the Holder's rights in or to such Collateral or adversely alter
the rights in or to such Collateral;
(3) reduce any Contract Adjustment Payments or change any place
where, or the coin or currency in which, any Contract Adjustment
Payment is payable;
(4) impair the right to institute suit for the enforcement of any
Purchase Contract;
(5) reduce the number of shares of Common Stock to be purchased
pursuant to any Purchase Contract, increase the price to purchase
shares of Common Stock upon settlement of any Purchase Contract,
change the Purchase Contract Settlement Date or otherwise adversely
affect the Holder's rights under any Purchase Contract; or
(6) reduce the percentage of the outstanding Purchase Contracts
the consent of whose Holders is required for any such supplemental
agreement;
provided that if any amendment or proposal referred to above would adversely
affect only the Corporate PIES or the Treasury PIES, then only the affected
class of Holder as of the record date for the Holders entitled to vote thereon
will be entitled to vote on such amendment or proposal, and such amendment or
proposal shall not be effective except with the consent of Holders of not less
than a majority of such class; provided that the unanimous consent of the
Holders of each outstanding Purchase Contract of such class affected thereby
shall be required to approve any amendment or proposal specified in clauses
(1) - (6) above.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental agreement, but it shall
be sufficient if such Act shall approve the substance thereof.
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Section 8.3. Execution of Supplemental Agreements.
In executing, or accepting the additional agencies created by, any
supplemental agreement permitted by this Article or the modifications thereby of
the agencies created by this Agreement, the Agent shall be entitled to receive,
and (subject to Section 7.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental agreement is
authorized or permitted by this Agreement. The Agent may, but shall not be
obligated to, enter into any such supplemental agreement which affects the
Agent's own rights, duties or immunities under this Agreement or otherwise.
Section 8.4. Effect of Supplemental Agreements.
Upon the execution of any supplemental agreement under this Article,
this Agreement shall be modified in accordance therewith, and such supplemental
agreement shall form a part of this Agreement for all purposes; and every Holder
of Certificates theretofore or thereafter authenticated, executed on behalf of
the Holders and delivered hereunder, shall be bound thereby.
Section 8.5. Reference to Supplemental Agreements.
Certificates authenticated, executed on behalf of the Holders and
delivered after the execution of any supplemental agreement pursuant to this
Article may, and shall if required by the Agent, bear a notation in form
approved by the Agent as to any matter provided for in such supplemental
agreement. If the Company shall so determine, new Certificates so modified as to
conform, in the opinion of the Agent and the Company, to any such supplemental
agreement may be prepared and executed by the Company and authenticated,
executed on behalf of the Holders and delivered by the Agent in exchange for
Outstanding Certificates.
ARTICLE IX
Consolidation, Merger, Sale or Conveyance
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey Property
Except Under Certain Conditions.
The Company covenants that it will not merge or consolidate with any
other Person or sell, assign, transfer, lease or convey all or substantially all
of its properties and assets to any Person or group of affiliated Persons in one
transaction or a series of related transactions, unless (i) either the Company
shall be the continuing corporation, or the successor (if other than the
Company) shall be a corporation organized and existing under the laws of the
United States of America or a State thereof or the District of Columbia and such
corporation shall expressly assume all the obligations of the Company under the
Purchase Contracts, this Agreement and the Pledge Agreement by one or more
supplemental agreements in form reasonably satisfactory to the Agent and the
Collateral Agent, executed and delivered to the Agent and the Collateral Agent
by such corporation, and (ii) the Company or such successor corporation, as the
case may be, shall not, immediately after such merger or consolidation, or such
sale, assignment, transfer,
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lease or conveyance, be in default in the performance of any covenant or
condition hereunder, under any of the Securities or under the Pledge Agreement.
Section 9.2. Rights and Duties of Successor Corporation.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance and upon any such assumption by a successor corporation in
accordance with Section 9.1, such successor corporation shall succeed to and be
substituted for the Company with the same effect as if it had been named herein
as the Company. Such successor corporation thereupon may cause to be signed, and
may issue either in its own name or in the name of NIPSCO Industries, Inc., any
or all of the Certificates evidencing Securities issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Agent; and, upon the order of such successor corporation, instead of the
Company, and subject to all the terms, conditions and limitations in this
Agreement prescribed, the Agent shall authenticate and execute on behalf of the
Holders and deliver any Certificates which previously shall have been signed and
delivered by the officers of the Company to the Agent for authentication and
execution, and any Certificate evidencing Securities which such successor
corporation thereafter shall cause to be signed and delivered to the Agent for
that purpose. All the Certificates issued shall in all respects have the same
legal rank and benefit under this Agreement as the Certificates theretofore or
thereafter issued in accordance with the terms of this Agreement as though all
of such Certificates had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance such change in phraseology and form (but not in substance)
may be made in the Certificates evidencing Securities thereafter to be issued as
may be appropriate.
Section 9.3. Opinion of Counsel Given to Agent.
The Agent, subject to Sections 7.1 and 7.3, shall receive an Opinion
of Counsel as conclusive evidence that any such consolidation, merger, sale,
assignment, transfer, lease or conveyance, and any such assumption, complies
with the provisions of this Article and that all conditions precedent to the
consummation of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance have been met.
ARTICLE X
Covenants
Section 10.1. Performance Under Purchase Contracts.
The Company covenants and agrees for the benefit of the Holders from
time to time of the Securities that it will duly and punctually perform its
obligations under the Purchase Contracts in accordance with the terms of the
Purchase Contracts and this Agreement.
Section 10.2. Maintenance of Office or Agency.
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The Company will maintain in the Borough of Manhattan, The City of New
York an office or agency where Certificates may be presented or surrendered for
acquisition of shares of Common Stock upon settlement of the Purchase Contracts
on the Purchase Contract Settlement Date or Early Settlement and for transfer of
Collateral upon occurrence of a Termination Event, where Certificates may be
surrendered for registration of transfer or exchange, for a Collateral
Substitution or re-establishment of a Corporate PIES and where notices and
demands to or upon the Company in respect of the Securities and this Agreement
may be served. The Company will give prompt written notice to the Agent of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Agent with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office, and the Company hereby appoints the Agent as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where Certificates may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company will
give prompt written notice to the Agent of any such designation or rescission
and of any change in the location of any such other office or agency. The
Company hereby designates as the place of payment for the Securities the
Corporate Trust Office and appoints the Agent at its Corporate Trust Office as
paying agent in such city.
Section 10.3. Company to Reserve Common Stock.
The Company shall at all times prior to the Purchase Contract
Settlement Date reserve and keep available, free from preemptive rights, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock issuable against tender of payment in respect of all Purchase Contracts
constituting a part of the Securities evidenced by Outstanding Certificates.
Section 10.4. Covenants as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued against tender of payment in respect of any Purchase Contract
constituting a part of the Outstanding Securities will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable.
Section 10.5. Statements of Officers of the Company as to Default.
The Company will deliver to the Agent, within 120 days after the end
of each fiscal year of the Company (which as of the date hereof is December 31)
ending after the date hereof, an Officers' Certificate (one of the signers of
which shall be the principal executive officer, principal financial officer or
principal accounting officer of the Company), stating whether or not to the best
knowledge of the signers thereof the Company is in default in the performance
and observance of any of the terms, provisions and conditions hereof, and if the
Company shall be in
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default, specifying all such defaults and the nature and status thereof of which
they may have knowledge.
Section 10.6. ERISA.
Each Holder from time to time of the Corporate PIES which is a Plan
hereby represents that its acquisition of the Corporate PIES and the holding of
the same satisfies the applicable fiduciary requirements of ERISA and that it is
entitled to exemption relief from the prohibited transaction provisions of ERISA
and the Code in accordance with one or more prohibited transaction exemptions or
otherwise will not result in a nonexempt prohibited transaction.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
NIPSCO INDUSTRIES, INC.
By: /s/ Stephen P. Adik
--------------------------------------
Name: Stephen P. Adik
Title: Executive Vice President, Chief
Financial Officer, and Treasurer
THE CHASE MANHATTAN BANK, as
Purchase Contract Agent
By: /s/ R. Lorenzen
--------------------------------------
Name: R. Lorenzen
Title: Senior Trust Officer
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EXHIBIT A
FACE OF CORPORATE PIES CERTIFICATE
"THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"),
OR A NOMINEE OF THE DEPOSITARY. THIS CERTIFICATE IS EXCHANGEABLE FOR
CERTIFICATES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT
AGREEMENT AND NO TRANSFER OF THIS CERTIFICATE (OTHER THAN A TRANSFER OF THIS
CERTIFICATE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN."
NO. _______ CUSIP NO. 629140302
NUMBER OF CORPORATE PIES ________
NIPSCO INDUSTRIES, INC.
NIPSCO CAPITAL TRUST I
CORPORATE PIES
This Corporate PIES Certificate certifies that Cede & Co. is the
registered Holder of the number of Corporate PIES set forth above. Each
Corporate PIES consists of (i) either (a) beneficial ownership by the Holder of
one Preferred Security (the "Preferred Security") of NIPSCO Capital Trust I, a
Delaware statutory business trust (the "Trust"), having a stated liquidation
amount of $50, subject to the Pledge of such Preferred Security by such Holder
pursuant to the Pledge Agreement or (b) upon the occurrence of a Tax Event
Redemption prior to the Purchase Contract Settlement Date, the appropriate
Applicable Ownership Interest of the Treasury Portfolio, subject to the Pledge
of such Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio by such Holder pursuant to
the Pledge Agreement, and (ii) the rights and obligations of the Holder under
one Purchase Contract with NIPSCO Industries, Inc., an Indiana corporation (the
"Company"). All capitalized
<PAGE> 67
terms used herein which are defined in the Purchase Contract Agreement (as
defined on the reverse hereof) have the meaning set forth therein.
Pursuant to the Pledge Agreement, the Preferred Securities or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be,
constituting part of each Corporate PIES evidenced hereby have been pledged to
the Collateral Agent, for the benefit of the Company, to secure the obligations
of the Holder under the Purchase Contract comprising a portion of such Corporate
PIES.
The Pledge Agreement provides that all payments of the liquidation
amount with respect to any of the Pledged Preferred Securities or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, or cash
distributions on any Pledged Preferred Securities (as defined in the Pledge
Agreement) or the appropriate Applicable Ownership Interest (as specified in
clause (B) of the definition of such term) of the Treasury Portfolio, as the
case may be, constituting part of the Corporate PIES received by the Securities
Intermediary shall be paid by wire transfer in same day funds (i) in the case of
(A) cash distributions with respect to Pledged Preferred Securities or the
appropriate Applicable Ownership Interest (as specified in clause (B) of the
definition of such term) of the Treasury Portfolio, as the case may be, and (B)
any payments of the liquidation amount with respect to any Preferred Securities
or the appropriate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio, as the case may be, that
have been released from the Pledge pursuant to the Pledge Agreement, to the
Agent to the account designated by the Agent, no later than 2:00 p.m., New York
City time, on the Business Day such payment is received by the Securities
Intermediary (provided that in the event such payment is received by the
Securities Intermediary on a day that is not a Business Day or after 12:30 p.m.,
New York City time, on a Business Day, then such payment shall be made no later
than 10:30 a.m., New York City time, on the next succeeding Business Day) and
(ii) in the case of payments of the liquidation amount with respect to any of
the Pledged Preferred Securities or the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, to the Company on the Purchase Contract Settlement Date (as
described herein) in accordance with the terms of the Pledge Agreement, in full
satisfaction of the respective obligations of the Holders of the Corporate PIES
of which such Pledged Preferred Securities or the Applicable Ownership Interest
(as specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as the case may be, are a part under the Purchase Contracts forming a
part of such Corporate PIES. Distributions on any Preferred Security or the
appropriate Applicable Ownership Interest (as specified in clause (B) of the
definition of such term) of the Treasury Portfolio, as the case may be, forming
part of a Corporate PIES evidenced hereby, which are payable quarterly in
arrears on February 19, May 19, August 19 and November 19 of each year,
commencing May 19, 1999 (a "Payment Date"), shall, subject to receipt thereof by
the Agent from the Securities Intermediary, be paid to the Person in whose name
this Corporate PIES Certificate (or a Predecessor Corporate PIES Certificate) is
registered at the close of business on the Record Date for such Payment Date.
Each Purchase Contract evidenced hereby obligates the Holder of this
Corporate PIES Certificate to purchase, and the Company to sell, on February 19,
2003 (the "Purchase Contract Settlement Date"), at a price equal to $50 (the
"Stated Amount"), a number of Common Shares,
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<PAGE> 68
without par value ("Common Stock"), of the Company, equal to the Settlement
Rate, unless on or prior to the Purchase Contract Settlement Date there shall
have occurred a Termination Event or an Early Settlement with respect to the
Corporate PIES of which such Purchase Contract is a part, all as provided in the
Purchase Contract Agreement and more fully described on the reverse hereof. The
purchase price (the "Purchase Price") for the shares of Common Stock purchased
pursuant to each Purchase Contract evidenced hereby, if not paid earlier, shall
be paid on the Purchase Contract Settlement Date by separate cash or by
application of payment received in respect of the liquidation amount with
respect to any Pledged Preferred Securities pursuant to the Remarketing or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, pledged
to secure the obligations under such Purchase Contract of the Holder of the
Corporate PIES of which such Purchase Contract is a part.
The Company shall pay, on each Payment Date, in respect of each
Purchase Contract forming part of a Corporate PIES evidenced hereby an amount
(the "Contract Adjustment Payments") equal to (a) if a Reset Transaction has not
occurred, 1.85% per annum of the Stated Amount or (b) following the occurrence
of a Reset Transaction, the Adjusted Contract Adjustment Payment Rate related to
such Reset Transaction until any such succeeding Reset Transaction shall occur
(computed on the basis of (i) for any full quarterly period, a 360-day year of
twelve 30-day months and (ii) for any period shorter than a full quarterly
period, a 30-day month and for periods less than a month, the actual number of
days elapsed per 30-day period). Such Contract Adjustment Payments shall be
payable to the Person in whose name this Corporate PIES Certificate (or a
Predecessor Corporate PIES Certificate) is registered at the close of business
on the Record Date for such Payment Date.
Distributions on the Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in clause (B) of the definition of such term)
of the Treasury Portfolio, as the case may be, and Contract Adjustment Payments
will be payable at the office of the Agent in The City of New York or, at the
option of the Company, by check mailed to the address of the Person entitled
thereto as such address appears on the Corporate PIES Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Corporate PIES Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
A-3
<PAGE> 69
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
NIPSCO INDUSTRIES, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under the
Purchase Contracts evidenced hereby)
By: THE CHASE MANHATTAN BANK,
not individually but solely as
Attorney-in-Fact of such Holder
By:
-----------------------------------
Name:
Title:
Dated:
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Corporate PIES Certificates referred to in the
within mentioned Purchase Contract Agreement.
By: THE CHASE MANHATTAN BANK,
as Purchase Contract Agent
By:
-----------------------------------
Authorized Officer
A-4
<PAGE> 70
(FORM OF REVERSE OF CORPORATE PIES CERTIFICATE)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of February 16, 1999 (as may be supplemented from
time to time, the "Purchase Contract Agreement"), between the Company and The
Chase Manhattan Bank, as Purchase Contract Agent (including its successors
hereunder, the "Agent"), to which Purchase Contract Agreement and supplemental
agreements thereto reference is hereby made for a description of the respective
rights, limitations of rights, obligations, duties and immunities thereunder of
the Agent, the Company, and the Holders and of the terms upon which the
Corporate PIES Certificates are, and are to be, executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Corporate PIES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price"), a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless, on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event with respect to the Security of
which such Purchase Contract is a part or an Early Settlement shall have
occurred. The "Settlement Rate" is equal to (a) if the Applicable Market Value
(as defined below) is equal to or greater than $31.0500 (the "Threshold
Appreciation Price"), 1.6103 shares of Common Stock per Purchase Contract, (b)
if the Applicable Market Value is less than the Threshold Appreciation Price but
is greater than $26.3125, the number of shares of Common Stock per Purchase
Contract equal to the Stated Amount divided by the Applicable Market Value and
(c) if the Applicable Market Amount is less than or equal to $26.3125, 1.9002
shares of Common Stock per Purchase Contract, in each case subject to adjustment
as provided in the Purchase Contract Agreement. No fractional shares of Common
Stock will be issued upon settlement of Purchase Contracts, as provided in the
Purchase Contract Agreement.
Each Purchase Contract evidenced hereby, which is settled either
through Early Settlement or Cash Settlement, shall obligate the Holder of the
related Corporate PIES to purchase at the Purchase Price, and the Company to
sell, a number of newly issued shares of Common Stock equal to the Early
Settlement Rate or the Settlement Rate, as applicable.
The "Applicable Market Value" means the average of the Closing Price
per share of Common Stock on each of the 20 Trading Days ending on the third
Trading Day immediately preceding the Purchase Contract Settlement Date or any
applicable Early Settlement Date. The "Closing Price" of the Common Stock on any
date of determination means (i) the closing sale price (or, if no closing price
is reported, the last reported sale price) of the Common Stock on the New York
Stock Exchange (the "NYSE") on such date, (ii) if the Common Stock is not listed
for trading on the NYSE on any such date, the closing sale price as reported in
the composite transactions for the principal United States securities exchange
on which the Common Stock is so listed, (iii) if the Common Stock is not so
listed on a United States national or regional securities exchange, the closing
sale price as reported by The Nasdaq Stock Market, (iv) if the Common Stock is
not so reported, the last quoted bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or (v) if such bid price is not available, the average of the
mid-point of the last bid and ask prices of
A-5
<PAGE> 71
the Common Stock on such date from at least three nationally recognized
independent investment banking firms retained for this purpose by the Company. A
"Trading Day" means a day on which the Common Stock (A) is not suspended from
trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the Common
Stock.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Corporate PIES Certificate may pay the Purchase Price for the
shares of Common Stock purchased pursuant to each Purchase Contract evidenced
hereby by effecting a Cash Settlement or an Early Settlement or from the
proceeds of the Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio or a remarketing of the
related Pledged Preferred Securities. A Holder of Corporate PIES who does not
effect, on or prior to 11:00 a.m. New York City time on the fifth Business Day
immediately preceding the Purchase Contract Settlement Date (or in the event a
Tax Event Redemption has occurred, the Business Day prior to the Purchase
Contract Settlement Date), an effective Cash Settlement or an Early Settlement,
shall pay the Purchase Price for the shares of Common Stock to be issued under
the related Purchase Contract from the proceeds of the Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio or the sale of the related Pledged Preferred Securities held
by the Collateral Agent. Such sale will be made by the Remarketing Agent
pursuant to the terms of the Remarketing Agreement on the third Business Day
prior to the Purchase Contract Settlement Date. If, as provided in the Purchase
Contract Agreement, upon the occurrence of a Failed Remarketing the Collateral
Agent, for the benefit of the Company, exercises its rights as a secured
creditor with respect to the Pledged Preferred Securities related to this
Corporate PIES certificate, any accrued and unpaid distributions on such Pledged
Preferred Securities will become payable by the Company to the holder of this
Corporate PIES Certificate in the manner provided for in the Purchase Contract
Agreement.
The Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment of the aggregate purchase price for
the shares of Common Stock to be purchased thereunder in the manner herein set
forth.
Each Purchase Contract evidenced hereby and all obligations and rights
of the Company and the Holder thereunder shall terminate if a Termination Event
shall occur. Upon the occurrence of a Termination Event, the Company shall give
written notice to the Agent and to the Holders, at their addresses as they
appear in the Corporate PIES Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Preferred
Security or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio forming a
part of each Corporate PIES from the Pledge. A Corporate PIES shall thereafter
represent the right to receive the Preferred Security or the appropriate
Applicable Ownership Interest of the Treasury Portfolio forming a part of such
Corporate PIES in accordance with the terms of the Purchase Contract Agreement
and the Pledge Agreement.
A-6
<PAGE> 72
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Pledged
Preferred Securities. Upon receipt of notice of any meeting at which holders of
Preferred Securities are entitled to vote or upon the solicitation of consents,
waivers or proxies of holders of Preferred Securities, the Agent shall, as soon
as practicable thereafter, mail to the Corporate PIES Holders a notice (a)
containing such information as is contained in the notice or solicitation, (b)
stating that each Corporate PIES Holder on the record date set by the Agent
therefor (which, to the extent possible, shall be the same date as the record
date for determining the holders of Preferred Securities entitled to vote) shall
be entitled to instruct the Agent as to the exercise of the voting rights
pertaining to the Preferred Securities constituting a part of such Holder's
Corporate PIES and (c) stating the manner in which such instructions may be
given. Upon the written request of the Corporate PIES Holders on such record
date, the Agent shall endeavor insofar as practicable to vote or cause to be
voted, in accordance with the instructions set forth in such requests, the
maximum number of Preferred Securities as to which any particular voting
instructions are received. In the absence of specific instructions from the
Holder of a Corporate PIES, the Agent shall abstain from voting the Preferred
Security evidenced by such Corporate PIES.
Upon the liquidation of the Trust, a principal amount of the Debentures
constituting the assets of the Trust and underlying the Preferred Securities
equal to the aggregate liquidation amount of the Pledged Preferred Securities
shall be delivered to the Securities Intermediary in exchange for the Pledged
Preferred Securities. Thereafter, the Debentures shall be held by the Securities
Intermediary to secure the obligations of each Holder of Corporate PIES to
purchase shares of Common Stock under the Purchase Contracts constituting a part
of such Corporate PIES. Following the liquidation of the Trust, the Holders and
the Collateral Agent shall have such security interests, rights and obligations
with respect to the Debentures as the Holders and the Collateral Agent had in
respect of the Pledged Preferred Securities, any reference herein to the
Preferred Securities shall be deemed to be a reference to the Debentures and any
reference herein to the liquidation amount of the Preferred Securities shall be
deemed to be a reference to the principal amount of the Debentures.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount of Debentures
shall be delivered to the Securities Intermediary in exchange for the Pledged
Preferred Securities. Thereafter, pursuant to the terms of the Pledge Agreement,
the Securities Intermediary will apply an amount equal to the Redemption Amount
of such Redemption Price to purchase, the Treasury Portfolio and promptly (a)
transfer the Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio to the Collateral Account to
secure the obligations of each Holder of Corporate PIES to purchase shares of
Common Stock under the Purchase Contracts constituting a part of such Corporate
PIES, (b) transfer the Applicable Ownership Interest (as specified in clause (B)
of the definition of such term) of the Treasury Portfolio to the Agent for the
benefit of the Holders of such Corporate PIES and (iii) remit the remaining
portion of such Redemption Price to the Agent for payment to the Holders of such
Corporate PIES.
Following the occurrence of a Tax Event Redemption prior to the
Purchase Contract Settlement Date, the Holders of Corporate PIES and the
Collateral Agent shall have such security
A-7
<PAGE> 73
interest rights and obligations with respect to the Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio as the Holder of Corporate PIES and the Collateral Agent had
in respect of the Preferred Securities or Debentures, as the case may be,
subject to the Pledge thereof as provided in Articles II, III, IV, V and VI, of
the Pledge Agreement and any reference herein to the Preferred Securities shall
be deemed to be a reference to such Treasury Portfolio.
The Corporate PIES Certificates are issuable only in registered form
and only in denominations of a single Corporate PIES and any integral multiple
thereof. The transfer of any Corporate PIES Certificate will be registered and
Corporate PIES Certificates may be exchanged as provided in the Purchase
Contract Agreement. The Corporate PIES Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents
permitted by the Purchase Contract Agreement. No service charge shall be
required for any such registration of transfer or exchange, but the Company and
the Agent may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. A holder who elects to
substitute a Treasury Security for Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, thereby creating
Treasury PIES, shall be responsible for any fees or expenses payable in
connection therewith. Except as provided in the Purchase Contract Agreement, for
so long as the Purchase Contract underlying a Corporate PIES remains in effect,
such Corporate PIES shall not be separable into its constituent parts, and the
rights and obligations of the Holder of such Corporate PIES in respect of the
Preferred Security or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, and Purchase Contract constituting such
Corporate PIES may be transferred and exchanged only as a Corporate PIES. The
holder of a Corporate PIES may substitute for the Pledged Preferred Securities
or the appropriate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio securing its obligation
under the related Purchase Contract Treasury Securities in an aggregate
principal amount equal to the aggregate liquidation amount of the Pledged
Preferred Securities or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement. From and after such Collateral Substitution, the Security
for which such Pledged Treasury Securities secures the holder's obligation under
the Purchase Contract shall be referred to as a "Treasury PIES." A Holder may
make such Collateral Substitution only in integral multiples of 20 Corporate
PIES for 20 Treasury PIES; provided, however, that if a Tax Event Redemption has
occurred and the Treasury Portfolio has become a component of the Corporate
PIES, a Holder may make such Collateral Substitution only in integral multiples
of 160,000 Corporate PIES for 160,000 Treasury PIES. Such Collateral
Substitution may cause the equivalent aggregate principal amount of this
Certificate to be increased or decreased; provided, however, this Corporate PIES
Certificate shall not represent more than ____ Corporate PIES. All such
adjustments to the equivalent aggregate principal amount of this Corporate PIES
Certificate shall be duly recorded by placing an appropriate notation on the
Schedule attached hereto.
A Holder of Treasury PIES may recreate Corporate PIES by delivering to
the Securities Intermediary Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, with an aggregate liquidation amount, in the case of
such Preferred Securities, or with the appropriate Applicable
A-8
<PAGE> 74
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, in the case of such appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, equal to the aggregate principal amount of the Pledged
Treasury Securities in exchange for the release of such Pledged Treasury
Securities in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement.
The Company shall pay, on each Payment Date, the Contract Adjustment
Payments payable in respect of each Purchase Contract to the Person in whose
name the Corporate PIES Certificate evidencing such Purchase Contract is
registered at the close of business on the Record Date for such Payment Date.
Contract Adjustment Payments will be payable at the office of the Agent in The
City of New York or, at the option of the Company, by check mailed to the
address of the Person entitled thereto at such address as it appears on the
Corporate PIES Register.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay any Contract
Adjustment Payments, shall immediately and automatically terminate, without the
necessity of any notice or action by any Holder, the Agent or the Company, if,
on or prior to the Purchase Contract Settlement Date, a Termination Event shall
have occurred. Upon the occurrence of a Termination Event, the Company shall
promptly but in no event later than two Business Days thereafter give written
notice to the Agent, the Collateral Agent and the Holders, at their addresses as
they appear in the Corporate PIES Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Preferred Securities
or the appropriate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio, as the case may be, from
the Pledge in accordance with the provisions of the Pledge Agreement.
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities may be settled early ("Early Settlement") as provided in
the Purchase Contract Agreement; provided, however, that if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of the
Corporate PIES, Holders may settle early Corporate PIES only in integral
multiples of 160,000 Corporate PIES. In order to exercise the right to effect
Early Settlement with respect to any Purchase Contracts evidenced by this
Corporate PIES Certificate, the Holder of this Corporate PIES Certificate shall
deliver this Corporate PIES Certificate to the Agent at the Corporate Trust
Office duly endorsed for transfer to the Company or in blank with the form of
Election to Settle Early set forth below duly completed and accompanied by
payment in the form of immediately available funds payable to the order of the
Company in an amount (the "Early Settlement Amount") equal to (i) the product of
(A) the Stated Amount times (B) the number of Purchase Contracts with respect to
which the Holder has elected to effect Early Settlement, plus (ii) if such
delivery is made with respect to any Purchase Contracts during the period from
the close of business on any Record Date for any Payment Date to the opening of
business on such Payment Date, an amount equal to the Contract Adjustment
Payments payable on such Payment Date with respect to such Purchase Contracts.
Upon Early Settlement of Purchase Contracts by a Holder of the related
Securities, the Pledged Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio
A-9
<PAGE> 75
underlying such Securities shall be released from the Pledge as provided in the
Pledge Agreement and the Holder shall be entitled to receive a number of shares
of Common Stock on account of each Purchase Contract forming part of a Corporate
PIES as to which Early Settlement is effected equal to the Early Settlement
Rate. The Early Settlement Rate shall initially be equal to 1.6103 shares of
Common Stock and shall be adjusted in the same manner and at the same time as
the Settlement Rate is adjusted as provided in the Purchase Contract Agreement.
Upon registration of transfer of this Corporate PIES Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract Agreement
and the Purchase Contracts evidenced hereby and the transferor shall be released
from the obligations under the Purchase Contracts evidenced by this Corporate
PIES Certificate. The Company covenants and agrees, and the Holder, by its
acceptance hereof, likewise covenants and agrees, to be bound by the provisions
of this paragraph.
The Holder of this Corporate PIES Certificate, by its acceptance
hereof, authorizes the Agent to enter into and perform the related Purchase
Contracts forming part of the Corporate PIES evidenced hereby on its behalf as
its attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company or its trustee in the event
that the Company becomes the subject of a case under the Bankruptcy Code, agrees
to be bound by the terms and provisions thereof, covenants and agrees to perform
his obligations under such Purchase Contracts, consents to the provisions of the
Purchase Contract Agreement, authorizes the Agent to enter into and perform the
Purchase Contract Agreement and the Pledge Agreement on its behalf as its
attorney-in-fact, and consents to the Pledge of the Preferred Securities or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be,
underlying this Corporate PIES Certificate pursuant to the Pledge Agreement. The
Holder further covenants and agrees that, to the extent and in the manner
provided in the Purchase Contract Agreement and the Pledge Agreement, but
subject to the terms thereof, payments in respect to the aggregate liquidation
amount of the Pledged Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, on the Purchase Contract Settlement Date shall be
paid by the Collateral Agent to the Company in satisfaction of such Holder's
obligations under such Purchase Contract and such Holder shall acquire no right,
title or interest in such payments.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Corporate PIES Certificate
is registered as the owner of the Corporate PIES evidenced hereby for the
purpose of receiving payments of distributions payable quarterly on the
Preferred Securities, receiving payments of Contract Adjustment
A-10
<PAGE> 76
Payments, performance of the Purchase Contracts and for all other purposes
whatsoever, whether or not any payments in respect thereof be overdue and
notwithstanding any notice to the contrary, and neither the Company, the Agent
nor any such agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
A-11
<PAGE> 77
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ---------------Custodian-------------
(cust) (minor)
Under Uniform Gifts to Minors Act of
-------------------------------------
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
-------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print or Type Name and Address Including Postal Zip
Code of Assignee) the within Corporate PIES Certificates and all rights
thereunder, hereby irrevocably constituting and appointing ____________________
attorney to transfer said Corporate PIES Certificates on the books of [Name of
Company] with full power of substitution in the premises.
Dated: --------------------------------------
-------------------- Signature
NOTICE: The signature to this
assignment must correspond with the
name as it appears upon the face of
the within Corporate PIES Certificates
in every particular, without
alteration or enlargement or any
change whatsoever.
Signature Guarantee:
---------------------------------
A-12
<PAGE> 78
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Corporate PIES evidenced
by this Corporate PIES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned at
the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable incident
thereto.
Dated:
----------------------------
--------------------------------------
Signature
Signature Guarantee:
------------------
(if assigned to another person)
If shares are to be registered in the
name of and delivered to a Person other REGISTERED HOLDER
than the Holder, please (i) print such
Person's name and address and (ii)
provide a guarantee of your signature:
Please print name and address of:
Registered Holder
- ------------------------------------- -------------------------------------
Name Name
- ------------------------------------- -------------------------------------
Address Address
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
Social Security or other
Taxpayer Identification
Number, if any --------------------------------------
A-13
<PAGE> 79
ELECTION TO SETTLE EARLY
The undersigned Holder of this Corporate PIES Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Corporate PIES evidenced by this Corporate
PIES Certificate specified below. The undersigned Holder directs that a
certificate for shares of Common Stock deliverable upon such Early Settlement be
registered in the name of, and delivered, together with a check in payment for
any fractional share and any Corporate PIES Certificate representing any
Corporate PIES evidenced hereby as to which Early Settlement of the related
Purchase Contracts is not effected, to the undersigned at the address indicated
below unless a different name and address have been indicated below. Pledged
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, deliverable upon such Early Settlement
will be transferred in accordance with the transfer instructions set forth
below. If shares are to be registered in the name of a Person other than the
undersigned, the undersigned will pay any transfer tax payable incident thereto.
Dated:
------------------------ --------------------------------------
Signature
Signature Guarantee:
--------------------------------------
A-14
<PAGE> 80
Number of Securities evidenced hereby as to which Early Settlement of
the related Purchase Contracts is being elected:
If shares of Common Stock or Corporate REGISTERED HOLDER
PIES Certificates are to be registered
in the name of and delivered to and
Pledged Preferred Securities, or the
Applicable Ownership Interest of the
Treasury Portfolio, as the case may be,
are to be transferred to a Person other
than the Holder, please print such
Person's name and address: Please print
name and address of Registered Holder:
- ------------------------------------- --------------------------------
Name Name
- ------------------------------------- --------------------------------
Address Address
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Social Security or other
Taxpayer Identification
Number, if any
--------------------------------
A-15
<PAGE> 81
Transfer Instructions for Pledged Preferred Securities or the Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, Transferable
Upon Early Settlement or a Termination Event:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
A-16
<PAGE> 82
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global Certificate have been made:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Number of PIES
Amount of decrease in Amount of increase in evidenced by this
Number of PIES Number of PIES Global Certificate Signature of authorized
evidenced by the evidenced by the following such officer of Trustee or
Date Global Certificate Global Certificate decrease or increase Securities Custodian
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-17
<PAGE> 83
EXHIBIT B
FACE OF TREASURY PIES CERTIFICATE
"THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"),
OR A NOMINEE OF THE DEPOSITARY. THIS CERTIFICATE IS EXCHANGEABLE FOR
CERTIFICATES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT
AGREEMENT AND NO TRANSFER OF THIS CERTIFICATE (OTHER THAN A TRANSFER OF THIS
CERTIFICATE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
NO. _____ CUSIP NO. 629140401
NUMBER OF TREASURY PIES _________
NIPSCO INDUSTRIES, INC.
NIPSCO CAPITAL TRUST I
TREASURY PIES
This Treasury PIES Certificate certifies that Cede & Co. is the
registered Holder of the number of Treasury PIES set forth above. Each Treasury
PIES consists of (i) a 1/20 undivided beneficial ownership interest of a
Treasury Security having a principal amount at maturity equal to $1,000, subject
to the Pledge of such Treasury Security by such Holder pursuant to the Pledge
Agreement, and (ii) the rights and obligations of the Holder under one Purchase
Contract with NIPSCO Industries, Inc., an Indiana corporation (the "Company").
All capitalized terms used herein which are defined in the Purchase Contract
Agreement (as defined on the reverse hereof) have the meaning set forth therein.
<PAGE> 84
Pursuant to the Pledge Agreement, the Treasury Securities constituting
part of each Treasury PIES evidenced hereby have been pledged to the Collateral
Agent, for the benefit of the Company, to secure the obligations of the Holder
under the Purchase Contract comprising a portion of such Treasury PIES.
Each Purchase Contract evidenced hereby obligates the Holder of this
Treasury PIES Certificate to purchase, and the Company, to sell, on February 19,
2003 (the "Purchase Contract Settlement Date"), at a price equal to $50 (the
"Stated Amount"), a number of Common Shares, without par value ("Common Stock"),
of the Company equal to the Settlement Rate, unless on or prior to the Purchase
Contract Settlement Date there shall have occurred a Termination Event or an
Early Settlement with respect to the Treasury PIES of which such Purchase
Contract is a part, all as provided in the Purchase Contract Agreement and more
fully described on the reverse hereof. The purchase price for the shares of
Common Stock purchased pursuant to each Purchase Contract evidenced hereby, if
not paid earlier, shall be paid on the Purchase Contract Settlement Date by
application of the Proceeds from the Treasury Securities pledged to secure the
obligations under such Purchase Contract in accordance with the terms of the
Pledge Agreement.
The Company shall pay on each Payment Date in respect of each Purchase
Contract evidenced hereby an amount (the "Contract Adjustment Payments") equal
to (a) if a Reset Transaction has not occurred, 1.85% per annum of the Stated
Amount or (b) following the occurrence of a Reset Transaction, the Adjusted
Contract Adjustment Payment Rate related to such Reset Transaction until any
such succeeding Reset Transaction shall occur (computed on the basis of (i) for
any full quarterly period, a 360-day year of twelve 30-day months and (ii) for
any period shorter than a full quarterly period, a 30-day month and for periods
less than a month, the actual number of days elapsed per 30-day period), as the
case may be. Such Contract Adjustment Payments shall be payable to the Person in
whose name this Treasury PIES Certificate (or a Predecessor Treasury PIES
Certificate) is registered at the close of business on the Record Date for such
Payment Date.
Contract Adjustment Payments will be payable at the office of the Agent
in The City of New York or, at the option of the Company, by check mailed to the
address of the Person entitled thereto as such address appears on the Treasury
PIES Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Treasury PIES Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
B-2
<PAGE> 85
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
NIPSCO INDUSTRIES, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under the
Purchase Contracts)
By: THE CHASE MANHATTAN BANK,
not individually but solely as
Attorney-in-Fact of such Holder
By:
-----------------------------------
Name:
Title:
Dated:
B-3
<PAGE> 86
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Treasury PIES referred to in the within-mentioned
Purchase Contract Agreement.
By: THE CHASE MANHATTAN BANK, as
Purchase Contract Agent
By:
-----------------------------
Authorized Officer
B-4
<PAGE> 87
(REVERSE OF TREASURY PIES CERTIFICATE)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of February 16, 1999 (as may be supplemented from
time to time, the "Purchase Contract Agreement") between the Company and The
Chase Manhattan Bank, as Purchase Contract Agent (including its successors
thereunder, herein called the "Agent"), to which the Purchase Contract Agreement
and supplemental agreements thereto reference is hereby made for a description
of the respective rights, limitations of rights, obligations, duties and
immunities thereunder of the Agent, the Company and the Holders and of the terms
upon which the Treasury PIES Certificates are, and are to be, executed and
delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Treasury PIES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price") a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event with respect to the Security of
which such Purchase Contract is a part or an Early Settlement shall have
occurred. The "Settlement Rate" is equal to (a) if the Applicable Market Value
(as defined below) is equal to or greater than $31.0500 (the "Threshold
Appreciation Price"), 1.6103 shares of Common Stock per Purchase Contract, (b)
if the Applicable Market Value is less than the Threshold Appreciation Price but
is greater than $26.3125, the number of shares of Common Stock per Purchase
Contract equal to the Stated Amount divided by the Applicable Market Value and
(c) if the Applicable Market Amount is less than or equal to $26.3125, then
1.9002 shares of Common Stock per Purchase Contract, in each case subject to
adjustment as provided in the Purchase Contract Agreement. No fractional shares
of Common Stock will be issued upon settlement of Purchase Contracts, as
provided in the Purchase Contract Agreement.
Each Purchase Contract evidenced hereby, which is settled either
through Early Settlement or Cash Settlement, shall obligate the Holder of the
related Treasury PIES to purchase at the Purchase Price for cash, and the
Company to sell, a number of newly issued shares of Common Stock equal to the
Early Settlement Rate or the Settlement Rate, as applicable.
The "Applicable Market Value" means the average of the Closing Prices
per share of Common Stock on each of the 20 Trading Days ending on the third
Trading Day immediately preceding the Purchase Contract Settlement Date or any
applicable Early Settlement Date. The "Closing Price" of the Common Stock on any
date of determination means the (i) closing sale price (or, if no closing price
is reported, the last reported sale price) of the Common Stock on the New York
Stock Exchange (the "NYSE") on such date, (ii) if the Common Stock is not listed
for trading on the NYSE on any such date, the closing sale price as reported in
the composite transactions for the principal United States securities exchange
on which the Common Stock is so listed, (iii) if the Common Stock is not so
listed on a United States national or regional securities exchange, the closing
sale price as reported by The Nasdaq Stock Market, (iv) if the Common Stock is
not so reported, the last quoted bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or (v) if such bid price is not available, the average of the
mid-point of the last bid and ask prices of the Common Stock on such date from
at least three nationally recognized independent investment banking firms
retained for this purpose by the Company. A "Trading Day" means a
B-5
<PAGE> 88
day on which the Common Stock (A) is not suspended from trading on any national
or regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of the Common Stock.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Treasury PIES shall pay the Purchase Price for the shares of
Common Stock purchased pursuant to each Purchase Contract evidenced hereby
either by effecting a Cash Settlement or an Early Settlement of each such
Purchase Contract or by applying a principal amount of the Pledged Treasury
Securities underlying such Holder's Treasury PIES equal to the Stated Amount of
such Purchase Contract to the purchase of the Common Stock. A Holder of Treasury
PIES who does not effect, on or prior to 11:00 a.m. New York City time on the
Business Day immediately preceding the Purchase Contract Settlement Date, an
effective Cash Settlement or an Early Settlement, shall pay the Purchase Price
for the shares of Common Stock to be issued under the related Purchase Contract
from the proceeds of the Pledged Treasury Securities.
The Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment of the aggregate purchase price for
the shares of Common Stock to be purchased thereunder in the manner herein set
forth.
Each Purchase Contract evidenced hereby and all obligations and rights
of the Company and the Holder thereunder shall terminate if a Termination Event
shall occur. Upon the occurrence of a Termination Event, the Company shall give
written notice to the Agent and to the Holders, at their addresses as they
appear in the Treasury PIES Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Treasury
Securities (as defined in the Pledge Agreement) forming a part of each Treasury
PIES. A Treasury PIES shall thereafter represent the right to receive the
interest in the Treasury Security forming a part of such Treasury PIES, in
accordance with the terms of the Purchase Contract Agreement and the Pledge
Agreement.
The Treasury PIES Certificates are issuable only in registered form and
only in denominations of a single Treasury PIES and any integral multiple
thereof. The transfer of any Treasury PIES Certificate will be registered and
Treasury PIES Certificates may be exchanged as provided in the Purchase Contract
Agreement. The Treasury PIES Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents permitted by the
Purchase Contract Agreement. No service charge shall be required for any such
registration of transfer or exchange, but the Company and the Agent may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. A Holder who elects to substitute Preferred
Securities, Debentures or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, for Treasury Securities, thereby
recreating Corporate PIES, shall be responsible for any fees or expenses
associated therewith. Except as provided in the Purchase Contract Agreement, for
so long as the Purchase Contract underlying a Treasury PIES remains in effect,
such Treasury PIES shall not be separable into its constituent parts, and the
rights and obligations of the Holder of such Treasury PIES in respect of the
Treasury Security and the Purchase Contract constituting such Treasury PIES may
be transferred and exchanged only as a Treasury PIES. A Holder of Treasury PIES
may recreate
B-6
<PAGE> 89
Corporate PIES by delivering to the Collateral Agent Preferred Securities or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, with a liquidation amount,
in the case of such Preferred Securities, with a principal amount in the case of
such Debentures, or with the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, in the case of such appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, equal to the aggregate principal amount at maturity of the Pledged
Treasury Securities in exchange for the release of such Pledged Treasury
Securities in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement. From and after such substitution, the Holder's Security
shall be referred to as an "Corporate PIES." Such substitution may cause the
equivalent aggregate principal amount of this Certificate to be increased or
decreased; provided, however, this Treasury PIES Certificate shall not represent
more than ____ Treasury PIES. All such adjustments to the equivalent aggregate
principal amount of this Treasury PIES Certificate shall be duly recorded by
placing an appropriate notation on the Schedule attached hereto.
A Holder of a Corporate PIES may recreate a Treasury PIES by delivering
to the Collateral Agent Treasury Securities in an aggregate principal amount
equal to the aggregate liquidation amount of the Pledged Preferred Securities,
the aggregate principal amount at maturity of the Pledged Debentures or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, in
exchange for the release of such Pledged Preferred Securities, Pledged
Debentures or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement. Any such recreation of a Treasury PIES may be effected
only in multiples of 20 Corporate PIES for 20 Treasury PIES; provided, however,
if a Tax Event Redemption has occurred and the Treasury Portfolio has become a
component of the Corporate PIES, a Holder may recreate Corporate PIES in
integral multiples of 160,000 Corporate PIES for 160,000 Treasury PIES.
The Company shall pay, on each Payment Date, the Contract Adjustment
Payments payable in respect of each Purchase Contract to the Person in whose
name the Treasury PIES Certificate evidencing such Purchase Contract is
registered at the close of business on the Record Date for such Payment Date.
Contract Adjustment Payments will be payable at the office of the Agent in The
City of New York or, at the option of the Company, by check mailed to the
address of the Person entitled thereto at such address as it appears on the
Treasury PIES Register.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay Contract Adjustment
Payments, shall immediately and automatically terminate, without the necessity
of any notice or action by any Holder, the Agent or the Company, if, on or prior
to the Purchase Contract Settlement Date, a Termination Event shall have
occurred. Upon the occurrence of a Termination Event, the Company shall promptly
but in no event later than two Business Days thereafter give written notice to
the Agent, the Collateral Agent and the Holders, at their addresses as they
appear in the Treasury PIES Register. Upon the occurrence of a Termination
Event, the Collateral Agent shall release the Treasury Securities from the
Pledge in accordance with the provisions of the Pledge Agreement.
B-7
<PAGE> 90
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities may be settled early ("Early Settlement") as provided in
the Purchase Contract Agreement. In order to exercise the right to effect Early
Settlement with respect to any Purchase Contracts evidenced by this Treasury
PIES the Holder of this Treasury PIES Certificate shall deliver this Treasury
PIES Certificate to the Agent at the Corporate Trust Office duly endorsed for
transfer to the Company or in blank with the form of Election to Settle Early
set forth below duly completed and accompanied by payment in the form of
immediately available funds payable to the order of the Company in an amount
(the "Early Settlement Amount") equal to (i) the product of (A) $50 times (B)
the number of Purchase Contracts with respect to which the Holder has elected to
effect Early Settlement, plus (ii) if such delivery is made with respect to any
Purchase Contracts during the period from the close of business on any Record
Date for any Payment Date to the opening of business on such Payment Date, an
amount equal to the Contract Adjustment Payments payable, if any, on such
Payment Date with respect to such Purchase Contracts. Upon Early Settlement of
Purchase Contracts by a Holder of the related Securities, the Pledged Treasury
Securities underlying such Securities shall be released from the Pledge as
provided in the Pledge Agreement and the Holder shall be entitled to receive a
number of shares of Common Stock on account of each Purchase Contract forming
part of a Treasury PIES as to which Early Settlement is effected equal to 1.6103
shares of Common Stock per Purchase Contract (the "Early Settlement Rate"). The
Early Settlement Rate shall be adjusted in the same manner and at the same time
as the Settlement Rate is adjusted as provided in the Purchase Contract
Agreement.
Upon registration of transfer of this Treasury PIES Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract Agreement
and the Purchase Contracts evidenced hereby and the transferor shall be released
from the obligations under the Purchase Contracts evidenced by this Treasury
PIES Certificate. The Company covenants and agrees, and the Holder, by its
acceptance hereof, likewise covenants and agrees, to be bound by the provisions
of this paragraph.
The Holder of this Treasury PIES Certificate, by its acceptance hereof,
authorizes the Agent to enter into and perform the related Purchase Contracts
forming part of the Treasury PIES evidenced hereby on its behalf as its
attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company or its trustee in the event
that the Company becomes the subject of a case under the Bankruptcy Code, agrees
to be bound by the terms and provisions thereof, covenants and agrees to perform
its obligations under such Purchase Contracts, consents to the provisions of the
Purchase Contract Agreement, authorizes the Agent to enter into and perform the
Purchase Contract Agreement and the Pledge Agreement on its behalf as its
attorney-in-fact, and consents to the Pledge of the Treasury Securities
underlying this Treasury PIES Certificate pursuant to the Pledge Agreement. The
Holder further covenants and agrees, that, to the extent and in the manner
provided in the Purchase Contract Agreement and the Pledge Agreement, but
subject to the terms thereof, payments in respect to the aggregate principal
amount of the Pledged Treasury Securities on the Purchase Contract Settlement
Date shall be paid by the Collateral Agent to the Company in satisfaction of
such Holder's obligations under such Purchase Contract and such Holder shall
acquire no right, title or interest in such payments.
B-8
<PAGE> 91
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Treasury PIES Certificate
is registered as the owner of the Treasury PIES evidenced hereby for the purpose
of receiving payments of interest on the Treasury Securities, receiving payments
of Contract Adjustment Payments, performance of the Purchase Contracts and for
all other purposes whatsoever, whether or not any payments in respect thereof be
overdue and notwithstanding any notice to the contrary, and neither the Company,
the Agent nor any such agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
B-9
<PAGE> 92
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ---------------Custodian-------------
(cust) (minor)
Under Uniform Gifts to Minors Act of
-------------------------------------
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
-------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
----------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please insert Social Security or Taxpayer I.D. or other
Identifying Number of Assignee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Treasury PIES Certificates and all rights thereunder, hereby
irrevocably constituting and appointing ________________________________________
attorney to transfer said Treasury PIES Certificates on the books of [Name of
Company] with full power of substitution in the premises.
Dated: Signature
---------------------------- -----------------------------
NOTICE: The signature to this
assignment must correspond with the
name as it appears upon the face of
the within Treasury PIES
Certificates in every particular,
without alteration or enlargement
or any change whatsoever.
Signature Guarantee:
----------------------------
B-10
<PAGE> 93
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Treasury PIES evidenced
by this Treasury PIES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned at
the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable incident
thereto.
Dated: Signature
-------------------------- -----------------------------
Signature Guarantee:
------------------
(if assigned to another person)
If shares are to be registered in the
name of and delivered to a Person other REGISTERED HOLDER
than the Holder, please (i) print such
Person's name and address and (ii)
provide a guarantee of your signature:
Please print name and address of
Registered Holder:
- ------------------------------------- --------------------------------------
Name Name
- ------------------------------------- --------------------------------------
Address Address
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
Social Security or other
Taxpayer Identification
Number, if any --------------------------------------
B-11
<PAGE> 94
ELECTION TO SETTLE EARLY
The undersigned Holder of this Treasury PIES Certificate irrevocably
exercises the option to effect Early Settlement in accordance with the terms of
the Purchase Contract Agreement with respect to the Purchase Contracts
underlying the number of Treasury PIES evidenced by this Treasury PIES
Certificate specified below. The option to effect Early Settlement may be
exercised only with respect to Purchase Contracts underlying Treasury PIES with
an aggregate Stated Amount equal to $1,000 or an integral multiple thereof. The
undersigned Holder directs that a certificate for shares of Common Stock
deliverable upon such Early Settlement be registered in the name of, and
delivered, together with a check in payment for any fractional share and any
Treasury PIES Certificate representing any Treasury PIES evidenced hereby as to
which Early Settlement of the related Purchase Contracts is not effected, to the
undersigned at the address indicated below unless a different name and address
have been indicated below. Pledged Treasury Securities deliverable upon such
Early Settlement will be transferred in accordance with the transfer
instructions set forth below. If shares are to be registered in the name of a
Person other than the undersigned, the undersigned will pay any transfer tax
payable incident thereto.
Dated:
------------------------------------ --------------------------------
Signature
Signature Guarantee:
----------------------
B-12
<PAGE> 95
Number of Securities evidenced hereby as to which Early Settlement of
the related Purchase Contracts is being elected:
If shares of Common Stock of Treasury PIES REGISTERED HOLDER
Certificates are to be registered in the
name of and delivered to and Pledged
Treasury Securities are to be transferred
to a Person other than the Holder, please
print such Person's name and address:
Please print name and address of
Registered Holder:
- ------------------------------------- --------------------------------
Name Name
- ------------------------------------- --------------------------------
Address Address
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Social Security or other
Taxpayer Identification
Number, if any --------------------------------
Transfer Instructions for Pledged Treasury Securities Transferable Upon Early
Settlement or a Termination Event:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-13
<PAGE> 96
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global Certificate have been made:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Number of PIES
Amount of decrease in Amount of increase in evidenced by this
Number of PIES Number of PIES Global Certificate Signature of authorized
evidenced by the evidenced by the following such officer of Trustee or
Date Global Certificate Global Certificate decrease or increase Securities Custodian
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 97
EXHIBIT C
INSTRUCTION TO PURCHASE CONTRACT AGENT
THE CHASE MANHATTAN BANK
450 West 33rd Street
New York, New York 10001
Attention: Corporate Trust Group
Re: ________ PIES of NIPSCO Industries, Inc. (the "Company")
The undersigned Holder hereby notifies you that it has delivered to The
First National Bank of Chicago, as Securities Intermediary, for credit to the
Collateral Account, $______ aggregate [principal] [liquidation] amount of
[Preferred Securities, Debentures or the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, as the case may be,] [Treasury Securities] in exchange for
the [Pledged Preferred Securities, Pledged Debentures or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, as the case may be,] [Pledged Treasury
Securities] held in the Collateral Account, in accordance with the Pledge
Agreement, dated as of February 16, 1999 (the "Pledge Agreement"; unless
otherwise defined herein, terms defined in the Pledge Agreement are used herein
as defined therein), between you, the Company, the Collateral Agent and the
Securities Intermediary. The undersigned Holder has paid all applicable fees
relating to such exchange. The undersigned Holder hereby instructs you to
instruct the Collateral Agent to release to you on behalf of the undersigned
Holder the [Pledged Preferred Securities, Pledged Debentures or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, as the case may be,] [Pledged Treasury
Securities] related to such [Corporate PIES] [Treasury PIES].
Date:
------------------------- --------------------------------------
Signature
Signature Guarantee:
------------------
Please print name and address of Registered Holder:
<PAGE> 98
- -------------------------------- ---------------------------------
Name Social Security or other Taxpayer
Identification Number, if any
Address
- ------------------------------------
- ------------------------------------
- ------------------------------------
C-2
<PAGE> 99
EXHIBIT D
NOTICE FROM PURCHASE CONTRACT AGENT
TO HOLDERS
(Transfer of Collateral upon Occurrence of a Termination Event)
[HOLDER]
- ---------------------------
- ---------------------------
Attention:
Telecopy:
------------------
Re: __________ PIES of NIPSCO Industries, Inc. (the "Company")
Please refer to the Purchase Contract Agreement, dated as of February
16, 1999 (the "Purchase Contract Agreement"; unless otherwise defined herein,
terms defined in the Purchase Contract Agreement are used herein as defined
therein), among the Company and the undersigned, as Purchase Contract Agent and
as attorney-in-fact for the holders of PIES from time to time.
We hereby notify you that a Termination Event has occurred and that
[the Preferred Securities] [the Debentures] [the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio] [the Treasury Securities] underlying your ownership
interest in _____ [Corporate PIES] [Treasury PIES] have been released and are
being held by us for your account pending receipt of transfer instructions with
respect to such [Preferred Securities] [Debentures] [appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio] [Treasury Securities] (the "Released Securities").
Pursuant to Section 3.15 of the Purchase Contract Agreement, we hereby
request written transfer instructions with respect to the Released Securities.
Upon receipt of your instructions and upon transfer to us of your [Corporate
PIES] [Treasury PIES] effected through book-entry or by delivery to us of your
[Corporate PIES Certificate] [Treasury PIES Certificate], we shall transfer the
Released Securities by book-entry transfer, or other appropriate procedures, in
accordance with your instructions. In the event you fail to effect such transfer
or delivery, the Released Securities and any distributions thereon, shall be
held in our name, or a nominee in trust for your benefit, until such time as
such [Corporate PIES] [Treasury PIES] are transferred or your [Corporate PIES
Certificate] [Treasury PIES Certificate] is surrendered or satisfactory evidence
is provided that such your [Corporate PIES Certificate] [Treasury PIES
Certificate] has been destroyed, lost or stolen, together with any
indemnification that we or the Company may require.
D-1
<PAGE> 100
Date: By: THE CHASE MANHATTAN BANK
-----------------------------
--------------------------------
Name:
Title:
D-2
<PAGE> 101
EXHIBIT E
NOTICE TO SETTLE BY SEPARATE CASH
THE CHASE MANHATTAN BANK
450 West 33rd Street
New York, N.Y. 10001
Attention: Corporate Trust Group
Re: ________ PIES of NIPSCO Industries, Inc. (the "Company")
The undersigned Holder hereby irrevocably notifies you in accordance
with Section 5.4 of the Purchase Contract Agreement, dated as of February 16,
1999 (the "Purchase Contract Agreement"; unless otherwise defined herein, terms
defined in the Purchase Contract Agreement are used herein as defined therein),
between the Company and yourselves, as Purchase Contract Agent and as
Attorney-in-Fact for the Holders of the Purchase Contracts, that such Holder has
elected to pay to the Securities Intermediary for deposit in the Collateral
Account, on or prior to 11:00 a.m. New York City time, on the [fifth Business
Day] [Business Day] immediately preceding the Purchase Contract Settlement Date
(in lawful money of the United States by certified or cashiers' check or wire
transfer, in immediately available funds), $______ as the Purchase Price for the
shares of Common Stock issuable to such Holder by the Company under the related
Purchase Contract on the Purchase Contract Settlement Date. The undersigned
Holder hereby instructs you to notify promptly the Collateral Agent of the
undersigned Holders election to make such cash settlement with respect to the
Purchase Contracts related to such Holder's [Corporate PIES] [Treasury PIES].
Date:
---------------------------- --------------------------------------
Signature
Signature Guarantee:
------------------
Please print name and address of Registered Holder:
<PAGE> 102
EXHIBIT F
NOTICE FROM PURCHASE CONTRACT AGENT
TO COLLATERAL AGENT AND INDENTURE TRUSTEE
(Payment of Purchase Contract Settlement Price)
The First National Bank of Chicago
1 North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Administration Department
Telecopy: 312-407-1708
The Chase Manhattan Bank
450 West 33rd Street
New York, NY 10001
Attention: Corporate Trust Group
Telecopy: 212-946-8159
Re: __________ PIES of NIPSCO Industries, Inc. (the "Company")
Please refer to the Purchase Contract Agreement dated as of February
16, 1999 (the "Purchase Contract Agreement"; unless otherwise defined herein,
terms defined in the Purchase Contract Agreement are used herein as defined
therein), between the Company and the undersigned, as Purchase Contract Agent
and as attorney-in-fact for the holders of PIES from time to time.
In accordance with Section 5.4 of the Purchase Contract Agreement and,
based on instructions and Cash Settlements received from Holders of Corporate
PIES as of 11:00 a.m, [DATE (fifth Business Day immediately preceding the
Purchase Contract Settlement Date)], we hereby notify you that [_____ Preferred
Securities][____ Debentures] are to be tendered for purchase in the Remarketing.
Date: By: THE CHASE MANHATTAN BANK
-----------------------------
---------------------------
Name:
Title:
F-1
<PAGE> 1
EXHIBIT 4.38
EXECUTION COPY
================================================================================
NIPSCO INDUSTRIES, INC.
and
THE FIRST NATIONAL BANK OF CHICAGO, as Collateral Agent
and
THE FIRST NATIONAL BANK OF CHICAGO, as Securities Intermediary
and
THE CHASE MANHATTAN BANK, as Purchase Contract Agent
------------------------------------
PLEDGE AGREEMENT
Dated as of February 16, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Section 1. Definitions.......................................................................1
Section 2. Pledge............................................................................5
2.1 Pledge................................................................................5
2.2 Control; Financing Statement..........................................................5
2.3 Termination...........................................................................6
Section 3. Distributions on Pledged Collateral...............................................6
3.1 Income Distributions..................................................................6
3.2 Principal Payments Following Termination Event........................................6
3.3 Principal Payments Prior To or On Purchase Contract Settlement Date...................6
3.4 Payments to Purchase Contract Agent...................................................7
3.5 Assets Not Properly Released..........................................................7
Section 4. Control...........................................................................7
4.1 Establishment of Collateral Account...................................................7
4.2 Treatment as Financial Assets.........................................................7
4.3 Sole Control by Collateral Agent......................................................7
4.4 Securities Intermediary's Location....................................................8
4.5 No Other Claims.......................................................................8
4.6 Investment and Release................................................................8
4.7 Statements and Confirmations..........................................................8
4.8 Tax Allocations.......................................................................8
4.9 No Other Agreements...................................................................8
4.10 Powers Coupled With An Interest......................................................8
Section 5. Initial Deposit; Establishment of Treasury PIES and Reestablishment
of Corporate PIES..........................................................................9
5.1 Initial Deposit of Trust Preferred Securities.........................................9
5.2 Establishment of Treasury PIES........................................................9
5.3 Reestablishment of Corporate PIES....................................................11
5.4 Termination Event....................................................................13
5.5 Cash Settlement......................................................................14
5.6 Early Settlement.....................................................................15
5.7 Application of Proceeds Settlement...................................................15
5.8 Tax Event Redemption.................................................................16
Section 6. Voting Rights -- Trust Preferred Securities and Pledged Debentures...............17
Section 7. Rights and Remedies; Distribution of the Debentures; Tax Event Redemption.........17
7.1 Rights and Remedies of the Collateral Agent..........................................17
7.2 Substitution of Debentures...........................................................18
7.3 Tax Event Redemption.................................................................18
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7.4 Substitutions........................................................................19
Section 8. Representations and Warranties; Covenants........................................19
8.1 Representations and Warranties.......................................................19
8.2 Covenants............................................................................20
Section 9. The Collateral Agent and the Securities Intermediary.............................20
9.1 Appointment, Powers and Immunities...................................................20
9.2 Instructions of the Company..........................................................21
9.3 Reliance by Collateral Agent and Securities Intermediary.............................21
9.4 Rights in Other Capacities...........................................................21
9.5 Non-Reliance on Collateral Agent and Securities Intermediary.........................22
9.6 Compensation and Indemnity...........................................................22
9.7 Failure to Act.......................................................................22
9.8 Resignation of Collateral Agent and Securities Intermediary..........................23
9.9 Right to Appoint Agent or Advisor....................................................24
9.10 Survival............................................................................24
9.11 Exculpation.........................................................................24
Section 10. Amendment........................................................................24
10.1 Amendment Without Consent of Holders................................................24
10.2 Amendment with Consent of Holders...................................................25
10.3 Execution of Amendments.............................................................26
10.4 Effect of Amendments................................................................26
10.5 Reference to Amendments.............................................................26
Section 11. Miscellaneous....................................................................26
11.1 No Waiver...........................................................................26
11.2 Governing Law.......................................................................26
11.3 Notices.............................................................................27
11.4 Successors and Assigns..............................................................27
11.5 Counterparts........................................................................27
11.6 Severability........................................................................27
11.7 Expenses, etc.......................................................................27
11.8 Security Interest Absolute..........................................................28
EXHIBIT A Instruction from Purchase Contract Agent to Collateral Agent (Establishment of
Treasury PIES)
EXHIBIT B Instruction from Collateral Agent to Securities Intermediary (Establishment of
Treasury PIES)
EXHIBIT C Instruction from Purchase Contract Agent to Collateral Agent (Reestablishment of
Corporate PIES)
EXHIBIT D Instruction from Collateral Agent to Securities Intermediary (Reestablishment of
Corporate PIES)
EXHIBIT E Notice of Cash Settlement from the Securities Intermediary to the Purchase
Contract Agent.
</TABLE>
-ii-
<PAGE> 4
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of February 16, 1999 among NIPSCO INDUSTRIES,
INC., an Indiana corporation (the "Company"), THE FIRST NATIONAL BANK OF
CHICAGO, a national banking association, not individually but solely as
collateral agent (in such capacity, together with its successors in such
capacity, the "Collateral Agent"), THE FIRST NATIONAL BANK OF CHICAGO, a
national banking association, not individually but solely in its capacity as a
securities intermediary with respect to the Collateral Account (in such
capacity, together with its successors in such capacity, the "Securities
Intermediary"), and THE CHASE MANHATTAN BANK, a New York banking corporation,
not individually but solely as purchase contract agent and as attorney-in-fact
of the Holders from time to time of the Securities (in such capacity, together
with its successors in such capacity, the "Purchase Contract Agent") under the
Purchase Contract Agreement.
RECITALS
The Company and the Purchase Contract Agent are parties to the Purchase
Contract Agreement dated as of the date hereof (as modified and supplemented and
in effect from time to time, the "Purchase Contract Agreement"), pursuant to
which there may be issued up to 6,900,000 PIES (the "Securities").
Each Corporate PIES, at issuance, consists of a unit comprised of (a) one
stock purchase contract (the "Purchase Contract") under which (i) the Holder
will purchase from the Company on February 19, 2003, for an amount equal to $50
(the "Stated Amount"), a number of shares of Common Stock equal to the
Settlement Rate, and (ii) the Company will pay the Holder Contract Adjustment
Payments, if any, and (b) beneficial ownership of a Trust Preferred Security (a
"Trust Preferred Security") issued by NIPSCO Capital Trust I (the "Trust"),
having a liquidation amount equal to the Stated Amount and maturing on February
19, 2005.
Pursuant to the terms of the Purchase Contract Agreement and the Purchase
Contracts, the Holders of the Securities have irrevocably authorized the
Purchase Contract Agent, as attorney-in-fact of such Holders, among other
things, to execute and deliver this Agreement on behalf of such Holders and to
grant the pledge provided herein of the Collateral Account to secure the
Obligations.
Accordingly, the Company, the Collateral Agent, the Securities Intermediary
and the Purchase Contract Agent, on its own behalf and as attorney-in-fact of
the Holders from time to time of the Securities, agree as follows:
Section 1. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
<PAGE> 5
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(b) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, Exhibit or other subdivision;
(c) the following terms which are defined in the Code shall have the
meanings set forth therein: "certificated security," "control," "financial
asset," "entitlement order," "securities account" and "security entitlement";
(d) the following terms have the meanings assigned to them in the Purchase
Contract Agreement: (1) Act, (2) Agent, (3) Board Resolution, (4) Cash
Settlement, (5) Certificate, (6) Common Stock, (7) Contract Adjustment Payments,
(8) Corporate PIES, (9) Debentures, (10) Early Settlement, (11) Early Settlement
Amount, (12) Early Settlement Date, (13) Holders, (14) Opinion of Counsel, (15)
Outstanding Securities, (16) PIES, (17) Purchase Contract, (18) Purchase
Contract Settlement Date, (19) Purchase Price, (20) Remarketing Agent, (21)
Remarketing Agreement, (22) Settlement Rate, (23) Termination Event, (24)
Treasury PIES and (25) Underwriting Agreement;
(e) the following terms have the meanings assigned to them in the
Declaration: (1) Applicable Ownership Interest, (2) Applicable Principal Amount,
(3) Failed Remarketing, (4) Indenture, (5) Primary Treasury Dealer, (6) Property
Trustee, (7) Quotation Agent, (8) Redemption Amount, (9) Redemption Price, (10)
Tax Event, (11) Tax Event Redemption, (12) Tax Event Redemption Date, (13)
Treasury Portfolio and (14) Treasury Portfolio Purchase Price; and
(f) the following terms have the meanings given to them in this section
1(f):
"Agreement" means this Pledge Agreement, as the same may be amended,
modified or supplemented from time to time.
"Bankruptcy Code" means title 11 of the United States Code, or any other
law of the United States that from time to time provides a uniform system of
bankruptcy laws.
"Business Day" means any day other than (i) a Saturday or Sunday or a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain closed or (ii) a day on which the principal
office of either the Debenture Trustee or the Property Trustee under the
Declaration is closed for business.
"Capital Markets" means NIPSCO Capital Markets, Inc., an Indiana
corporation, until a successor shall have become such, and thereafter "Capital
Markets" shall mean such successor.
"Cash" means any coin or currency of the United States as at the time shall
be legal tender for payment of public and private debts.
"Code" means the Uniform Commercial Code as in effect in the State of New
York from time to time.
<PAGE> 6
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"Collateral Account" means the collective reference to (1) Securities
Account No. 204565-000 entitled "The First National Bank of Chicago, as
Collateral Agent, Securities Account (NIPSCO Capital Trust I)" maintained by the
Securities Intermediary for the Purchase Contract Agent on behalf of and as
attorney-in-fact for the Holders, (2) all investment property and other
financial assets from time to time credited to the Collateral Account,
including, without limitation, (A) the Trust Preferred Securities and security
entitlements relating thereto which are a component of the Corporate PIES from
time to time, (B) the Applicable Ownership Interest (as specified in clause (A)
of the definition of such term) of the Treasury Portfolio which is a component
of the Corporate PIES from time to time, (C) the Debentures and security
entitlements relating thereto which are a component of Corporate PIES from time
to time, (D) any Treasury Securities and security entitlements relating thereto
delivered from time to time upon establishment of Treasury PIES in accordance
with Section 5.2 hereof and (E) payments made by Holders pursuant to Section 5.5
hereof (collectively, the "Collateral"), (3) all Proceeds of any of the
foregoing (whether such Proceeds arise before or after the commencement of any
proceeding under any applicable bankruptcy, insolvency or other similar law, by
or against the pledgor or with respect to the pledgor) and (4) all powers and
rights now owned or hereafter acquired under or with respect to the Collateral
Account.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor shall have become such, and thereafter
"Company" shall mean such successor.
"Debenture Trustee" means The Chase Manhattan Bank, as trustee under the
Indenture until a successor is appointed thereunder, and thereafter means such
successor trustee.
"Declaration" means the Amended and Restated Declaration of Trust of the
Trust, dated as of February 16, 1999, among Capital Markets, as sponsor, the
trustees named therein and the holders from time to time of undivided beneficial
interests in the assets of the Trust.
"Obligations" means, with respect to each Holder, the collective reference
to all obligations and liabilities of such Holder under such Holder's Purchase
Contract and this Agreement or any other document made, delivered or given in
connection herewith or therewith, in each case whether on account of principal,
interest (including, without limitation, interest accruing before and after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to such Holder, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
fees, indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Company or the Collateral Agent or
the Securities Intermediary that are required to be paid by the Holder pursuant
to the terms of any of the foregoing agreements).
"Permitted Investments" means any one of the following which shall mature
not later than the next succeeding Business Day: (i) any evidence of
indebtedness with an original maturity of 365 days or less issued, or directly
and fully guaranteed or insured, by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support of the timely payment thereof or
such indebtedness constitutes a
<PAGE> 7
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general obligation of it); (ii) deposits, certificates of deposit or acceptances
with an original maturity of 365 days or less of any institution which is a
member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $200.0 million at the time of deposit; (iii)
investments with an original maturity of 365 days or less of any Person that is
fully and unconditionally guaranteed by a bank referred to in clause (ii); (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed as to timely payment by
the full faith and credit of the United States Government; (v) investments in
commercial paper, other than commercial paper issued by the Company or its
affiliates, of any corporation incorporated under the laws of the United States
or any State thereof, which commercial paper has a rating at the time of
purchase at least equal to "A-1" by Standard & Poor's Ratings Services ("S&P")
or at least equal to "P-1" by Moody's Investors Service, Inc. ("Moody's"); and
(vi) investments in money market funds registered under the Investment Company
Act of 1940, as amended, rated in the highest applicable rating category by S&P
or Moody's.
"Person" means any legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company, limited
liability company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Pledge" means the lien and security interest created by this Agreement.
"Pledged Debentures" means the Debentures and security entitlements with
respect thereto from time to time credited to the Collateral Account and not
then released from the Pledge.
"Pledged Preferred Securities" means the Trust Preferred Securities and
security entitlements with respect thereto from time to time credited to the
Collateral Account and not then released from the Pledge.
"Pledged Treasury Securities" means Treasury Securities and security
entitlements with respect thereto from time to time credited to the Collateral
Account and not then released from the Pledge.
"Proceeds" has the meaning ascribed thereto in the Code and includes,
without limitation, all interest, dividends, cash, instruments, securities,
financial assets (as defined in ss. 8-102(a)(9) of the Code) and other property
received, receivable or otherwise distributed upon the sale, exchange,
collection or disposition of any financial assets from time to time held in the
Collateral Account.
"Purchase Contract Agent" has the meaning specified in the paragraph
preceding the recitals of this Agreement.
"TRADES" means the Treasury/Reserve Automated Debt Entry System maintained
by the Federal Reserve Bank of New York pursuant to the TRADES Regulations.
<PAGE> 8
5
"TRADES Regulations" means the regulations of the United States Department
of the Treasury, published at 31 C.F.R. Part 357, an amended from time to time.
Unless otherwise defined herein, all terms defined in the TRADES Regulations are
used herein as therein defined.
"Transfer" means:
(a) in the case of certificated securities in registered form, delivery as
provided in ss. 8-301(a) of the Code, endorsed to the transferee or in blank by
an effective endorsement;
(b) in the case of Treasury Securities, registration of the transferee as
the owner of such Treasury Securities on TRADES; and
(c) in the case of security entitlements, including, without limitation,
security entitlements with respect to Treasury Securities, a securities
intermediary indicating by book entry that such security entitlement has been
credited to the transferee's securities account.
"Treasury Security" means a zero-coupon U.S. Treasury Security (Cusip
Number 912820BF3) which are the principal strips of the 6.25% U.S. Treasury
Securities which mature on February 15, 2003.
"Value" with respect to any item of Collateral on any date means, as to (i)
a Trust Preferred Security, the liquidation amount, (ii) Cash, the face amount
thereof and (iii) Treasury Securities, Debentures or the Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, in each case the aggregate principal amount thereof at
maturity.
Section 2. Pledge.
Section 2.1 Pledge. Each Holder, acting through the Purchase Contract Agent
as such Holder's attorney-in-fact, hereby pledges and grants to the Collateral
Agent, as agent of and for the benefit of the Company, a continuing first
priority security interest in and to, and a lien upon and right of set off
against, all of such Holder's right, title and interest in and to the Collateral
Account to secure the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of the Obligations.
The Collateral Agent shall have all of the rights, remedies and recourses with
respect to the Collateral afforded a secured party by the Code, in addition to,
and not in limitation of, the other rights, remedies and recourses afforded to
the Collateral Agent by this Agreement.
Section 2.2 Control; Financing Statement.
(a) The Collateral Agent shall have control of the Collateral Account
pursuant to the provisions of Section 4 of this Agreement.
(b) On the date of initial issuance of the Securities, the Purchase
Contract Agent shall deliver to the Collateral Agent a financing statement
prepared by the Company for filing in the Office of the
<PAGE> 9
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Secretary of State of the State of New York, signed by the Purchase Contract
Agent, as attorney-in-fact for the Holders, as Debtors, and describing the
Collateral.
Section 2.3 Termination. This Agreement and the Pledge created hereby shall
terminate upon the satisfaction of each Holder's Obligations. Upon termination,
the Securities Intermediary shall Transfer the Collateral to the Purchase
Contract Agent for distribution to the Holders in accordance with their
respective interests, free and clear of any lien, pledge or security interest
created hereby.
Section 3. Distributions on Pledged Collateral.
Section 3.1 Income Distributions. All income distributions received by the
Securities Intermediary on account of the Trust Preferred Securities or the
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio or the Debentures or Permitted Investments
from time to time held in the Collateral Account shall be distributed to the
Purchase Contract Agent for the benefit of the applicable Holders as provided in
the Purchase Contracts.
Section 3.2 Principal Payments Following Termination Event. All payments
received by the Securities Intermediary following a Termination Event of (1) the
liquidation amount of Pledged Preferred Securities or securities entitlements
thereto, (2) the Applicable Ownership Interest (as specified in clause (A) of
the definition thereof) of the Treasury Portfolio, (3) the principal amount of
Pledged Debentures or securities entitlements thereto, or (4) the principal
amount of the Pledged Treasury Securities or securities entitlements thereto
shall be distributed to the Purchase Contract Agent for the benefit of the
Holders for distribution to such Holders in accordance with their respective
interests.
Section 3.3 Principal Payments Prior To or On Purchase Contract Settlement
Date. (a) Subject to the provisions of Section 7.3, and except as provided in
clause 3.3(b) below, if no Termination Event shall have occurred, all payments
received by the Securities Intermediary of (1) the liquidation amount with
respect to Pledged Preferred Securities or security entitlements thereto, (2)
Applicable Ownership Interest (as specified in clause (A) of the definition
thereof) of the Treasury Portfolio, (3) the principal amount with respect to the
Pledged Debentures or security entitlements thereto or (4) the principal amount
of Pledged Treasury Securities or security entitlements thereto shall be held
and invested in Permitted Investments until the Purchase Contract Settlement
Date and on the Purchase Contract Settlement Date distributed to the Company as
provided in Section 5.7 hereof. Any balance remaining in the Collateral Account
shall be distributed to the Purchase Contract Agent for the benefit of the
applicable Holders for distribution to such Holders in accordance with their
respective interests.
(b) All payments received by the Securities Intermediary of (1) the
liquidation amount with respect to Trust Preferred Securities or security
entitlements thereto, (2) Applicable Ownership Interest (as specified in clause
(A) of the definition thereof) of the Treasury Portfolio, (3) the principal
amount of Debentures or security entitlements thereto or (4) the principal
amount of Treasury Securities or security entitlements thereto that in each case
have been released from the
<PAGE> 10
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Pledge shall be distributed to the Purchase Contract Agent for the benefit of
the Holders to be distributed to such Holders in accordance with their
respective interests.
Section 3.4 Payments to Purchase Contract Agent. Payments to the Purchase
Contract Agent hereunder shall be made to the account designated by the Purchase
Contract Agent for such purpose not later than 12:00 p.m., New York City time,
on the Business Day such payment is received by the Securities Intermediary;
provided, however, that if such payment is received on a day that is not a
Business Day or after 12:30 p.m., New York City time, on a Business Day, then
such payment shall be made no later than 10:30 a.m., New York City time, on the
next succeeding Business Day.
Section 3.5 Assets Not Properly Released. If the Purchase Contract Agent or
any Holder shall receive any payments of the liquidation amount or principal
payments on account of financial assets credited to the Collateral Account and
not released therefrom in accordance with this Agreement, the Purchase Contract
Agent or such Holder shall hold the same as trustee of an express trust for the
benefit of the Company and, upon receipt of an Officers' Certificate (as defined
in the Purchase Contract Agreement) of the Company so directing, promptly
deliver the same to the Securities Intermediary for credit to the Collateral
Account or to the Company for application to the obligations of the Holders
under the related Purchase Contracts, and the Purchase Contract Agent and
Holders shall acquire no right, title or interest in any such payments of
liquidation or principal amounts so received.
Section 4. Control.
Section 4.1 Establishment of Collateral Account. The Securities
Intermediary hereby confirms that (a) the Securities Intermediary has
established the Collateral Account, (b) the Collateral Account is a securities
account, (c) subject to the terms of this Agreement, the Securities Intermediary
shall treat the Purchase Contract Agent as entitled to exercise the rights that
comprise any financial asset credited to the Collateral Account, (d) all
property delivered to the Securities Intermediary pursuant to this Agreement or
the Purchase Contract Agreement or the Indenture will be credited promptly to
the Collateral Account and (e) all securities or other property underlying any
financial assets credited to the Collateral Account shall be registered in the
name of the Securities Intermediary, indorsed to the Securities Intermediary, or
in blank or credited to another securities account maintained in the name of the
Securities Intermediary, and in no case will any financial asset credited to the
Collateral Account be registered in the name of the Purchase Contract Agent or
any Holder, payable to the order of the Purchase Contract Agent or any Holder or
specially indorsed to the Purchase Contract Agent or any Holder.
Section 4.2 Treatment as Financial Assets. Each item of property (whether
investment property, financial asset, security, instrument or cash) credited to
the Collateral Account shall be treated as a financial asset.
Section 4.3 Sole Control by Collateral Agent. Except as provided in Section
6, at all times prior to the termination of the Pledge, the Collateral Agent
shall have sole control of the Collateral Account, and the Securities
Intermediary shall take instructions and directions with respect to the
Collateral Account solely from the Collateral Agent. If at any time the
Securities Intermediary shall
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receive an entitlement order issued by the Collateral Agent and relating to the
Collateral Account, the Securities Intermediary shall comply with such
entitlement order without further consent by the Purchase Contract Agent or any
Holder or any other Person. Until termination of the Pledge, the Securities
Intermediary will not comply with any entitlement orders issued by the Purchase
Contract Agent or any Holder.
Section 4.4 Securities Intermediary's Location. The Collateral Account and
the rights and obligations of the Securities Intermediary, the Collateral Agent,
the Purchase Contract Agent and the Holders with respect thereto shall be
governed by the laws of the State of New York. Regardless of any provision in
any other agreement, for purposes of the Code, New York shall be deemed to be
the Securities Intermediary's location, and the Collateral Account (as well as
the securities entitlements related thereto) shall be governed by the laws of
the State of New York.
Section 4.5 No Other Claims. Except for the claims and interest of the
Collateral Agent and of the Purchase Contract Agent and the Holders in the
Collateral Account, the Securities Intermediary does not know of any claim to,
or interest in, the Collateral Account or in any financial asset credited
thereto. If any person asserts any lien, encumbrance or adverse claim (including
any writ, garnishment, judgment, warrant of attachment, execution or similar
process) against the Collateral Account or in any financial asset carried
therein, the Securities Intermediary will promptly notify the Collateral Agent
and the Purchase Contract Agent.
Section 4.6 Investment and Release. All proceeds of financial assets from
time to time deposited in the Collateral Account shall be invested and
reinvested as provided in this Agreement. At all times prior to termination of
the Pledge, no property shall be released from the Collateral Account except in
accordance with this Agreement or upon written instructions of the Collateral
Agent.
Section 4.7 Statements and Confirmations. The Securities Intermediary will
promptly send copies of all statements, confirmations and other correspondence
concerning the Collateral Account and any financial assets credited thereto
simultaneously to each of the Purchase Contract Agent and the Collateral Agent
at their addresses for notices under this Agreement.
Section 4.8 Tax Allocations. All items of income, gain, expense and loss
recognized in the Collateral Account shall be reported to the Internal Revenue
Service and all state and local taxing authorities under the names and taxpayer
identification numbers of the Holders which are the beneficial owners thereof.
Section 4.9 No Other Agreements. The Securities Intermediary has not
entered into and prior to the termination of the Pledge will not enter into any
agreement with any other Person relating to the Collateral Account or any
financial assets credited thereto, including, without limitation, any agreement
to comply with entitlement orders of any Person other than the Collateral Agent.
Section 4.10 Powers Coupled With An Interest. The rights and powers granted
in this Section 4 to the Collateral Agent have been granted in order to perfect
its security interests in the Collateral Account, are powers coupled with an
interest and will be affected neither by the
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bankruptcy of the Purchase Contract Agent or any Holder nor by the lapse of
time. The obligations of the Securities Intermediary under this Section 4 shall
continue in effect until the termination of the Pledge.
Section 5. Initial Deposit; Establishment of Treasury PIES and
Reestablishment of Corporate PIES.
Section 5.1 Initial Deposit of Trust Preferred Securities. Prior to or
concurrently with the execution and delivery of this Agreement, the Purchase
Contract Agent, on behalf of the initial Holders of the Corporate PIES, shall
Transfer to the Securities Intermediary, for credit to the Collateral Account,
the Trust Preferred Securities or security entitlements relating to such Trust
Preferred Securities, and the Securities Intermediary shall indicate by book
entry that a securities entitlement to such Trust Preferred Securities has been
credited to the Collateral Account.
Section 5.2 Establishment of Treasury PIES. (a) So long as no Tax Event
Redemption shall have occurred, and the Trust shall not have been liquidated, at
any time on or prior to the seventh Business Day immediately preceding the
Purchase Contract Settlement Date, a Holder of Corporate PIES shall have the
right to establish or reestablish Treasury PIES by substitution of Treasury
Securities or security entitlements thereto for the Pledged Preferred Securities
comprising a part of such Holder's Corporate PIES in integral multiples of 20
Corporate PIES by:
(1) Transferring to the Securities Intermediary for credit to the
Collateral Account Treasury Securities or security entitlements thereto
having a Value equal to the liquidation amount of the Pledged Preferred
Securities to be released, accompanied by a notice, substantially in the
form of Exhibit C to the Purchase Contract Agreement, whereupon the
Purchase Contract Agent shall deliver to the Collateral Agent a notice,
substantially in the form of Exhibit A hereto, (A) stating that such Holder
has Transferred Treasury Securities or security entitlements thereto to the
Securities Intermediary for credit to the Collateral Account, (B) stating
the Value of the Treasury Securities or security entitlements thereto
Transferred by such Holder and (C) requesting that the Collateral Agent
release from the Pledge the Pledged Preferred Securities that are a
component of such Corporate PIES; and
(2) delivering the related Corporate PIES to the Purchase Contract
Agent.
Upon receipt of such notice and confirmation that Treasury Securities or
security entitlements thereto have been credited to the Collateral Account as
described in such notice, the Collateral Agent shall instruct the Securities
Intermediary by a notice, substantially in the form of Exhibit B hereto, to
release such Pledged Preferred Securities from the Pledge by Transfer to the
Purchase Contract Agent for distribution to such Holder, free and clear of any
lien, pledge or security interest created hereby.
(b) If a Tax Event Redemption has occurred and the Treasury Portfolio has
become a component of the Corporate PIES, at any time on or prior to the second
Business Day immediately preceding the Purchase Contract Settlement Date, a
Holder of Corporate PIES shall have the right to establish or reestablish
Treasury PIES by substitution of Treasury Securities or security
<PAGE> 13
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entitlements thereto for the Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio that is a
component of such Holder's Corporate PIES in integral multiples of 160,000
Corporate PIES by:
(1) Transferring to the Securities Intermediary for credit to the
Collateral Account Treasury Securities or security entitlements thereto
having a Value equal to such Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio to be
released, accompanied by a notice, substantially in the form of Exhibit C
to the Purchase Contract Agreement, whereupon the Purchase Contract Agent
shall deliver to the Collateral Agent a notice, substantially in the form
of Exhibit A hereto, (A) stating that such Holder has Transferred Treasury
Securities or security entitlements thereto to the Securities Intermediary
for credit to the Collateral Account, (B) stating the Value of the Treasury
Securities Transferred by such Holder and (C) requesting that the
Collateral Agent release from the Pledge the Applicable Ownership Interest
(as specified in clause (A) of the definition of such term) of the Treasury
Portfolio that is a component of such Corporate PIES; and
(2) delivering the related Corporate PIES to the Purchase Contract
Agent.
Upon receipt of such notice and confirmation that Treasury Securities or
security entitlements thereto have been credited to the Collateral Account as
described in such notice, the Collateral Agent shall instruct the Securities
Intermediary by a notice, substantially in the form of Exhibit B hereto, to
release such Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio from the Pledge by Transfer
to the Purchase Contract Agent.
(c) If no Tax Event Redemption shall have occurred, but the Trust shall
have been liquidated, and the Debentures shall have become a component of the
Corporate PIES, at any time on or prior to the seventh Business Day immediately
preceding the Purchase Contract Settlement Date, a Holder of Corporate PIES
shall have the right to substitute Treasury Securities or security entitlements
thereto for the Pledged Debentures comprising a part of such Holder's Corporate
PIES in integral multiples of 20 Corporate PIES by:
(1) Transferring to the Securities Intermediary for credit to the
Collateral Account Treasury Securities or security entitlements thereto
having a Value equal to the aggregate principal amount at maturity of
Pledged Debentures to be released, accompanied by a notice, substantially
in the form of Exhibit C to the Purchase Contract Agreement, whereupon the
Purchase Contract Agent shall deliver to the Collateral Agent a notice,
substantially in the form of Exhibit A hereto, (A) stating that such Holder
has Transferred Treasury Securities or security entitlements thereto to the
Securities Intermediary for credit to the Collateral Account, (B) stating
the Value of the Treasury Securities Transferred by such Holder and (C)
requesting that the Collateral Agent release from the Pledge the Pledged
Debentures that are a component of such Corporate PIES; and
(2) delivering the related Corporate PIES to the Purchase Contract
Agent.
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Upon receipt of such notice and confirmation that Treasury Securities or
security entitlements thereto have been credited to the Collateral Account as
described in such notice, the Collateral Agent shall instruct the Securities
Intermediary by a notice, substantially in the form of Exhibit B hereto, to
release such Pledged Debentures from the Pledge by Transfer to the Purchase
Contract Agent for distribution to such Holder.
(d) Upon credit to the Collateral Account of Treasury Securities or
security entitlements thereto delivered by a Holder of Corporate PIES and
receipt of the related instruction from the Collateral Agent, the Securities
Intermediary shall release the Pledged Preferred Securities or the Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio or the Pledged Debentures, as the case may be, and
shall promptly transfer the same to the Purchase Contract Agent for distribution
to such Holder, free and clear of any lien, pledge or security interest created
hereby.
Section 5.3 Reestablishment of Corporate PIES. (a) So long as no Tax Event
Redemption shall have occurred, and the Trust shall not have been liquidated, at
any time on or prior to the seventh Business Day immediately preceding the
Purchase Contract Settlement Date, a Holder of Treasury PIES shall have the
right to reestablish Corporate PIES by substitution of Trust Preferred
Securities or security entitlements thereto for Pledged Treasury Securities in
integral multiples of 20 Treasury PIES by:
(1) Transferring to the Securities Intermediary for credit to the
Collateral Account Trust Preferred Securities or security entitlements
thereto having a liquidation amount equal to the Value of the Pledged
Treasury Securities to be released, accompanied by a notice, substantially
in the form of Exhibit C to the Purchase Contract Agreement, whereupon the
Purchase Contract Agent shall deliver to the Collateral Agent a notice,
substantially in the form of Exhibit C hereto, stating that such Holder has
Transferred Trust Preferred Securities or security entitlements thereto to
the Securities Intermediary for credit to the Collateral Account and
requesting that the Collateral Agent release from the Pledge the Pledged
Treasury Securities related to such Treasury PIES; and
(2) delivering the related Treasury PIES to the Purchase Contract
Agent.
Upon receipt of such notice and confirmation that Trust Preferred Securities or
security entitlements thereto have been credited to the Collateral Account as
described in such notice, the Collateral Agent shall instruct the Securities
Intermediary by a notice in the form provided in Exhibit D to release such
Pledged Treasury Securities from the Pledge by Transfer to the Purchase Contract
Agent for distribution to such Holder.
(b) If a Tax Event Redemption has occurred and the Treasury Portfolio has
become a component of the Corporate PIES, at any time on or prior to the second
Business Day immediately preceding the Purchase Contract Settlement Date, a
Holder of Treasury PIES shall have the right to reestablish Corporate PIES by
substitution of an Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio for Pledged Treasury
Securities in integral multiples of 160,000 Treasury PIES by:
<PAGE> 15
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(1) Transferring to the Securities Intermediary for credit to the
Collateral Account an Applicable Ownership Interest (as specified in clause
(A) of the definition of such term) of the Treasury Portfolio equal to the
Value of the Pledged Treasury Securities to be released, accompanied by a
notice, substantially in the form provided in Exhibit C to the Purchase
Contract Agreement, whereupon the Purchase Contract Agent shall deliver to
the Collateral Agent a notice, substantially in the form of Exhibit C
hereto, stating that such Holder has Transferred an Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio to the Securities Intermediary for credit to the
Collateral Account and requesting that the Collateral Agent release from
the Pledge the Pledged Treasury Securities related to such Treasury PIES;
and
(2) delivering the related Treasury PIES to the Purchase Contract
Agent.
Upon receipt of such notice and confirmation that an Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio equal to the Value of the Pledged Treasury Securities to be
released has been credited to the Collateral Account as described in such
notice, the Collateral Agent shall instruct the Securities Intermediary by a
notice in the form provided in Exhibit D to release such Pledged Treasury
Securities from the Pledge by Transfer to the Purchase Contract Agent for
distribution to such Holder.
(c) If no Tax Event Redemption shall have occurred, but the Trust shall
have been liquidated, and the Debentures shall have become a component of the
Corporate PIES, at any time on or prior to the seventh Business Day immediately
preceding the Purchase Contract Settlement Date, a Holder of Treasury PIES shall
have the right to reestablish Corporate PIES by substitution of Debentures or
security entitlements thereto for Pledged Treasury Securities in integral
multiples of 20 Treasury PIES by:
(1) Transferring to the Securities Intermediary for credit to the
Collateral Account Debentures or security entitlements thereto having a
principal amount equal to the Value of the Pledged Treasury Securities to
be released, accompanied by a notice, substantially in the form of Exhibit
C to the Purchase Contract Agreement, whereupon the Purchase Contract Agent
shall deliver to the Collateral Agent a notice, substantially in the form
of Exhibit C hereto, stating that such Holder has Transferred Debentures or
security entitlements thereto to the Securities Intermediary for credit to
the Collateral Account and requesting that the Collateral Agent release
from the Pledge the Pledged Treasury Securities related to such Treasury
PIES; and
(2) delivering the related Treasury PIES to the Purchase Contract
Agent.
Upon receipt of such notice and confirmation that Debentures or security
entitlements thereto have been credited to the Collateral Account as described
in such notice, the Collateral Agent shall instruct the Security Intermediary by
a notice in the form provided in Exhibit D to release such Pledged Treasury
Securities from the Pledge by Transfer to the Purchase Contract Agent for
distribution to such Holder.
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(d) Upon credit to the Collateral Account of Trust Preferred Securities or
security entitlements thereto, or an appropriate Applicable Ownership Interest
(as specified in clause (A) of the definition of such term) of the Treasury
Portfolio or Debentures or security entitlements thereto, as the case may be,
and receipt of the related instruction from the Collateral Agent, the Securities
Intermediary shall release the applicable Pledged Treasury Securities and shall
promptly Transfer the same to the Purchase Contract Agent for distribution to
such Holder, free and clear of any lien, pledge or security interest created
hereby.
Section 5.4 Termination Event. (a) Upon receipt by the Collateral Agent of
written notice from the Company or the Purchase Contract Agent that a
Termination Event has occurred, the Collateral Agent shall release all
Collateral from the Pledge and shall promptly Transfer:
(1) any Pledged Preferred Securities or the Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio (if a Tax Event Redemption has occurred and the Treasury
Portfolio has become a component of the Corporate PIES) or the Pledged
Debentures (if the Trust has been liquidated, and the Debentures or
security entitlements thereto have become a component of the Corporate
PIES); and
(2) any Pledged Treasury Securities
to the Purchase Contract Agent for the benefit of the Holders, for distribution
to such Holders in accordance with their respective interests, free and clear of
any lien, pledge or security interest or other interest created hereby.
(b) If such Termination Event shall result from the Company's becoming a
debtor under the Bankruptcy Code, and if the Collateral Agent shall for any
reason fail promptly to effectuate the release and Transfer of all Pledged
Preferred Securities, the Applicable Ownership Interest (as specified in clause
(A) of the definition of such term) of the Treasury Portfolio, the Pledged
Debentures or the Pledged Treasury Securities, as the case may be, as provided
by this Section 5.4, the Purchase Contract Agent shall:
(1) use its best efforts to obtain an opinion of a nationally
recognized law firm reasonably acceptable to the Collateral Agent to the
effect that, as a result of the Company's being the debtor in such a
bankruptcy case, the Collateral Agent will not be prohibited from releasing
or Transferring the Collateral as provided in this Section 5.4, and shall
deliver such opinion to the Collateral Agent within ten days after the
occurrence of such Termination Event, and if (A) the Purchase Contract
Agent shall be unable to obtain such opinion within ten days after the
occurrence of such Termination Event or (B) the Collateral Agent shall
continue, after delivery of such opinion, to refuse to effectuate the
release and Transfer of all Pledged Preferred Securities, the Applicable
Ownership Interest (as specified in clause (A) of the definition of such
term) of the Treasury Portfolio, all the Pledged Debentures, all the
Pledged Treasury Securities or the Proceeds of any of the foregoing, as the
case may be, as provided in this Section 5.4, then the Purchase Contract
Agent shall within fifteen days after the occurrence of such Termination
Event commence an action or proceeding in the court
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having jurisdiction of the Company's case under the Bankruptcy Code seeking
an order requiring the Collateral Agent to effectuate the release and
transfer of all Pledged Preferred Securities, the Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, all the Pledged Debentures or all the Pledged Treasury
Securities, as the case may be, as provided by this Section 5.4; or
(2) commence an action or proceeding like that described in clause
5.4(b)(1)(B) hereof within ten days after the occurrence of such
Termination Event.
Section 5.5 Cash Settlement. (a) Upon receipt by the Collateral Agent of
(1) a notice from the Purchase Contract Agent promptly after the receipt by the
Purchase Contract Agent of a notice that a Holder of a Corporate PIES or
Treasury PIES has elected, in accordance with the procedures specified in
Section 5.4(a)(i) or (d)(i) of the Purchase Contract Agreement, respectively, to
settle its Purchase Contract with cash and (2) payment by such Holder by deposit
in the Collateral Account on or prior to 11:00 a.m., New York City time, on the
fifth Business Day immediately preceding the Purchase Contract Settlement Date
of the Purchase Price in lawful money of the United States by certified or
cashier's check or wire transfer of immediately available funds payable to or
upon the order of the Securities Intermediary, then the Collateral Agent shall
(i) instruct the Securities Intermediary promptly to invest any such Cash in
Permitted Investments and (ii) release from the Pledge (1) Pledged Preferred
Securities or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio or Pledged
Debentures in the case of a Holder of Corporate PIES, or (2) Pledged Treasury
Securities in the case of a Holder of Treasury PIES with a liquidation or
principal amount equal to the product of (x) the Stated Amount times (y) the
number of such Purchase Contracts as to which such Holders have elected to
effect a cash settlement pursuant to this Section 5.5(a) and shall instruct the
Securities Intermediary to Transfer all such Pledged Preferred Securities, the
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, Pledged Debentures or Pledged Treasury
Securities, as the case may be, to the Purchase Contract Agent for the benefit
of such Holders, in each case free and clear of the Pledge created hereby, for
distribution to such Holders in accordance with their respective interests. Upon
receipt of the proceeds upon the maturity of the Permitted Investments on the
Purchase Contract Settlement Date, the Collateral Agent shall (A) instruct the
Securities Intermediary to pay the portion of such proceeds and deliver any
certified or cashier's checks received, in an aggregate amount equal to the
Purchase Price, to the Company on the Purchase Contract Settlement Date, and (B)
instruct the Securities Intermediary to release any amounts in respect of the
interest earned from such Permitted Investments to the Purchase Contract Agent
for distribution to the relevant Holders in accordance with their respective
interests.
(b) If a Holder of a Corporate PIES notifies the Purchase Contract Agent
as provided in paragraph 5.4(a)(i) of the Purchase Contract Agreement of its
intention to pay the Purchase Price in cash, but fails to make such payment as
required by paragraph 5.4(a)(ii) of the Purchase Contract Agreement, such Holder
shall be deemed to have consented to the disposition of the Pledged Preferred
Securities or Pledged Debentures of such Holder in accordance with paragraph
5.4(a)(iii) of the Purchase Contract Agreement.
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(c) If a Holder of a Treasury PIES or Corporate PIES (if a Tax Event
Redemption has occurred) notifies the Purchase Contract Agent as provided in
paragraph 5.4(d)(i) of the Purchase Contract Agreement of its intention to pay
the Purchase Price in cash, but fails to make such payment as required by
paragraph 5.4(d)(ii) of the Purchase Contract Agreement, such Holder shall be
deemed to have elected to pay the Purchase Price in accordance with paragraph
5.4(d)(iii) of the Purchase Contract Agreement.
(d) Prior to 3:00 p.m., New York City time, on the fourth Business Day
immediately preceding the Purchase Contract Settlement Date, the Securities
Intermediary shall deliver to the Purchase Contract Agent a notice,
substantially in the form of Exhibit E hereto, stating (i) the amount of cash
that it has received with respect to the Cash Settlement of Corporate PIES and
(ii) the amount of cash that it has received with respect to the Cash Settlement
of Treasury PIES.
Section 5.6 Early Settlement. Upon written notice to the Collateral Agent
by the Purchase Contract Agent that one or more Holders of Securities have
elected to effect Early Settlement of their respective obligations under the
Purchase Contracts forming a part of such Securities in accordance with the
terms of the Purchase Contracts and the Purchase Contract Agreement (setting
forth the number of such Purchase Contracts as to which such Holders have
elected to effect Early Settlement), and that the Purchase Contract Agent has
received from such Holders, and paid to the Company as confirmed in writing by
the Company, the related Early Settlement Amounts pursuant to the terms of the
Purchase Contracts and the Purchase Contract Agreement and that all conditions
to such Early Settlement have been satisfied, then the Collateral Agent shall
release from the Pledge, (a) Pledged Preferred Securities or the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio or Pledged Debentures in the case of a
Holder of Corporate PIES or (b) Pledged Treasury Securities, in the case of a
Holder of Treasury PIES, with a Value equal to the product of (i) the Stated
Amount times (ii) the number of Purchase Contracts as to which such Holders have
elected to effect Early Settlement and shall instruct the Securities
Intermediary to Transfer all such Pledged Preferred Securities, the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio, Pledged Debentures or Pledged Treasury
Securities, as the case may be, to the Purchase Contract Agent for the benefit
of such Holders, in each case free and clear of the Pledge created hereby, for
distribution to such Holders in accordance with their respective interests.
Section 5.7 Application of Proceeds Settlement. (a) If a Holder of
Corporate PIES (the Trust Preferred Securities or Debentures or security
entitlements to either of them are a component of the Corporate PIES) has not
elected to make an effective Cash Settlement by notifying the Purchase Contract
Agent in the manner provided for in Section 5.4(a)(i) in the Purchase Contract
Agreement, or has given such notice but failed to deliver the required cash
prior to 11:00 A.M., New York City time, on the fifth Business Day immediately
preceding the Purchase Contract Settlement Date, such Holder shall be deemed to
have elected to pay for the shares of Common Stock to be issued under such
Purchase Contract(s) from the Proceeds of the related Pledged Preferred
Securities or Pledged Debentures. In such event, the Collateral Agent shall
instruct the Securities Intermediary to Transfer the related Pledged Preferred
Securities or Pledged Debentures to the Remarketing Agent for remarketing. Upon
receiving such Pledged Preferred Securities or Pledged Debentures, the
Remarketing Agent, pursuant to the terms of the Remarketing Agreement, will use
its reasonable
<PAGE> 19
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efforts to remarket such Pledged Preferred Securities or Pledged Debentures on
such date at a price of 100% of the aggregate liquidation amount of such Pledged
Preferred Securities or aggregate principal amount of such Pledged Debentures,
as the case may be. The Remarketing Agent will deposit the entire amount of the
Proceeds of such remarketing in the Collateral Account. On the Purchase Contract
Settlement Date, the Collateral Agent shall instruct the Securities Intermediary
to apply a portion of the Proceeds from such remarketing equal to the aggregate
liquidation amount of such Pledged Preferred Securities or aggregate principal
amount of such Pledged Debentures, as the case may be, to satisfy in full the
obligations of such Holders of Corporate PIES to pay the Purchase Price to
purchase the Common Stock under the related Purchase Contracts. The balance of
the Proceeds from such remarketing shall be transferred to the Purchase Contract
Agent for distribution to the Holders in accordance with their respective
interests. If the Remarketing Agent advises the Collateral Agent in writing that
there has been a Failed Remarketing, thus resulting in an event of default under
the Purchase Contract Agreement and hereunder, the Collateral Agent, for the
benefit of the Company shall, at the written direction of the Company, dispose
of the Pledged Preferred Securities or Pledged Debentures, as the case may be,
in accordance with applicable law and satisfy in full, from such disposition,
such Holders' obligations to pay the Purchase Price for the Common Stock.
(b) If a Holder of Treasury PIES or Corporate PIES (if a Tax Event
Redemption has occurred) has not elected to make an effective cash settlement by
notifying the Purchase Contract Agent in the manner provided for in Section
5.4(d)(i) of the Purchase Contract Agreement, or has given such notice but
failed to make such payment in the manner required by Section 5.4(d)(ii) of the
Purchase Contract Agreement, such Holder shall be deemed to have elected to pay
for the shares of Common Stock to be issued under such Purchase Contract(s) from
the Proceeds of the related Pledged Treasury Securities or such Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, as the case may be. Upon maturity of the Pledged
Treasury Securities or the Applicable Ownership Interest (as specified in clause
(A) of the definition of such term) of the Treasury Portfolio, the Securities
Intermediary, at the written direction of the Collateral Agent, shall invest the
Cash Proceeds of the maturing Pledged Treasury Securities or such Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, as the case may be, in Permitted Investments. Without
receiving any instruction from any such Holder of Treasury PIES or Corporate
PIES, the Collateral Agent shall apply the Proceeds of the related Pledged
Treasury Securities or such Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio to the
settlement of such Purchase Contracts on the Purchase Contract Settlement Date.
In the event the sum of the Proceeds from the related Pledged Treasury
Securities or such Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio and the investment
earnings from the investment in Permitted Investments is in excess of the
aggregate Purchase Price of the Purchase Contracts being settled thereby, the
Collateral Agent shall instruct the Securities Intermediary to distribute such
excess, when received, to the Purchase Contract Agent for the benefit of such
Holders for distribution to such Holders in accordance with their respective
interests.
Section 5.8 Tax Event Redemption. If the Tax Event Redemption shall occur
prior to the Purchase Contract Settlement Date, the Securities Intermediary
shall apply the Redemption Amount to purchase the Treasury Portfolio and the
Securities Intermediary shall credit the Applicable
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Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio to the Collateral Account and shall transfer the
Applicable Ownership Interest (as specified in clause (B) of the definition of
such term) of the Treasury Portfolio to the Purchase Contract Agent, free and
clear of any lien, pledge or security interest created hereby. Upon credit to
the Collateral Account of the Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio having a
Value equal to the liquidation amount of the Pledged Preferred Securities or the
aggregate principal amount of the Pledged Debentures, the Securities
Intermediary shall release the Pledged Preferred Securities or the Pledged
Debentures, as applicable, from the Collateral Account and shall promptly
transfer the Pledged Preferred Securities to the Trust and the Pledged
Debentures to Capital Markets, as applicable.
Section 6. Voting Rights -- Trust Preferred Securities and Pledged
Debentures. The Purchase Contract Agent may exercise, or refrain from
exercising, any and all voting and other consensual rights pertaining to the
Pledged Preferred Securities or the Pledged Debentures or any part thereof for
any purpose not inconsistent with the terms of this Agreement and in accordance
with the terms of the Purchase Contract Agreement; provided, that the Purchase
Contract Agent shall not exercise or, as the case may be, shall not refrain from
exercising such right if, in the judgment of the Purchase Contract Agent, such
action would impair or otherwise have a material adverse effect on the value of
all or any of the Pledged Preferred Securities or the Pledged Debentures; and
provided, further, that the Purchase Contract Agent shall give the Company and
the Collateral Agent at least five days' prior written notice of the manner in
which it intends to exercise, or its reasons for refraining from exercising, any
such right. Upon receipt of any notices and other communications in respect of
any Pledged Preferred Securities or any Pledged Debentures, including notice of
any meeting at which holders of the Trust Preferred Securities or Debentures are
entitled to vote or solicitation of consents, waivers or proxies of holders of
the Trust Preferred Securities or Debentures, the Collateral Agent shall use
reasonable efforts to send promptly to the Purchase Contract Agent such notice
or communication, and as soon as reasonably practicable after receipt of a
written request therefor from the Purchase Contract Agent, execute and deliver
to the Purchase Contract Agent such proxies and other instruments in respect of
such Pledged Preferred Securities or Pledged Debentures (in form and substance
satisfactory to the Collateral Agent) as are prepared by the Purchase Contract
Agent with respect to the Pledged Preferred Securities or Pledged Debentures.
Section 7. Rights and Remedies; Distribution of the Debentures; Tax Event
Redemption.
Section 7.1 Rights and Remedies of the Collateral Agent. (a) In addition to
the rights and remedies specified in Section 5.5 hereof or otherwise available
at law or in equity, after an event of default (as specified in Section 7.1(b)
below) hereunder the Collateral Agent shall have all of the rights and remedies
with respect to the Collateral of a secured party under the Code (whether or not
the Code is in effect in the jurisdiction where the rights and remedies are
asserted) and the TRADES Regulations and such additional rights and remedies to
which a secured party is entitled under the laws in effect in any jurisdiction
where any rights and remedies hereunder may be asserted. Without limiting the
generality of the foregoing, such remedies may include, to the extent permitted
by applicable law, (i) retention of the Pledged Preferred Securities or Pledged
Debentures in full
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satisfaction of the Holders' obligations under the Purchase Contracts or (ii)
sale of the Pledged Preferred Securities or Pledged Debentures in one or more
public or private sales.
(b) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, in the event the Collateral Agent is unable
to make payments to the Company on account of the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio or on account of principal payments of any Pledged
Treasury Securities as provided in Section 3 hereof, in satisfaction of the
Obligations of the Holder of the Securities of which such Pledged Treasury
Securities or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as
applicable, is a part under the related Purchase Contracts, the inability to
make such payments shall constitute an event of default hereunder and the
Collateral Agent shall have and may exercise, with reference to such Pledged
Treasury Securities or such appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as applicable, and such Obligations of such Holder, any and all of
the rights and remedies available to a secured party under the Code and the
TRADES Regulations after default by a debtor, and as otherwise granted herein or
under any other law.
(c) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably
authorized to receive and collect all payments of (i) the liquidation amount of,
or cash distributions on, the Pledged Preferred Securities, (ii) the principal
amount of the Pledged Treasury Securities, (iii) the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio and (iv) the principal amount of the Pledged
Debentures, subject, in each case, to the provisions of Section 3 hereof, and as
otherwise granted herein.
(d) The Purchase Contract Agent and each Holder of Securities, in the
event such Holder becomes the Holder of a Treasury PIES, agrees that, from time
to time, upon the written request of the Collateral Agent, the Purchase Contract
Agent or such Holder shall execute and deliver such further documents and do
such other acts and things as the Collateral Agent may reasonably request in
order to maintain the Pledge, and the perfection and priority thereof, and to
confirm the rights of the Collateral Agent hereunder. The Purchase Contract
Agent shall have no liability to any Holder for executing any documents or
taking any such acts requested by the Collateral Agent hereunder, except for
liability for its own negligent acts, its own negligent failure to act or its
own willful misconduct.
Section 7.2 Substitution of Debentures. If the Trust shall have been
liquidated prior to the Purchase Contract Settlement Date, the Collateral Agent
shall transfer to the Securities Intermediary Debentures having a Value equal to
the liquidation amount of the Pledged Preferred Securities for credit to the
Collateral Account. Upon credit to the Collateral Account of such Debentures,
the Securities Intermediary shall release the Pledged Preferred Securities from
the Collateral Account and shall promptly transfer the same to the Trust.
Section 7.3 Tax Event Redemption. Upon the occurrence of a Tax Event
Redemption prior to the Purchase Contract Settlement Date, the Redemption Price
payable on the Tax Event
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Redemption Date with respect to the Applicable Principal Amount shall be
credited to the Collateral Account by the Property Trustee or, if the Trust
shall have been dissolved and the related Debentures shall have been
distributed, by the Debenture Trustee on or prior to 12:30 p.m., New York City
time, by federal funds check or wire transfer of immediately available funds.
The Collateral Agent is hereby authorized to present the Pledged Preferred
Securities or the Pledged Debentures for payment as may be required by their
respective terms. Upon receipt of such funds, the Pledged Preferred Securities
or Pledged Debentures, as the case may be, shall be released from the Collateral
Account. In the event such funds are credited to the Collateral Account, the
Collateral Agent, at the written direction of the Company, shall instruct the
Securities Intermediary to (a) apply an amount equal to the Redemption Amount of
such Redemption Price to purchase the Treasury Portfolio from the Quotation
Agent for credit to the Collateral Account and (b) promptly remit the remaining
portion of such Redemption Price to the Purchase Contract Agent for payment to
the Holders of Corporate PIES, free and clear of any lien, pledge or security
interest created thereby.
Section 7.4 Substitutions. Whenever a Holder has the right to substitute
Treasury Securities, Trust Preferred Securities, Debentures or security
entitlements to any of them or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as the case may be, for financial assets held in the Collateral
Account, such substitution shall not constitute a novation of the security
interest created hereby.
Section 8. Representations and Warranties; Covenants.
Section 8.1 Representations and Warranties. Each Holder from time to time,
acting through the Purchase Contract Agent as attorney-in-fact (it being
understood that the Purchase Contract Agent shall not be liable for any
representation or warranty made by or on behalf of a Holder), hereby represent
and warrant to the Collateral Agent (with respect to his interest in the
Collateral), which representations and warranties shall be deemed repeated on
each day a Holder Transfers Collateral that:
(a) such Holder has the power to grant a security interest in and
lien on the Collateral;
(b) such Holder is the sole beneficial owner of the Collateral and,
in the case of Collateral delivered in physical form, is the sole
holder of such Collateral and is the sole beneficial owner of, or
has the right to Transfer, the Collateral it Transfers to the
Securities Intermediary for credit to the Collateral Account,
free and clear of any security interest, lien, encumbrance, call,
liability to pay money or other restriction other than the
security interest and lien granted under Section 2 hereof;
(c) upon the Transfer of the Collateral to the Securities
Intermediary for credit to the Collateral Account, the Collateral
Agent, for the benefit of the Company, will have a valid and
perfected first priority security interest therein (assuming that
any central clearing operation or any securities intermediary or
other entity not within the control of the Holder involved in
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the Transfer of the Collateral, including the Collateral Agent
and the Securities Intermediary, gives the notices and takes the
action required of it hereunder and under applicable law for
perfection of that interest and assuming the establishment and
exercise of control pursuant to Section 4 hereof); and
(d) the execution and performance by the Holder of its obligations
under this Agreement will not result in the creation of any
security interest, lien or other encumbrance on the Collateral
other than the security interest and lien granted under Section 2
hereof or violate any provision of any existing law or regulation
applicable to it or of any mortgage, charge, pledge, indenture,
contract or undertaking to which it is a party or which is
binding on it or any of its assets.
Section 8.2 Covenants. The Holders from time to time, acting through the
Purchase Contract Agent as their attorney-in-fact (it being understood that the
Purchase Contract Agent shall not be liable for any covenant made by or on
behalf of a Holder), hereby covenant to the Collateral Agent that for so long as
the Collateral remains subject to the Pledge:
(a) neither the Purchase Contract Agent nor such Holders will create
or purport to create or allow to subsist any mortgage, charge,
lien, pledge or any other security interest whatsoever over the
Collateral or any part of it other than pursuant to this
Agreement; and
(b) neither the Purchase Contract Agent nor such Holders will sell or
otherwise dispose (or attempt to dispose) of the Collateral or
any part of it except for the beneficial interest therein,
subject to the Pledge hereunder, transferred in connection with
the Transfer of the Securities.
Section 9. The Collateral Agent and the Securities Intermediary. It is
hereby agreed as follows:
Section 9.1 Appointment, Powers and Immunities. The Collateral Agent shall
act as agent for the Company hereunder with such powers as are specifically
vested in the Collateral Agent by the terms of this Agreement, together with
such other powers as are reasonably incidental thereto. The Collateral Agent:
(a) shall have no duties or responsibilities except those expressly set forth in
this Agreement and no implied covenants or obligations shall be inferred from
this Agreement against the Collateral Agent, nor shall the Collateral Agent be
bound by the provisions of any agreement by any party hereto beyond the specific
terms hereof; (b) shall not be responsible for any recitals contained in this
Agreement, or in any certificate or other document referred to or provided for
in, or received by it under, this Agreement, the Securities or the Purchase
Contract Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement (other than as against the
Collateral Agent), the Securities or the Purchase Contract Agreement or any
other document referred to or provided for herein or therein or for any failure
by the Company or any other Person (except the Collateral Agent) to perform any
of its obligations hereunder or
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thereunder or for the perfection, priority or, except as expressly required
hereby, maintenance of any security interest created hereunder; (c) shall not be
required to initiate or conduct any litigation or collection proceedings
hereunder (except pursuant to directions furnished under Section 9.2 hereof,
subject to Section 9.6 hereof); (d) shall not be responsible for any action
taken or omitted to be taken by it hereunder or under any other document or
instrument referred to or provided for herein or in connection herewith or
therewith, except for its own negligence or willful misconduct; and (e) shall
not be required to advise any party as to selling or retaining, or taking or
refraining from taking any action with respect to, any securities or other
property deposited hereunder. Subject to the foregoing, during the term of this
Agreement, the Collateral Agent shall take all reasonable action in connection
with the safekeeping and preservation of the Collateral hereunder.
No provision of this Agreement shall require the Collateral Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder. In no event shall the Collateral
Agent be liable for any amount in excess of the Value of the Collateral.
Notwithstanding the foregoing, each of the Collateral Agent and the Securities
Intermediary in its individual capacity hereby waives any right of setoff,
bankers lien, liens or perfection rights as securities intermediary or any
counterclaim with respect to any of the Collateral.
Section 9.2 Instructions of the Company. The Company shall have the right,
by one or more instruments in writing executed and delivered to the Collateral
Agent, to direct the time, method and place of conducting any proceeding for the
realization of any right or remedy available to the Collateral Agent, or of
exercising any power conferred on the Collateral Agent, or to direct the taking
or refraining from taking of any action authorized by this Agreement; provided,
however, that (i) such direction shall not conflict with the provisions of any
law or of this Agreement and (ii) the Collateral Agent shall be adequately
indemnified as provided herein. Nothing in this Section 9.2 shall impair the
right of the Collateral Agent in its discretion to take any action or omit to
take any action which it deems proper and which is not inconsistent with such
direction.
Section 9.3 Reliance by Collateral Agent and Securities Intermediary. Each
of the Securities Intermediary and the Collateral Agent shall be entitled to
rely upon any certification, order, judgment, opinion, notice or other
communication (including, without limitation, any thereof by telephone,
telecopy, telex or facsimile) believed by it to be genuine and correct and to
have been signed or sent by or on behalf of the proper Person or Persons
(without being required to determine the correctness of any fact stated therein)
and upon advice and statements of legal counsel and other experts selected by
the Collateral Agent and the Securities Intermediary. As to any matters not ex
pressly provided for by this Agreement, the Collateral Agent and the Securities
Intermediary shall in all cases be fully protected in acting, or in refraining
from acting, hereunder in accordance with instructions given by the Company in
accordance with this Agreement.
Section 9.4 Rights in Other Capacities. The Collateral Agent and the
Securities Intermediary and their affiliates may (without having to account
therefor to the Company) accept deposits from, lend money to, make their
investments in and generally engage in any kind of banking, trust or other
business with the Purchase Contract Agent, any other Person interested herein
and any Holder of Securities (and any of their respective subsidiaries or
affiliates) as if it were not acting as the Collateral Agent, and the Collateral
Agent, the Securities Intermediary and their affiliates may accept
<PAGE> 25
22
fees and other consideration from the Purchase Contract Agent and any Holder of
Securities without having to account for the same to the Company; provided that
each of the Securities Intermediary and the Collateral Agent covenants and
agrees with the Company that it shall not accept, receive or permit there to be
created in favor of itself and shall take no affirmative action to permit there
to be created in favor of any other Person, any security interest, lien or other
encumbrance of any kind in or upon the Collateral other than the lien created by
the Pledge.
Section 9.5 Non-Reliance on Collateral Agent and Securities Intermediary.
Neither the Securities Intermediary nor the Collateral Agent shall be required
to keep itself informed as to the performance or observance by the Purchase
Contract Agent or any Holder of Securities of this Agreement, the Purchase
Contract Agreement, the Securities or any other document referred to or provided
for herein or therein or to inspect the properties or books of the Purchase
Contract Agent or any Holder of Securities. Neither the Collateral Agent nor the
Securities Intermediary shall have any duty or responsibility to provide the
Company with any credit or other information concerning the affairs, financial
condition or business of the Purchase Contract Agent or any Holder of Securi
ties (or any of their respective affiliates) that may come into the possession
of the Collateral Agent or the Securities Intermediary or any of their
respective affiliates.
Section 9.6 Compensation and Indemnity. The Company agrees: (i) to pay the
Collateral Agent and the Securities Intermediary from time to time such
compensation as shall be agreed in writing between the Company and the
Collateral Agent or the Securities Intermediary, as the case may be, for all
services rendered by them hereunder and (ii) to indemnify the Collateral Agent
and the Securities Intermediary for, and to hold each of them harmless from and
against, any loss, liability or reasonable out-of-pocket expense incurred
without negligence, willful misconduct or bad faith on its part, arising out of
or in connection with the acceptance or administration of its powers and duties
under this Agreement, including the reasonable out-of-pocket costs and expenses
(including reasonable fees and expenses of counsel) of defending itself against
any claim or liability in connection with the exercise or performance of such
powers and duties.
Section 9.7 Failure to Act. In the event of any ambiguity in the provisions
of this Agreement or any dispute between or conflicting claims by or among the
parties hereto or any other Person with respect to any funds or property
deposited hereunder, the Collateral Agent and the Securities Intermediary shall
be entitled, after prompt notice to the Company and the Purchase Contract Agent,
at its sole option, to refuse to comply with any and all claims, demands or
instructions with respect to such property or funds so long as such dispute or
conflict shall continue, and the Collateral Agent and the Securities
Intermediary shall not be or become liable in any way to any of the parties
hereto for its failure or refusal to comply with such conflicting claims,
demands or instructions. The Collateral Agent and the Securities Intermediary
shall be entitled to refuse to act until either (i) such conflicting or adverse
claims or demands shall have been finally determined by a court of competent
jurisdiction or settled by agreement between the conflicting parties as
evidenced in a writing satisfactory to the Collateral Agent or the Securities
Intermediary or (ii) the Collateral Agent or the Securities Intermediary shall
have received security or an indemnity satisfactory to it sufficient to save it
harmless from and against any and all loss, liability or reasonable
out-of-pocket expense which it may incur by reason of its acting. The Collateral
Agent and the Securities Intermediary may in addition elect to commence an
interpleader action or seek other judicial relief or orders as the
<PAGE> 26
23
Collateral Agent or the Securities Intermediary may deem necessary.
Notwithstanding anything contained herein to the contrary, neither the
Collateral Agent nor the Securities Intermediary shall be required to take any
action that is in its opinion contrary to law or to the terms of this Agreement,
or which would in its opinion subject it or any of its officers, employees or
directors to liability.
Section 9.8 Resignation of Collateral Agent and Securities Intermediary.
(a) Subject to the appointment and acceptance of a successor Collateral Agent as
provided below, (i) the Collateral Agent may resign at any time by giving notice
thereof to the Company and the Purchase Contract Agent as attorney-in-fact for
the Holders of Securities, (ii) the Collateral Agent may be removed at any time
by the Company and (iii) if the Collateral Agent fails to perform any of its
material obligations hereunder in any material respect for a period of not less
than 20 days after receiving written notice of such failure by the Purchase
Contract Agent and such failure shall be continuing, the Collateral Agent may be
removed by the Purchase Contract Agent. The Purchase Contract Agent shall
promptly notify the Company of any removal of the Collateral Agent pursuant to
clause (iii) of the immediately preceding sentence. Upon any such resignation or
removal, the Company shall have the right to appoint a successor Collateral
Agent. If no successor Collateral Agent shall have been so appointed and shall
have accepted such appointment within 30 days after the retiring Collateral
Agent's giving of notice of resignation or such removal, then the retiring
Collateral Agent may petition any court of competent jurisdiction for the
appointment of a successor Collateral Agent. The Collateral Agent shall be a
bank which has an office in New York, New York with a combined capital and
surplus of at least $50,000,000 and shall not be the Purchase Contract Agent or
any of its affiliates. Upon the acceptance of any appointment as Collateral
Agent hereunder by a successor Collateral Agent, such successor Collateral Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Collateral Agent, and the retiring
Collateral Agent shall take all appropriate action to transfer any money and
property held by it hereunder (including the Collateral) to such successor
Collateral Agent. The retiring Collateral Agent shall, upon such succession, be
discharged from its duties and obligations as Collateral Agent hereunder. After
any retiring Collateral Agent's resignation hereunder as Collateral Agent, the
provisions of this Section 9 shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was acting as the
Collateral Agent.
(b) Subject to the appointment and acceptance of a successor Securities
Intermediary as provided below, (i) the Securities Intermediary may resign at
any time by giving notice thereof to the Company and the Purchase Contract Agent
as attorney-in-fact for the Holders of Securities, (ii) the Securities
Intermediary may be removed at any time by the Company and (iii) if the
Securities Intermediary fails to perform any of its material obligations
hereunder in any material respect for a period of not less than 20 days after
receiving written notice of such failure by the Purchase Contract Agent and such
failure shall be continuing, the Securities Intermediary may be removed by the
Purchase Contract Agent. The Purchase Contract Agent shall promptly notify the
Company of any removal of the Securities Intermediary pursuant to clause (iii)
of the immediately preceding sentence. Upon any such resignation or removal, the
Company shall have the right to appoint a successor Securities Intermediary. If
no successor Securities Intermediary shall have been so appointed and shall have
accepted such appointment within 30 days after the retiring Securities
Intermediary's giving of notice of resignation or such removal, then the
retiring Securities Intermediary may petition any court of competent
jurisdiction for the appointment of a successor Securities Intermediary. The
<PAGE> 27
24
Securities Intermediary shall be a bank which has an office in New York, New
York with a combined capital and surplus of at least $50,000,000 and shall not
be the Purchase Contract Agent or any of its affiliates. Upon the acceptance of
any appointment as Securities Intermediary hereunder by a successor Securities
Intermediary, such successor Securities Intermediary shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Securities Intermediary, and the retiring Securities Intermediary shall
take all appropriate action to transfer any money and property held by it
hereunder (including the Collateral) to such successor Securities Intermediary.
The retiring Securities Intermediary shall, upon such succession, be discharged
from its duties and obligations as Securities Intermediary hereunder. After any
retiring Securities Intermediary's resignation hereunder as Securities
Intermediary, the provisions of this Section 9 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Securities Intermediary.
Section 9.9 Right to Appoint Agent or Advisor. The Collateral Agent shall
have the right to appoint agents or advisors in connection with any of its
duties hereunder, and the Collateral Agent shall not be liable for any action
taken or omitted by, or in reliance upon the advice of, such agents or advisors
selected in good faith. The appointment of agents pursuant to this Section 9.9
shall be subject to prior consent of the Company, which consent shall not be
unreasonably withheld.
Section 9.10 Survival. The provisions of this Section 9 shall survive
termination of this Agreement and the resignation or removal of the Collateral
Agent or the Securities Intermediary.
Section 9.11 Exculpation. Anything in this Agreement to the contrary
notwithstanding, in no event shall the Collateral Agent or the Securities
Intermediary or their officers, directors, employees or agents be liable under
this Agreement to any third party for indirect, special, punitive, or
consequential loss or damage of any kind whatsoever, including lost profits,
whether or not the likelihood of such loss or damage was known to the Collateral
Agent or the Securities Intermediary, or any of them, incurred without any act
or deed that is found to be attributable to gross negligence or willful
misconduct on the part of the Collateral Agent or the Securities Intermediary.
Section 10. Amendment.
Section 10.1 Amendment Without Consent of Holders. Without the consent of
any Holders, the Company, the Collateral Agent, the Securities Intermediary and
the Purchase Contract Agent, at any time and from time to time, may amend this
Agreement, in form satisfactory to the Company, the Collateral Agent, the
Securities Intermediary and the Purchase Contract Agent, for any of the
following purposes:
(1) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company;
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company, so long as such covenants or such surrender do not adversely
affect the validity, perfection or priority of the Pledge created
hereunder;
<PAGE> 28
25
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Collateral Agent, Securities Intermediary or
Purchase Contract Agent; or
(4) to cure any ambiguity (or formal defect), to correct or supplement
any provisions herein which may be inconsistent with any other such
provisions herein, or to make any other provisions with respect to such
matters or questions arising under this Agreement, provided such action
shall not adversely affect the interests of the Holders.
Section 10.2 Amendment with Consent of Holders. With the consent of the
Holders of not less than a majority of the Purchase Contracts at the time
outstanding, by Act of said Holders delivered to the Company, the Purchase
Contract Agent, the Securities Intermediary or the Collateral Agent, as the case
may be, the Company, when duly authorized, the Purchase Contract Agent, the
Securities Intermediary and the Collateral Agent may amend this Agreement for
the purpose of modifying in any manner the provisions of this Agreement or the
rights of the Holders in respect of the Securities; provided, however, that no
such supplemental agreement shall, without the unanimous consent of the Holders
of each Outstanding Security adversely affected thereby,
(1) change the amount or type of Collateral underlying a Security
(except for the rights of holders of Corporate PIES to substitute the
Treasury Securities for the Pledged Preferred Securities, the Pledged
Debentures or the appropriate Applicable Ownership Interest (as specified
in clause (A) of the definition of such term) of the Treasury Portfolio, as
the case may be, or the rights of Holders of Treasury PIES to substitute
Trust Preferred Securities, Debentures or the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such
term) of the Treasury Portfolio, as applicable, for the Pledged Treasury
Securities), impair the right of the Holder of any Security to receive
distributions on the underlying Collateral or otherwise adversely affect
the Holder's rights in or to such Collateral; or
(2) otherwise effect any action that would require the consent of the
Holder of each Outstanding Security affected thereby pursuant to the
Purchase Contract Agreement if such action were effected by an agreement
supplemental thereto; or
(3) reduce the percentage of Purchase Contracts the consent of whose
Holders is required for any such amendment;
provided that if any amendment or proposal referred to above would adversely
affect only the Corporate PIES or only the Treasury PIES, then only the affected
class of Holder as of the record date for the Holders entitled to vote thereon
will be entitled to vote on such amendment or proposal, and such amendment or
proposal shall not be effective except with the consent of Holders of not less
than a majority of such class; provided that the unanimous consent of the
Holders of each outstanding Purchase Contract of such class affected thereby
shall be required to approve any amendment or proposal specified in clauses
(1)-(3) above.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed amendment, but it shall be sufficient if
such Act shall approve the substance thereof.
<PAGE> 29
26
Section 10.3 Execution of Amendments. In executing any amendment permitted
by this Section, the Collateral Agent, the Securities Intermediary and the
Purchase Contract Agent shall be entitled to receive and (subject to Section 7.1
of the Purchase Contract Agreement with respect to the Purchase Contract Agent)
shall be fully protected in relying upon, an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Agreement and
that all conditions precedent, if any, to the execution and delivery of such
amendment have been satisfied.
Section 10.4 Effect of Amendments. Upon the execution of any amendment
under this Section, this Agreement shall be modified in accordance therewith,
and such amendment shall form a part of this Agreement for all purposes; and
every Holder of Certificates theretofore or thereafter authenticated, executed
on behalf of the Holders and delivered under the Purchase Contract Agree ment
shall be bound thereby.
Section 10.5 Reference to Amendments. Certificates authenticated, executed
on behalf of the Holders and delivered after the execution of any amendment
pursuant to this Section may, and shall if required by the Collateral Agent or
the Purchase Contract Agent, bear a notation in form approved by the Purchase
Contract Agent and the Collateral Agent as to any matter provided for in such
amendment. If the Company shall so determine, new Security Certificates so
modified as to conform, in the opinion of the Collateral Agent, the Purchase
Contract Agent and the Company, to any such amendment may be prepared and
executed by the Company and authenticated, executed on behalf of the Holders and
delivered by the Purchase Contract Agent in accordance with the Purchase
Contract Agreement in exchange for Outstanding Security Certificates.
Section 11. Miscellaneous.
Section 11.1 No Waiver. No failure on the part of the Collateral Agent or
any of its agents to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Collateral Agent
or any of its agents of any right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
Section 11.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Without limiting
the foregoing, the above choice of law is expressly agreed to by the Company,
the Securities Intermediary, the Collateral Agent and the Holders from time to
time acting through the Purchase Contract Agent, as their attorney-in-fact, in
connection with the establishment and maintenance of the Collateral Account. The
Company, the Collateral Agent, the Securities Intermediary and the Holders from
time to time of the Securities, acting through the Purchase Contract Agent as
their attorney-in-fact, hereby submit to the nonexclusive jurisdiction of the
United States District Court for the Southern District of New York and of any
New York state court sitting in New York City for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. The Company, the Collateral Agent, the Securities
Intermediary and the Holders from time to time of the Securities, acting through
the Purchase Contract Agent as their attorney-in-fact, irrevocably waive, to the
fullest extent permitted
<PAGE> 30
27
by applicable law, any objection which they may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum.
Section 11.3 Notices. All notices, requests, consents and other
communications provided for herein (including, without limitation, any
modifications of, or waivers or consents under, this Agreement) shall be given
or made in writing (including, without limitation, by telecopy) delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to the other parties. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
Section 11.4 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of the
Company, the Collateral Agent, the Securities Intermediary and the Purchase
Contract Agent, and the Holders from time to time of the Securities, by their
acceptance of the same, shall be deemed to have agreed to be bound by the
provisions hereof and to have ratified the agreements of, and the grant of the
Pledge hereunder by, the Purchase Contract Agent.
Section 11.5 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 11.6 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in order to carry out the
intentions of the parties hereto as nearly as may be possible and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
Section 11.7 Expenses, etc. The Company agrees to reimburse the Collateral
Agent and the Securities Intermediary for: (a) all reasonable out-of-pocket
costs and expenses of the Collateral Agent and the Securities Intermediary
(including, without limitation, the reasonable fees and expenses of counsel to
the Collateral Agent and the Securities Intermediary), in connection with (i)
the negotiation, preparation, execution and delivery or performance of this
Agreement and (ii) any modification, supplement or waiver of any of the terms of
this Agreement; (b) all reasonable costs and expenses of the Collateral Agent
and the Securities Intermediary (including, without limitation, reasonable fees
and expenses of counsel) in connection with (i) any enforcement or proceedings
resulting or incurred in connection with causing any Holder of Securities to
satisfy its obligations under the Purchase Contracts forming a part of the
Securities and (ii) the enforcement of this Section 11.7; and (c) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any other
document referred to herein and all costs, expenses, taxes, assessments and
other charges incurred in
<PAGE> 31
28
connection with any filing, registration, recording or perfection of any
security interest contemplated hereby.
Section 11.8 Security Interest Absolute. All rights of the Collateral Agent
and security interests hereunder, and all obligations of the Holders from time
to time hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of the
Purchase Contracts or the Securities or any other agreement or instrument
relating thereto;
(b) any change in the time, manner or place of payment of, or any
other term of, or any increase in the amount of, all or any of the
obligations of Holders of the Securities under the related Purchase
Contracts, or any other amendment or waiver of any term of, or any consent
to any departure from any requirement of, the Purchase Contract Agreement
or any Purchase Contract or any other agreement or instrument relating
thereto; or
(c) any other circumstance which might otherwise constitute a defense
available to, or discharge of, a borrower, a guarantor or a pledgor.
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NIPSCO INDUSTRIES, INC. THE CHASE MANHATTAN BANK, as
Purchase Contract Agent and as
attorney-in-fact of the Holders from
time to time of the Securities
By: /s/ Stephen P. Adik
----------------------- By: /s/ R. Lorenzen
Name: Stephen P. Adik --------------------------------
Title: Executive Vice President, Name: R. Lorenzen
Chief Financial Officer, Title: Senior Trust Officer
and Treasurer
Address for Notices: Address for Notices:
801 East 86th Avenue 450 West 33rd Street
Merrillville, Indiana 46410-6272 New York, New York 10001
Attention: Francis P. Girot, Jr. Attention: Corporate Trust Group
Telecopy: 219-853-5352 Telecopy: 212-946-8159
THE FIRST NATIONAL BANK OF THE FIRST NATIONAL BANK OF
CHICAGO, as Collateral Agent CHICAGO, as Securities Intermediary
By: /s/ Amy Movitz By: /s/ Amy Movitz
----------------------------- -------------------------
Name: Amy Movitz Name: Amy Movitz
Title: Assistant Vice President Title: Assistant Vice President
Address for Notices: Address for Notices:
One First National Plaza One First National Plaza
Suite 0126 Suite 0126
Chicago, Illinois 60670-0126 Chicago Illinois 60670-0126
Attention: Global Corporate Services Attention: Global Corporate Services
Telecopy: 312-407-1708 Telecopy: 312-407-1708
<PAGE> 33
EXHIBIT A
INSTRUCTION
FROM PURCHASE CONTRACT AGENT
TO COLLATERAL AGENT
(Establishment of Treasury PIES)
The First National Bank of Chicago
1 North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Administration Department
Telecopy: 312-407-1708
Re: ________ PIES of NIPSCO Industries, Inc.
(the "Company")
Please refer to the Pledge Agreement dated as of February 16, 1999 (the
"Pledge Agreement"), among the Company, you, as Collateral Agent, The First
National Bank of Chicago, as Securities Intermediary, and the undersigned, as
Purchase Contract Agent and as attorney-in-fact for the holders of PIES from
time to time. Capitalized terms used herein but not defined shall have the
meaning set forth in the Pledge Agreement.
We hereby notify you in accordance with Section 5.2 of the Pledge Agreement
that the holder of securities named below (the "Holder") has elected to
substitute $__________ Value of Treasury Securities or security entitlements
thereto in exchange for [an equal Value of [Pledged Preferred Securities]
[Pledged Debentures]] [the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio relating to _____ Corporate PIES] and has delivered to the undersigned
a notice stating that the Holder has Transferred such Treasury Securities or
security entitlements thereto to the Securities Intermediary, for credit to the
Collateral Account.
We hereby request that you instruct the Securities Intermediary, upon
confirmation that such Treasury Securities or security entitlements thereto have
been credited to the Collateral Account, to release to the undersigned [an equal
Value of [Pledged Preferred Securities] [Pledged Debentures]] [an appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio relating to __________ Corporate PIES] in
accordance with Section 5.2 of the Pledge Agreement.
THE CHASE MANHATTAN BANK
Date: _______________ By: _____________________________
Name:
Title:
<PAGE> 34
2
Please print name and address of Holder electing to substitute Treasury
Securities or security entitlements thereto for the [Pledged Preferred
Securities] [Pledged Debentures] [appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio]:
- -------------------------------- ---------------------------------
Name Social Security or other
Taxpayer Identification Number,
if any
- --------------------------------
Address
- --------------------------------
- --------------------------------
<PAGE> 35
EXHIBIT B
INSTRUCTION
FROM COLLATERAL AGENT
TO SECURITIES INTERMEDIARY
(Establishment of Treasury PIES)
The First National Bank of Chicago
1 North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Administration Department
Telecopy: 312-407-1708
Re: ________ PIES of NIPSCO Industries, Inc.
(the "Company")
Securities Account No. 204565-000 entitled "The First National
Bank of Chicago, as Collateral Agent, Securities Account (NIPSCO
Capital Trust I)" (the "Collateral Account")
Please refer to the Pledge Agreement dated as of February 16, 1999 (the
"Pledge Agreement"), among the Company, you, as Securities Intermediary, The
Chase Manhattan Bank, as Purchase Contract Agent and as attorney-in-fact for the
holders of PIES from time to time, and the undersigned, as Collateral Agent.
Capitalized terms used herein but not defined shall have the meanings set forth
in the Pledge Agreement.
When you have confirmed that $__________ Value of Treasury Securities or
security entitlements thereto has been credited to the Collateral Account by or
for the benefit of _________, as Holder of PIES (the "Holder"), you are hereby
instructed to release from the Collateral Account [an equal Value of [Trust
Preferred Securities or security entitlements thereto] [Debentures or security
entitlements thereto]] [the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio relating to ______ Corporate PIES of the Holder] by Transfer to the
Purchase Contract Agent.
THE FIRST NATIONAL BANK OF CHICAGO
Dated: By:
--------------------- ------------------------------
Name:
Title:
<PAGE> 36
2
Please print name and address of Holder:
- ------------------------------- ------------------------------
Name Social Security or other
Taxpayer Identification Number,
if any
- -------------------------------
Address
- -------------------------------
- -------------------------------
<PAGE> 37
EXHIBIT C
INSTRUCTION
FROM PURCHASE CONTRACT AGENT
TO COLLATERAL AGENT
(Reestablishment of Corporate PIES)
The First National Bank of Chicago
1 North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Administration Department
Telecopy: 312-407-1708
Re: ________ PIES of NIPSCO Industries, Inc.
(the "Company")
Please refer to the Pledge Agreement dated as of February 16, 1999 (the
"Pledge Agreement"), among the Company, you, as Collateral Agent, The First
National Bank of Chicago, as Securities Intermediary, and the undersigned, as
Purchase Contract Agent and as attorney-in-fact for the holders of PIES from
time to time. Capitalized terms used herein but not defined shall have the
meanings set forth in the Pledge Agreement.
We hereby notify you in accordance with Section 5.3(a) of the Pledge
Agreement that the holder of securities listed below (the "Holder") has elected
to substitute [$__________ Value of Trust Preferred Securities or security
entitlements thereto] [Debentures or security entitlements thereto]] [an
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio relating to _____ Corporate
PIES] in exchange for $__________ Value of Pledged Treasury Securities and has
delivered to the undersigned a notice stating that the Holder has Transferred
such [Trust Preferred Securities or security entitlements thereto] [Debentures
or security entitlements thereto] [Applicable Ownership Interest (as specified
in clause (A) of the definition of such term) of the Treasury Portfolio] to the
Securities Intermediary, for credit to the Collateral Account.
We hereby request that you instruct the Securities Intermediary, upon
confirmation that such [Trust Preferred Securities or security entitlements
thereto] [Debentures or security entitlements thereto] [Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio] have been credited to the Collateral Account, to release to
the undersigned $__________ Value of Treasury Securities or security
entitlements thereto related to _____ Treasury PIES of such Holder in accordance
with Section 5.3(a) of the Pledge Agreement.
THE CHASE MANHATTAN BANK
Date: _____________ By: _______________________________
Name:
Title:
<PAGE> 38
2
Please print name and address of Holder electing to substitute [Trust Preferred
Securities or security entitlements thereto] [Pledged Debentures or security
entitlements thereto] [an appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio] for Pledged Treasury Securities:
- ------------------------------- ----------------------------
Name Social Security or other
Taxpayer Identification Number,
if any
- -------------------------------
Address
- -------------------------------
- -------------------------------
<PAGE> 39
EXHIBIT D
INSTRUCTION
FROM COLLATERAL AGENT
TO SECURITIES INTERMEDIARY
(Reestablishment of Corporate PIES)
The First National Bank of Chicago
1 North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Administration Department
Telecopy: 312-407-1708
Re: ________ PIES of NIPSCO Industries, Inc.
(the "Company")
Securities Account No. 204565-0000 entitled "The First National
Bank of Chicago, as Collateral Agent, Securities Account (NIPSCO
Capital Trust I)" (the "Collateral Account")
Please refer to the Pledge Agreement dated as of February 16, 1999 (the
"Pledge Agreement"), among the Company, you, as Securities Intermediary, The
Chase Manhattan Bank, as Purchase Contract Agent and as attorney-in-fact for the
holders of PIES from time to time, and the undersigned, as Collateral Agent.
Capitalized terms used herein but not defined shall have the meanings set forth
in the Pledge Agreement.
When you have confirmed that $_________ Value of [Trust Preferred
Securities or security entitlements thereto] [Debentures or security
entitlements thereto] [an appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio relating to _____ Corporate PIES] has been credited to the Collateral
Account by or for the benefit of _________, as Holder of PIES (the "Holder"),
you are hereby instructed to release from the Collateral Account $__________
Value of Treasury Securities or security entitlements thereto by Transfer to the
Purchase Contract Agent.
THE FIRST NATIONAL BANK OF CHICAGO
Dated: By:
-------------------- ------------------------------
Name:
Title:
<PAGE> 40
2
Please print name and address of Holder:
- ------------------------------- -----------------------------
Name Social Security or other
Taxpayer Identification Number,
if any
- -------------------------------
Address
- -------------------------------
- -------------------------------
<PAGE> 41
EXHIBIT E
NOTICE OF CASH SETTLEMENT FROM SECURITIES INTERMEDIARY
TO PURCHASE CONTRACT AGENT
(Cash Settlement Amounts)
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Telecopier No.: 212-946-8159
Attention: Corporate Trust Group
Re: _________ PIES of NIPSCO Industries, Inc.
(the "Company")
Please refer to the Pledge Agreement, dated as of February 16, 1999 (the
"Pledge Agreement"), by and among you, the Company, The First National Bank of
Chicago, as Collateral Agent and the undersigned, as Securities Intermediary.
Unless otherwise defined herein, terms defined in the Pledge Agreement are used
herein as defined therein.
In accordance with Section 5.5(d) of the Pledge Agreement, we hereby notify
you that as of 11:00 a.m., [(on the fifth Business Day immediately preceding the
Purchase Contract Settlement Date)], we have received (i) $_____ in immediately
available funds paid in an aggregate amount equal to the Purchase Price to the
Company on the Purchase Contract Settlement Date with respect to __________
Corporate PIES and (ii) $_________ in immediately available funds paid in an
aggregate amount equal to the Purchase Price to the Company on the Purchase
Contract Settlement Date with respect to ______ Treasury PIES.
THE FIRST NATIONAL BANK OF CHICAGO
Date: By:
------------------- -----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.39
EXECUTION COPY
NIPSCO INDUSTRIES, INC.
NIPSCO CAPITAL MARKETS, INC.
NIPSCO CAPITAL TRUST I
TRUST PREFERRED SECURITIES
REMARKETING AGREEMENT
February 16, 1999
LEHMAN BROTHERS INC.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
NIPSCO Capital Trust I, a Delaware statutory business trust (the
"Trust"), is issuing today Preferred Securities (stated liquidation amount $50
per Preferred Security) (the "Preferred Securities") pursuant to the Amended and
Restated Declaration of Trust, dated as of February 16, 1999 (the
"Declaration"), and guaranteed (the "Guarantee"; together with the Preferred
Securities, the "Securities") by NIPSCO Capital Markets, Inc., an Indiana
corporation ("Capital Markets"), to the extent set forth in the Guarantee
Agreement, dated as of February 16, 1999 (the "Guarantee Agreement"), between
Capital Markets and The Chase Manhattan Bank, as Guarantee Trustee (the
"Guarantee Trustee"). Capital Markets will be the owner of all of the beneficial
ownership interests represented by the Common Securities (the "Common
Securities"; together with the Preferred Securities, the "Trust Securities") of
the Trust. Concurrently with the issuance of the Securities and Capital Markets'
purchase of all of the beneficial ownership interests represented by the Common
Securities of the Trust, the Trust will invest the proceeds of each thereof in
Capital Markets' Debentures (the "Debentures"). The Debentures are to be issued
pursuant to the Indenture, dated as of February 14, 1997 (as amended or
supplemented, the "Indenture"), among NIPSCO Industries, Inc., an Indiana
corporation and the parent of Capital Markets (the "Company"), Capital Markets
and The Chase Manhattan Bank, as Indenture Trustee (the "Indenture Trustee").
Capitalized terms used and not defined in this Agreement shall have the meanings
set forth in the Declaration or the Indenture, as the case may be.
The Remarketing (as defined below) of the Securities is provided for
in the Declaration and, if the Debentures have been distributed to holders of
the Preferred Securities in liquidation of the Trust, the Indenture. As used in
this Agreement, the term "Remarketed Securities" means the Securities or
Debentures subject to the Remarketing as notified by the Indenture Trustee on
the fifth Business Day prior to the Purchase Contract Settlement Date; the term
"Remarketing Procedures" means the procedures in connection with the Remarketing
of the Securities described
<PAGE> 2
2
in the Declaration and the Indenture, as the case may be; and the term
"Remarketing" means the remarketing of the Remarketed Securities pursuant to the
Remarketing Procedures.
Section 1. Appointment and Obligations of the Remarketing Agent. (a)
The Company, Capital Markets and the Trust (collectively, the "Issuers") hereby
appoint Lehman Brothers Inc. as exclusive remarketing agent (the "Remarketing
Agent"), and Lehman Brothers Inc. hereby accepts appointment as Remarketing
Agent, for the purpose of (i) Remarketing Remarketed Securities on behalf of the
holders thereof and (ii) performing such other duties as are assigned to the
Remarketing Agent in the Remarketing Procedures, all in accordance with and
pursuant to the Remarketing Procedures.
(b) The Remarketing Agent agrees (i) to use commercially reasonable
efforts to remarket the Remarketed Securities tendered or deemed tendered to the
Remarketing Agent in the Remarketing, (ii) to notify the Issuers promptly of the
Reset Rate and (iii) to carry out such other duties as are assigned to the
Remarketing Agent in the Remarketing Procedures, all in accordance with the
provisions of the Remarketing Procedures.
(c) On the third Business Day immediately preceding the Purchase
Contract Settlement Date (the "Remarketing Date"), the Remarketing Agent shall
use commercially reasonable efforts to remarket, at a price equal to 100% of the
aggregate liquidation or principal amount thereof, the Remarketed Securities
tendered or deemed tendered for purchase.
(d) If, as a result of the efforts described in Section 1(b), the
Remarketing Agent determines that it will be able to remarket all Remarketed
Securities tendered or deemed tendered for purchase at a price of 100% of the
aggregate stated liquidation or principal amount of such Remarketed Securities
prior to 4:00 P.M., New York City time, on the Remarketing Date, the Remarketing
Agent shall determine the Reset Rate, which shall be the rate per annum (rounded
to the nearest one-thousandth (0.001) of one percent per annum) that the
Remarketing Agent determines, in its sole judgment, to be the lowest rate per
annum that will enable it to remarket all Remarketed Securities tendered or
deemed tendered for Remarketing.
(e) If none of the holders of Remarketed Securities elects to have
Remarketed Securities remarketed in the Remarketing, the Remarketing Agent shall
determine the rate that would have been established had a Remarketing been held
on the Remarketing Date, and such rate shall be the Reset Rate.
(f) If, by 4:00 P.M., New York City time, on the Remarketing Date, the
Remarketing Agent is unable to remarket all Remarketed Securities tendered or
deemed tendered for purchase, a failed Remarketing ("Failed Remarketing") shall
be deemed to have occurred, and the Remarketing Agent shall so advise by
telephone the Depositary, the Property Trustee (if the Remarketed Securities are
the Securities), the Indenture Trustee, the Company, the Regular Trustees (if
the Remarketed Securities are the Securities) and Capital Markets.
(g) By approximately 4:30 P.M., New York City time, on the Remarketing
Date, provided that there has not been a Failed Remarketing, the Remarketing
Agent shall advise, by
<PAGE> 3
3
telephone (i) the Depositary, the Property Trustee (if the Remarketed Securities
are the Securities), the Indenture Trustee, the Company, the Regular Trustees
(if the Remarketed Securities are the Securities) and Capital Markets of the
Reset Rate determined in the Remarketing and the number of Remarketed Securities
sold in the Remarketing, (ii) each purchaser (or the Depositary Participant
thereof) of the Reset Rate and the number of Remarketed Securities such
purchaser is to purchase and (iii) each purchaser to give instructions to its
Depositary Participant to pay the purchase price on the Purchase Contract
Settlement Date in same day funds against delivery of the Remarketed Securities
purchased through the facilities of the Depositary.
(h) The Remarketing Agent shall remit to the Collateral Agent all
proceeds of the Remarketed Securities subject to the Pledge Agreement.
2. Representations, Warranties and Agreements of the Company and
Capital Markets. The Company and Capital Markets jointly represent, warrant and
agree (i) on and as of the date hereof, (ii) on and as of the date the
Prospectus or other Remarketing Materials (each as defined in Section 2(a)
below) are first distributed in connection with the Remarketing (the
"Commencement Date"), (iii) on and as of the Remarketing Date, and (iv) on and
as of the Purchase Contract Settlement Date that:
(a) A registration statement or registration statements on Form S-3
(file No. 333- 69279) and an amendment or amendments thereto with respect
to the initial offering of the Securities and the Debentures have (i) been
prepared by the Issuers in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, (ii) been filed with the
Commission under the Securities Act and (iii) become effective under the
Securities Act; a registration statement on Form S-3, if required to be
filed in connection with the Remarketing, may also be prepared by the
Issuers in conformity with the requirements of the Securities Act and the
Rules and Regulations and filed with the Commission under the Securities
Act; and the Indenture, the Guarantee Agreement and the Declaration have
each been qualified under the Trust Indenture Act of 1939, as amended, (the
"Trust Indenture Act"). Copies of such registration statement or
registration statements that have become effective and the amendment or
amendments to such registration statements have been delivered by the
Issuers to you. As used in this Agreement, "Effective Time" means the date
and time as of which the last of such registration statements that have
become effective or may be filed, or the most recent post-effective
amendment thereto, if any, was declared effective by the Commission;
Effective Date means the date of the Effective Time of such last
registration statement; Preliminary Prospectus means each prospectus
included in such last registration statement, or amendment thereto, before
it became effective under the Securities Act and any prospectus filed by
the Issuers with your consent pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such last registration
statement, as amended at its Effective Time, including documents
incorporated by reference therein at such time and, if applicable, all
information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations, including any
information deemed to be part of such Registration Statement as of the
Effective Time pursuant to paragraph (b) of Rule 430A of
<PAGE> 4
4
the Rules and Regulations; and "Prospectus" means such final prospectus, as
first filed pursuant to Rule 424(b) of the Rules and Regulations. Reference
made herein to any Preliminary Prospectus, the Prospectus or any other
information furnished by the Issuers to the Remarketing Agent for
distribution to investors in connection with the Remarketing (the
"Remarketing Materials") shall be deemed to refer to and include any
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act as of the date of such Preliminary Prospectus or
the Prospectus, as the case may be, or, in the case of Remarketing
Materials, referred to as incorporated by reference therein, and any
reference to any amendment or supplement to any Preliminary Prospectus, the
Prospectus or the Remarketing Materials shall be deemed to refer to and
include any document filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of such Preliminary Prospectus
or the Prospectus incorporated by reference therein pursuant to Item 12 of
Form S-3 or, if so incorporated, the Remarketing Materials, as the case may
be; and any reference to any amendment to the Registration Statement shall
be deemed to include any annual report of the Company or Capital Markets
filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act after the Effective Time that is incorporated by reference in
the Registration Statement.
(b) Giving effect to the interpretations of the requirements of the
Securities Act reflected in the Company's letter requesting "no-action"
submitted to the staff of the commission (the "Staff"), dated April 27,
1992, as supplemented by letters dated July 9, 1992 and September 21, 1992
(the "No-Action Request") and the Staff's response thereto dated September
25, 1992 (the "Staff Response"), the Registration Statement conforms (and
the Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus, when they become effective or are
filed with the Commission, as the case may be, will conform) in all
respects to the requirements of the Securities Act and the Rules and
Regulations, and the Registration Statement, the Prospectus and the
Remarketing Materials do not and will not, as of the Effective Date (as to
the Registration Statement and any amendment thereto), as of the applicable
filing date (as to the Prospectus and any amendment or supplement thereto)
and as of the Commencement Date, Remarketing Date and Purchase Contract
Settlement Date (as to any Remarketing Materials) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided that no representation and warranty is made as to the
statement of eligibility and qualification on Form T-1 of the Indenture
Trustee, the Property Trustee or the Guarantee Trustee under the Trust
Indenture Act, or as to information contained in or omitted from the
Registration Statement, the Prospectus or the Remarketing Materials in
reliance upon and in conformity with written information furnished to the
Issuers by the Remarketing Agent specifically for inclusion therein; the
Indenture, the Declaration and the Guarantee Agreement each conform in all
material respects to the requirements of the Trust Indenture Act and the
applicable rules and regulations thereunder; and the Commission has not
issued an order preventing or
<PAGE> 5
5
suspending the use of the Registration Statement, any Preliminary
Prospectus, the Prospectus or the Remarketing Materials.
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed and
incorporated by reference in the Prospectus, when such documents become
effective or are filed with Commission, as the case may be, will conform in
all material respects to the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(d) Each of the Company, Capital Markets, Northern Indiana Public
Service Company ("Northern Indiana"), Bay State Gas Company ("Bay State")
and IWC Resources Corporation ("IWCR" and, together with Northern Indiana
and Bay State, the "Significant Subsidiaries") has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described in
the Prospectus or in any Remarketing Materials, and has been duly qualified
as a foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
other subsidiary (as defined in Section 15 hereof) of the Company has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation.
(e) The Company has an authorized capitalization as set forth in the
Prospectus and in any Remarketing Materials; and all of the issued capital
shares of the Company and each wholly-owned subsidiary of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable; and except as set forth in Exhibit 21 to the most recent
Form 10-K of the Company, all of the issued common shares of Northern
Indiana and Indianapolis Water Company ("IWC") and all of the issued
capital shares of each other subsidiary of the Company (except for
directors' qualifying shares and except as set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
(f) Northern Indiana, Bay State and IWCR constitute the only
"significant subsidiaries" (as such term is defined in Rule 1-02 of
Regulation S-X) of the Company.
(g) The Indenture has been duly authorized, executed and delivered by
the Company and Capital Markets and (assuming due execution and delivery by
the Indenture Trustee) constitutes a valid and binding agreement of each of
the Company and Capital Markets, enforceable against the Company and
Capital Markets in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
<PAGE> 6
6
and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding
in equity or at law) and an implied covenant of good faith and fair
dealing; and the Debentures have been duly authorized, executed, issued and
delivered by Capital Markets and (assuming due authentication by the
Indenture Trustee) constitute valid and binding obligations of Capital
Markets, entitled to the benefits of the Indenture and the Support
Agreement, dated April 4, 1989, as amended as of May 15, 1989, December 10,
1990 and February 14, 1991 (the "Support Agreement"), between the Company
and Capital Markets, and enforceable in accordance with their terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
(h) The Declaration has been duly authorized, executed and delivered
by Capital Markets and the Regular Trustees and (assuming due execution and
delivery by the Property Trustee and the Delaware Trustee) constitutes a
valid and binding agreement of Capital Markets, enforceable against Capital
Markets in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
(i) The Guarantee Agreement has been duly authorized, executed and
delivered by Capital Markets and (assuming due execution and delivery by
the Guarantee Trustee) constitutes a valid and binding agreement of Capital
Markets, enforceable against Capital Markets in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
(j) This Agreement has been duly authorized, executed and delivered by
the Company, Capital Markets and the Trust.
(k) The Remarketed Securities, the Indenture, the Declaration, the
Guarantee Agreement and the Remarketing Agreement, when the Remarketed
Securities are delivered pursuant to this Agreement, will conform to the
descriptions thereof contained in the Prospectus and in any Remarketing
Materials.
(l) The execution, delivery and performance of this Agreement, the
Indenture, the Declaration, the Guarantee Agreement and the Remarketing
Agreement by the Company and Capital Markets, as applicable, the
consummation by the Issuers of the transactions contemplated hereby and
thereby and the issuance and delivery of the Debentures (the
"Transactions") did not and will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its
<PAGE> 7
7
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the properties or assets of the Company or any
of its subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Company or any
of its subsidiaries or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties or assets;
and except for such consents, approvals, authorizations, registrations or
qualifications as may be required under the Securities Act, Trust Indenture
Act, Exchange Act and applicable state securities laws in connection with
the initial distribution of the Preferred Securities or the Remarketing, no
consent, approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required for the
Transactions.
(m) There are no contracts, agreements or understandings between (i)
the Company or Capital Markets and (ii) any person granting such person the
right to require the Company or Capital Markets to file a registration
statement under the Securities Act with respect to any securities of the
Company or Capital Markets owned or to be owned by such person or to
require the Company or Capital Markets to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company or Capital Markets under the Securities Act.
(n) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus or in any Remarketing
Materials, any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, which
could, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the general affairs, management, financial
position, shareholders' equity or results of operations of the Company and
its subsidiaries taken as a whole or upon the ability of the Issuers to
perform their obligations under this Agreement (a "Material Adverse
Effect"), otherwise than as set forth or contemplated in the Prospectus and
in any Remarketing Materials; and, since such date, there has not been any
material change in the consolidated share capital or long-term debt of the
Company and its subsidiaries or the consolidated share capital or long-term
debt of any Significant Subsidiary or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus
and in any Remarketing Materials.
(o) The financial statements filed as part of the Registration
Statement or incorporated by reference in the Prospectus or as presented in
any Remarketing Materials present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved and, with respect to financial statements
included in periodic
<PAGE> 8
8
reports filed by the Company pursuant to Section 13 or 15(d) of the
Exchange Act with the Commission on and after September 25, 1992, contain
the information requested by the Staff in the Staff Response to be so
included; and the supporting schedules included or incorporated by
reference in the Prospectus or in any Remarketing Materials present fairly
the information required to be stated therein.
(p) Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus or is
incorporated by reference therein or in any Remarketing Materials and who
have delivered the letter referred to in Section 6(h) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(q) The Company and each Significant Subsidiary has good and
marketable title in fee simple to such of its fixed assets as are real
property and good and marketable title to its other assets reflected in the
most recent consolidated balance sheet incorporated by reference in the
Prospectus or in any Remarketing Materials, except properties and assets
that are leased or that are sold or otherwise disposed of in the ordinary
course of business after the date of said balance sheet, subject to no
mortgages, liens, charges or encumbrances of any kind whatsoever ("Liens")
other than Liens permitted under the Indenture.
(r) Other than as set forth or incorporated by reference in the
Prospectus, there are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or to which any property
or asset of the Company or any of its subsidiaries is the subject which
could reasonably be expected individually or in the aggregate to have a
Material Adverse Effect; and to the best of the Company's knowledge, no
such proceedings are threatened or contemplated by governmental authorities
or threatened by others.
(s) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(t) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(u) None of the Company nor any Significant Subsidiary has any
material contingent liability which is not disclosed in the Prospectus.
(v) None of the Company nor any Significant Subsidiary (i) is in
violation of its charter or by-laws or similar constitutive documents, (ii)
is in default in any respect, and no event has occurred which, with notice
or lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or
<PAGE> 9
9
instrument to which it is a party or by which it is bound or to which any
of its properties or assets is subject, except where such defaults,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect, or (iii) is in violation in any material respect
of any law, ordinance, governmental rule, regulation or court decree to
which it or its properties or assets may be subject or has failed to obtain
any material license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its properties or
assets or to the conduct of its business, except where such violations or
failures, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(w) Neither the Company nor any subsidiary of the Company is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations of the Commission thereunder; the Commission has issued an
order (the "Order") exempting Capital Markets from all of the provisions of
the 1940 Act; the Order is in full force and effect; and Capital Markets
will continue to comply with the terms and conditions of the Order, or
otherwise remain exempt from all of the provisions of the 1940 Act, so long
as any Remarketed Securities are outstanding.
(x) The Support Agreement has been duly authorized by Capital Markets
and the Company and constitutes a valid and binding agreement of each of
Capital Markets and the Company enforceable against Capital Markets and the
Company in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing; the Company's
obligations under the Support Agreement will rank prior to the equity
securities of the Company and equal with all other unsecured and
unsubordinated indebtedness of the Company, whether now or hereafter
outstanding; and the Debentures and the Guarantee will be entitled to the
benefits of the Support Agreement, the obligations of Capital Markets under
the Debentures and the Guarantee constitute "Debt" (as defined in the
Support Agreement) for purposes of the Support Agreement, and the holders
of the Debentures and the Guarantee will be entitled to the rights of
"Lenders" (as defined in the Support Agreement) under the Support
Agreement.
(y) Each of the Company and each Significant Subsidiary has statutory
authority, franchises and consents free from burdensome restrictions and
adequate for the conduct of the business in which it is engaged.
(z) Except for the Company's ownership of the voting securities of the
Significant Subsidiaries, as and to the extent described in the Prospectus,
no person or corporation which is a "holding company" or a "subsidiary
company" of a "holding company" (as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended (the "1935 Act")), directly
or indirectly owns, controls or holds with power to vote 10% or more of the
outstanding voting securities of the Company or any Significant Subsidiary;
the Company
<PAGE> 10
10
is a "holding company" (as such term is defined in the 1935 Act) but is
exempt from all provisions of the 1935 Act pursuant to Section 3(a)(1)
thereof except Section 9(a)(2) thereof; neither Northern Indiana nor IWCR
is a "holding company" as defined in the 1935 Act; and Bay State is a
"holding company" but is exempt from all provisions of the 1935 Act
pursuant to Section 3(a)(2) thereof except Section 9(a)(2) thereof.
(aa) The Prospectus accurately describes the most restrictive of the
existing limitations on the payment of dividends by Northern Indiana on its
common shares held by the Company.
3. Representations, Warranties and Agreements of the Company, Capital
Markets and the Trust. The Company, Capital Markets and the Trust, jointly and
severally, represent, warrant and agree, (i) on and as of the date hereof, (ii)
on and as of the Commencement Date, (iii) on and as of the Remarketing Date and
(iv) on and as of the Purchase Contract Settlement Date that:
(a) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act of
the State of Delaware (the "Delaware Trust Act") with the trust power and
authority to own property and conduct its business as described in the
Prospectus, and has conducted and will conduct no business other than the
transactions contemplated by this Agreement as described in the Prospectus
or in any Remarketing Materials; the Trust is not a party to or bound by
any agreement or instrument other than this Agreement, the Declaration and
the other agreements entered into in connection with the transactions
contemplated hereby; the Trust has no liabilities or obligations other than
those arising out of the transactions contemplated by this Agreement and
the Declaration and described in the Prospectus or in any Remarketing
Materials; and the Trust is not a party to or subject to any action, suit
or proceeding of any nature.
(b) The Declaration has been duly authorized, executed and delivered
by Capital Markets, as Sponsor, and the Regular Trustees and (assuming due
authorization, execution and delivery by the Property Trustee and the
Delaware Trustee) constitutes a valid and binding obligation of the Trust,
enforceable against the Trust in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and
fair dealing, and will conform to the description thereof contained in the
Prospectus or in any Remarketing Materials.
(c) The Trust Securities are duly authorized, validly issued, fully
paid and, in the case of the Preferred Securities, non-assessable and
conform to the descriptions contained in the Prospectus or in any
Remarketing Materials.
(d) This Agreement has been duly authorized, executed and delivered by
the Trust.
(e) The execution, delivery and performance of this Agreement, the
Declaration and the Trust Securities by the Trust, the purchase of the
Debentures by the Trust from Capital
<PAGE> 11
11
Markets, the distribution of the Debentures upon the liquidation of the
Trust in the circumstances contemplated by the Declaration, and the
consummation by the Trust of the transactions contemplated herein and in
the Declaration (the "Trust Transactions"), did not and will not result in
a violation of any statute or order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Trust or any of
its assets; and except for such consents, approvals, authorizations,
registrations or qualifications as may be required under the Securities
Act, Trust Indenture Act, Exchange Act or applicable state securities laws
in connection with the initial distribution of the Preferred Securities and
the Remarketing, no consent, approval, authorization or order of or filing
or registration with, any such court or governmental agency or body is
required for the Trust Transactions.
(f) The Trust is not an "investment company" within the meaning of
such term under the 1940 Act and the rules and regulations of the
Commission thereunder.
4. Fees and Expenses. (a) For the performance of its services as
Remarketing Agent hereunder, Capital Markets shall pay to the Remarketing Agent
on the Purchase Contract Settlement Date, by wire transfer to an account
designated by the Remarketing Agent, an amount to be agreed upon by Capital
Markets and the Remarketing Agent.
(b) The Company and Capital Markets, jointly and severally, agree to pay
(i) the costs incident to the preparation and printing of the Registration
Statement, Prospectus and any Remarketing Materials and any amendments or
supplements thereto; (ii) the costs of distributing the Registration Statement,
Prospectus and any Remarketing Materials and any amendments or supplements
thereto; (iii) the fees and expenses of qualifying the Remarketed Securities
under the securities laws of the several jurisdictions as provided in Section
5(h) and of preparing, printing and distributing a Blue Sky Memorandum
(including related fees and expenses of counsel to the Remarketing Agent); (iv)
all other costs and expenses incident to the performance of the obligations of
the Company, Capital Markets and the Trust hereunder; and (v) the reasonable
fees and expenses of counsel to the Remarketing Agent in connection with their
duties hereunder. The Trust shall not be liable for any fees and expenses in
this Section.
5. Further Agreements of the Company and Capital Markets. The Company and
Capital Markets, jointly and severally, agree to use their reasonable best
efforts:
(a) To prepare any registration statement or prospectus, if required,
in connection with the Remarketing, in a form approved by the Remarketing
Agent and to file any such prospectus pursuant to the Securities Act within
the period required by the Rules and Regulations; to advise the Remarketing
Agent, promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes effective
or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish the Remarketing Agent with copies thereof; to file
promptly all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the
Prospectus and for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Remarketed Securities; to
advise the Remarketing
<PAGE> 12
12
Agent, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of the Prospectus, of the suspension of the qualification of any of the
Remarketed Securities for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal.
(b) To furnish promptly to the Remarketing Agent and to counsel for
the Remarketing Agent a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith.
(c) To deliver promptly to the Remarketing Agent in New York City such
number of the following documents as the Remarketing Agent shall request:
(i) conformed copies of the Registration Statement as originally filed with
the Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement, the Indenture, the Declaration and the Guarantee
Agreement), (ii) the Prospectus and any amended or supplemented Prospectus,
(iii) any document incorporated by reference in the Prospectus (excluding
exhibits thereto) and (iv) any Remarketing Materials; and, if the delivery
of a prospectus is required at any time in connection with the Remarketing
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or if for any other reason it shall be necessary during such
same period to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus in
order to comply with the Securities Act or the Exchange Act, to notify the
Remarketing Agent and, upon its request, to file such document and to
prepare and furnish without charge to the Remarketing Agent and to any
dealer in securities as many copies as the Remarketing Agent may from time
to time request of an amended or supplemented Prospectus which will correct
such statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Remarketing
Agent, be required by the Securities Act or requested by the Commission.
(e) Prior to filing with the Commission (i) any amendment to the
Registration Statement or supplement to the Prospectus or any document
incorporated by reference in the Prospectus or (ii) any Prospectus pursuant
to Rule 424 of the Rules and Regulations, to furnish a copy thereof to the
Remarketing Agent and counsel for the Remarketing Agent; and
<PAGE> 13
13
not to file any such amendment or supplement which shall be disapproved by
the Remarketing Agent promptly after reasonable notice.
(f) As soon as practicable after the Effective Date of the
Registration Statement to make generally available to the Company's
security holders and to deliver to the Remarketing Agent an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule 158).
(g) During a period of five years following the effective date of the
Registration Statement, to deliver to the Remarketing Agent copies of all
reports or other communications (financial or other) furnished to
shareholders of the Company, and deliver to the Remarketing Agent, (i) as
soon as they are available, copies of any reports and financial statements
furnished to or filed by the Company or Capital Markets with the Commission
or any national securities exchange on which any of the Remarketed
Securities or any class of securities of the Company or Capital Markets may
be listed; and (ii) such additional information concerning the business and
financial condition of the Company or Capital Markets as the Remarketing
Agent may from time to time reasonably request (such financial statements
to be on a consolidated basis to the extent the accounts of the Company and
its subsidiaries are consolidated in reports furnished to the Company's
shareholders generally or to the Commission).
(h) Promptly from time to time to take such action as the Remarketing
Agent may reasonably request to qualify any of the Remarketed Securities
and the obligations of the Company under the Support Agreement for offering
and sale under the securities laws of such jurisdictions as the Remarketing
Agent may request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the Securities and the
obligations of the Company pursuant to the Support Agreement; provided that
in connection therewith, neither the Company nor Capital Markets shall be
required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction.
6. Conditions to the Remarketing Agent's Obligations. The obligations of
the Remarketing Agent hereunder are subject to the accuracy, on and as of the
date when made, of the representations and warranties of the Company, Capital
Markets and the Trust contained herein, to the performance by the Company,
Capital Markets and the Trust of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission;
no stop order suspending the effectiveness of the Registration Statement or
any part thereof or suspending the qualification of the Indenture, the
Guarantee Agreement or the Declaration shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or otherwise
shall have been complied with.
<PAGE> 14
14
(b) The Remarketing Agent shall not have discovered and disclosed to
the Company on or prior to the Remarketing Date that the Prospectus, the
Registration Statement, or the Remarketing Materials or any amendment or
supplement thereto contains any untrue statement of a fact which, in the
opinion of counsel for the Remarketing Agent, is material or omits to state
any fact which, in the opinion of such counsel, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Declaration, the
Indenture, the Remarketed Securities, the Guarantee Agreement, the
Preferred Securities, the Common Securities, the Prospectus, the
Registration Statement, the Remarketing Materials and all other legal
matters relating to this Agreement and the transactions contemplated hereby
shall be reasonably satisfactory in all material respects to counsel for
the Remarketing Agent, and the Issuers shall have furnished to such counsel
all documents and information that they may reasonably request to enable
them to pass upon such matters.
(d) Counsel to the Company and Capital Markets shall have furnished to
the Remarketing Agent its written opinion, as counsel to the Company and
Capital Markets, addressed to the Remarketing Agent and dated the
Remarketing Date, in form and substance satisfactory to the Remarketing
Agent, to the effect that:
(i) The Company and each Significant Subsidiary have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation,
with respective power and authority (corporate and other) to own their
respective properties and conduct their businesses as described in the
Prospectus.
(ii) The Company has an authorized capitalization as set forth in
the Prospectus and in any Remarketing Materials, all of the issued
capital shares of the Company and each Significant Subsidiary of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; and all of the issued common shares of
Northern Indiana and all of the issued capital shares of each other
Significant Subsidiary (except for directors' qualifying shares and as
set forth or incorporated by reference in the Registration Statement)
are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims.
(iii) The Company and each Significant Subsidiary has been duly
qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction in which
it owns or leases properties, or conducts any business, so as to
require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction.
(iv) There are no preemptive or other rights to subscribe for or
to purchase, nor any restriction upon the voting or transfer of the
Debentures pursuant to the
<PAGE> 15
15
Company's or Capital Markets' charter or by-laws or any agreement or
other instrument known to such counsel.
(v) To the best of such counsel's knowledge and other than as set
forth in the Prospectus or in any Remarketing Materials, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or to which any property or asset of
the Company or any of its subsidiaries is subject which could
reasonably be expected individually or in the aggregate to have a
material adverse effect on the consolidated financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries; and, to the best of such counsel's knowledge and other
than as set forth in the Prospectus, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others.
(vi) The Registration Statement was declared effective under the
Securities Act, and the Indenture, the Declaration and the Guarantee
Agreement were qualified under the Trust Indenture Act, as of the date
and time specified in such opinion, the Prospectus was filed with the
Commission pursuant to the subparagraph of Rule 424(b) of the Rules
and Regulations specified in such opinion on the date specified
therein and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose is pending or threatened by
the Commission.
(vii) Giving effect to the interpretations of the requirements of
the Securities Act reflected in the No-Action Request and the Staff
Response, the Registration Statement, as of its Effective Date, and
the Prospectus, as of its date, and any further amendments or
supplements thereto, as of their respective dates, made by the Company
prior to the Purchase Contract Settlement Date (other than the
financial statements, related schedules and other financial data
contained therein, as to which such counsel need express no opinion)
complied as to form in all material respects with the requirements of
the Securities Act, the Rules and Regulations and the Trust Indenture
Act; and the documents incorporated by reference in the Prospectus and
any further amendment or supplement to any such incorporated document
made by any of the Issuers prior to the Purchase Contract Settlement
Date (other than the financial statements, related schedules and other
financial data contained therein, as to which such counsel need
express no opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material
respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder; and the Indenture, the Declaration and the Guarantee
Agreement conform in all material respects to the requirements of the
Trust Indenture Act and the applicable rules and regulations
thereunder.
(viii) The statements contained in the Prospectus under the
captions "Description of the Debentures," "Description of the
Preferred Securities,"
<PAGE> 16
16
"Description of the Guarantee," "Relationship Among the Preferred
Securities, the Debentures and the Guarantee" and "Description of the
Support Agreement" insofar as they purport to constitute summaries of
certain terms of documents referred to therein, constitute accurate
summaries of the terms of such documents in all material respects.
(ix) The Indenture has been duly authorized, executed and
delivered by the Company and Capital Markets and (assuming due
authentication, execution and delivery by the Indenture Trustee)
constitutes a valid and binding agreement of each of the Company and
Capital Markets enforceable against them in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
(x) The Debentures have been duly authorized, executed and
delivered by Capital Markets and (assuming due authentication by the
Indenture Trustee) constitute valid and binding obligations of Capital
Markets entitled to the benefits of the Indenture and enforceable in
accordance with their terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing.
(xi) The Declaration has been duly authorized, executed and
delivered by Capital Markets.
(xii) The Guarantee Agreement has been duly authorized, executed
and delivered by Capital Markets and (assuming due execution and
delivery by the Guarantee Trustee) constitutes a valid and binding
agreement of Capital Markets enforceable against Capital Markets in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing.
(xiii) This Agreement has been duly authorized, executed and
delivered by the Company and Capital Markets.
(xiv) The Support Agreement has been duly authorized, executed
and delivered by the Company and Capital Markets and constitutes a
valid and binding agreement of the Company and Capital Markets
enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in
a proceeding in
<PAGE> 17
17
equity or at law) and an implied covenant of good faith and fair
dealing; the Debentures and the Guarantee will be entitled to the
benefits of the Support Agreement, the obligations of Capital Markets
under the Debentures and the Guarantees will be deemed to be "Debt"
for purposes of the Support Agreement and the holders of the
Debentures and the Guarantee will be entitled to the rights of
"Lenders" under the Support Agreement.
(xv) The Transactions will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which the Trust, the Company or any of the Significant Subsidiaries
is a party or by which the Trust, the Company or any of the
Significant Subsidiaries is bound or to which any of the properties or
assets of the Trust, the Company or any of the Significant
Subsidiaries is subject, nor will such actions result in any violation
of the provisions of the charter or by-laws of the Company or any of
the Significant Subsidiaries or the Declaration or Certificate of
Trust of the Trust or any statute, rule or regulation or any order
known to such counsel of any court or governmental agency or body
having jurisdiction over the Trust, the Company or any of the
Significant Subsidiaries or any of their properties or assets; and,
except for the registration of the Debentures, the Preferred
Securities, the Guarantee, the Company's obligations under the Support
Agreement under the Securities Act, the qualification of the
Indenture, the Declaration and the Guarantee Agreement under the Trust
Indenture Act, and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state securities laws, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the Transactions.
(xvi) None of the Trust nor the Company or any of its
subsidiaries is an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the 1940 Act.
(xvii) Based upon current law and the assumptions stated or
referred to therein: (i) the Trust will be classified as a grantor
trust for United States federal income tax purposes and not as an
association taxable as a corporation; (ii) the Debentures will be
classified as indebtedness of Capital Markets and (iii) the statements
set forth in the Prospectus or in the Remarketing Materials under the
caption "Certain United States Federal Income Tax Consequences"
insofar as they purport to constitute summaries of matters of United
States federal tax laws and regulations or legal conclusions with
respect thereto, constitute accurate summaries of the matters
described therein in all material respects.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the laws of the State of Indiana and New York (with respect to
clause (x)) and (ii) rely (to the extent such counsel
<PAGE> 18
18
deems proper and specifies in its opinion), as to matters involving
the application of the laws of the State of Massachusetts upon the
opinion of local counsel. Such counsel shall also advise the
Remarketing Agent that although such counsel is not passing upon and
assumes no responsibility or liability for the accuracy, completeness
or fairness of the statements contained in the documents incorporated
by reference in the Prospectus or any further amendment or supplement
thereto made by the Issuers prior to such Remarketing Date, they have
no reason to believe that any of such documents (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion), when such documents became effective
or were filed with the Commission, as the case may be, contained, in
the case of a registration statement which became effective under the
Securities Act, an untrue statement of a material fact or omitted to
state a material fact required to be stated therein necessary to make
the statements therein not misleading, or, in the case of other
documents which were filed under the Securities Act or the Exchange
Act with the Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made when such documents were so filed, not misleading. Such
counsel shall also advise the Remarketing Agent that although such
counsel is not passing upon and, except as set forth in clauses (viii)
and (xvii) above, assumes no responsibility or liability for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement, the Prospectus and the Remarketing Materials
and any further amendments and supplements thereto made by the Issuers
prior to such date, they have no reason to believe that, as of its
effective date, the Registration Statement or any further amendment
thereto made by the Issuers prior to such date (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus and the Remarketing
Materials or any further amendment or supplement thereto made by the
Issuers prior to such Remarketing Date (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading or that, as of such Remarketing Date, either
the Registration Statement, the Prospectus or the Remarketing
Materials or any further amendment or supplement thereto made by the
Issuers prior to such Remarketing Date (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contains an untrue statement of a material
fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any contracts or
other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be incorporated by reference
into the Prospectus or the Remarketing Materials or required to be
described in the Registration Statement, the Prospectus or the
Remarketing Materials which were not filed or incorporated by
reference or described as required.
(e) Special Delaware counsel to the Issuers shall have furnished
to the Remarketing Agent its written opinion, as special Delaware
counsel to the Issuers, addressed to the
<PAGE> 19
19
Remarketing Agent and dated the Remarketing Date, in form and
substance satisfactory to the Remarketing Agent, to the effect that:
(i) The Trust has been duly created and is validly existing
in good standing as a business trust under the Delaware Trust
Act. Under the Delaware Trust Act and the Declaration, the Trust
has the business trust power and authority to own property and to
conduct its business as described in the Prospectus and the
Remarketing Materials and to enter into and perform its
obligations under this Agreement and the Trust Securities.
(ii) The Common Securities have been duly authorized by the
Declaration and are validly issued and (subject to the terms in
this paragraph) fully paid undivided beneficial interests in the
assets of the Trust (such counsel may note that the holders of
Common Securities will be subject to the withholding provisions
of Section 10.4 of the Declaration, will be required to make
payment or provide indemnity or security as set forth in the
Declaration and will be liable for the debts and obligations of
the Trust to the extent provided in Section 9.1(b) of the
Declaration); under the Delaware Trust Act and the Declaration,
the issuance of the Common Securities is not subject to
preemptive rights.
(iii) The Preferred Securities have been duly authorized by
the Declaration and are validly issued and (subject to the terms
in this paragraph) fully paid and non-assessable undivided
beneficial ownership interests in the assets of the Trust, the
holders of the Preferred Securities will be entitled to the
benefits of the Declaration (subject to the limitations set forth
in clause (v) below) and will be entitled to the same limitation
of personal liability as extended to stockholders of private
corporations for profit organized under the General Corporation
Law of the State of Delaware (such counsel may note that the
holders of Preferred Securities will be subject to the
withholding provisions of Section 10.4 of the Declaration and
will be required to make payment or provide indemnity or security
as set forth in the Declaration); under the Delaware Trust Act
and the Declaration, the issuance of the Preferred Securities is
not subject to preemptive rights.
(iv) Under the Delaware Trust Act and the Declaration all
necessary trust action has been taken to duly authorize the
execution, delivery and performance by the Trust of this
Agreement.
(v) Assuming the Declaration has been duly authorized by
Capital Markets and has been duly executed and delivered by
Capital Markets and the Regular Trustees, and assuming due
authorization, execution and delivery of the Declaration by the
Property Trustee and the Delaware Trustee, the Declaration
constitutes a valid and binding obligation of Capital Markets and
the Regular Trustees, enforceable against Capital Markets and the
Regular Trustees in accordance with its terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy,
insolvency, moratorium, receivership, reorganization,
liquidation,
<PAGE> 20
20
fraudulent conveyance or transfer and other similar laws relating
to or affecting the rights and remedies of creditors generally,
(ii) principles of equity, including applicable law relating to
fiduciary duties (regardless of whether considered and applied in
a proceeding in equity or at law), and (iii) the effect of
applicable public policy on the enforceability of provisions
relating to indemnification or contribution.
(vi) The issuance and sale by the Trust of the Preferred
Securities, the purchase by the Trust of the Debentures, the
execution, delivery and performance by the Trust of this
Agreement, the consummation by the Trust of the transactions
contemplated by this Agreement and compliance by the Trust with
its obligations thereunder do not violate any of the provisions
of the Certificate of Trust or the Declaration or any applicable
Delaware law or administrative regulation.
(vii) Assuming that the Trust derives no income from or
connected with sources within the State of Delaware and has no
assets, activities (other than having a Delaware Trustee as
required by the Delaware Trust Act and the filing of documents
with the Secretary of State of Delaware) or employees in the
State of Delaware, no filing with, or authorization, approval,
consent, license, order, registration, qualification or decree
of, any Delaware court or Delaware governmental authority or
agency (other that as may be required under the securities or
blue sky laws of the state of Delaware, as to which such counsel
need express no opinion) is necessary or required to be obtained
by the Trust solely in connection with the due authorization,
execution and delivery by the Trust of this Agreement or the
offering, issuance, sale or delivery of the Preferred Securities.
(f) Counsel to the Property Trustee and the Guarantee Trustee shall
have furnished to the Remarketing Agent its written opinion, as counsel to
The Chase Manhattan Bank, as Property Trustee and Guarantee Trustee,
addressed to the Remarketing Agent and dated the Remarketing Date, in form
and substance satisfactory to the Remarketing Agent, to the effect that:
(i) Each of the Property Trustee and the Guarantee Trustee is
duly incorporated as a New York banking corporation with all necessary
power and authority to execute and deliver and perform their
respective obligations under the terms of the Declaration and the
Guarantee Agreement.
(ii) The execution, delivery and performance by the Property
Trustee of the Declaration and the execution, delivery and performance
by the Guarantee Trustee of the Guarantee Agreement have been duly
authorized by all necessary corporate action on the part of the
Property Trustee and the Guarantee Trustee, respectively. The
Declaration has been duly executed and delivered by the Property
Trustee and the Guarantee Agreement has been duly executed and
delivered by the Guarantee Trustee and each constitutes the valid and
binding agreement of the Property Trustee and the Guarantee Trustee,
respectively, enforceable against the Property Trustee and the
Guarantee Trustee, respectively, in accordance with their
<PAGE> 21
21
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
(iii) The execution, delivery and performance of the Declaration
and the Guarantee Agreement by the Property Trustee and the Guarantee
Trustee, respectively, do not conflict with or constitute a breach of
the charter or by-laws of the Property Trustee and the Guarantee
Trustee, respectively.
(iv) No consent, approval or authorization of, or registration
with or notice to, any New York or federal banking authority is
required for the execution, delivery or performance by the Property
Trustee and the Guarantee Trustee of the Declaration and the Guarantee
Agreement, respectively.
(g) Counsel to the Delaware Trustee shall have furnished to the
Remarketing Agent its written opinion, as counsel to Chase Manhattan Bank
Delaware, as Delaware Trustee, addressed to the Remarketing Agent and dated
the Remarketing Date, in form and substance satisfactory to the Remarketing
Agent, to the effect that:
(i) The Delaware Trustee has been duly incorporated and is
validly existing as a banking corporation in good standing under the
laws of the State of Delaware with all necessary power and authority
to execute and deliver, and to carry out and perform its obligations
under the terms of the Declaration.
(ii) The execution, delivery and performance by the Delaware
Trustee of the Declaration has been duly authorized by all necessary
corporate action on the part of the Delaware Trustee. The Declaration
has been duly executed and delivered by the Delaware Trustee and
constitutes the valid and binding agreement of the Delaware Trustee
enforceable against the Delaware Trustee in accordance with its terms,
subject to (i) bankruptcy, insolvency, moratorium, receivership,
reorganization, liquidation, fraudulent conveyance or transfer and
other similar laws relating to or affecting the rights and remedies of
creditors generally, (ii) principles of equity, including applicable
law relating to fiduciary duties (regardless of whether considered and
applied in a proceeding in equity or at law), and (iii) the effect of
applicable public policy on the enforceability of provisions relating
to indemnification or contribution.
(iii) The execution, delivery and performance of the Declaration
by the Delaware Trustee do not conflict with or constitute a breach of
the charter or by-laws of the Delaware Trustee.
(iv) No consent, approval or authorization of, or registration
with or notice to, any Delaware or federal banking authority is
required for the execution, delivery or performance by the Delaware
Trustee of the Declaration.
<PAGE> 22
22
(h) On the Remarketing Date, the Company shall have furnished to the
Remarketing Agent a letter addressed to the Remarketing Agent and dated
such date, in form and substance satisfactory to the Remarketing Agent, of
Arthur Andersen LLP, or such other firm of nationally recognized
independent public accountants satisfactory to the Remarketing Agent,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" with respect to certain financial
information contained in the Prospectus and in the Remarketing Materials.
(i) Each of the Company and Capital Markets shall have furnished to
the Remarketing Agent a certificate, dated the Remarketing Date, of, (i)
with respect to the Company, (A) its Chairman of the Board and President,
or its Executive Vice President, and (B) its chief financial officer, and
(ii) with respect to Capital Markets, its President, and its chief
financial officer, stating that:
(i) The representations, warranties and agreements of the Company
and Capital Markets in Sections 2 and 3 are true and correct as of the
Remarketing Date; the Company and Capital Markets have complied with
all its agreements contained herein; and the conditions contained in
Section 6(a) have been fulfilled;
(ii) (A) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus or in the
Remarketing Materials any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, which could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, otherwise
than as set forth or contemplated in the Prospectus or in the
Remarketing Materials and (B) since the respective dates as of which
information is given in the Prospectus or in the Remarketing
Materials, there has not been any material change in the consolidated
share capital or long-term debt of the Company and its subsidiaries or
the consolidated share capital or long-term debt of any Significant
Subsidiary or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, shareholders' equity or results of operations of the Company
and its subsidiaries (taken as a whole), otherwise than as set forth
or contemplated in the Prospectus or the Remarketing Materials; and
(iii) They have carefully examined the Registration Statement,
the Prospectus and the Remarketing Materials and, in their opinion (A)
the Registration Statement, as of its effective date, and the
Prospectus and the Remarketing Materials, as of their respective
dates, did not include any untrue statement of a material fact and did
not omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B) since
such dates, no event has occurred which should have been set forth in
a supplement or amendment to the Registration Statement, the
Prospectus or the Remarketing Materials.
<PAGE> 23
23
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus and in the
Remarketing Materials any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus or in the
Remarketing Materials or (ii) since such date there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus or in the Remarketing Materials, the effect of which, in any
such case described in clause (i) or (ii), is, in the judgment of the
Remarketing Agent, so material and adverse as to make it impracticable or
inadvisable to proceed with the Remarketing on the terms and in the manner
contemplated in the Prospectus and in the Remarketing Materials.
(k) Without the prior written consent of the Remarketing Agent, the
Declaration or the Indenture shall not have been amended in any manner, or
otherwise contain any provision contained therein as of the date hereof
that, in the opinion of the Remarketing Agent, materially changes the
nature of the Remarketed Securities or the Remarketing Procedures.
(l) Subsequent to the execution and delivery of this Agreement, (i) no
downgrading shall have occurred in the rating accorded the Preferred
Securities or any of the Company's, any Significant Subsidiary's or Capital
Markets' debt securities by any "nationally recognized statistical rating
organization", as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Securities Act and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with
possible negative implications, its rating of any of the Preferred
Securities or any of the Company's, any Significant Subsidiary's or Capital
Markets' debt securities.
(m) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
or Capital Markets on any exchange or in the over-the-counter market, shall
have been suspended or minimum prices shall have been established on any
such exchange or such market by the Commission, by such exchange or by any
other regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of the Remarketing Agent, impracticable or inadvisable to proceed with the
Remarketing on the terms and in the manner contemplated in the Prospectus
or in the Remarketing Materials.
<PAGE> 24
24
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Remarketing Agent.
7. Indemnification and Contribution. (a) The Issuers shall indemnify
and hold harmless the Remarketing Agent, its officers and employees and each
person, if any, who controls the Remarketing Agent within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of the
Remarketed Securities), to which the Remarketing Agent or that officer, employee
or controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the Registration Statement,
the Prospectus or the Remarketing Materials or in any amendment or supplement
thereto, or (B) in any blue sky application or other document prepared or
executed by the Issuers (or based upon any written information furnished by the
Issuers) specifically for the purpose of qualifying any or all of the Remarketed
Securities under the securities laws of any state or other jurisdiction (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement, the Prospectus or the
Remarketing Materials or in any amendment or supplement thereto, or in any Blue
Sky Application, any material fact required to be stated therein or necessary to
make the statements therein not misleading and shall reimburse the Remarketing
Agent and each such officer, employee and controlling person promptly upon
demand for any legal or other expenses reasonably incurred by the Remarketing
Agent or that officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided however,
that the Issuers shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement, the Prospectus
or the Remarketing Materials or in any such amendment or supplement, or in any
Blue Sky Application in reliance upon and in conformity with the written
information furnished to the Issuers by or on behalf of the Remarketing Agent
specifically for inclusion therein and described in a letter from the
Remarketing Agent to the Company and provided further, that as to any
Preliminary Prospectus this indemnity agreement shall not inure to the benefit
of the Remarketing Agent, its officers or employees or any person controlling
the Remarketing Agent on account of any loss, claim, damage, liability or action
arising from the sale of the Remarketed Securities to any person by the
Remarketing Agent if the Remarketing Agent failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person within
the time required by the Securities Act, and the untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact in such Preliminary Prospectus was corrected in the Prospectus,
unless such failure resulted from non- compliance by the Company with Section
5(c). For purposes of the last proviso to the immediately preceding sentence,
the term "Prospectus" shall not be deemed to include the documents incorporated
therein by reference, and the Remarketing Agent shall not be obligated to send
or give any supplement or amendment to any document incorporated by reference in
any Preliminary Prospectus or the Prospectus to any person other than a person
to whom the Remarketing Agent had
<PAGE> 25
25
delivered such incorporated document or documents in response to a written
request therefor. The foregoing indemnity agreement is in addition to any
liability which the Issuers may otherwise have to the Remarketing Agent or to
any officer, employee or controlling person of the Remarketing Agent.
(b) The Remarketing Agent shall indemnify and hold harmless the
Company and Capital Markets, their officers and employees, each of their
directors, the Trust and each Trustee, and each person, if any, who controls any
of the Issuers within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company or Capital Markets, any such director, officer or
employee, the Trust or any such Trustee or any such controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Prospectus, the Registration Statement, the Prospectus or the
Remarketing Materials or in any amendment or supplement thereto, or (B) in any
Blue Sky Application or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement, the Prospectus or the
Remarketing Materials or in any amendment or supplement thereto, or in any Blue
Sky Application, any material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with the written
information furnished to the Company or the Trustee by or on behalf of the
Remarketing Agent specifically for inclusion therein and described in a letter
from the Remarketing Agent to the Company and Capital Markets, and shall
reimburse the Company and Capital Markets and any such director, officer or
employee, the Trust or any such Trustee or such controlling person for any legal
or other expenses reasonably incurred by the Company or Capital Markets or any
such director or officer, the Trust or any Trustee or any such controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which the Remarketing Agent may otherwise have to the Company or Capital Markets
or any such director or officer, the Trust or any such Trustee or any such
controlling person.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party in
writing of the claim or the commencement of that action; provided however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 7.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 7 for any legal or other expenses
subsequently
<PAGE> 26
26
incurred by the indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided however, that the Remarketing
Agent shall have the right to employ counsel to represent jointly the
Remarketing Agent and its officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the Remarketing Agent against the Issuers under this Section 7 if,
in the reasonable judgment of the Remarketing Agent, it is advisable for the
Remarketing Agent and those officers, employees and controlling persons to be
jointly represented by separate counsel, and in that event the fees and expenses
of such separate counsel shall be paid by the Issuers. No indemnifying party
shall (i) without the prior written consent of the indemnified parties (which
consent shall not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding, or (ii) be
liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled with
its written consent or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 7 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or 7(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Issuers on the one hand and the Remarketing Agent on the other
hand from the Remarketing or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Issuers on the one hand and the Remarketing Agent on
the other with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Issuers on the one hand and the Remarketing Agent on the other with respect to
such offering shall be deemed to be in the same proportion as the total
liquidation or principal amount of the Remarketed Securities less the fee paid
to the Remarketing Agent pursuant to Section 4(a) of this Agreement, on the one
hand, and the total fees received by the Remarketing Agent pursuant to such
Section 4(a), on the other hand, bear to the total liquidation or principal
amount of the Remarketed Securities. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Issuers on the one hand or the Remarketing Agent on the other
hand, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Remarketing Agent agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were to be determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount paid or
payable by an
<PAGE> 27
27
indemnified party as a result of the loss, claim, damage or liability, or action
in respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purposes of this Section 7(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), the Remarketing Agent shall not be required to contribute any
amount in excess of the amount by which the fees received by it under Section 4
exceed the amount of any damages which the Remarketing Agent has otherwise paid
or become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. Resignation and Removal of the Remarketing Agent. The Remarketing
Agent may resign and be discharged from its duties and obligations hereunder,
and Capital Markets may remove the Remarketing Agent, by giving 60 days' prior
written notice, in the case of a resignation, to Capital Markets, the
Depositary, the Property Trustee and the Indenture Trustee and, in the case of a
removal, the removed Remarketing Agent, the Depositary, the Property Trustee and
the Indenture Trustee; provided however, that (i) Capital Markets may not remove
the Remarketing Agent unless (A) the Remarketing Agent becomes involved as a
debtor in a bankruptcy, insolvency or similar proceeding, (B) the Remarketing
Agent shall not be among the 15 underwriters with the largest volume
underwritten in dollars, on a lead or co-managed basis, of U.S. domestic debt
securities during the twelve-month period ended as of the last calendar quarter
preceding the Remarketing Date or (C) the Remarketing Agent shall be subject to
one or more legal restrictions preventing the performance of its obligations
hereunder and (ii) no such resignation nor any such removal shall become
effective until Capital Markets shall have appointed at least one nationally
recognized broker-dealer as successor Remarketing Agent and such successor
Remarketing Agent shall have entered into a remarketing agreement with the
Company, Capital Markets and the Trust in which it shall have agreed to conduct
the Remarketing in accordance with the Remarketing Procedures. In any such case,
Capital Markets will use its reasonable efforts to appoint a successor
Remarketing Agent and enter into such a remarketing agreement with such person
as soon as reasonably practicable. The provisions of Sections 4 and 7 shall
survive the resignation or removal of any Remarketing Agent pursuant to this
Agreement.
9. Dealing in the Remarketed Securities. The Remarketing Agent, when
acting as a Remarketing Agent or in its individual or any other capacity, may,
to the extent permitted by law, buy, sell, hold and deal in any of the
Remarketed Securities. The Remarketing Agent may exercise any vote or join in
any action which any beneficial owner of Remarketed Securities may be entitled
to exercise or take pursuant to the Declaration or the Indenture with like
effect as if it did not act in any capacity hereunder. The Remarketing Agent, in
its individual capacity, either as principal or agent, may also engage in or
have an interest in any financial or other transaction with the Issuers as
freely as if it did not act in any capacity hereunder.
10. Remarketing Agent's Performance; Duty of Care. The duties and
obligations of the Remarketing Agent shall be determined solely by the express
provisions of this Agreement and the Declaration and the Indenture. No implied
covenants or obligations of or against the Remarketing Agent shall be read into
this Agreement, the Declaration or the Indenture. In the
<PAGE> 28
28
absence of bad faith on the part of the Remarketing Agent, the Remarketing Agent
may conclusively rely upon any document furnished to it, which purports to
conform to the requirements of this Agreement, the Declaration or the Indenture
as to the truth of the statements expressed in any of such documents. The
Remarketing Agent shall be protected in acting upon any document or
communication reasonably believed by it to have been signed, presented or made
by the proper party or parties. The Remarketing Agent, acting under this
Agreement, shall incur no liability to the Company or to any holder of
Remarketed Securities in its individual capacity or as Remarketing Agent for any
action or failure to act, on its part in connection with a Remarketing or
otherwise, except if such liability is judicially determined to have resulted
from the gross negligence or willful misconduct on its part.
11. Termination. This Agreement shall terminate as to the Remarketing
Agent on the effective date of the resignation or removal of the Remarketing
Agent pursuant to Section 8. In addition, the obligations of the Remarketing
Agent hereunder may be terminated by it by notice given to the Company or the
Trust prior to 10:00 A.M., New York City time, on the Remarketing Date if, prior
to that time, any of the events described in Sections 6(j), (k), (l) or (m)
shall have occurred.
12. Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Remarketing Agent, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate Department
(Fax: (212) 528-8822);
(b) if to the Issuers shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Prospectus, Attention: Treasurer. (Fax: 219- 853-5352).
Any such statements, requests, notices or agreements shall take effect at
the time of receipt thereof.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Remarketing Agent, the Company,
Capital Markets, the Trust and their respective successors. This Agreement and
the terms and provisions hereof are for the sole benefit of only those persons,
except that (x) the representations, warranties, indemnities and agreements of
the Issuers contained in this Agreement shall also be deemed to be for the
benefit of the officers and employees of the Remarketing Agent and the person or
persons, if any, who control the Remarketing Agent within the meaning of Section
15 of the Securities Act and (y) the indemnity agreement of the Remarketing
Agent contained in Section 7(b) of this Agreement shall be deemed to be for the
benefit of directors, officers and employees of the Issuers and any person
controlling the Issuers within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended or shall be construed to give any person,
other than the persons referred to herein, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein.
<PAGE> 29
29
14. Survival. The respective indemnities, representations, warranties
and agreements of the Issuers and the Remarketing Agent contained in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the Remarketing and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of them or
any person controlling any of them.
15. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 under the Securities Act.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE> 30
If the foregoing correctly sets forth the agreement among the Company,
the Trust and the Remarketing Agent, please indicate your acceptance in the
space provided for that purpose below.
Very truly yours,
NIPSCO INDUSTRIES, INC.
By: /s/ Stephen P. Adik
--------------------------------
Title: Executive Vice President,
Chief Financial Officer
and Treasurer
NIPSCO CAPITAL MARKETS, INC.
By: /s/ Stephen P. Adik
--------------------------------
Title: President
NIPSCO CAPITAL TRUST I
By: NIPSCO Capital Markets, as Sponsor
By: /s/ Stephen P. Adik
-----------------------------
Title: President
Accepted:
LEHMAN BROTHERS INC.
By: /s/ Ronald Calise
----------------------------
Authorized Representative
<PAGE> 1
EXHIBIT 10.3
CHANGE IN CONTROL AND TERMINATION AGREEMENT
-------------------------------------------
NIPSCO Industries, Inc., an Indiana corporation ("Employer") and
________________ ("Executive") entered into a Change in Control and Termination
Agreement as of ____________________________________________ ("Agreement"), and
Employer and Executive hereby enter into an amendment and restatement of the
Agreement, effective September 1, 1997, which amended and restated Agreement is
hereinafter set forth.
WITNESSETH:
----------
WHEREAS, Executive is currently employed by Employer as its ______________;
WHEREAS, Employer desires to provide security to Executive in connection
with Executive's employment with Employer in the event of a Change in Control
affecting Employer; and
WHEREAS, Executive and Employer desire to enter into this Agreement
pertaining to the terms of the security Employer is providing to Executive with
respect to his employment in the event of a Change in Control;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Term. The term of this Agreement shall be the period beginning on the
date hereof and terminating on the date 36 months after such date (the "Term"),
provided that for each day from and after the date hereof the Term will
automatically be extended for an additional day, unless either Employer or
Executive has given written notice to the other party of its or his election to
cease such automatic extension, in which case the Term shall be the 36-month
period beginning on the date such notice is received by such other party.
<PAGE> 2
2. Definitions. For purposes of this Agreement:
(a) "Affiliate" or "Associate" shall have the meaning set forth in
Rule 12b-2 under the Securities Exchange Act of 1934.
(b) "Base Salary" shall mean Executive's monthly base salary at the
rate in effect on the date of a reduction for purposes of paragraph (g) of
this Section, or on the date of a termination of employment under
circumstances described in subsections 3(a) or (b) below, whichever is
higher; provided, however, that such rate shall in no event be less than
the highest rate in effect for Executive at any time during the Term.
(c) "Beneficiary" shall mean the person or entity designated by
Executive, by written instrument delivered to Employer, to receive the
benefits payable under this Agreement in the event of his death. If
Executive fails to designate a Beneficiary, or if no Beneficiary survives
Executive, such death benefits shall be paid:
(i) to his surviving spouse; or
(ii) if there is no surviving spouse, to his living descendants
per stirpes; or
(iii) if there is neither a surviving spouse nor descendants, to
his duly appointed and qualified executor or personal
representative.
(d) "Bonus" shall mean Executive's target annual incentive bonus
compensation for the calendar year in which the date of a termination of
employment under circumstances described in subsection 3(a) below occurs,
under the incentive bonus compensation plan then maintained by Employer;
provided, however, that such target annual incentive bonus compensation
shall in no event be less than the highest target annual incentive bonus
2
<PAGE> 3
compensation of Executive under any such incentive bonus compensation plan
for any calendar year commencing during the Term.
(e) A "Change in Control" shall be deemed to take place on the
occurrence of any of the following events:
(1) The acquisition by an entity, person or group (including all
Affiliates or Associates of such entity, person or group) of
beneficial ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, of capital stock of Employer entitled
to exercise more than 30% of the outstanding voting power of all
capital stock of Employer entitled to vote in elections of directors
("Voting Power");
(2) The effective time of (i) a merger or consolidation of
Employer with one or more other corporations as a result of which the
holders of the outstanding Voting Power of Employer immediately prior
to such merger or consolidation (other than the surviving or resulting
corporation or any Affiliate or Associate thereof) hold less than 50%
of the Voting Power of the surviving or resulting corporation, or (ii)
a transfer of 30% of the Voting Power, or a Substantial Portion of the
Property, of Employer other than to an entity of which Employer owns
at least 50% of the Voting Power; or
(3) The election to the Board of Directors of Employer of
candidates who were not recommended for election by the Board of
Directors of Employer in office immediately prior to the election, if
such candidates constitute a majority of those elected in that
particular election.
3
<PAGE> 4
Notwithstanding the foregoing, a Change in Control shall not be deemed to take
place by virtue of any transaction in which Executive is a participant in a
group effecting an acquisition of Employer and, after such acquisition,
Executive holds an equity interest in the entity that has acquired Employer.
(f) "Good Cause" shall be deemed to exist if, and only if:
(1) Executive engages in acts or omissions constituting
dishonesty, intentional breach of fiduciary obligation or
intentional wrongdoing or malfeasance, in each case that results
in substantial harm to Employer or any Affiliate; or
(2) Executive is convicted of a criminal violation involving
fraud or dishonesty.
(g) "Good Reason" shall be deemed to exist if, and only if:
(1) there is a significant change in the nature or the scope of
Executive's authorities or duties;
(2) there is a significant reduction in Executive's monthly rate
of Base Salary, his opportunity to earn a bonus under an
incentive bonus compensation plan maintained by Employer or his
benefits; or
(3) Employer changes by 100 miles or more the principal location
in which Executive is required to perform services.
(h) "Pension Plan" shall mean any Retirement Plan that is a defined
benefit plan as defined in Section 3(35) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
4
<PAGE> 5
(i) "Retirement Plan" shall mean any qualified or supplemental
employee pension benefit plan, as defined in Section 3(2) of ERISA,
currently or hereinafter made available by Employer in which Executive is
eligible to participate.
(j) "Severance Period" shall mean the period beginning on the date
Executive's employment with Employer terminates under circumstances
described in subsection 3(a) and ending on the date 36 months thereafter.
(k) "Substantial Portion of the Property of Employer" shall mean 50%
of the aggregate book value of the assets of Employer and its Affiliates
and Associates as set forth on the most recent balance sheet of Employer,
prepared on a consolidated basis, by its regularly employed, independent,
certified public accountants.
(l) "Welfare Plan" shall mean any health and dental plan, disability
plan, survivor income plan or life insurance plan, as defined in Section
3(1) of ERISA, currently or hereafter made available by Employer in which
Executive is eligible to participate.
3. Benefits Upon Termination of Employment. (a) The following provisions
will apply if a Change in Control occurs during the Term, and (i) at any time
during the 24 months after the Change in Control occurs (whether during or after
the expiration of the Term), the employment of Executive with Employer is
terminated by Employer for any reason other than Good Cause, or Executive
terminates his employment with Employer for Good Reason, or (ii) at any time
during the thirteenth month after the Change in Control occurs (whether during
or after the expiration of the Term), Executive terminates his employment with
Employer for any reason:
(1) Employer shall pay Executive an amount equal to 36 times the sum
of (a) Executive's Base Salary plus (b) one-twelfth of his Bonus. Such
amount shall be paid to
5
<PAGE> 6
Executive in a lump sum within 180 days after his date of termination of
employment; provided, however, Executive, by written notice to Employer,
may elect to receive such payment on any date that is no earlier than the
later to occur of (i) the date 10 days after the date of termination, and
(ii) the date 10 days after receipt of such notice.
(2) Employer shall pay Executive an amount equal to the pro rata
portion of Executive's target annual incentive bonus compensation for the
calendar year in which the date of termination of employment occurs, under
the incentive bonus compensation plan then maintained by Employer, that is
applicable to the period commencing on the first day of such calendar year
and ending on the date of termination. Such amount shall be paid to
Executive in a lump sum within 180 days after his date of termination of
employment; provided, however, Executive, by written notice to Employer,
may elect to receive such payment on any date that is no earlier than the
later to occur of (i) the date 10 days after the date of termination, and
(ii) the date 10 days after receipt of such notice.
(3) Executive shall receive any and all benefits accrued under any
Retirement Plan, Welfare Plan or other plan or program in which he
participates at the date of termination of employment, to the date of
termination of employment, the amount, form and time of payment of such
benefits to be determined by the terms of such Retirement Plan, Welfare
Plan and other plan or program, and Executive's employment shall be deemed
to have terminated by reason of retirement, and without regard to vesting
limitations in all such Plans and other plans or programs not subject to
the qualification requirements of Section 401 (a) of the Internal Revenue
Code of 1986 as amended ("Code"), under circumstances that have the most
favorable result for Executive thereunder for all purposes of such Plans
and
6
<PAGE> 7
other plans or programs. Payment shall be made at the earliest date
permitted under any such Plan or other plan or program that is not funded
with a trust agreement.
(4) (A) Employer shall pay to Executive a monthly Supplemental Pension
Benefit in an amount equal to the amount determined pursuant to clause (i)
below less the amount determined pursuant to clause (ii) below:
(i) the aggregate monthly amount of the pension benefit
("Pension") that would have been payable to Executive under all
Pension Plans if that Pension were computed (A) by treating the
Severance Period as service for all purposes of the Pension Plans and
(B) by considering his compensation during the Severance Period to be
his Base Salary and one-twelfth of his Bonus for all purposes of the
Pension Plans;
(ii) the aggregate monthly amount of any Pension actually paid to
Executive under all Pension Plans.
(B) The Supplemental Pension Benefit payable to Executive
hereunder shall be paid (i) commencing at the later to occur of the last
day of the Severance Period or the date payment of his Pension commences
under the Pension Plans; and (ii) in the same form as is applicable to the
Pension payable to Executive under the Pension Plans.
(C) If Executive dies prior to commencement of payment to him of
his Pension under the Pension Plans, under circumstances in which a death
benefit under the Pension Plans is payable to his surviving spouse or other
beneficiary, then Employer shall pay a monthly Supplemental Death Benefit
to Executive's surviving spouse or other beneficiary entitled to receive
the death benefit payable with respect to Executive under the
7
<PAGE> 8
Pension Plans in an amount equal to the amount determined pursuant to
clause (i) below less the amount determined pursuant to clause (ii) below:
(i) the aggregate monthly amount of the death benefit that would
have been payable to the surviving spouse or other beneficiary of
Executive under the Pension Plans if that death benefit were computed
(A) by treating the Severance Period as service for all purposes of
the Pension Plans and (B) by considering his compensation during the
Severance Period to be his Base Salary and one-twelfth of his Bonus
for all purposes of the Pension Plans;
(ii) the aggregate monthly amount of any death benefit actually
paid to the surviving spouse or other beneficiary of Executive under
the Pension Plans.
(D) The Supplemental Death Benefit payable with respect to
Executive hereunder shall be payable at the same time, in the same form,
and to the same persons as is applicable to the death benefit payable with
respect to Executive under the Pension Plans.
(E) Notwithstanding the foregoing provisions, the total of the
actual years of service of Executive for purposes of each of the Pension
Plans and the years of service for which credit is given pursuant to
subparagraphs (3)(A) and (C) shall not exceed the maximum number of years
of service, if any, that can be considered pursuant to the terms of such
Pension Plan.
(F) Any actuarial adjustments made under the Pension Plans with
respect to the form or time of payment of a Pension or death benefit to
Executive or his surviving spouse or other beneficiary under the Pension
Plans shall also be applicable to the
8
<PAGE> 9
Supplemental Pension Benefit or Supplemental Death Benefit payable
hereunder and shall be based upon the same actuarial assumptions as those
specified in the Pension Plans.
(5) If upon the date of termination of Executive's employment
Executive holds any options with respect to stock of Employer, all such
options will immediately become exercisable upon such date and will be
exercisable for 200 days thereafter. Any restrictions on stock of Employer
owned by Executive on the date of termination of his employment will lapse
on such date.
(6) During the Severance Period Executive and his spouse and other
dependents will continue to be covered by all Welfare Plans maintained by
Employer in which he and his spouse and other dependents were participating
immediately prior to the date of his termination as if he continued to be
an employee of Employer and Employer will continue to pay the costs of
coverage of Executive and his spouse and other dependents under such
Welfare Plans on the same basis as is applicable to active employees
covered thereunder; provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof, Employer will
provide substantially identical benefits. Coverage under any such Welfare
Plan will cease if and when Executive obtains employment with another
employer during the Severance Period, and becomes eligible for coverage
under any substantially similar Welfare Plan provided by his new employer.
(7) During the Severance Period, Executive shall not be entitled to
reimbursement for fringe benefits, including without limitation, dues and
expenses related to club memberships, automobile expenses, expenses for
professional services and other similar perquisites.
9
<PAGE> 10
(b) If the employment of Executive with Employer is terminated by Employer
or Executive other than under circumstances set forth in subsection 3(a),
Executive's Base Salary shall be paid through the date of his termination, and
Employer shall have no further obligation to Executive or any other person under
this Agreement. Such termination shall have no effect upon Employee's other
rights, including but not limited to, rights under the Retirement Plans and the
Welfare Plans.
(c) Notwithstanding anything herein to the contrary, (1) in the event
Employer shall terminate the employment of Executive for Good Cause hereunder,
Employer shall give Executive at least thirty (30) days prior written notice
specifying in detail the reason or reasons for Executive's termination, and (2)
in the event Executive terminates his employment for Good Reason hereunder,
Executive shall give Employer at least thirty (30) days prior written notice
specifying in detail the reason or reasons for Executive's termination.
(d) This Agreement shall have no effect, and Employer shall have no
obligations hereunder, if Executive's employment terminates for any reason at
any time other than during the 24 months following a Change in Control.
4. Excise Tax. (a) In the event that a Change in Control shall occur, and a
final determination is made by legislation, regulation, ruling directed to
Executive or Employer, by court decision, or by independent tax counsel
described in subsection (b) next below, that the aggregate amount of any payment
made to Executive (1) hereunder, and (2) pursuant to any plan, program or policy
of Employer in connection with, on account of, or as a result of, such Change in
Control ("Total Payments") will be subject to the excise tax provisions of
Section 4999 of the Code, or any successor section thereof, Executive shall be
entitled to receive from Employer, in addition to any
10
<PAGE> 11
other amounts payable hereunder, a lump sum payment (the "Gross-Up Payment"),
sufficient to cover the full cost of such excise taxes and Executive's federal,
state and local income and employment taxes on this additional payment so that
the net amount retained by Executive, after the payment of all such excise taxes
on the Total Payments, and all federal, state and local income and employment
taxes and excise taxes on the Gross-Up Payment, shall be equal to the Total
Payments. The Total Payments, however, shall be subject to any federal, state
and local income and employment taxes thereon. For this purpose, Executive shall
be deemed to be in the highest marginal rate of federal, state and local taxes.
The Gross-Up Payment shall be made at the same time as the payments described in
subsections 3(a)(1) and (2) above.
(b) Employer and Executive shall mutually and reasonably determine the
amount of the Gross-Up Payment to be made to Executive pursuant to the preceding
subsection. Prior to the making of any such Gross-Up Payment, either party may
request a determination as to the amount of such Gross-Up Payment. If such a
determination is requested, it shall be made promptly, at Employer's expense, by
independent tax counsel selected by Executive and approved by Employer (which
approval shall not unreasonably be withheld), and such determination shall be
conclusive and binding on the parties. Employer shall provide such information
as such counsel may reasonably request, and such counsel may engage accountants
or other experts at Employer's expense to the extent that they deem necessary or
advisable to enable them to reach a determination. The term "independent tax
counsel," as used herein, shall mean a law firm of recognized expertise in
federal income tax matters that has not previously advised or represented either
party. It is hereby agreed that neither Employer nor Executive shall engage any
such firm as counsel for any purpose, other
11
<PAGE> 12
than to make the determination provided for herein, for three years following
such firm's announcement of its determination.
(c) In the event the Internal Revenue Service subsequently adjusts the
excise tax computation made pursuant to subsections 4(a) and (b) above, Employer
shall pay to Executive, or Executive shall pay to Employer, as the case may be,
the full amount necessary to make either Executive or Employer whole had the
excise tax initially been computed as subsequently adjusted, including the
amount of any underpaid or overpaid excise tax, and any related interest and/or
penalties due to the Internal Revenue Service.
5. Setoff. No payments or benefits payable to or with respect to Executive
pursuant to this Agreement shall be reduced by any amount Executive or his
spouse or Beneficiary, or any other beneficiary under the Pension Plans, may
earn or receive from employment with another employer or from any other source,
except as expressly provided in subsection 3(a)(6).
6. Death. If Executive's employment with Employer terminates under
circumstances described in subsections 3(a) or (b), then upon Executive's
subsequent death, all unpaid amounts payable to Executive under subsections
3(a)(1), (2) or (3) or 3(b), or Section 4, if any, shall be paid to his
Beneficiary, all amounts payable under subsection 3(a)(4) shall be paid pursuant
to the terms of said subsection to his spouse or other beneficiary under the
Pension Plans, and if subsection 3(a) applies, his spouse and other dependents
shall continue to be covered under all applicable Welfare Plans during the
remainder of the Severance Period, if any, pursuant to subsection 3(a)(6).
7. No Solicitation of Representatives and Employees. Executive agrees that
he shall not, during the Term or the Severance Period, directly or indirectly,
in his individual capacity or otherwise, induce, cause, persuade, or attempt to
do any of the foregoing in order to cause, any
12
<PAGE> 13
representative, agent or employee of Employer or any of its Affiliates to
terminate such person's employment relationship with Employer or any of its
Affiliates, or to violate the terms of any agreement between said
representative, agent or employee and Employer or any of its Affiliates.
8. Confidentiality. Executive acknowledges that preservation of a
continuing business relationship between Employer or its Affiliates and their
respective customers, representatives, and employees is of critical importance
to the continued business success of Employer and its Affiliates and that it is
the active policy of Employer and its Affiliates to guard as confidential
certain information not available to the public and relating to the business
affairs of Employer and its Affiliates. In view of the foregoing, Executive
agrees that he shall not during the Term and at any time thereafter, without the
prior written consent of Employer, disclose to any person or entity any such
confidential information that was obtained by Executive in the course of his
employment by Employer or any of its Affiliates. This section shall not be
applicable if and to the extent Executive is required to testify in a
legislative, judicial or regulatory proceeding pursuant to an order of Congress,
any state or local legislature, a judge, or an administrative law judge or is
otherwise required by law to disclose such information.
9. Forfeiture. If Executive shall at any time violate any obligation of his
under Sections 7 or 8 in a manner that results in material damage to the
Employer or its business, he shall immediately forfeit his right to any benefits
under this Agreement, and Employer shall thereafter have no further obligation
hereunder to Executive or his spouse, Beneficiary or any other person.
10. Executive Assignment. No interest of Executive, his spouse or any
Beneficiary, or any other beneficiary under the Pension Plans, under this
Agreement, or any right to receive any payment or distribution hereunder, shall
be subject in any manner to sale, transfer, assignment,
13
<PAGE> 14
pledge, attachment, garnishment, or other alienation or encumbrance of any kind,
nor may such interest or right to receive a payment or distribution be taken,
voluntarily or involuntarily, for the satisfaction of the obligations or debts
of, or other claims against, Executive or his spouse, Beneficiary or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
11. Benefits Unfunded. Except as otherwise provided in Section 13, all
rights under this Agreement of Executive and his spouse, Beneficiary or other
beneficiary under the Pension Plans, shall at all times be entirely unfunded,
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. None of Executive,
his spouse, Beneficiary or any other beneficiary under the Pension Plans shall
have any interest in or rights against any specific assets of Employer, and
Executive and his spouse, Beneficiary or other beneficiary shall have only the
rights of a general unsecured creditor of Employer. Except as otherwise provided
in Section 13, and notwithstanding the preceding provisions of this Section, the
Nominating and Compensation Committee of the Board of Directors of Employer, in
its discretion, shall have the right, at any time and from time to time, to
cause amounts payable to Executive or his Beneficiary hereunder to be paid to
the trustee of the NIPSCO Industries, Inc. Umbrella Trust For Management
established effective January 1, 1991, as amended from time to time, or any
similar trust at any time established by Employer ("Trust").
12. Waiver. No waiver by any party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of any other provisions
or conditions at the same time or at any prior or subsequent time.
14
<PAGE> 15
13. Litigation Expenses. Employer shall pay Executive's reasonable
attorneys' fees and legal expenses in connection with any judicial proceeding to
enforce this Agreement, or to construe or determine the validity of this
Agreement or otherwise in connection therewith, whether or not Executive is
successful in such litigation. Within 10 days following the occurrence of a
Potential Change in Control (as defined in the Trust described in Section 11),
the Nominating and Compensation Committee of the Board of Directors of Employer
shall cause Employer to contribute the sum of $100,000 to the Trust to be
applied in satisfaction of Employer's obligations under this Section. The
Nominating and Compensation Committee shall cause Employer to contribute
additional amounts to the Trust, at such time or times as the Committee deems
appropriate, to the extent the aggregate of (1) the aforementioned sum of
$100,000, plus Trust earnings thereon, and (2) any additional Employer
contributions to the Trust, plus Trust earnings thereon, is not sufficient to
satisfy in full Employer's obligations under this Section.
14. Applicable Law. This Agreement shall be construed and interpreted
pursuant to the laws of Indiana.
15. Entire Agreement. This Agreement contains the entire Agreement between
the Employer and Executive and supersedes any and all previous agreements;
written or oral; between the parties relating to the subject matter hereof. No
amendment or modification of the terms of this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by Employer and
Executive.
16. No Employment Contract. Nothing contained in this Agreement shall be
construed to be an employment contract between Executive and Employer.
15
<PAGE> 16
17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
18. Severability. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
19. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, representatives and
successors.
20. Employment with an Affiliate. For purposes of this Agreement, (A)
employment or termination of employment of Executive shall mean employment or
termination of employment with Employer and all Affiliates, (B) Base Salary and
Bonus shall include remuneration received by Executive from Employer and all
Affiliates, and (C) the terms Pension Plan, Retirement Plan and Welfare Plan
maintained or made available by Employer shall include any such plans of any
Affiliate of Employer.
21. Notice. Notices required under this Agreement shall be in writing and
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the other party by written notice:
If to Employer: NIPSCO Industries, Inc.
5265 Hohman Avenue
Hammond, Indiana 46320
Attention: Gary L. Neale
If to Executive:
16
<PAGE> 17
IN WITNESS WHEREOF, Executive has hereunto set his hand, and Employer has
caused these presents to be executed in its name on its behalf, all on the
________ day of _______________________________, 1997, effective September 1,
1997.
NIPSCO Industries, Inc.
By:
--------------------------------
Title: Chairman, President and
Chief Executive Officer
------------------------------------
, Executive
17
<PAGE> 18
Schedule of Parties to Change of Control Agreements
The following NiSource executives have entered into amended Change in
Control and Termination Agreements with Industries: Gary L. Neale, Stephen P.
Adik, Patrick J. Mulchay, Jeffrey W. Yundt, Joseph L. Turner, James K. Abcouwer,
Jerry L. Godwin, David A. Kelly, Mark T. Maassel, Thomas J. Aruffo, Peggy
Landini, Mark D. Wyckoff and Robert J. Schacht. The contracts are substantially
identical in all material respects except as to the parties, the execution dates
and the amount of time following a change of control that the termination
provisions of the agreement apply (from 7-24 months). In addition, Mr. Adik's
and Mr. Neale's agreements provide that if a change of control occurs during the
term of the agreement, they may terminate their employment within 24 months for
any reason; and Mr. Neale's agreement provides that he will receive termination
benefits during the term of the agreement (regardless of whether a change of
control has occurred) if he is terminated for any reason other than for good
cause, if he terminates his employment for good reason or if his employment
terminates due to death or disability.
<PAGE> 1
Exhibit 10.5
FIRST AMENDMENT TO NI SOURCE INC.
NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
WHEREAS, NiSource Inc. (formerly NIPSCO Industries, Inc.) ("Company")
adopted the NIPSCO Industries, Inc. Nonemployee Director Stock Incentive Plan,
effective February 1, 1992, as last amended and restated effective February 1,
1998 ("Plan"); and
WHEREAS, pursuant to Section 9.1 of the Plan, the Company deems it to be in
its best interest to amend the Plan as described below;
NOW, THEREFORE, the Plan is hereby amended, effective April 1, 1999, as
follows:
1. The Plan is renamed the NiSource Inc. Nonemployee Director Stock
Incentive Plan;
2. The second sentence of Section 6.7 is amended to read as follows:
Regardless of the vesting schedule set forth above, all Shares of
Restricted Stock held by a Participant shall immediately become one hundred
percent (100%) vested upon the first to occur of the following:
(a) The completion of the vesting schedule set forth above;
(b) The death of the Participant;
(c) The Disability of the Participant;
(d) The retirement of the Participant from service on the Board prior
to death or Disability and after attaining the age of seventy
(70) years; or
(e) The effective date of a Change in Control of the Company.
3. Section 6.8 is amended to read as follows:
6.8 TERMINATION OF DIRECTORSHIP. In the event a Participant ceases to
be a Director for any reason other than death, Disability or retirement (as
defined in Section 6.7(d)), all Shares of Restricted Stock not vested as of
the effective date of termination shall be forfeited and shall revert back
to the Company (with no further vesting to occur). In the event a
Participant ceases to be a Director by reason of death, Disability or
retirement, all Shares of Restricted Stock granted under the Plan shall
immediately vest one hundred percent (100%).
4. The second sentence of Section 7.5 is amended to read as follows:
Regardless of the vesting schedule set forth above, all Options held
by a Participant shall immediately become one hundred percent (100%) vested
upon the first to occur of the following:
<PAGE> 2
(a) The completion of the vesting schedule set forth above;
(b) The death of the Participant;
(c) The Disability of the Participant;
(d) The retirement of the Participant from service on the Board prior
to death or Disability and after attaining the age of seventy
(70) years; or
(e) The effective date of a Change in Control of the Company.
5. Section 7.6 of the Plan is amended to read as follows:
7.6 TERMINATION OF DIRECTORSHIP. In the event a Participant ceases to
be a Director for any reason other than death, Disability or retirement (as
defined in Section 7.5(d)), all Options not vested as of the effective date
of termination shall be forfeited and shall revert back to the Company
(with no further vesting to occur). All Options which are vested as of such
date shall remain exercisable for six (6) months following the date the
Director's service on the Board terminates, or until their expiration date,
whichever period is shorter.
In the event a Participant dies, incurs a Disability or ceases service
on the Board due to retirement, prior to termination of any of his Options
without having fully exercised such Option, the Participant, or his legal
representative, beneficiary, heir or legatee, shall have the right to
exercise such unexercised Option during its term within a period of one
year after the date of such termination due to death, Disability or
retirement, or during such other period and subject to such terms as may be
determined by the Board. Options which vest pursuant to a Change in Control
shall remain exercisable throughout their entire term.
NISOURCE INC.
By: /s/ Mark D. Wyckoff
----------------------------
Mark D. Wyckoff
Vice President, Human Resources
<PAGE> 1
EXHIBIT 10.6
NIPSCO INDUSTRIES, INC.
LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)
<PAGE> 2
NIPSCO INDUSTRIES, INC.
LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purpose.......................................................-1-
2. Administration and Delegation.................................-1-
3. Review and Approval...........................................-1-
4. Shares Subject to Plan........................................-2-
5. Participants..................................................-2-
6. Awards Under the Plan.........................................-2-
7. Section 162(m) Limitations....................................-2-
8. Nonqualified Stock Options....................................-2-
(a) Option Price.........................................-3-
(b) Exercise at Option...................................-3-
(c) Payment for Shares...................................-3-
(d) Transferability......................................-3-
(e) Rights Upon Termination at Employment................-4-
9. Incentive Stock Options.......................................-4-
(a) Option Price.........................................-4-
(b) Exercise of Option...................................-5-
(c) Payment for Shares...................................-5-
(d) Transferability......................................-6-
(e) Rights Upon Termination of Employment................-6-
10. Stock Appreciation Rights.....................................-6-
(a) Award................................................-6-
(b) Term.................................................-6-
(c) Payment..............................................-7-
11. Performance Units.............................................-7-
(a) Performance Period...................................-7-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(b) Valuation of Units...................................-7-
(c) Performance Targets..................................-7-
(d) Adjustments..........................................-8-
(e) Payments of Units....................................-8-
(f) Termination of Employment............................-8-
(g) Other Terms..........................................-8-
12. Restricted Stock Awards.......................................-8-
(a) Restriction Period...................................-8-
(b) Restrictions Upon Transfer...........................-9-
(c) Certificates.........................................-9-
(d) Lapse of Restrictions................................-9-
(e) Termination Prior to Lapse of Restrictions...........-9-
13. Supplemental Cash Payments...................................-10-
14. General Restrictions.........................................-10-
15. Rights of a Shareholder......................................-10-
16. Right to Terminate Employment................................-10-
17. Withholding..................................................-10-
18. Non-Assignability............................................-11-
19. Non-Uniform Determinations...................................-11-
20. Adjustments..................................................-11-
21. Amendment or Termination.....................................-12-
22. Effect on Other Plans........................................-12-
23. Duration of the Plan.........................................-12-
</TABLE>
<PAGE> 4
NIPSCO INDUSTRIES, INC.
LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)
WHEREAS, NIPSCO Industries, Inc. (the "Company") adopted the NIPSCO
Industries, Inc. Long-Term Incentive Plan effective April 13, 1988, as last
amended and restated effective February 1, 1998; and
WHEREAS, pursuant to Section 21 of the Plan, the Company wishes to
further amend the Plan in certain respects and restate it in a single document;
NOW THEREFORE, the Plan is hereby amended and restated, effective April
14, 1999, as follows:
1. PURPOSE. The purpose of the NIPSCO Industries, Inc., Long-Term
Incentive Plan (the "Plan") is to further the earnings of NIPSCO Industries,
Inc. (the "Company"), its subsidiaries and their subsidiaries. The Plan provides
long-term incentives to those officers and key executives who make substantial
contributions by their ability, loyalty, industry and invention. The Company
intends that the Plan will thereby facilitate securing, retaining, and
motivating management employees of high caliber and potential.
2. ADMINISTRATION AND DELEGATION. The Plan shall be administered by the
Nominating and Compensation Committee ("Committee") of the Board of Directors of
the Company ("Board"). The Committee shall be composed of not fewer than two
members of the Board who are "nonemployee directors" of the Company within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("1934 Act"), and "outside directors" of the Company within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Subject to the express provisions of the Plan, the
Committee may interpret the Plan, prescribe, amend and rescind rules and
regulations relating to it, determine the terms and provisions of awards to
officers and other key executive employees under the Plan (which need not be
identical), and make such other determinations as it deems necessary or
advisable for the administration of the Plan. The decisions of the Committee
under the Plan shall be conclusive and binding. No member of the Board or of the
Committee shall be liable for any action taken, or determination made, hereunder
in good faith. Service on the Committee shall constitute service as a director
of the Company so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of the Company, pursuant to its
by-laws.
3. REVIEW AND APPROVAL. Specific performance goals and details for an
award program shall be promulgated by the Committee after consideration of the
recommendations of the chief executive officer and shall be submitted to the
Board for approval by the majority vote of directors who are not otherwise
employed as officers or employees.
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4. SHARES SUBJECT TO PLAN. Subject to the provisions of section 20, the
shares of common stock of the Company that may be issued, or may be the measure
of stock appreciation rights granted, under the Plan shall not exceed in the
aggregate 2,500,000 (5,000,000 after January 30, 1998) of the common shares
without par value of the Company ("Shares"). Such Shares may be authorized and
unissued Shares or treasury Shares. Except as otherwise provided herein, any
Shares subject to an option or right which for any reason expires or is
terminated, unexercised as to such Shares, shall again be available under the
Plan.
5. PARTICIPANTS. Persons eligible to participate shall be limited to
those officers and other key executive employees who are in positions in which
their decisions, actions and counsel significantly impact upon profitability.
Directors who are not otherwise officers or employees shall not be eligible to
participate in the Plan.
6. AWARDS UNDER THE PLAN. Awards under the Plan may be in the form of
stock options (both options designed to satisfy statutory requirements necessary
to receive favorable tax treatment pursuant to any future legislation and
options not designed to so qualify under any such future legislation), incentive
stock options, stock appreciation rights, performance units, and restricted
Shares or such combinations of the above as the Committee may in its discretion
deem appropriate.
7. SECTION 162(m) LIMITATIONS. Subject to Section 20 of the Plan, the
maximum number of stock options and stock appreciation rights granted to any
person who qualifies as an executive officer named from time to time in the
summary compensation table in the Company's annual meeting proxy statement and
who is employed by the Company on the last day of the taxable year (the "SCT
Executives") shall be 350,000 during the term of the Plan.
8. NONQUALIFIED STOCK OPTIONS. Options shall be evidenced by stock
option agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(a) OPTION PRICE. The purchase price per Share deliverable
upon the exercise of an option shall not be less than 100% of the fair
market value of the Share on the day the option is granted, as
determined by the Committee. For purposes of the Plan, fair market
value shall be the average of the high and low prices on the New York
Stock Exchange Composite Transactions on the date of the grant.
(b) EXERCISE AT OPTION. Each stock option agreement shall
state the period or periods of time within which the option may be
exercised by the optionee, in whole or in part, which shall be such
period or periods of time as may be determined by the Committee,
provided that the option period shall not commence earlier than six
months after the date of the grant of the option nor end later than ten
years after the date of the grant of the option. The Committee shall
have the power to permit in its discretion an acceleration of the
previously determined exercise terms, within the terms of the Plan,
under such circumstances and upon such terms and conditions as it deems
appropriate.
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(c) PAYMENT FOR SHARES. Except as otherwise provided in the
Plan or in any stock option agreement, the optionee shall pay the
purchase price of the Shares upon the exercise of any option (i) in
cash, (ii) in cash received from a broker-dealer to whom the optionee
has submitted an exercise notice consisting of a fully endorsed option
(however in the case of an optionee subject to Section 16 of the 1934
Act, this payment option shall only be available to the extent such
payment procedures comply with Regulation T issued by the Federal
Reserve Board), (iii) by delivering Shares having an aggregate fair
market value on the date of exercise equal to the option exercise
price, (iv) by directing the Company to withhold such number of Shares
otherwise issuable upon exercise of such option having an aggregate
fair market value on the date of exercise equal to the option exercise
price, (v) by such other medium of payment as the Committee, in its
discretion, shall authorize at the time of grant, or (vi) by any
combination of (i), (ii), (iii), (iv) and (v). In the case of an
election pursuant to (i) or (ii) above, cash shall mean cash or check
issued by a federally insured bank or savings and loan association, and
made payable to NIPSCO Industries, Inc. In the case of payment pursuant
to (ii), (iii) or (iv) above, the optionee's election must be made on
or prior to the date of exercise and shall be irrevocable. In lieu of a
separate election governing each exercise of an option, an optionee may
file a blanket election with the Committee which shall govern all
future exercises of options until revoked by the optionee. The Company
shall issue, in the name of the optionee, stock certificates
representing the total number of Shares issuable pursuant to the
exercise of any option as soon as reasonably practicable after such
exercise, provided that any Shares purchased by an optionee through a
broker-dealer pursuant to clause (ii) above, shall be delivered to such
broker-dealer in accordance with 12 C.F.R. ss. 220.3(e)(4), or other
applicable provision of law.
(d) TRANSFERABILITY. Each stock option agreement shall provide
that the option subject thereto is not transferable by the optionee
otherwise than by will or the laws of descent or distribution.
Notwithstanding the preceding sentence, an optionee, at any time prior
to his death, may assign all or any portion of the option to (i) his
spouse or lineal descendant, (ii) the trustee of a trust for the
primary benefit of his spouse or lineal descendant, or (iii) a
tax-exempt organization as described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended. In such event the spouse,
lineal descendant, trustee or tax-exempt organization will be entitled
to all of the rights of the optionee with respect to the assigned
portion of such option, and such portion of the option will continue to
be subject to all of the terms, conditions and restrictions applicable
to the option as set forth herein, and in the related stock option
agreement, immediately prior to the effective date of the assignment.
Any such assignment will be permitted only if (i) the optionee does not
receive any consideration therefor, and (ii) the assignment is
expressly approved by the Committee or its delegate. Any such
assignment shall be evidenced by an appropriate written document
executed by the optionee, and a copy thereof shall be delivered to the
Committee or its delegate on or prior to the effective date of the
assignment. This paragraph shall apply to all nonqualified stock
options granted under the Plan at any time.
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(e) RIGHTS UPON TERMINATION AT EMPLOYMENT. In the event that
an optionee ceases to be an employee for any reason other than death,
disability or retirement, the optionee shall have the right to exercise
the option during its term within a period of thirty days after such
termination to the extent that the option was exercisable at the date
of such termination of employment, or during such other period and
subject to such terms as may be determined by the Committee. In the
event that an optionee dies, retires, or becomes disabled prior to
termination of his option without having fully exercised his option,
the optionee or his successor shall have the right to exercise the
option during its term within a period of twelve months after the date
of such termination due to death, disability or retirement, to the
extent that the option was exercisable at the date of termination due
to death, disability or retirement, or during such other period and
subject to such terms as may be determined by the Committee. For
purposes of the Plan, the term "disability" shall mean the inability of
an individual to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which is
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than twelve (12) months. The
Committee, in its sole discretion, shall determine the date of any
disability. For purposes of the Plan, the term "retirement" shall mean
retirement as defined in the Company's pension plan.
9. INCENTIVE STOCK OPTIONS. Incentive stock options shall be evidenced
by stock option agreements in such form and not inconsistent with the Plan as
the Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(a) OPTION PRICE. The purchase price per Share of stock
deliverable upon the exercise of an option shall not be less than 100%
of the fair market value (as defined in subsection 8(a)) of the stock
on the day the option is granted, as determined by the Committee except
as provided in Section 9(b).
(b) EXERCISE OF OPTION. Each stock option agreement shall
state the period or periods of time within which the option may be
exercised by the optionee, in whole or in part, which shall be such
period or periods of time as may be determined by the Committee,
provided that the option period shall not commence earlier than six
months after the date of the grant of the option nor end later than ten
years after the date of the grant of the option. The aggregate fair
market value (determined with respect to each incentive stock option at
the time of grant) of the Shares with respect to which incentive stock
options are exercisable for the first time by an individual during any
calendar year (under all incentive stock option plans of the Company
and its parent and subsidiary corporations) shall not exceed $100,000.
If the aggregate fair market value (determined at the time of grant) of
the Shares subject to an option, which first becomes exercisable in any
calendar year exceeds the limitation of this Section 9(b), so much of
the option that does not exceed the applicable dollar limit shall be an
incentive stock option and the remainder shall be a nonqualified stock
option; but in all other respects, the original option agreement shall
remain in full force and effect. As used in this Section 9, the words
"parent" and "subsidiary" shall have the meanings given to them
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in Section 425(e) and 425(f) of the Internal Revenue Code of 1986, as
amended. Notwithstanding anything herein to the contrary, if an
incentive stock option is granted to an individual who owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its parent or
subsidiary corporations, within the meaning of Section 422(b)(6) of the
Internal Revenue Code of 1986, as amended, (i) the purchase price of
each Share subject to the incentive stock option shall be not less than
one hundred ten percent (110%) of the fair market value of the Shares
on the date the incentive stock option is granted, and (ii) the
incentive stock option shall expire and all rights to purchase Shares
thereunder shall cease no later than the fifth anniversary of the date
the incentive stock option was granted.
(c) PAYMENT FOR SHARES. Except as otherwise provided in the
Plan or in any stock option agreement, the optionee shall pay the
purchase price of the Shares upon the exercise of any option, (i) in
cash, (ii) in cash received from a broker-dealer to whom the optionee
has submitted an exercise notice consisting of a fully endorsed option
(however in the case of an optionee subject to Section 16 of the 1934
Act, this payment option shall only be available to the extent such
payment procedures comply with Regulation T issued by the Federal
Reserve Board), (iii) by delivering Shares having an aggregate fair
market value on the date of exercise equal to the option exercise
price, (iv) by directing the Company to withhold such number of Shares
otherwise issuable upon exercise of such option having an aggregate
fair market value on the date of exercise equal to the option exercise
price, (v) by such other medium of payment as the Committee, in its
discretion, shall authorize at the time of grant, or (vi) by any
combination of (i), (ii), (iii), (iv) and (v). In the case of an
election pursuant to (i) or (ii), cash shall mean cash or check issued
by a federally insured bank or savings and loan association, and made
payable to NIPSCO Industries, Inc. In the case of payment pursuant to
(ii), (iii) or (iv) above, the optionee's election must be made on or
prior to the date of exercise and shall be irrevocable. In lieu of a
separate election governing each exercise of an option, an optionee may
file a blanket election with the Committee which shall govern all
future exercises of options until revoked by the optionee. The Company
shall issue, in the name of the optionee, stock certificates
representing the total number of Shares issuable pursuant to the
exercise of any option as soon as reasonably practicable after such
exercise, provided that any Shares purchased by an optionee through a
broker-dealer pursuant to clause (ii) above, shall be delivered to such
broker-dealer in accordance with 12 C.F.R. ss. 220.3(e)(4), or other
applicable provision of law.
(d) TRANSFERABILITY. Each stock option agreement shall provide
that it is not transferable by the optionee otherwise than by will or
the laws of descent or distribution.
(e) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that
an optionee ceases to be an employee for any reason, the optionee (or
in the case of his death, his beneficiary or personal representative)
shall have the right to exercise the option during the term within a
period of ninety days (or in the case of termination of employment
because of disability, within a period of one year) after such
termination to the extent that the option was
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exercisable at the date of such termination of employment, or during
such other period and subject to such terms as may be determined by the
Committee.
The provisions of this section 9 shall be construed and applied, and (subject to
the limitations of Section 21) shall be amended from time to time so as to
comply with Section 422 of the Internal Revenue Code of 1986, as amended, or its
successors and regulations issued thereunder.
10. STOCK APPRECIATION RIGHTS. Stock appreciation rights shall be
evidenced by stock appreciation right agreements in such form and not
inconsistent with the Plan as the Committee shall approve from time to time,
which agreements shall contain in substance the following terms and conditions:
(a) AWARD. A stock appreciation right shall entitle the
grantee to receive upon exercise the excess of (i) the fair market
value of a specified number of Shares at the time of exercise over (ii)
a specified price which shall not be less than 100% of the fair market
value of the Shares at the time the stock appreciation right was
granted, or, if connected with a previously issued stock option, not
less than 100% of the fair market value of the Shares at the time such
option was granted. A stock appreciation right may be granted in
connection with all or any portion of a previously or contemporaneously
granted stock option or not in connection with a stock option.
(b) TERM. Stock appreciation rights shall be granted for a
period of not less than one year nor more than ten years, and shall be
exercisable in whole or in part, at such time or times and subject to
such other terms and conditions as shall be prescribed by the Committee
at the time of grant, subject to the following:
(i) No stock appreciation right shall be exercisable
in whole or in part, during the six month period starting with
the date of grant; and
(ii) Stock appreciation rights will be exercisable
only during a grantee's employment, except that in the
discretion of the Committee a stock appreciation right may be
made exercisable for up to thirty days after the grantee's
employment is terminated for any reason other than death,
disability or retirement. In the event that a grantee dies,
retires, or becomes disabled without having fully exercised
his stock appreciation rights, the grantee or his successor
shall have the right to exercise the stock appreciation rights
during their term within a period of twelve months after the
date of such termination due to death, disability or
retirement to the extent that the right was exercisable at the
date of such termination, or during such other period and
subject to such terms as may be determined by the Committee.
The Committee shall have the power to permit in its
discretion an acceleration of previously determined exercise
terms, within the terms of the Plan,
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under such circumstances and upon such terms and conditions as
it deems appropriate.
(c) PAYMENT. Upon exercise of a stock appreciation right,
payment shall be made in cash, in the form of Shares at fair market
value, or in a combination thereof, as the Committee may determine.
11. PERFORMANCE UNITS. Performance Units ("Units") shall be evidenced
by performance unit agreements in such form and not inconsistent with the Plan
as the Committee shall approve from time to time, which agreements shall contain
in substance the following terms and conditions:
(a) PERFORMANCE PERIOD. At the time of award, the Committee
shall establish with respect to each Unit award a performance period of
not less than two, nor more than five years.
(b) VALUATION OF UNITS. At the time of award, the Committee
shall establish with respect to each such award a value for each Unit
which shall not thereafter change, or which may vary thereafter
determinable from criteria specified by the Committee at the time of
award.
(c) PERFORMANCE TARGETS. At the time of award, the Committee
shall establish maximum and minimum performance targets to be achieved
with respect to each award during the performance period. The
participant shall be entitled to payment with respect to all Units
awarded if the maximum target is achieved during the performance
period, but shall be entitled to payment with respect to a portion of
the Units awarded according to the level of achievement of performance
targets, as specified by the Committee, for performance during the
performance period which meets or exceeds the minimum target but fails
to meet the maximum target.
The performance targets established shall relate to corporate,
division, or unit performance and may be established in terms of (i)
changes in stock price, gross revenue, pre-tax operating income, or
earnings per share; or (ii) ratios of stock price, earnings, or pre-
tax operating income relative to shareholder's equity, earnings, total
assets, or to assets employed; or (iii) a comparison of any of the
preceding measures to similar measures for competitors. Multiple
targets may be used and may have the same or different weighting, and
they may relate to absolute performance or relative performance as
measured against other institutions or divisions or units thereof.
(d) ADJUSTMENTS. At any time prior to payment of the Units,
the Committee may adjust previously established performance targets and
other terms and conditions, including the corporation's, or division's
or unit's financial performance for Plan purposes, to reflect major
unforeseen events such as changes in laws, regulations or accounting
practices,
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mergers, acquisitions or divestitures or extraordinary, unusual or
non-recurring items or events.
(e) PAYMENTS OF UNITS. Following the conclusion of each
performance period, the Committee shall determine the extent to which
performance targets have been attained for such period as well as the
other terms and conditions established by the Committee. The Committee
shall determine what, if any, payment is due on the Units. Payment
shall be made in cash, in the form of Shares at fair market value, or a
combination thereof, as the Committee may determine.
(f) TERMINATION OF EMPLOYMENT. In the event that a participant
holding a Unit award ceases to be an employee prior to the end of the
applicable performance period by reason of death, disability or
retirement, his Units, to the extent earned under the applicable
performance targets, shall be payable at the end of the performance
period in proportion to the active service of the participant during
the performance period, as determined by the Committee. Upon any other
termination of employment, participation shall terminate forthwith and
all outstanding Units held by the participant shall be canceled.
(g) OTHER TERMS. The Unit agreements shall contain such other
terms and provisions and conditions not inconsistent with the Plan as
shall be determined by the Committee.
12. RESTRICTED STOCK AWARDS. Restricted Stock Awards under the Plan
shall be in the form of Shares of the Company, restricted as to transfer and
subject to forfeiture, and shall be evidenced by restricted stock agreements in
such form and not inconsistent with the Plan as the Committee shall approve from
time to time, which agreements shall contain in substance the following terms
and conditions:
(a) RESTRICTION PERIOD. Shares awarded pursuant to the Plan
shall be subject to such terms, conditions, and restrictions, including
without limitation: prohibitions against transfer, substantial risks of
forfeiture, attainment of performance objectives and repurchase by the
Company or right of first refusal, and for such period or periods as
shall be determined by the Committee at the time of grant. The
Committee shall have the power to permit in its discretion, an
acceleration of the expiration of the applicable restriction period
with respect to any part or all of the Shares awarded to a participant.
(b) RESTRICTIONS UPON TRANSFER. Shares awarded, and the right
to vote such Shares and to receive dividends thereon, may not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or otherwise
encumbered, except as herein provided, during the restriction period
applicable to such Shares. Subject to the foregoing, and except as
otherwise provided in the Plan, the participant shall have all the
other rights of a shareholder including, but not limited to, the right
to receive dividends and the right to vote such Shares.
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The performance objectives established by the Committee shall relate to
corporate, division or unit performance, and may be established in
terms of (i) changes in stock price, gross revenue, pre-tax operating
income, or earnings per share; or (ii) ratios of stock price, earnings,
or pre-tax operating income relative to shareholder's equity, earnings,
total assets, or to assets employed; or (iii) a comparison of any of
the preceding measures to similar measures for competitors. Multiple
objectives may be used and may have the same or different weighting,
and they may relate to absolute performance or relative performance as
measured against other institutions or divisions or units thereof.
(c) CERTIFICATES. Each certificate issued in respect of Shares
awarded to a participant shall be deposited with the Company, or its
designee, and shall bear the following legend:
"This certificate and the shares represented hereby are subject to the
terms and conditions (including forfeiture and restrictions against
transfer) contained in the NIPSCO Industries, Inc. Long-Term Incentive
Plan and an Agreement entered into by the registered owner. Release
from such terms and conditions shall obtain only in accordance with the
provisions of the Plan and Agreement, a copy of each of which is on
file in the office of the Secretary of said Company."
(d) LAPSE OF RESTRICTIONS. The Agreement shall specify the
terms and conditions upon which any restrictions upon Shares awarded
under the Plan shall lapse, as determined by the Committee. Upon the
lapse of such restrictions, Shares, free of the foregoing restrictive
legend, shall be issued to the participant or his legal representative.
(e) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS. In the event
of a participant's termination of employment, other than due to death
or retirement, prior to the lapse of restrictions applicable to any
Shares awarded to such participant, all Shares as to which there still
remains unlapsed restrictions shall be forfeited by such participant
without payment of any consideration to the participant, and neither
the participant nor any successors, heirs, assigns, or personal
representatives of such participant shall thereafter have any further
rights or interest in such Shares or certificates.
13. SUPPLEMENTAL CASH PAYMENTS. Subject to the Company's discretion,
stock option, incentive stock option, stock appreciation right, performance unit
or restricted stock agreements may provide for the payment of a supplemental
cash payment to a participant promptly after the exercise of an option or stock
appreciation right, or, at the time of payment of a performance unit or at the
end of a restriction period of a restricted stock award. Supplemental cash
payments shall be subject to such terms and conditions as shall be provided by
the Committee at the time of grant, provided that in no event shall the amount
of each payment exceed:
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(a) In the case of an option, the excess of the fair market
value of a Share on the date of exercise over the option price
multiplied by the number of Shares for which such option is exercised,
or
(b) In the case of a stock appreciation right, performance
unit or restricted stock award, the value of the Shares and other
consideration issued in payment of such award.
14. GENERAL RESTRICTIONS. Each award under the Plan shall be subject to
the requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Shares subject or related thereto
upon any securities exchange or under any state or federal law, or (ii) the
consent or approval of any government regulatory body, or (iii) an agreement by
the recipient of an award with respect to the disposition of Shares, is
necessary or desirable as a condition of, or in connection with, the granting of
such award or the issue or purchase of Shares thereunder, such award may not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained, free of any conditions not acceptable to the Committee.
15. RIGHTS OF A SHAREHOLDER. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for Shares are issued to him.
16. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in employment or affect any right which his employer may
have to terminate the employment of such participant.
17. WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer Shares to a participant under the Plan, the Company shall have the
right to require the participant to remit to the Company an amount sufficient to
satisfy all federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for such Shares. If such
certificates have been delivered prior to the time a withholding obligation
arises, the Company shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy all federal, state or local
withholding tax requirements at the time such obligation arises and to withhold
from other amounts payable to the participant, as compensation or otherwise, as
necessary. Whenever payments under the Plan are to be made to a participant in
cash, such payment shall be net of any amount sufficient to satisfy all federal,
state and local withholding tax requirements. In lieu of requiring a participant
to make a payment to the Company in an amount related to the withholding tax
requirement, the Committee may, in its discretion, provide that at the
participant's election, the tax withholding obligation shall be satisfied by the
Company's withholding a portion of the Shares otherwise distributable to the
participant, such Shares being valued at the fair market value at the date of
exercise, or by the participant's delivering to the Company a portion of the
Shares previously delivered by the Company, such Shares being valued at their
fair market value as of the date of delivery of such Shares by the participant
to the Company. For this purpose, the amount of required withholding shall be a
specified rate not less than the statutory minimum federal,
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state and local (if any) withholding rate, and not greater than the maximum
federal, state and local (if any) marginal tax rate applicable to the
participant and to the particular transaction. Notwithstanding any provision of
the Plan to the contrary, a participant's election pursuant to the preceding
sentences (a) must be made on or prior to the date as of which income is
realized by the recipient in connection with the particular transaction, and (b)
must be irrevocable. In lieu of a separate election on each effective date of
each transaction, a participant may file a blanket election with the Committee
which shall govern all future transactions until revoked by the participant.
18. NON-ASSIGNABILITY. No award under the Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or except as set forth in subsection 8(d). During the life of
the recipient, such award shall be exercisable only by such person or by such
person's guardian or legal representative.
19. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
the Plan (including, without limitation determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards and the agreements evidencing same, and the establishment of values
and performance targets) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan,
whether or not such persons are similarly situated.
20. ADJUSTMENTS. (i) Appropriate adjustments in the aggregate number of
Shares issuable pursuant to the Plan, the number of Shares subject to each
outstanding award granted under the Plan, the option price with respect to
options and connected stock appreciation rights, the specified price of stock
appreciation rights not connected to options, and the value for Units, shall be
made to give effect to any increase or decrease in the number of issued Shares
resulting from a subdivision or consolidation of Shares, whether through
recapitalization, stock split, reverse stock split, spin-off, spin-out or other
distribution of assets to stockholders, stock distributions or combinations of
Shares, payment of stock dividends, other increase or decrease in the number of
such Shares outstanding effected without receipt of consideration by the
Company, or any other occurrence for which the Committee determines an
adjustment is appropriate.
(ii) In the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, or an acquisition by the
Company of the stock or assets of any other corporation or corporations, there
shall be substituted on an equitable basis, as determined by the Committee in
its sole discretion, for each Share then subject to the Plan, and for each Share
then subject to an award granted under the Plan, the number and kind of shares
of stock, other securities, cash or other property to which the holders of
Shares of the Company are entitled pursuant to such transaction.
(iii) Without limiting the generality of the foregoing provisions of
this paragraph, any such adjustment shall be deemed to have prevented any
dilution or enlargement of a participant's rights, if such participant receives
in any such adjustment, rights that are substantially similar (after taking into
account the fact that the participant has not paid the applicable option price)
to the rights the
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<PAGE> 15
participant would have received had he exercised his outstanding award and
become a shareholder of the Company immediately prior to the event giving rise
to such adjustment. Adjustments under this paragraph shall be made by the
Committee, whose decision as to the amount and timing of any such adjustment
shall be conclusive and binding on all persons.
21. AMENDMENT OR TERMINATION. The Board or the Committee may at any
time terminate, suspend or amend the Plan without the authorization of
stockholders to the extent allowed by law, including without limitation any
rules issued by the Securities and Exchange Commission under Section 16 of the
1934 Act, insofar as shareholder approval thereof is required in order for the
Plan to continue to satisfy the requirements of Rule 16b-3 under the 1934 Act.
No termination, suspension or amendment of the Plan shall adversely affect any
right acquired by any participant under an award granted before the date of such
termination, suspension or amendment, unless such participant shall consent; but
it shall be conclusively presumed that any adjustment for changes in
capitalization as provided for herein does not adversely affect any such right.
Any member of the Board who is an officer or employee of the Company shall be
without a vote on any proposed amendment to the Plan, or on any other matter
which might affect that member's individual interest under the Plan.
22. EFFECT ON OTHER PLANS. Unless otherwise specifically provided,
participation in the Plan shall not preclude an employee's eligibility to
participate in any other benefit or incentive plan and any awards made pursuant
to the Plan shall not be considered as compensation in determining the benefits
provided under any other plan.
23. DURATION OF THE PLAN. The Plan shall remain in effect until all
awards under the Plan have been satisfied by the issuance of Shares or the
payment of cash, but no award shall be granted more than ten years after the
date the Plan is approved by the shareholders, which shall be its effective date
of adoption.
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<PAGE> 1
EXHIBIT 10.8
NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999
<PAGE> 2
NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
As Amended and Restated Effective April 14, 1999
TABLE OF CONTENTS
- -----------------
Page
----
1. Purpose.................................................... -1-
2. Administration............................................. -1-
3. Common Shares Subject to the Plan.......................... -1-
4. Participants............................................... -2-
5. Awards Under the Plan...................................... -2-
6. Section 162(m) Limitations................................. -2-
7. NonQualified Stock Options................................. -3-
(a) Option Price........................................ -3-
(b) Exercise of Option.................................. -3-
(c) Payment for Shares.................................. -3-
(d) Transferability..................................... -4-
(e) Rights Upon Termination of Employment............... -4-
8. Incentive Stock Options.................................... -5-
(a) Option Price........................................ -5-
(b) Exercise of Option.................................. -5-
(c) Payment for Shares.................................. -5-
(d) Transferability..................................... -6-
(e) Rights Upon Termination of Employment............... -6-
9. Stock Appreciation Rights.................................. -6-
(a) Awards.............................................. -6-
(b) Term................................................ -7-
(c) Payment............................................. -7-
i
<PAGE> 3
10. Performance Units.......................................... -7-
(a) Performance Period.................................. -7-
(b) Valuation of Units.................................. -7-
(c) Performance Targets................................. -7-
(d) Adjustments......................................... -8-
(e) Payments of Units................................... -8-
(f) Termination of Employment........................... -8-
(g) Other Terms......................................... -8-
11. Restricted Stock Awards.................................... -8-
(a) Restriction Period.................................. -8-
(b) Restrictions Upon Transfer.......................... -9-
(c) Certificates........................................ -9-
(d) Lapse of Restrictions............................... -9-
(e) Termination Prior to Lapse of Restrictions.......... -9-
12. Supplemental Cash Payments................................ -10-
13. General Restrictions...................................... -10-
14. Rights as a Shareholder................................... -10-
15. Employment Right.......................................... -10-
16. Tax--Withholding......................................... -10-
17. Change in Control......................................... -11-
18. Amendment or Termination.................................. -11-
19. Effect on Other Plans..................................... -12-
20. Duration of the Plan...................................... -12-
ii
<PAGE> 4
NIPSCO INDUSTRIES, INC
1994 LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)
WHEREAS, NIPSCO Industries, Inc. (the "Company") adopted the NIPSCO
Industries, Inc. 1994 Long-Term Incentive Plan effective April 13,
1994, as last amended and restated effective February 1, 1998 ("Plan");
and
WHEREAS, pursuant to Section 18 of the Plan, the Company wishes to
further amend the Plan in certain respects and restate it in a single
document;
NOW THEREFORE, the Plan is hereby amended and restated, effective April
14, 1999, as follows:
1. PURPOSE. The purpose of the NIPSCO Industries, Inc. 1994 Long-Term
Incentive Plan (the "Plan") is to further the earnings of NIPSCO Industries,
Inc. (the "Company") and its subsidiaries. The Plan provides long-term
incentives to those officers and key executives who make substantial
contributions by their ability, loyalty, industry and invention. The Company
intends that the Plan will thereby facilitate securing, retaining, and
motivating management employees of high caliber and potential.
2. ADMINISTRATION. The Plan shall be administered by the Nominating and
Compensation Committee ("Committee") of the Board of Directors of the Company
("Board"). The Committee shall be composed of not fewer than two members of the
Board who are "nonemployee directors" of the Company within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act"), and
"outside directors" of the Company within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended, ("Code"), and the regulations
thereunder. Subject to the express provisions of the Plan, the Committee may
interpret the Plan, prescribe, amend and rescind rules and regulations relating
to it, determine the terms and provisions of awards to officers and other key
executive employees under the Plan (which need not be identical), and make such
other determinations as it deems necessary or advisable for the administration
of the Plan. The decisions of the Committee under the Plan shall be conclusive
and binding. No member of the Board or of the Committee shall be liable for any
action taken, or determination made, hereunder in good faith. Service on the
Committee shall constitute service as a director of the Company so that members
of the Committee shall be entitled to indemnification and reimbursement as
directors of the Company, pursuant to its by-laws.
3. COMMON SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section
3(b), the shares that may be issued, or may be the measure of stock appreciation
rights granted, under the Plan shall not exceed in the aggregate 2,500,000
(5,000,000 after January 30, 1998) of the common shares without par value of the
Company (the "Common Shares"). Such shares may be authorized and
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<PAGE> 5
unissued shares or treasury shares. Except as otherwise provided herein, any
shares subject to an option or right which for any reason expires or is
terminated, unexercised as to such shares, shall again be available under the
Plan.
(b) (i) Appropriate adjustments in the aggregate number of Common Shares
issuable pursuant to the Plan, the number of Common Shares subject to each
outstanding award granted under the Plan, the option price with respect to
options and connected stock appreciation rights, the specified price of stock
appreciation rights not connected to options, and the value for Units, shall be
made to give effect to any increase or decrease in the number of issued Common
Shares resulting from a subdivision or consolidation of shares, whether through
recapitalization, stock split, reverse stock split, spin-off, spin-out or other
distribution of assets to stockholders, stock distributions or combinations of
shares, payment of stock dividends, other increase or decrease in the number of
such Common Shares outstanding effected without receipt of consideration by the
Company, or any other occurrence for which the Committee determines an
adjustment is appropriate.
(ii) In the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, or an acquisition by the
Company of the stock or assets of any other corporation or corporations, there
shall be substituted on an equitable basis, as determined by the Committee in
its sole discretion, for each Common Share then subject to the Plan, and for
each Common Share then subject to an award granted under the Plan, the number
and kind of shares of stock, other securities, cash or other property to which
the holders of Common Shares of the Company are entitled pursuant to such
transaction.
(iii) Without limiting the generality of the foregoing provisions of this
paragraph, any such adjustment shall be deemed to have prevented any dilution or
enlargement of a participant's rights, if such participant receives in any such
adjustment, rights that are substantially similar (after taking into account the
fact that the participant has not paid the applicable option price) to the
rights the participant would have received had he exercised his outstanding
award and become a shareholder of the Company immediately prior to the event
giving rise to such adjustment. Adjustments under this paragraph shall be made
by the Committee, whose decision as to the amount and timing of any such
adjustment shall be conclusive and binding on all persons.
4. PARTICIPANTS. Persons eligible to participate shall be limited to those
officers and other key executive employees of the Company and its subsidiaries
who are in positions in which their decisions, actions and counsel significantly
impact upon profitability. Directors who are not otherwise officers or employees
shall not be eligible to participate in the Plan.
5. AWARDS UNDER THE PLAN. Awards under the Plan may be in the form of stock
options (both options designed to satisfy statutory requirements necessary to
receive favorable tax treatment pursuant to any present or future legislation
and options not designed to so qualify), incentive stock options, stock
appreciation rights, performance units, and restricted shares or such
combinations of the above as the Committee may in its discretion deem
appropriate.
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<PAGE> 6
6. SECTION 162(M) LIMITATIONS. Subject to Section 3(b) of the Plan, the maximum
number of stock options and stock appreciation rights granted to any person who
qualifies as an executive officer named from time to time in the summary
compensation table in the Company's annual meeting proxy statement and who is
employed by the Company on the last day of the taxable year (the "SCT
Executives") shall be 25,000 (50,000 after January 30, 1998) options and stock
appreciation rights with respect to Common Shares per year and 250,000 (500,000
after January 30, 1998) options and stock appreciation rights with respect to
Common Shares during the term of the Plan. The maximum number of performance
units granted to any SCT Executive shall be 25,000 (50,000 after January 30,
1998) units per year, provided that no more than 25,000 (50,000 after January
30, 1998) units may be awarded in any three year period and that the maximum
number of units granted to any SCT Executive during the term of the Plan shall
be 75,000 (150,000 after January 30, 1998). The maximum number of restricted
stock awards granted to any SCT Executive shall be 25,000 (50,000 after January
30, 1998) Common Shares per year, provided that no more than 25,000 (50,000
after January 30, 1998) Shares of restricted stock may be awarded in any
three-year period and that the maximum number of Shares of restricted stock
granted to any SCT Executive during the term of the Plan shall be 75,000
(150,000 after January 30, 1998).
7. NON QUALIFIED STOCK OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with the Plan as the Committee
shall approve from time to time, which agreements shall contain in substance the
following terms and conditions:
(A) OPTION PRICE. The purchase price per Common Share deliverable upon
the exercise of an option shall not be less than 100% of the fair market value
of a Common Share on the day the option is granted, as determined by the
Committee. Fair market value of Common Shares for purposes of the Plan shall be
the average of the high and low prices on the New York Stock Exchange Composite
Transactions on the date of the grant, or on any other applicable date.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of time as
may be determined by the Committee, provided that the option exercise period
shall not commence earlier than six months after the date of the grant of the
option nor end later than ten years after the date of the grant of the option.
The Committee shall have the power to permit in its discretion an acceleration
of the previously determined exercise terms, within the terms of the Plan, under
such circumstances and upon such terms and conditions as it deems appropriate.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any stock option agreement, the optionee shall pay the purchase price of the
Common Shares upon the exercise of any option (i) in cash, (ii) in cash received
from a broker-dealer to whom the optionee has submitted an exercise notice
consisting of a fully endorsed option (however in the case of an optionee
subject to Section 16 of the 1934 Act, this payment option shall only be
available to the extent such payment procedures comply with Regulation T issued
by the Federal Reserve Board), (iii) by delivering Common Shares having an
aggregate fair market value on the date of exercise equal to the option
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<PAGE> 7
exercise price, (iv) by directing the Company to withhold such number of Common
Shares otherwise issuable upon exercise of such option having an aggregate fair
market value on the date of exercise equal to the option exercise price, (v) by
such other medium of payment as the Committee, in its discretion, shall
authorize at the time of grant, or (vi) by any combination of (i), (ii), (iii),
(iv) and (v). In the case of an election pursuant to (i) or (ii) above, cash
shall mean cash or check issued by a federally insured bank or savings and loan
association, and made payable to NIPSCO Industries, Inc. In the case of payment
pursuant to (ii), (iii) or (iv) above, the optionee's election must be made on
or prior to the date of exercise and shall be irrevocable. In lieu of a separate
election governing each exercise of an option, an optionee may file a blanket
election with the Committee which shall govern all future exercises of options
until revoked by the optionee. The Company shall issue, in the name of the
optionee, stock certificates representing the total number of Common Shares
issuable pursuant to the exercise of any option as soon as reasonably
practicable after such exercise, provided that any Common Shares purchased by an
optionee through a broker-dealer pursuant to clause (ii) above, shall be
delivered to such broker-dealer in accordance with 12 C.F.R.ss. 220.3(e)(4), or
other applicable provision of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide that the
option subject thereto is not transferable by the optionee otherwise than by
will or the laws of descent or distribution. Notwithstanding the preceding
sentence, an optionee, at any time prior to his death, may assign all or any
portion of the option to (i) his spouse or lineal descendant, (ii) the trustee
of a trust for the primary benefit of his spouse or lineal descendant, or (iii)
a tax-exempt organization as described in Section 501(c)(3) of the Code. In such
event the spouse, lineal descendant, trustee or tax-exempt organization will be
entitled to all of the rights of the optionee with respect to the assigned
portion of such option, and such portion of the option will continue to be
subject to all of the terms, conditions and restrictions applicable to the
option as set forth herein, and in the related stock option agreement,
immediately prior to the effective date of the assignment. Any such assignment
will be permitted only if (i) the optionee does not receive any consideration
therefor, and (ii) the assignment is expressly approved by the Committee or its
delegate. Any such assignment shall be evidenced by an appropriate written
document executed by the optionee, and a copy thereof shall be delivered to the
Committee or its delegate on or prior to the effective date of the assignment.
This paragraph shall apply to all nonqualified stock options granted under the
Plan at any time.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an
optionee ceases to be an employee for any reason other than death, disability or
retirement, the optionee shall have the right to exercise the option during its
term within a period of thirty days after such termination to the extent that
the option was exercisable at the date of such termination of employment, or
during such other period and subject to such terms as may be determined by the
Committee. In the event that an optionee dies, retires, or becomes disabled
prior to termination of his option without having fully exercised his option,
the optionee or his successor shall have the right to exercise the option during
its term within a period of three years after the date of such termination due
to death, disability or retirement, to the extent that the option was
exercisable at the date of termination due to death, disability or retirement,
or during such other period and subject to such terms as may be determined by
the Committee. For purposes of the Plan, the term "disability" shall mean
disability as defined
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<PAGE> 8
in the Company's Long-Term Disability Plan. The Committee, in its sole
discretion, shall determine the date of any disability. For purposes of the
Plan, the term "retirement" shall mean retirement as defined in the Company's
pension plan.
8. INCENTIVE STOCK OPTIONS. Incentive stock options shall be evidenced by stock
option agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(A) OPTION PRICE. Except as otherwise provided in Section 8(b), the
purchase price per share of stock deliverable upon the exercise of an incentive
stock option shall not be less than 100% of the fair market value of the Common
Shares on the day the option is granted, as determined by the Committee.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of time as
may be determined by the Committee, provided that the option period shall not
commence earlier than six months after the date of the grant of the option nor
end later than ten years after the date of the grant of the option. The
aggregate fair market value (determined with respect to each incentive stock
option at the time of grant) of the Common Shares with respect to which
incentive stock options are exercisable for the first time by an individual
during any calendar year (under all incentive stock option plans of the Company
and its parent and subsidiary corporations) shall not exceed $100,000. If the
aggregate fair market value (determined at the time of grant) of the Common
Shares subject to an option, which first becomes exercisable in any calendar
year exceeds the limitation of this Section 8(b), so much of the option that
does not exceed the applicable dollar limit shall be an incentive stock option
and the remainder shall be a nonqualified stock option; but in all other
respects, the original option agreement shall remain in full force and effect.
As used in this Section 8, the words "parent" and "subsidiary" shall have the
meanings given to them in Section 424(e) and 424(f) of the Code. Notwithstanding
anything herein to the contrary, if an incentive stock option is granted to an
individual who owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of its parent or
subsidiary corporations, within the meaning of Section 422(b)(6) of the Code,
(i) the purchase price of each Common Share subject to the incentive stock
option shall be not less than one hundred ten percent (110%) of the fair market
value of the Common Shares on the date the incentive stock option is granted,
and (ii) the incentive stock option shall expire, and all rights to purchase
Common Shares thereunder shall cease, no later than the fifth anniversary of the
date the incentive stock option was granted.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any stock option agreement, the optionee shall pay the purchase price of the
Common Shares upon the exercise of any option, (i) in cash, (ii) in cash
received from a broker-dealer to whom the optionee has submitted an exercise
notice consisting of a fully endorsed option (however in the case of an optionee
subject to Section 16 of the 1934 Act, this payment option shall only be
available to the extent such payment procedures comply with Regulation T issued
by the Federal Reserve Board), (iii) by delivering
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<PAGE> 9
Common Shares having an aggregate fair market value on the date of exercise
equal to the option exercise price, (iv) by directing the Company to withhold
such number of Common Shares otherwise issuable upon exercise of such option
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (v) by such other medium of payment as the Committee, in
its discretion, shall authorize at the time of grant, or (vi) by any combination
of (i), (ii), (iii), (iv) and (v). In the case of an election pursuant to (i) or
(ii), cash shall mean cash or check issued by a federally insured bank or
savings and loan association, and made payable to NIPSCO Industries, Inc. In the
case of payment pursuant to (ii), (iii) or (iv) above, the optionee's election
must be made on or prior to the date of exercise and shall be irrevocable. In
lieu of a separate election governing each exercise of an option, an optionee
may file a blanket election with the Committee which shall govern all future
exercises of options until revoked by the optionee. The Company shall issue, in
the name of the optionee, stock certificates representing the total number of
Common Shares issuable pursuant to the exercise of any option as soon as
reasonably practicable after such exercise, provided that any Common Shares
purchased by an optionee through a broker-dealer pursuant to clause (ii) above,
shall be delivered to such broker-dealer in accordance with 12 C.F.R. ss.
220.3(e)(4), or other applicable provision of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide
that it is not transferable by the optionee otherwise by will or the laws of
descent or distribution.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an
optionee ceases to be an employee for any reason other than death, disability or
retirement, the optionee shall have the right to exercise the option during its
term within a period of thirty days after such termination to the extent that
the option was exercisable at the date of such termination of employment, or
during such other period and subject to such terms as may be determined by the
Committee. In the event that an optionee dies, retires, or becomes disabled
prior to termination of his option without having fully exercised his option,
the optionee or his successor shall have the right to exercise the option during
its term within a period of three years after the date of such termination due
to death, disability or retirement, to the extent that the option was
exercisable at the date of termination due to death, disability or retirement,
or during such other period and subject to such terms as may be determined by
the Committee. Notwithstanding the foregoing, in accordance with Section 422 of
the Code, if an incentive stock option is exercised more than ninety days after
termination of employment, that portion of the option exercised after such date
shall automatically be a nonqualified stock option, but in all other respects,
the original option agreement shall remain in full force and effect.
The provisions of this Section 8 shall be construed and applied, and (subject to
the limitations of section 20) shall be amended from time to time so as to
comply with Section 422 or its successors of the Code and regulations issued
thereunder.
9. STOCK APPRECIATION RIGHTS. Stock appreciation rights shall be evidenced by
stock appreciation right agreements in such form and not inconsistent with the
Plan as the Committee shall approve from time to time, which agreements shall
contain in substance the following terms and conditions:
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<PAGE> 10
(A) AWARDS. A stock appreciation right shall entitle the grantee to
receive upon exercise the excess of (i) the fair market value of a specified
number of shares of the Company Common Shares at the time of exercise over (ii)
a specified price which shall not be less than 100% of the fair market value of
the Common Shares at the time the stock appreciation right was granted, or, if
connected with a previously issued stock option, not less than 100% of the fair
market value of Common Shares at the time such option was granted. A stock
appreciation right may be granted in connection with all of any portion of a
previously or contemporaneously granted stock option or not in connection with a
stock option.
(B) TERM. Stock appreciation rights shall be granted for a period of
not less than one year nor more than ten years, and shall be exercisable in
whole or in part, at such time or times and subject to such other terms and
conditions, as shall be prescribed by the Committee at the time of grant,
subject to the following:
(i) No stock appreciation right shall be exercisable in whole
or in part, during the six-month period starting with the date of
grant; and
(ii) Stock appreciation rights will be exercisable only during
a grantee's employment, except that in the discretion of the Committee
a stock appreciation right may be made exercisable for up to thirty
days after the grantee's employment is terminated for any reason other
than death, disability or retirement. ln the event that a grantee dies,
retires, or becomes disabled without having fully exercised his stock
appreciation rights, the grantee or his successor shall have the right
to exercise the stock appreciation rights during their term within a
period of three years after the date of such termination due to death,
disability or retirement to the extent that the right was exercisable
at the date of such termination or during such other period and subject
to such terms as may be determined by the Committee.
The Committee shall have the power to permit in its discretion an
acceleration of previously determined exercise terms, within the terms
of the Plan, under such circumstances and upon such terms and
conditions as it deems appropriate.
(C) PAYMENT. Upon exercise of a stock appreciation right, payment shall
be made in cash, in the form of Common Shares at fair market value, or in a
combination thereof, as the Committee may determine.
10. PERFORMANCE UNITS. Performance Units ("Units") shall be evidenced by
performance unit agreements in such form and not inconsistent with the Plan as
the Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(A) PERFORMANCE PERIOD. At the time of award, the Committee shall
establish with respect to each Unit award a performance period of not less than
two, nor more than five, years.
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<PAGE> 11
(B) VALUATION OF UNITS. At the time of award, the Committee shall
establish with respect to each such award a value for each Unit which shall not
thereafter change, or which may vary thereafter determinable from criteria
specified by the Committee at the time of award.
(C) PERFORMANCE TARGETS. At the time of award, the Committee shall
establish maximum and minimum performance targets to be achieved with respect to
each award during the performance period. The participant shall be entitled to
payment with respect to all Units awarded if the maximum target is achieved
during the performance period, but shall be entitled to payment with respect to
a portion of the Units awarded according to the level of achievement of
performance targets, as specified by the Committee, for performance during the
performance period which meets or exceeds the minimum target but fails to meet
the maximum target.
The performance targets established by the Committee shall relate to
corporate, division, or unit performance and may be established in terms of (i)
changes in stock price, gross revenue, pre-tax operating income, or earnings per
share; or (ii) ratios of stock price, earnings, or pre-tax operating income
relative to shareholder's equity, earnings, total assets, or to assets employed;
or (iii) a comparison of any of the preceding measures to similar measures for
competitors. Multiple targets may be used and may have the same or different
weighting, and they may relate to absolute performance or relative performance
as measured against other institutions or divisions or units thereof.
(D) ADJUSTMENTS. At any time prior to payment of the Units, the
Committee may adjust previously established performance targets and other terms
and conditions, including the corporation's, or division's or unit's financial
performance for Plan purposes, to reflect major unforeseen events such as
changes in laws, regulations or accounting practices, mergers, acquisitions or
divestitures or extraordinary, unusual or non-recurring items or events.
(E) PAYMENTS OF UNITS. Following the conclusion of each
performance period, the Committee shall determine the extent to which
performance targets have been attained for such period as well as the other
terms and conditions established by the Committee. The Committee shall determine
what, if any, payment is due on the Units. Payment shall be made in cash, in the
form of Common Shares at fair market value, or in a combination thereof, as the
Committee may determine.
(F) TERMINATION OF EMPLOYMENT. In the event that a participant
holding a Unit award ceases to be an employee prior to the end of the applicable
performance period by reason of death, disability or retirement, his Units, to
the extent earned under the applicable performance targets, shall be payable at
the end of the performance period in proportion to the active service of the
participant during the performance period, as determined by the Committee. Upon
any other termination of employment, participation shall terminate forthwith and
all outstanding Units held by the participant shall be canceled.
(G) OTHER TERMS. The Unit agreements shall contain such other
terms and provisions and conditions not inconsistent with the Plan as shall be
determined by the Committee.
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<PAGE> 12
11. RESTRICTED STOCK AWARDS. Restricted Stock Awards under the Plan shall be
in the form of Common Shares of the Company, restricted as to transfer and
subject to forfeiture, and shall be evidenced by restricted stock agreements in
such form and not inconsistent with the Plan as the Committee shall approve from
time to time, which agreements shall contain in substance the following terms
and conditions:
(A) RESTRICTION PERIOD. Restricted Common Shares awarded pursuant
to the Plan shall be subject to such terms, conditions, and
restrictions, including without limitation: prohibitions against
transfer, substantial risks of forfeiture, attainment of performance
objectives and repurchase by the Company or right of first refusal, and
for such period or periods as shall be determined by the Committee at
the time of grant. The Committee shall have the power to permit in its
discretion, an acceleration of the expiration of the applicable
restriction period with respect to any part or all of the Common Shares
awarded to a participant.
The performance objectives established by the Committee shall relate to
corporate, division or unit performance, and may be established in
terms of (i) changes in stock price, gross revenue, pre-tax operating
income, or earnings per share; or (ii) ratios of stock price, earnings,
or pre-tax operating income relative to shareholder's equity, earnings,
total assets, or to assets employed; or (iii) a comparison of any of
the preceding measures to similar measures for competitors. Multiple
objectives may be used and may have the same or different weighting,
and they may relate to absolute performance or relative performance as
measured against other institutions or divisions or units thereof.
(B) RESTRICTIONS UPON TRANSFER. Common Shares awarded, and the
right to vote such Shares and to receive dividends thereon, may not be
sold, assigned, transferred, exchanged, pledged, hypothecated, or
otherwise encumbered, except as herein provided, during the restriction
period applicable to such Shares. Subject to the foregoing, and except
as otherwise provided in the Plan, the participant shall have all the
other rights of a shareholder including, but not limited to, the right
to receive dividends and the right to vote such Shares.
(C) CERTIFICATES. Each certificate issued in respect of Common
Shares awarded to a participant shall be deposited with the Company, or
its designee, and shall bear the following legend:
"This certificate and the shares represented hereby are subject
to the terms and conditions (including forfeiture and restrictions
against transfer) contained in the NIPSCO Industries, Inc. 1994
Long-Term incentive Plan and an Agreement entered into by the
registered owner. Release from such terms and conditions shall obtain
only in accordance with the provisions of the Plan and Agreement, a
copy of each of which is on file in the office of the Secretary of said
Company."
-9-
<PAGE> 13
(D) LAPSE OF RESTRICTIONS. A restricted stock agreement shall
specify the terms and conditions upon which any restrictions upon
Common Shares awarded under the Plan shall lapse, as determined by the
Committee. Upon the lapse of such restrictions, Common Shares, free of
the foregoing restrictive legend, shall be issued to the participant or
his legal representative.
(E) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS. In the event of a
participant's termination of employment, other than due to death,
disability or retirement, prior to the lapse of restrictions applicable
to any Common Shares awarded to such participant, all Shares as to
which there still remains unlapsed restrictions shall be forfeited by
such participant without payment of any consideration to the
participant, and neither the participant nor any successors, heirs,
assigns, or personal representatives of such participant shall
thereafter have any further rights or interest in such Shares or
certificates.
12. SUPPLEMENTAL CASH PAYMENTS. Subject to the Company's discretion, stock
option, incentive stock option, stock appreciation right, performance unit or
restricted stock agreements may provide for the payment of a supplemental cash
payment to a participant promptly after the exercise of an option or stock
appreciation right, or, at the time of payment of a performance unit or at the
end of a restriction period of a restricted stock award. Supplemental cash
payments shall be subject to such terms and conditions as shall be provided by
the Committee at the time of grant, provided that in no event shall the amount
of each payment exceed:
(a) In the case of an option, the excess of the fair market value
of a Common Share on the date of exercise over the option price
multiplied by the number of Common Shares for which such option is
exercised, or
(b) In the case of a stock appreciation right, performance unit or
restricted stock award, the value of the Common Shares and other
consideration issued in payment of such award.
13. GENERAL RESTRICTIONS. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Common Shares subject or related
thereto upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body, or (iii) an agreement
by the recipient of an award with respect to the disposition of Common Shares,
is necessary or desirable as a condition of, or in connection with, the granting
of such award or the issue or purchase of Common Shares thereunder, such award
may not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained, free of any conditions not acceptable to the Committee.
14. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan, unless
otherwise provided by the Plan, shall have no rights as a shareholder with
respect thereto unless and until certificates for Common Shares are issued to
the recipient.
-10-
<PAGE> 14
15. EMPLOYMENT RIGHTS. Nothing in the Plan or in any agreement entered into
pursuant to the Plan shall confer upon any participant the right to continue in
employment or affect any right which his employer may have to terminate the
employment of such participant.
16. TAX--WITHHOLDING. Whenever the Company proposes or is required to issue or
transfer Common Shares to a participant under the Plan, the Company shall have
the right to require the participant to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such Common Shares.
If such certificates have been delivered prior to the time a withholding
obligation arises, the Company shall have the right to require the participant
to remit to the Company an amount sufficient to satisfy all federal, state or
local withholding tax requirements at the time such obligation arises and to
withhold from other amounts payable to the participant, as compensation or
otherwise, as necessary. Whenever payments under the Plan are to be made to a
participant in cash, such payment shall be net of any amount sufficient to
satisfy all federal, state and local withholding tax requirements. In lieu of
requiring a participant to make a payment to the Company in an amount related to
the withholding tax requirement, the Committee may, in its discretion, provide
that, at the participant's election, the tax withholding obligation shall be
satisfied by the Company's withholding a portion of the Common Shares otherwise
distributable to the participant, such Common Shares being valued at their fair
market value at the date of exercise, or by the participant's delivering to the
Company a portion of the Common Shares previously delivered by the Company, such
Common Shares being valued at their fair market value as of the date of delivery
of such Common Shares by the participant to the Company. For this purpose, the
amount of required withholding shall be a specified rate not less than the
statutory minimum federal, state and local (if any) withholding rate, and not
greater than the maximum federal, state and local (if any) marginal tax rate
applicable to the participant and to the particular transaction. Notwithstanding
any provision of the Plan to the contrary, a participant's election pursuant to
the preceding sentences (a) must be made on or prior to the date as of which
income is realized by the recipient in connection with the particular
transaction, and (b) must be irrevocable. In lieu of a separate election on each
effective date of each transaction, a participant may file a blanket election
with the Committee which shall govern all future transactions until revoked by
the participant.
17. CHANGE IN CONTROL. (a) Effect of Change in Control. Notwithstanding any of
the provisions of the Plan or any agreement evidencing awards granted hereunder,
upon a Change in Control of the Company (as defined in Section 17(b)) all
outstanding awards shall become fully exercisable and all restrictions thereon
shall terminate in order that participants may fully realize the benefits
thereunder. Further, the Committee, as constituted before such Change in
Control, is authorized, and has sole discretion, as to any award, either at the
time such award is granted hereunder or any time thereafter, to take any one or
more of the following actions: (i) provide for the exercise of any such award
for an amount of cash equal to the difference between the exercise price and the
then fair market value of the Common Shares covered thereby had such award been
currently exercisable; (ii) provide for the vesting or termination of the
restrictions on any such award; (iii) make such adjustment to any such award
then outstanding as the Committee deems appropriate to reflect such
-11-
<PAGE> 15
Change in Control; and (iv) cause any such award then outstanding to be assumed,
by the acquiring or surviving corporation, after such Change in Control.
(b) Definition of Change in Control. A "Change in Control" of the
Company shall be deemed to have occurred if any one of the occurrences of a
"Change in Control" set forth in the Change in Control and Termination
Agreements between the Company and certain executive officers thereof shall
have been satisfied.
18. AMENDMENT OR TERMINATION. The Board or the Committee may at any time
terminate, suspend or amend the Plan without the authorization of shareholders
to the extent allowed by law, including without limitation any rules issued by
the Securities and Exchange Commission under Section 16 of the 1934 Act, insofar
as shareholder approval thereof is required in order for the Plan to continue to
satisfy the requirements of Rule 16b-3 under the 1934 Act. No termination,
suspension or amendment of the Plan shall adversely affect any right acquired by
any participant under an award granted before the date of such termination,
suspension or amendment, unless such participant shall consent; but it shall be
conclusively presumed that any adjustment for changes in capitalization as
provided for herein does not adversely affect any such right. Subject to the
preceding sentence, the Plan as amended and restated effective April 14, 1999
shall apply to all awards at any time granted hereunder.
19. EFFECT ON OTHER PLANS. Unless otherwise specifically provided,
participation in the Plan shall not preclude an employee's eligibility to
participate in any other benefit or incentive plan and any awards made pursuant
to the Plan shall not be considered as compensation in determining the benefits
provided under any other plan.
20. DURATION OF THE PLAN. The Plan shall remain in effect until all awards
under the Plan have been satisfied by the issuance of Common Shares or the
payment of cash, but no award shall be granted more than ten years after the
date the Plan is approved by the shareholders, which shall be its effective date
of adoption.
-12-
<PAGE> 1
EXHIBIT 10.16
NONEMPLOYEE DIRECTOR
RETIREMENT PLAN
NIPSCO Industries, Inc.
January 1991
<PAGE> 2
NIPSCO INDUSTRIES, INC.
NONEMPLOYEE DIRECTOR RETIREMENT PLAN
Section 1. Purpose. The purpose of the NIPSCO Industries, Inc.
Nonemployee Director Retirement Plan (the "Plan") is to assist the Company in
attracting and retaining individuals of superior talent, ability, and
achievement to serve on its Board of Directors.
Section 2. Definitions. The following words and phrases shall have the
meanings set forth below unless a different meaning is required by the context:
(a) "Annual Retainer" means the amount paid by the Company to each
Nonemployee Director as annual compensation for Service as a Director
and as a member of any committee of the Board and as chairman of any
such committee, which amount is exclusive of any Board or committee
meeting fees, or remuneration under other plans, agreements, or
policies.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" shall have the meaning ascribed to such term in
the Company's Change in Control and Termination Agreements.
(d) "Committee" means the Nominating and Compensation Committee of the
Board.
(e) "Company" means NIPSCO Industries, Inc., an Indiana corporation,
including its subsidiaries and any successor organizations.
<PAGE> 3
(f) "Director" means an individual who is a member of the Board on or
after the Effective Date.
(g) "Disability" means any physical or mental condition of a permanent
nature which, in the sole judgment of the Committee, based upon the
advice of a competent medical professional selected by the Committee,
prevents a Director from performing his or her duties as a member of
the Board.
(h) "Effective Date" means January 1, 1991.
(i) "Eligible Nonemployee Director" means a Nonemployee Director who meets
the eligibility requirements for retirement benefits under this Plan,
as set forth in Section 4 herein. "Eligible Nonemployee Director"
also shall include any Nonemployee Director eligible to receive
retirement benefits by virtue of a Change in Control, as set forth in
Section 8 herein.
(j) "Nonemployee Director" means a Director who is not currently employed
by the Company or any subsidiary of the Company.
(k) "Plan" means the NIPSCO Industries, Inc. Nonemployee Director
Retirement Plan, including any amendments thereto.
(l) "Service" means a Director's service on the Board as a Nonemployee
Director.
(m) "Year of Service" means the 12-month period commencing with the first
day of the calendar month in which each annual meeting of the
shareholders of the Company takes
3
<PAGE> 4
place, and throughout which a Director served on the Board as a
Nonemployee Director.
Section 3. Administration. The Plan shall be administered by the
Committee. The Committee shall have the authority to interpret the Plan, and
any such interpretation shall be final and binding upon all parties. The Board
may amend or terminate the Plan at any time, provided that no such amendment or
termination shall adversely affect the amounts payable or vested under the Plan
before the time of such amendment or termination. The Company shall pay all
distributions made pursuant to the Plan and all costs, charges, and expenses
related to the administration of the Plan.
Section 4. Eligibility for Retirement Benefits. Any Nonemployee Director
who retires, resigns, or is terminated from Service on or after the Effective
Date, having completed at least five (5) full Years of Service, shall be
eligible to receive a retirement benefit calculated in accordance with Section
5 herein, and payable in accordance with Section 6 herein.
Section 5. Amount of Retirement Benefit. Each Eligible Nonemployee
Director shall be paid monthly payments in an amount equal to one-twelfth
(1/12) of the Annual Retainer in effect as of the effective date of his or her
retirement, resignation, or termination from Service. The number of such
payments shall equal the lesser of: (i) one hundred twenty (120); or (ii) the
number of full months of Service on the Board as a Nonemployee Director.
Section 6. Payment of Retirement Benefits. Payment of retirement
benefits to an Eligible Nonemployee Director under this Plan shall be made in
cash, and shall commence one (1) month following the termination of the
Director's Service for any reason. For this purpose, the termination of a
Director's Service for Disability shall be deemed to occur on the date that the
Committee
4
<PAGE> 5
designates as the date on which the definition of Disability under this Plan
has been satisfied.
Section 7. Payment in the Event of Death. In the event that an Eligible
Nonemployee Director dies prior to the receipt of all retirement benefits set
forth in this Plan, the Company shall pay the present value of the remaining
unpaid retirement benefits owing to the Nonemployee Director under this Plan in
one cash lump sum within sixty (60) calendar days following the date of death.
The interest rate to be used to determine the present value of the unpaid
retirement benefits shall be the six-month U.S. Treasury Bill rate in effect on
the date of death. Such payment shall be made to the surviving spouse of the
Director, if any. If there is no surviving spouse, then the payment shall be
made to the estate of the Director.
Section 8. Payment in the Event of Termination of Service Following a
Change in Control. In the event that the Service of any Eligible Nonemployee
Director terminates within two (2) years following the effective date of a
Change in Control, the Director shall be entitled to receive his or her
retirement benefits under this Plan in the form of a cash lump sum payment in
an amount equal to the present value of the retirement benefits such Director
is eligible to receive under this Plan.
If, within two (2) years following the effective date of a Change in
Control, the Service on the Board of a Nonemployee Director, who served on the
Board on the effective date of the Change in Control, terminates prior to the
time when the Director has served on the Board for five (5) full years, such
Director shall be entitled to receive a cash lump sum payment in an amount
equal to seventy-five percent (75%) of the present value of the retirement
benefits such Director would have been entitled to receive under this Plan had
the Director served on the Board for five (5) full years prior to termination
of Service.
5
<PAGE> 6
For purposes of this Section 8, the interest rate to be used to determine
the present value of the unpaid retirement benefits shall be the six-month U.S.
Treasury Bill rate in effect on the date of termination of Service. Payments
of retirement benefits under this Section 8 shall be made within sixty (60)
calendar days following the date of termination of Service on the Board.
In the event that the Committee determines that any payment, whether paid
or payable or distributed or distributable pursuant to this Plan would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, or any interest or penalty with respect to such excise tax (such
excise tax together with any interest or penalties thereon are hereinafter
referred to collectively as the "Excise Tax"), the Nonemployee Director subject
to the Excise Tax shall be paid an additional payment (a "Gross-Up Payment") in
an amount such that after the payment by such Nonemployee Director of all taxes
(together with any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, the Nonemployee
Director retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the payment of retirement benefits under this Plan.
Section 9. Unfunded Plan. The Plan shall be a noncontributory,
nonqualified, and unfunded plan. Retirement benefit payments under the Plan
shall represent an unsecured, general obligation of the Company, and shall be
paid by the Company from its general operating assets. No special fund or
trust shall be required to be created by the Company to fund the obligations
under the Plan, nor shall any notes or securities be issued with respect to any
retirement benefits under the Plan.
Section 10. Certain Payments. Whenever a former Director who is entitled
to receive a payment under the Plan is a person under legal disability or a
person not adjudicated incompetent but who, by reason of illness or mental or
physical disability, is, in the
6
<PAGE> 7
opinion of the Committee, unable to manage properly his or her affairs, then
such payments shall be paid in one of the following ways, as the Committee
deems advisable: (i) to such person directly; or (ii) to the legally appointed
guardian or conservator of such person for his or her exclusive benefit; or
(iii) in such other manner for the exclusive benefit of such person as the
committee considers advisable. Any payment made in accordance with the
provisions of this Section 10 shall be a complete discharge of any liability of
the Company for the making of such payment under the Plan.
Section 11. Miscellaneous.
(a) Neither the establishment of the Plan, nor any action taken thereunder,
shall in any way obligate: (i) the Company to nominate a Nonemployee
Director for reelection or to continue to retain a Nonemployee
Director; or (ii) a Nonemployee Director to agree to be nominated for
reelection or to continue to serve on the Board.
(b) Subject to the provisions of Section 3 hereof, the Plan may not be
cancelled by the Company upon any merger or consolidation with, or
acquisition of the Company by any other entity, but shall be binding
upon and inure to the benefit of the successors and assigns of the
Company, and the heirs, executors, administrators, and assigns of each
Eligible Nonemployee Director.
(c) The Plan shall not affect in any way the rights of any Eligible
Nonemployee Director under any deferred compensation plan or agreement
between such Director and the Company.
(d) The Plan shall be governed by and construed according to the laws of
the state of Indiana.
7
<PAGE> 1
Exhibit 10.17
NIPSCO INDUSTRIES, INC. NONEMPLOYEE DIRECTOR
RESTRICTED STOCK UNIT PLAN
1. Purpose
-------
NIPSCO Industries, Inc. (the "Corporation") has adopted the NIPSCO
Industries, Inc. Nonemployee Director Restricted Stock Unit Plan (the "Plan"),
effective as of January 1, 1999.
The purpose of the Plan is to provide deferred compensation to nonemployee
directors of the Corporation ("Nonemployee Directors"). Such deferred
compensation shall be based upon the award of Restricted Stock Units, the value
of which is related to the value, and the appreciation in the value, of the
common stock of the Corporation (the "Common Stock"). The Plan is also intended
to benefit the Corporation by enhancing the interest of Nonemployee Directors in
the growth and success of the Corporation.
2. Administration
--------------
The Plan shall be administered by the Nominating and Compensation Committee
(the "Committee") of the Board of Directors of the Corporation (the "Board") .
Subject to the provisions of the Plan, Nonemployee Directors shall be granted
Restricted Stock Units under the Plan.
The Committee shall have authority to interpret the Plan, to adopt and
revise rules and regulations relating to the Plan, to determine the conditions
subject to which any Restricted Stock Units may be granted or payable, and to
make any other determinations which it believes necessary or advisable for the
administration of the Plan. Determinations by the Committee shall be made by
majority vote and shall be final and binding on all parties with respect to all
matters relating to the Plan.
3. Grants
------
Each Nonemployee Director on the Board on April 14, 1999 shall receive a
grant of 500 Restricted Stock Units on such date. Each Nonemployee Director who
is subsequently elected or reelected as a member of the Board shall receive a
grant of 500 Restricted Stock Units upon the date of each such election or
reelection. In no event however, will any grant be made hereunder to a
Nonemployee Director after December 31, 2002.
The maximum number of Restricted Stock Units that may be awarded under the
Plan shall not exceed an aggregate of 25,000. If any Restricted Stock Units
awarded under the Plan shall be forfeited or canceled, such Restricted Stock
Units may again be awarded under the Plan. Restricted Stock Units shall be
subject to such terms and conditions, in addition to the terms and conditions
set forth in the Plan, as the Committee shall determine.
<PAGE> 2
4. Restricted Stock Units
----------------------
Restricted Stock Units granted to a Nonemployee Director shall be credited
to a Restricted Stock Unit Account (the "Account") established and maintained
for such Nonemployee Director. The Account of a Nonemployee Director shall be
the record of Restricted Stock Units granted to him under the Plan, is solely
for accounting purposes and shall not require a segregation of any assets of the
Corporation. Each Restricted Stock Unit shall be valued by the Committee, in the
manner provided in Section 8, as of the date of grant thereof. Each grant of
Restricted Stock Units under the Plan to a Nonemployee Director and the value of
such Restricted Stock Units as of the date of grant shall be communicated by the
Committee in writing to the Nonemployee Director within thirty (30) days after
the date of grant.
5. Dividends on Restricted Stock Units
-----------------------------------
Additional Restricted Stock Units shall be credited to each Nonemployee
Director's Account with respect to Restricted Stock Units included in such
Account from time to time, to reflect dividends paid to stockholders of the
Corporation with respect to the Common Stock. These additional Restricted Stock
Units shall be granted at such time or times and shall be subject to such terms
and conditions, in addition to the terms and conditions set forth in the Plan,
as the Committee shall determine.
6. Maturity of Restricted Stock Units
----------------------------------
(a) Restricted Stock Units granted to a Nonemployee Director shall mature
according to the following schedule:
Anniversary of Grant Percentage of
Date Matured Units
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
(b) Notwithstanding the provisions of paragraph (a) next above, all
Restricted Stock Units granted to a Nonemployee Director shall become fully
matured upon the Nonemployee Director's termination of service on the Board due
to death, disability or a Change in Control of the Corporation. For purposes of
this Section, a Nonemployee Director will be considered disabled if, in the
determination of the Committee, he is subject to a physical or mental condition
which is expected to render the Nonemployee Director unable to perform his usual
duties or any comparable duties as a member of the Board. For purposes of this
Section, a Change in Control of the Corporation shall be deemed to have occurred
if any one of the occurrences of "Change in Control"
2
<PAGE> 3
set forth in the Change in Control and Termination Agreements between the
Corporation and certain executive officers thereof shall have been satisfied.
7. Payment for Restricted Stock Units
----------------------------------
(a) Upon a Nonemployee Director's termination of service on the Board for
any reason other than for Cause (as defined herein), the Nonemployee Director
shall be entitled to receive from the Corporation an amount, with respect to
each then mature Restricted Stock Unit in the Nonemployee Director's Account,
equal to the then Fair Market Value (as determined by the Committee pursuant to
Section 8) of each such mature Restricted Stock Unit.
(b) Payment to a Nonemployee Director of the amount set forth in paragraph
(a) next above for Restricted Stock Units shall be made in cash in a lump sum.
Payment will be made within sixty (60) days after the date of termination of the
Nonemployee Director's service on the Board. A Nonemployee Director will not be
entitled to receive any earnings on the value of his Restricted Stock Units with
respect to the period between his termination of service on the Board and the
receipt of payment under the Plan.
(c) Notwithstanding any other provision of the Plan, all rights to any
payment hereunder to a Nonemployee Director with respect to any mature or
unmatured Restricted Stock Units will be discontinued and forfeited, and the
Corporation will have no further obligation hereunder to such Nonemployee
Director or any other person, if the Nonemployee Director is discharged from
service on the Board for Cause. For purposes of the Plan, "Cause" shall mean:
(1) the Nonemployee Director's conviction of any criminal violation
involving dishonesty, fraud or breach of trust;
(2) the Nonemployee Director's willful engagement in any misconduct
in the performance of his duty that materially injures the
Corporation;
(3) the Nonemployee Director's performance of any act which, if known
to the customers or stockholders of the Corporation, would
materially and adversely impact on the business of the
Corporation; or
(4) the Nonemployee Director's willful and substantial nonperformance
of assigned duties.
The Committee shall have sole discretion with respect to the application of
the provisions of this paragraph (c) and such exercise of discretion shall be
conclusive and binding upon the Nonemployee Director, and all other persons.
3
<PAGE> 4
8. Valuation of Restricted Stock Units
-----------------------------------
(a) For all purposes of the Plan, the value of a Restricted Stock Unit on
a date of grant pursuant to Section 4, or upon termination of service on the
Board pursuant to Section 7, will be equal to the then Fair Market Value of a
share of Common Stock.
(b) For purposes of the Plan, Fair Market Value shall mean the average of
the highest and lowest quoted selling prices for shares of Common Stock on the
relevant date, or (if there were no sales on such date) the weighted average of
the mean between the highest and lowest quoted selling prices on the nearest day
before the nearest day after the relevant date, as reported in The Wall Street
Journal or a similar publication selected by the Board.
9. Forfeiture of Restricted Stock Units
------------------------------------
If the Nonemployee Director's service on the Board is terminated for any
reason other than death, disability or a Change in Control of the Corporation,
such Nonemployee Director's rights with respect to Restricted Stock Units in his
Account which have not matured on or prior to the date of the occurrence of such
event will terminate and be forfeited and neither the Nonemployee Director nor
his heirs, personal representatives, successors or assigns shall have any future
rights with respect to any such Restricted Stock Units.
10. Changes in Capital and Corporate Structure
------------------------------------------
Appropriate adjustments in the aggregate number of Restricted Stock Units
issuable pursuant to the Plan, the number of outstanding Restricted Stock Units,
and the value of such Restricted Stock Units, shall be made to give effect to
any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares, whether through
recapitalization, stock split, reverse stock split, spinoff, spinout or other
distribution of assets to stockholders, stock distributions or combination of
shares, payment of stock dividends, other increase or decrease in the number of
shares of Common Stock outstanding effected without receipt or consideration by
the Corporation, or any other occurrence for which the Committee determines an
adjustment is appropriate. Adjustments made under this Section shall be made by
the Committee, whose decision as to the nature and timing of any such
adjustments shall be conclusive and binding on all persons.
11. Nontransferability
------------------
Restricted Stock Units granted under the Plan, and any rights and
privileges pertaining thereto, may not be transferred, assigned, pledged or
hypothecated in any manner, by operation of law or otherwise, other than by will
or by the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. In the event of a Nonemployee
Director's death, payment of any amount due under the Plan shall be made to the
duly appointed and qualified executor or other personal representative of the
Nonemployee Director's estate to be distributed in
4
<PAGE> 5
accordance with the Nonemployee Director's will or applicable intestacy law; or
in the event that there shall be no such representative duly appointed and
qualified within six (6) months after the date of death of such deceased
Nonemployee Director, then to such persons as, at the date of his death, would
be entitled to share in the distribution of such deceased Nonemployee Director's
personal estate under the provisions of the applicable statute then in force
governing the descent of intestate property, in the proportions specified in
such statute.
12. Voting and Stock Ownership
--------------------------
Except as set forth in Section 5 above, no Nonemployee Director shall be
entitled to any voting rights or stock ownership rights with respect to Common
Stock attributable to Restricted Stock Units granted under the Plan.
13. Miscellaneous Provisions
------------------------
(a) No Nonemployee Director or other person shall have any claim or right
to be granted Restricted Stock Units under the Plan except as set forth in the
Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any Nonemployee Director any right to be retained on the Board.
(b) The Plan shall at all times be entirely unfunded and no provision
shall at any time be made with respect to segregating assets of the Corporation
for payment of any benefits hereunder. No Nonemployee Director or other person
shall have any interest in any particular assets of the Corporation by reason of
the right to receive a benefit under the Plan and any such Nonemployee Director
or other person shall have only the rights of a general unsecured creditor of
the Corporation with respect to any rights under the Plan.
(c) Except when otherwise required by the context, any masculine
terminology in this document shall include the feminine, and any singular
terminology shall include the plural.
14. Amendment of the Plan
---------------------
The Committee may alter or amend the Plan from time to time without
obtaining the approval of the Board or the stockholders of the Corporation. No
amendment to the Plan may alter, impair or reduce the number of Restricted Stock
Units granted under the Plan prior to the effective date of such amendment, or
adversely affect the terms of such Restricted Stock Units, without the written
consent of any affected Nonemployee Director.
15. Termination of the Plan
-----------------------
The Committee may at any time terminate the Plan without obtaining approval
of the Board or the stockholders of the Corporation, and unless sooner
terminated by the Committee, the Plan shall terminate on December 31, 2002. No
Restricted Stock Units shall be granted pursuant to the
5
<PAGE> 6
Plan after the date of termination of the Plan, although after such date
payments shall be made with respect to Restricted Stock Units granted prior to
the date of termination in accordance with the terms of the Plan.
6
<PAGE> 1
Exhibit 10.18
FIRST AMENDMENT TO NIPSCO INDUSTRIES, INC.
NONEMPLOYEE DIRECTOR RESTRICTED STOCK UNIT PLAN
WHEREAS, NiSource Inc. (formerly NIPSCO Industries, Inc.) (the
"Corporation") adopted the NIPSCO Industries, Inc. Nonemployee Director
Restricted Stock Unit Plan, effective January 1, 1999 (the "Plan"); and
WHEREAS, pursuant to Section 14 of the Plan, the Nominating and
Compensation Committee of the Board of Directors of the Corporation deems it to
be in the Corporation's best interest to amend the Plan as described below;
NOW, THEREFORE, the Plan is hereby amended, effective April 1, 1999, as
follows:
1. The Plan is renamed the NiSource Inc. Nonemployee Director Restricted
Stock Unit Plan;
2. The first sentence of Section 6, paragraph (b) is amended to read as
follows:
Notwithstanding the provisions of paragraph (a) next above, all
Restricted Stock Units granted to a Nonemployee Director shall become
fully matured upon the Nonemployee Director's termination of service
on the Board due to death, disability, retirement from service on the
Board after attaining the age of seventy (70) years, or a Change in
Control of the Corporation.
3. Paragraph 9 is deleted in its entirety and replaced with the
following:
If the Nonemployee Director's service on the Board is terminated
for any reason other than death, disability, retirement from service
on the Board after attaining the age of seventy (70) years, or a
Change in Control of the Corporation, then each Nonemployee Director's
rights with respect to Restricted Stock Units which have not matured
on or prior to the date of the occurrence of such event will terminate
and be forfeited and neither the Nonemployee Director nor his heirs,
personal representatives, successors or assigns shall have any future
rights with respect to any such Restricted Stock Units.
This First Amendment to the Plan has been executed by a duly authorized
officer of the Corporation.
By: /s/ Mark D. Wyckoff
-----------------------------
Mark D. Wyckoff
Vice President, Human Resources
<PAGE> 1
EXHIBIT 10.19
NIPSCO INDUSTRIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AS AMENDED AND RESTATED EFFECTIVE SEPTEMBER 1, 1994
<PAGE> 2
NIPSCO INDUSTRIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AS AMENDED AND RESTATED EFFECTIVE SEPTEMBER 1, 1994
ARTICLE I
Purpose
Effective as of December 23, 1982, and as subsequently amended as of
January 1, 1989, Northern Indiana Public Service Company adopted the Northern
Indiana Public Service Company Supplemental Executive Retirement Plan. Effective
as of January 1, 1991, NIPSCO Industries, Inc. (the "Company") adopted the
NIPSCO Industries, Inc. Supplemental Executive Retirement Plan (the "Plan"), to
benefit the Company by providing key executives and employees with additional
security in order to aid the Company in retaining its present management and,
should circumstances require it, to aid the Company in attracting additions to
management. The Company, by providing such additional benefits, expects key
executives and employees to be available for consulting assignments to the
Company after retirement, at the Company's request. The Plan was amended and
restated, effective January 1, 1993 in order to clarify certain provisions. The
Plan is being further amended and restated effective September 1, 1994.
It is intended that the Plan be exempt from the reporting and disclosure
requirements of Title 1 of the Employee Retirement Income Security Act of 1974
because it is an unfunded plan maintained by an employer for the purpose of
providing benefits for a select group of management or highly compensated
employees.
ARTICLE II
Definitions
2.1 Definitions: Where the following words or phrases appear in the Plan, they
shall have the respective meanings set forth in the following Sections of
this Article, unless the context clearly indicates to the contrary.
2.2 Principal Entities:
a. Plan: NIPSCO Industries, Inc. Supplemental Executive Retirement Plan.
b. Company: NIPSCO Industries, Inc., and its subsidiaries and affiliates
that adopt the Plan for the benefit of key employees, or its successor
or successors.
c. NIPSCO Pension Plan: NIPSCO Industries, Inc. and Northern Indiana
Public Service Company Pension Plan Provisions Pertaining to Salaried
and Non-Exempt Employees, as amended from time to time.
<PAGE> 3
d. Committee: The Committee appointed by the Company to administer the
Plan.
e. Participant: An employee or retiree participating in the Plan in
accordance with the provisions of Article III.
2.3 Other Definitions:
a. Pension: A series of monthly amounts that are payable to a person who
is entitled to receive benefits under the Plan.
b. Retirement: A Participant's Normal or Early Retirement.
c. Normal Retirement: Termination of employment for reasons other than
death or disability after a Participant has: (1) attained age 62
years; or (2) attained age 60 years and completed at least 25 years of
Service, except as otherwise provided.
d. Early Retirement: Termination of employment for reasons other than
death or disability after the Participant both has attained age 55 and
completed at least ten (10) years of Service, but before the
Participant's Normal Retirement, except as otherwise provided.
e. Service: A Participant's or employee's employment or service with the
Company, as defined in the NIPSCO Pension Plan, or such other
employment or service date as determined by the Board of Directors of
the Company.
f. Compensation: As defined in the NIPSCO Pension Plan, but disregarding
the definition of Taxable Compensation and the limitations required by
Code Section 401(a)(17). In addition, for purposes of this Plan,
bonuses shall be considered in full as compensation and not limited to
50% of base pay.
g. Final Average Compensation: The result obtained by dividing the total
Compensation paid to a Participant during a considered period by the
number of months for which such Compensation was received. The
considered period shall be the sixty (60) consecutive calendar months
within the last 120 months of service which produces the highest
result.
h. Primary Social Security Benefit: The monthly amount available to a
Participant at age 65 (or at Retirement, if later) under the
provisions of title II of the Social Security Act in effect at the
time of termination of employment, assuming the following:
(1) The Participant attained age 65 in the year of Retirement, and
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(2) The Participant earned maximum taxable wages under Section
3121(a)(1) of the Code in all years prior to the year of
Retirement. A Participant's Primary Social Security Benefit Will
be deducted in accordance with Article IV, even though he may not
be receiving or may not be eligible to receive Social Security
benefits.
i. Code: The Internal Revenue of Code of 1986, as amended.
ARTICLE III
Participation
The Board of Directors of the Company shall select which key employees of the
Company will participate in the Plan. In accordance with Article I (Purpose), it
is intended that officers and certain other employees be eligible for
participation.
After the Board of Directors of the Company approves participation for an
individual, the Company will provide the individual with a notice of
participation in the Plan and a description of the Plan.
ARTICLE IV
Plan Benefits
4.1 Supplemental Retirement Pension: Upon Normal Retirement, a Participant
shall be eligible for a monthly Supplemental Retirement Pension calculated
on a single-life basis equal to the larger of (a) or (b) below, reduced in
each case by the single-life pension the Participant is eligible to receive
under the NIPSCO Pension Plan.
a. The sum of:
(1) 1.7% of the Participant's Final Average Compensation multiplied by the
Participant's Service to a maximum of 30 years; plus
(2) 0.6% of the Participant's Final Average Compensation multiplied by the
Participant's Service in excess of 30 years.
b. The sum of:
(1) 3% of the Participant's Final Average Compensation multiplied by the
Participant's Service to a maximum of 20 years; plus
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(2) 0.5% of the Participant's Final Average Compensation multiplied by the
Participant's Service in excess of 20 years, to a maximum of 30 years;
(3) less 5% of the Participant's Primary Social Security Benefit,
multiplied by the Participant's Service to a maximum of 20 years.
Upon Early Retirement, a Participant shall be eligible for a monthly
Supplemental Retirement Pension in a reduced amount (as described in
Section 4.2 below).
4.2 Reduction for Early Retirement: A Participant who terminates employment
prior to Normal Retirement, but after Early Retirement, shall be eligible
for a monthly Supplemental Retirement Pension in an amount determined in
accordance with Section 4.1 above, but reduced as follows: (i) by six
percent (6%) for each of the first two (2) years and four percent (4%) for
each of the next five (5) years that commencement of the Participant's
Supplemental Retirement Pension precedes the date that the Participant
would attain age 62 years; or (ii) if the Participant had completed 25
years of Service at the time of his termination, by six percent (6%) for
the first year and four percent (4%) for each of the next four (4) years
that commencement of the Participant's Supplemental Retirement Pension
precedes the date that the Participant would attain age 60 years, with a
pro rata reduction for any fraction of a year.
4.3 Termination of Employment Prior to Early Retirement: Upon termination of
employment prior to Early Retirement, a Participant shall be eligible for a
monthly Supplemental Retirement Pension, calculated on a single-life basis
equal to the excess, if any, of the pension the Participant would be
eligible to receive under the NIPSCO Pension Plan, if the limitations
required by Code Sections 401(a)(17) and 415, the limitation on bonuses to
50% of base pay and the potential limitations relating to Taxable
Compensation were not applied, over the pension the Participant is eligible
to receive under the NIPSCO Pension Plan, and commencing on the same date
as the pension under the NIPSCO Pension Plan.
4.4 Supplemental Disability Pension: If a Participant becomes disabled (as
determined by the Committee) while in the active employment of the Company
prior to age 65, the Participant shall be eligible for a monthly
Supplemental Disability Pension to age 65, calculated on a single-life
basis, and equal to the larger of (a) or (b) below, reduced in each case by
the basic benefit the Participant is eligible to receive under the
long-term group disability insurance coverage provided under the NIPSCO
options benefit plan.
a. The sum of:
(1) 1.7% of the Participant's Final Average Compensation multiplied
by the Participant's Service to a maximum of 30 years, plus
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<PAGE> 6
(2) 0.6% of the Participant's Final Average Compensation multiplied
by the Participant's Service in excess of 30 years.
b. The sum of:
(1) 3% of the Participant's Final Average Compensation multiplied by
the Participant's Service to a maximum of 20 years; plus
(2) 0.5% of the Participant's Final Average Compensation multiplied
by the Participant's Service in excess of 20 years, to a maximum
of 30 years;
(3) less 5% of the Participant's Primary Social Security Benefit,
multiplied by the Participant's Service to a maximum of 20 years.
After age 65, the Participant shall be eligible for a monthly Supplemental
Retirement Pension in accordance with Section 4.1, based on Service the
Participant would have had if the Participant had continued working to age
65, the Participant's Final Average Compensation at the time he became
disabled, the Primary Social Security Benefit determined at the time the
Participant became disabled, and the single-life pension the Participant is
entitled to receive at age 65 from the NIPSCO Pension Plan, determined at
the time he became disabled.
4.5 Supplemental Spouse Pension: Upon the death of a Participant in active
employment, his or her spouse, if any, shall be eligible to receive a
monthly Supplemental Spouse Pension equal to the greater of:
a. 25% of the Participant's Final Average Compensation; or
b. the monthly amount that would have been payable to such surviving
spouse if the Participant had elected payment of his monthly
Supplemental Retirement Pension in the form of a reduced 50% joint and
survivor pension, with his spouse as the contingent annuitant,
terminated employment (on the date of his actual death) and then died
immediately prior to the commencement of payments.
The Supplemental Spouse Pension shall commence in the month next following
the month of the Participant's death and continue for the life of such
spouse. In the event that the Supplemental Spouse Pension calculated under
option a. of this Section will provide a greater benefit to the spouse
immediately following the Participant's death, but option b. of this
Section will provide a greater monthly benefit as of the date the
Participant would have attained age 55, the amount of monthly Supplemental
Spouse Pension payable to the surviving spouse shall be: (1) calculated and
payable under option a. during the period immediately following the
Participant's death; and (2) recalculated and payable according to option
b. beginning on the date the Participant would have attained age 55.
Beginning on the earliest date that the surviving spouse could have begun
receiving a benefit under the NIPSCO Pension Plan, the Supplemental Spouse
Pension payable under this Section shall be reduced by the amount of
benefit under the NIPSCO Pension Plan that the spouse is (or would have
been) entitled to receive.
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<PAGE> 7
4.6 Optional Forms of Payment: In lieu of the single-life pension described in
Section 4.1, a Participant may elect to receive a reduced 50% joint and
survivor pension with his or her spouse as the contingent annuitant. The
reduction in the Participant's pension will be computed in the same manner
as in the NIPSCO Pension Plan.
4.7 Retiree Death Benefit: Upon the death of a retired Participant, a lump-sum
death benefit equal to 50% of his or her retiree group life insurance shall
be paid to the retiree's beneficiary.
4.8 Cost of Living Adjustment: The benefits payable under Sections 4.1 through
4.6 shall be increased in the same percentage and at the same time as cost
of living adjustments are made to the pensions of salaried employees of the
Company under the NIPSCO Pension Plan.
4.9 Small Benefit Amounts: At the discretion of the Committee, small benefits
may be paid in quarterly, semi-annual or annual installments, or in a
single lump sum.
ARTICLE V
Miscellaneous
5.1 Plan Financing: Except as set forth below, benefits under this Plan shall
be paid from the general assets of the Company. To the extent any
Participant acquires a right to receive payments hereunder, such right
shall be no greater than the right of any other unsecured creditor of the
Company. Notwithstanding the foregoing, the Company shall enter into a
trust agreement ("Trust Agreement") whereby the Company shall agree to
contribute to a trust ("Trust") for the purpose of accumulating assets to
assist the Company in fulfilling its obligations to Participants hereunder.
Such Trust shall include the provision that all assets of the Trust shall
be subject to the creditors of the Company in the event of insolvency.
5.2 Non-Compete and Related Provisions: Benefits under this Plan may be
forfeited if:
a. A Participant, while employed by the Company or within a period of
three (3) years after the Participant's termination of employment for
any reason, including Retirement (the "Restrictive Period"), engages
in activity or employment that directly or indirectly competes with
the business of the Company, including, but not by way of limitation,
by directly or indirectly owning, managing, operating, controlling,
financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing,
or attempting to solicit or induce, any employee or agent of the
Company to terminate employment with the Company, and become employed
by, any person, firm, partnership, corporation, trust or other entity
that provides commodities, products or services to customers of the
Company of the same type as commodities, products or services provided
by the Company (the "Restrictive Covenant"). The foregoing Restrictive
Covenant shall not prohibit a Participant from owning directly or
indirectly capital stock or similar securities
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<PAGE> 8
which are listed on a securities exchange or quoted on the National
Association of Securities Dealers Automated Quotation System which do
not represent more than one percent (1%) of the outstanding capital
stock of any such entity; or
b. A Participant performs any action or makes any statement that
is detrimental to the Company, unless such action or statement
is retracted to the Company's satisfaction after the
Participant is notified regarding such action or statement.
5.3 Nonguarantee of Employment: Participation in the Plan does not limit the
right of the Company to discharge any individual with or without cause.
5.4 Nonalienation of Benefits: A Participant may not assign or transfer any
benefits under this Plan.
5.5 Plan Amendment or Termination: The Chairman of the Board of Directors may
amend any provision of this Plan except for Article III and Article IV,
which may only be amended by the Company. The Company may terminate the
Plan at any time, except that any benefits that are payable due to a
retirement, death or disability occurring prior to the amendment or
termination shall not be reduced or discontinued. No amendment or
termination of the Plan shall directly or indirectly deprive any current or
former Participant (or beneficiary) of all or any portion of any
Supplemental Retirement Benefit or surviving spouse benefit, the payment of
which has commenced prior to the effective date of such amendment or
termination, or which would be payable if the Participant terminated
employment for any reason on such effective date. Upon termination of the
Plan, distribution of Supplemental Retirement Benefits and any surviving
spouse benefits shall be made to Participants, spouses or beneficiaries in
the manner and at the time described in Article IV of the Plan. No
additional Supplemental Retirement Benefits shall be earned after
termination of the Plan, except as provided in Section 6.3.
5.6 Indemnification:
a. Limitation of Liability: Notwithstanding any other provision of the
Plan or the Trust, none of the Company or any member of the Committee,
or an individual acting as an employee or agent of any of them, shall
be liable to any Participant or former Participant, or any beneficiary
or eligible spouse of any Participant or former Participant, for any
claim, loss, liability or expense incurred in connection with the Plan
or the Trust, except when the same shall have been judicially
determined to be due to the willful misconduct of such person.
b. Indemnity: The Company shall indemnify and hold harmless each member
of the Committee, or any employee of the Company or any individual
acting as an employee or agent of either of them (to the extent not
indemnified or saved harmless
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<PAGE> 9
under any liability insurance or any other indemnification arrangement
with respect to the Plan or the Trust) from any and all claims,
losses, liabilities, costs and expenses (including attorneys' fees)
arising out of any actual or alleged act or failure to act made in
good faith pursuant to the provisions of the Plan, including expenses
reasonably incurred in the defense of any claim relating thereto with
respect to the administration of the Plan or the Trust, except that no
indemnification or defense shall be provided to any person with
respect to any conduct that has been judicially determined, or agreed
by the parties, to have constituted willful misconduct on the part of
such person, or to have resulted in his receipt of personal profit or
advantage to which he is not entitled. In connection with the
indemnification provided by the preceding sentence, expenses incurred
in defending a civil or criminal action, suit or proceeding, or
incurred in connection with a civil or criminal investigation, may be
paid by the Company in advance of the final disposition of such
action, suit, proceeding, or investigation, as authorized by the
Committee in the specific case, upon receipt of an undertaking by or
on behalf of the party to be indemnified to repay such amount unless
it shall ultimately be determined that the person is entitled to be
indemnified by the Company pursuant to this paragraph.
c. Severability: Each of the Sections contained in the Plan, and each
provision in each Section, shall be enforceable independently of every
other Section or provision in the Plan, and the invalidity or
unenforceability of any Section or provision shall not invalidate or
render unenforceable any other Section or provision contained herein.
If any Section or provision in a Section is found invalid or
unenforceable, it is the intent of the parties that a court of
competent jurisdiction shall reform the Section or provision to
produce its nearest enforceable economic equivalent.
5.7 Action by Company: Any action required or permitted of the Company under
the Plan shall be by resolution of its Board of Directors or by a duly
authorized committee of its Board of Directors, or by a person or persons
authorized by resolution of its Board of Directors or such committee.
ARTICLE VI
Change in Control
6.1 Change in Control: A Change in Control shall be deemed to take place on the
occurrence of any of the following events:
a. The acquisition by an entity, person or group (including all
Affiliates or Associates of such entity, person or group) of
beneficial ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, of capital stock of the Company
entitled to exercise more than thirty percent (30%) of the outstanding
voting power of all capital stock of the Company entitled to vote in
elections of directors ("Voting Power");
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<PAGE> 10
b. The effective time of (i) a merger or consolidation of the Company
with one or more other corporations as a result of which the holders
of the outstanding Voting Power of the Company immediately prior to
such merger or consolidation (other than the surviving or resulting
corporation or any Affiliate or Associate thereof) hold less than
fifty percent (50%) of the Voting Power of the surviving or resulting
corporation, or (ii) a transfer of thirty percent (30%) of the Voting
Power, or a Substantial Portion of the Property, of the Company other
than to an entity of which the Company owns at least fifty percent
(50%) of the Voting Power; or
c. The election to the Board of Directors of the Company of candidates
who were not recommended for election by the Board of Directors of the
Company in office immediately prior to the election, if such
candidates constitute a majority of those elected in that particular
election.
d. For purposes of this Article, the term: (1) "Affiliates and
Associates" shall have the meaning given it in Rule 12b-2 under the
Securities Exchange Act of 1934; and (2) "Substantial Portion of the
Property of the Company" shall mean fifty percent (50%) of the
aggregate book value of the assets of the Company and its Affiliates
and Associates as set forth on the most recent balance sheet of the
Company, prepared on a consolidated basis, by its regularly employed,
independent, certified public accountants.
e. Notwithstanding the foregoing, a Change in Control shall not be deemed
to take place with respect to a Participant by virtue of any
transaction in which the Participant is a participant in a group
effecting an acquisition of the Company and, after such acquisition,
the Participant holds an equity interest in the entity that has
acquired the Company.
6.2 Potential Change in Control: A "Potential Change in Control" shall include
any of the following:
a. The delivery to the Company by any "person," as defined in Section
13(d) (3) of the Act, of a statement containing the information
required by Schedule 13-D under the Act, or any amendment to any such
statement, that shows that such person has acquired, directly or
indirectly, the beneficial ownership of (i) more than twenty percent
(20%) of any class of equity security of the Company entitled to vote
as a class in the election or removal from office of directors, or
(ii) more than twenty percent (20%) of the voting power of any group
of classes of equity securities of the Company entitled to vote as a
single class in the election or removal from office of directors.
b. The Company becomes aware that preliminary or definitive copies of a
proxy statement and information statement or other information have
been filed with the Securities and Exchange Commission pursuant to
Rule 14a-6, Rule 14c-5, or Rule 14f-1 under the Act relating to a
proposed change in control of the Company.
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c. The delivery to the Company pursuant to Rule 14d-3 under the Act of a
Tender Offer Statement relating to equity securities of the Company.
d. The Board of Directors of the Company adopts a resolution to the
effect that for purposes of this Trust a Potential Change in Control
has occurred.
6.3 Additional Service and Compensation Upon Change in Control: With respect to
a Participant who, pursuant to contract with the Company, is entitled to
compensation from the Company for an additional 36 months in the event
that, within 24 months after a Change in Control, the Participant's
employment is terminated by the Company for any reason other than Good
Cause, or the Participant terminates employment with the Company for Good
Reason, such Participant's years of Service under Section 2.3 and
Supplemental Retirement Pension under Section 4.1 of the Plan shall be
calculated as if the Participant had continued in employment with the
Company for an additional 36 months, at the rate of Compensation in effect
immediately prior to his employment termination; provided that, in no event
shall the counting of a Participant's Compensation during this 36 month
period reduce his Final Average Compensation figure below its highest level
prior to the Participant's termination of employment.
6.4 Waiver of Service and Age Requirements Upon Change in Control: A
Participant whose employment is terminated upon or after a Change in
Control, but prior to Early Retirement shall be eligible for the
Supplemental Retirement Pension specified in Section 4.1, rather than the
Supplemental Retirement Pension specified in Section 4.3, commencing at
Normal Retirement, except that the Participant may elect to begin receiving
such Supplemental Retirement Pension at any time after attaining age 55
years, subject to the reduction specified in Section 4.2.
6.5 Funding of Plan Benefits Upon Change in Control: Upon a Potential Change in
Control, the Committee shall identify the amount by which the present value
of all benefits earned to date under the Plan (after offsets) exceeds the
value of the applicable Trust assets, calculated using the Pension Benefit
Guaranty Corporation immediate annuity interest rate as of the date of the
Potential Change in Control, the 1983 GAM mortality tables, and the most
valuable optional payment form (the "Full Funding Amount"), and the Company
shall contribute such Full Funding Amount to the Trust. Each Participant's
benefits for purposes of calculating present value shall be the highest
benefit the Participant would have under the Plan within the six (6) months
following a Potential Change in Control, assuming that the Participant's
employment continues for six (6) months at the same rate of Compensation,
and that the Participant receives any benefit enhancement provided by the
Plan, or any other agreement, upon a Change in Control.
6.6 Plan Administration and Amendment Upon a Change in Control: Upon and after
a Change in Control, the Company no longer shall have the power to appoint
or remove members of the Committee, nor the power to approve legal counsel
or actuaries employed by the Committee. Upon and after a Change in Control
only the Committee members shall have the power to appoint or remove
members. If, at any time after a Change in Control, all
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<PAGE> 12
members of the Committee have been removed or resigned, then all of the
powers, rights and duties vested in the Committee by Article VII below
shall be vested in the trustee of the Trust.
6.7 Committee Discretion to Pay Lump Sum After a Change in Control: Upon and
after a Change in Control, the Committee may, in its sole discretion,
distribute, or cause the trustee under the Trust to distribute, to a
Participant the present value (determined in accordance with the
assumptions in Section 6.5) of the Participant's Supplemental Retirement
Pension, Supplemental Disability Pension, and any other benefit payable
under this Plan, in a lump sum payment.
6.8 Definitions:
a. Good Cause: shall be deemed to exist if, and only if the Participant:
(1) engages in acts or omissions constituting dishonesty, intentional
breach of fiduciary obligation, intentional wrongdoing or malfeasance,
in each case that results in substantial harm to the Company; or (2)
is convicted of a criminal violation involving fraud or dishonesty.
b. Good Reason: shall exist if: (1) there is a significant change in the
nature or scope of the Participant's authority or duties; (2) there is
a significant reduction in the Participant's monthly rate of Base
Salary or benefits; or (3) the Company changes by 100 miles or more,
the principal location in which the Participant is required to perform
services.
ARTICLE VII
Plan Administration: The Committee
7.1 Committee Membership: The Company shall appoint a Committee to administer
the Plan. A Committee member may resign at any time by giving thirty days'
advance written notice to the Company and the other Committee members. The
Company may remove a Committee member by giving advance written notice to
him and the other Committee members.
7.2 General Powers, Rights and Duties: The committee has the following powers,
rights and duties in addition to those given it elsewhere in the Plan:
a. To select a chairman and secretary, if it believes it advisable, who
may, but need not, be Committee members.
b. To interpret the Plan and determine all questions arising in the
administration, interpretation and application of the Plan, including,
but not limited to the power to determine the rights or eligibility of
employees or
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Participants and their beneficiaries, and the amount of their
respective benefits under the Plan, and to remedy ambiguities,
inconsistencies or omissions.
c. To adopt such rules of procedure and regulations as in its opinion may
be necessary for the proper and efficient administration of the Plan
and as are consistent with the Plan.
d. To enforce the Plan and the rules and regulations, if any, adopted by
the Committee as above.
e. To direct the trustee as respects benefit payments or other
distributions from the Trust fund pursuant to the provisions of the
Plan.
f. To furnish the Company with such information as may be required by it
for tax or other purposes as respects the Plan.
g. To employ agents, attorneys, accountants, actuaries or other persons
(who also may be employed by the Company) and to allocate or delegate
to them such powers, rights and duties as the Committee may consider
necessary or advisable to properly carry out the administration of the
Plan, including maintaining the accounts of Participants, provided
that such allocation or delegation, and the acceptance thereof by such
agents, attorneys, accountants, actuaries or other persons, shall be
in writing.
7.3 Manner of Action: During a period in which two or more Committee members
are acting, the following provisions shall apply where the context admits:
a. A Committee member by writing may delegate any or all of his rights,
powers, duties and discretion to any other Committee member, with the
consent of the latter.
b. The Committee members may act by meeting, or by writing signed without
meeting, and may sign any document by signing one document or concur
rent documents.
c. An action or a decision of a majority of the Committee members as to a
matter shall be as effective as if taken or made by all Committee
members.
d. If, because of the number qualified to act, there is an even division
of opinion among the Committee members as to a matter, the Company
shall decide the matter; except that this provision shall not apply
upon or after a Change in Control.
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e. The certificate of the secretary of the Committee or of a majority of
the Committee members that the Committee has taken or authorized any
action shall be conclusive in favor of any person relying on the
certificate.
7.4 Information Required by Committee: The Company shall furnish the Committee
with such data and information as the Committee may deem necessary or
desirable in order to administer the Plan. The records of the Company as to
an employee's or Participant's period or periods of employment, termination
of employment and the reason therefor, reemployment and Compensation will
be conclusive on all persons unless determined to the Committee's
satisfaction to be incorrect. Participants and other persons entitled to
benefits under the Plan also shall furnish the committee with such
evidence, data or information as the Committee considers necessary or
desirable to administer the Plan.
7.5 Committee Decision Final: Subject to applicable law, and the provisions of
Section 7.6, any interpretation of the provisions of the Plan and any
decision on any matter within the discretion of the Committee made by the
Committee in good faith shall be binding on all persons. To the extent not
inconsistent with this Plan, all definitions, terms and provisions set
forth in the NIPSCO Pension Plan, including with respect to the
administrative powers and duties of the Committee, the expenses of
administration, and the procedures for filing claims, also shall be
applicable with respect to this Plan.
7.6 Claims Procedure: In the event that a Participant (or beneficiary) makes a
claim for benefits under the Plan to the Committee and such claim is denied
in whole or in part by the Committee, the Committee will notify the
Participant (or beneficiary) of the denial. Such notification will be made
in writing, within 90 days of the date the claim is received by the
Committee. The notification will include: (i) the specific reasons for the
denial; (ii) specific reference to the Plan provisions upon which the
denial is based; (iii) a description of any additional information
necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and (iv) an explanation of the
applicable review procedures.
The Participant (or beneficiary) has 60 days from the date he receives
notice of a claim denial to file a written request for review of the denial
with the Committee. The Committee will review the claim denial and inform
the Participant (or beneficiary) in writing of its decision within 60 days
of the date the claim review request is received by the Committee. This
decision will be final.
-13-
<PAGE> 1
EXHIBIT 12
NISOURCE INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>U
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings as defined in item
503(d) of Regulation S-K:
Income before interest
charges .......................... $ 284,665,276 $ 287,877,630 $ 319,514,639 $ 338,081,136 $ 376,782,105
Adjustments-
Federal income taxes ............. 95,676,572 80,626,310 97,010,863 115,799,335 91,898,851
State income tax ................. 15,214,803 12,781,207 16,856,952 16,785,056 14,131,404
Deferred investment tax
credit, net .................... (7,515,362) (7,407,813) (7,375,636) (7,360,787) (7,691,257)
Deferred income taxes, net ....... (1,479,358) 21,125,012 (1,466,940) (22,460,744) (7,890,731)
Federal and state income
taxes included in other
income ......................... (2,698,478) (206,820) 987,240 (1,900,910) 0
Amortization of
capitalized interest ........... 247,516 247,512 0 0 0
------------- ------------- ------------- ------------- -------------
$ 384,110,969 $ 395,043,038 $ 425,527,118 $ 438,943,086 $ 467,230,372
============= ============= ============= ============= =============
Fixed charges as defined in
item 503(d) of Regulation S-K:
Interest on long-term debt ......... $ 82,655,251 $ 84,254,716 $ 102,842,096 $ 111,419,929 $ 131,788,756
Other interest ..................... 13,561,297 17,759,136 13,453,006 16,536,021 33,234,751
Amortization of premium,
reacquisition premium,
discount and expense
on debt, net ..................... 4,401,658 4,605,471 4,718,120 4,589,696 5,148,168
Interest portion of rent
expense .......................... 2,415,111 2,656,116 2,939,650 7,899,302 16,757,234
Minority Interest (Topies) ......... 17,810,625
Capitalized interest during period.. 234,613 0 0 0 0
------------- ------------- ------------- ------------- -------------
$ 103,267,930 $ 109,275,439 $ 123,952,872 $ 140,444,948 $ 204,739,534
============= ============= ============= ============= =============
Plus preferred stock dividends:
Preferred dividend
requirements of subsidiary ....... $ 9,046,207 $ 8,711,985 $ 8,691,457 $ 8,538,180 $ 8,334,254
Preferred dividend
requirements factor .............. 1.54 1.59 1.54 1.49 1.61
------------- ------------- ------------- ------------- -------------
Preferred dividend
requirements of subsidiary ....... 13,931,159 13,852,056 13,384,844 12,721,888 13,418,144
Fixed charges ...................... 103,267,930 109,275,439 123,952,872 140,444,948 204,739,534
------------- ------------- ------------- ------------- -------------
$ 117,199,089 $ 123,127,495 $ 137,337,716 $ 153,166,836 $ 218,157,678
============= ============= ============= ============= =============
Ratio of earnings to fixed
charges .......................... 3.28 3.21 3.10 2.87 2.14
</TABLE>
<PAGE> 1
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
================================================================================
- --------------------------------------------------------------------------------
HOLDING COMPANY
- --------------------------------------------------------------------------------
NiSource Inc. (NiSource), formerly NIPSCO Industries, Inc., is an energy and
utility-based holding company headquartered in Merrillville, Indiana, that
provides natural gas, electricity and water to the public for residential,
commercial and industrial uses. NiSource was organized as an Indiana holding
company in 1987 under the name "NIPSCO Industries, Inc.," and changed its name
to NiSource Inc. on April 14, 1999, to reflect its new direction as a
multi-state supplier of energy and water resources and related services.
NiSource's gas business is comprised primarily of regulated gas utilities that
operate throughout northern Indiana and New England. In addition, NiSource
expanded its gas marketing, trading and storage operations with the April 1999
acquisition of TPC Corporation, now renamed EnergyUSA-TPC Corp. (TPC).
NiSource's electric business is comprised of a regulated electric utility that
operates in northern Indiana. The electric business also includes wholesale
sales and power trading activities. NiSource's regulated gas and electric
subsidiaries are collectively referred to as the "Energy Utilities." NiSource's
regulated water subsidiaries are collectively called the "Water Utilities."
Collectively the Energy and Water Utilities are referred to as the "Utilities."
Non-regulated energy and utility-related products and services are provided
through the "Products and Services" subsidiaries. Products and Services
subsidiaries perform energy-related services and offer products in connection
with these services, which include pipeline construction, repair and maintenance
of underground gas pipelines and locating and marking utility lines.
In addition to the Utilities and the Products and Services subsidiaries,
NiSource has a wholly-owned subsidiary, NiSource Capital Markets, Inc. (Capital
Markets), which engages in financing activities for NiSource and certain of its
subsidiaries, excluding Northern Indiana Public Service Company (Northern
Indiana).
- --------------------------------------------------------------------------------
NET INCOME
- --------------------------------------------------------------------------------
Net income decreased $33.5 million from 1998 to $160.4 million for 1999.
The 1999 and 1998 twelve month periods are not directly comparable due to the
acquisition of Bay State Gas Company (BSG) in February 1999 and TPC in April
1999. As natural gas businesses, BSG and TPC record the bulk of their revenues
during the winter heating season. The timing of these acquisitions, the seasonal
nature of these operations and a milder-than-normal winter and fall resulted in
lower earnings for the year.
Excluding the results of operations of the BSG and TPC, 1999 earnings
reflected stronger operating results from NiSource's electric and water
businesses along with continued customer growth. Results include after-tax
charges of $8.1 million incurred in connection with the company's attempted
acquisition of Columbia Energy Group (CEG). NiSource also recorded after-tax
adjustments of $21.7 million during 1999. These adjustments were the result of
adverse economic conditions which impacted equity investments, the most
significant of which was in oil and gas development, and the decision to abandon
a number of non-core businesses and facilities.
For 1998, net income increased $3.1 million from 1997 to $193.9 million due
primarily to an increase in electric utility margin resulting from a warmer 1998
summer as compared to 1997 and a full year of results of operations relating to
the Water Utilities, offset partially by a weak performance in electric
wholesale operations.
- --------------------------------------------------------------------------------
GAS REVENUES
- --------------------------------------------------------------------------------
The gas revenues described herein represent the combined revenues of our gas
utilities and gas marketing segments adjusted for intercompany transactions. Gas
revenues were $1.7 billion in 1999, an increase of $443.7 million from 1998.
This increase was primarily due to the inclusion of $316.4 million gas revenues
from BSG, increased gas marketing and trading revenues as a result of the TPC
acquisition in April 1999 and increased gas sales to residential customers as a
result of colder weather during 1999, partially offset by decreased gas sales to
commercial and industrial customers. During 1999, gas deliveries in dekatherms
(dth), which include transportation services and BSG, increased 31%. Gas
deliveries to residential and commercial customers increased reflecting the
acquisition of BSG and heating degree-days 12% higher than 1998. The Energy
Utilities had 1,071,221 gas customers at December 31, 1999.
Gas revenues were $1.2 billion in 1998, an increase of $25.2 million from
1997. This increase is attributable to increased gas marketing activity
partially offset by decreased deliveries to residential and commercial customers
due to significantly warmer weather than 1997, decreased gas costs per dth and
decreased gas transition costs. During 1998, gas deliveries in dth, which
include transportation services, increased 6% due to increased gas marketing
activities, partially offset by gas deliveries to residential and commercial
customers which decreased 20% and 23%, respectively, reflecting heating
degree-days 21% lower than 1997.
Large commercial and industrial customers continue
24
<PAGE> 2
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
================================================================================
to utilize transportation services provided by the Energy Utilities. Gas
transportation customers purchase much of their gas directly from producers and
marketers and then pay a transportation fee to have their gas delivered over the
Energy Utilities' systems. The Energy Utilities transported 252.5, 202.9, and
200.9 million dth for others in 1999, 1998 and 1997, respectively. The basic
steel industry accounted for 15% of natural gas delivered (including volumes
transported) during 1999.
The components of the changes in gas revenues are shown in the following
table:
YEAR 1999 YEAR 1998
COMPARED TO COMPARED TO
YEAR 1998 YEAR 1997
(In millions)
Gas Revenue Changes
Pass through of net
changes in purchased
gas costs, gas storage
and storage trans-
portation costs...................... $ 12.9 $ (60.6)
Gas transition costs.................... (4.3) (22.4)
Changes in sales levels................. 26.1 (100.5)
Bay State Gas
Acquisition.......................... 316.4 --
Gas transported......................... 6.4 8.4
Gas marketing
and trading.......................... 86.2 200.3
-------- --------
Gas Revenue Change........................ $443.7 $ 25.2
- --------------------------------------------------------------------------------
GAS COSTS OF SALES
- --------------------------------------------------------------------------------
The gas costs described herein represent the combined costs of our gas utilities
and gas marketing segments adjusted for intercompany transactions. The gas costs
increased $262.4 million (28%) in 1999 due to the inclusion of gas costs of
$155.2 million for BSG, increased gas marketing and trading activities and
increased purchased gas costs per dth for the Energy Utilities. The average cost
for the Energy Utilities' purchased gas in 1999, after adjustment for gas
transition costs billed to transport customers, was $2.67 per dth excluding
purchased gas costs of BSG as compared to $2.60 per dth in 1998. Gas costs
increased $67.9 million (8%) in 1998 mainly due to increased purchases of gas of
$198 million related to gas marketing activities partially offset by decreased
gas purchases, decreased gas transition costs and decreased gas costs per dth by
the Energy Utilities. The average cost for the Energy Utilities' purchased gas
in 1998, after adjustment for gas transition costs billed to transport
customers, was $2.60 per dth as compared to $3.15 per dth in 1997.
- --------------------------------------------------------------------------------
GAS OPERATING MARGINS
- --------------------------------------------------------------------------------
Gas operating margin increased $181.3 million in 1999. This increase mainly
reflects $161.2 million of gas operating margin from BSG and increased
deliveries to residential and commercial customers reflecting colder weather
during 1999, partially offset by decreased deliveries to industrial customers.
Gas operating margin decreased $42.7 million in 1998 due to decreased deliveries
to residential and commercial customers reflecting the warmer heating season in
1998 than 1997, partially offset by increased deliveries of gas transported for
others.
- --------------------------------------------------------------------------------
ELECTRIC REVENUES
- --------------------------------------------------------------------------------
In 1999, electric revenues were $1.1 billion (after elimination of intercompany
transactions of approximately $3.0 million), a decrease of $305.6 million from
1998. Sales of electricity in kilowatt-hours (kwh) decreased 38% from 1998.
Electric revenues decreased as a result of significantly reduced non-regulated
wholesale sales and power marketing transactions, partially offset by increased
electric sales to residential and commercial customers due to warmer weather
during the third quarter of 1999, and increased industrial sales. Sales to
residential and commercial customers increased 2% and 4% in kwh, respectively,
reflecting the warmer summer in 1999. At December 31, 1999, NiSource had 425,833
electric customers.
In 1998, electric revenues were $1.4 billion, an increase of $242.0 million
from 1997. Sales of electricity in kwh increased 25.5% from 1997. The increase
in elec-
25
<PAGE> 3
tric revenue was primarily due to increased sales to residential and
commercial customers (increases of 7% and 6% in kwh, respectively), reflecting a
significantly warmer summer in 1998 and increased wholesale sales and power
marketing activities. The increases were partially offset by a 2% kwh reduction
in sales to industrial customers, reflecting a full year of operations at two
cogeneration projects located at major industrial customers' facilities. The
basic steel industry accounted for 29% of electric sales during 1999.
The components of the changes in electric revenues are shown in the
following table:
YEAR 1999 YEAR 1998
COMPARED TO COMPARED TO
YEAR 1998 YEAR 1997
----------- -----------
(In millions)
Electric Revenue Changes
Pass through of net changes in fuel costs $ 5.5 $ (9.3)
Changes in sales levels.................. 39.1 15.3
Wholesale sales and power marketing...... (350.2) 236.0
----------- -----------
Electric Revenue Change.................... $(305.6) $ 242.0
----------- -----------
- --------------------------------------------------------------------------------
ELECTRIC COST OF SALES
- --------------------------------------------------------------------------------
Cost of fuel for electric generation in 1999 decreased $1.5 million compared to
1998 primarily due to decreased fuel costs per kwh generated. The average cost
per kwh generated decreased 3% from 1998 to 1.47 cents per kwh in 1999. Cost of
fuel for electric generation in 1998 increased mainly as a result of increased
production of 8%. The average cost per kwh generated decreased 3% from 1997 to
1.52 cents per kwh in 1998.
- --------------------------------------------------------------------------------
POWER PURCHASED
- --------------------------------------------------------------------------------
Power Purchased decreased $340.5 million in 1999 as a result of decreased
wholesale sales and power marketing activities. Power purchased increased $208.5
million in 1998 as a result of increased bulk power purchases and increased
wholesale power marketing activities.
- --------------------------------------------------------------------------------
ELECTRIC OPERATING MARGINS
- --------------------------------------------------------------------------------
Operating margin from electric sales in 1999 increased $36.5 million. This
increase occurred mainly due to improved margins on wholesale sales and power
trading transactions and increased sales to residential and commercial customers
as a result of warmer weather in the third quarter of 1999. Operating margin
from electric sales in 1998 increased $21.4 million due to increased sales to
residential and commercial customers, reflecting a significantly warmer summer
in 1998 than in 1997, and increased wholesale sales, partially offset by
decreased sales to industrial customers.
- --------------------------------------------------------------------------------
WATER REVENUE
- --------------------------------------------------------------------------------
Water revenues in 1999 were $98.4 million (after elimination of intercompany
transactions of approximately $0.1 million), of which water sales to residential
and commercial customers accounted for $88.2 million. The $14.4 million increase
was primarily due to increased water volumes sold and increased water rates for
Indianapolis Water Company (IWC) that became effective on April 8, 1998 and
April 8, 1999. The Water Utilities had sales of 45,424 in millions of gallons
(m.g.)
26
<PAGE> 4
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
================================================================================
and served 275,688 customers at December 31, 1999. Water revenues for 1998 were
$84.0 million. Water sales to residential and commercial customers accounted for
$75.2 million of 1998 revenues. The Water Utilities had sales of 40,822 m.g. and
served 253,664 customers at December 31, 1998. Water revenues for the period
April 1997 through December 1997 were $60.7 million, of which water sales to
residential and commercial customers accounted for $54.4 million. March 1997 was
the month during which NiSource acquired the Water Utilities. The Water
Utilities had sales of 32,504 m.g. during the last nine months of 1997 and
served 246,643 customers at December 31, 1997.
The components of the changes in water revenues are shown in the following
table:
YEAR 1999 YEAR 1998
COMPARED TO COMPARED TO
YEAR 1998 YEAR 1997
(In millions)
Water Revenue Changes
Rate increase.................... $ 4.9 $ 3.9
Changes in sales levels.......... 9.5 19.4
------- -------
Water Revenue Change............... $14.4 $23.3
- --------------------------------------------------------------------------------
WATER OPERATING MARGINS
- --------------------------------------------------------------------------------
The Water Utilities' operating margin in 1999 increased $14.4 million. This
increase was primarily due to increased water volumes sold and increased water
rates for IWC that became effective on April 8, 1998 and April 8, 1999. The
Water Utilities' operating margin in 1998 increased $23.2 million reflecting the
inclusion in the NiSource consolidated financial statements of a full year of
the Water Utilities' operating results in 1998. The Water Utilities contributed
$60.7 million to operating margin in 1997, reflecting the March 1997 acquisition
of the Water Utilities.
- --------------------------------------------------------------------------------
PRODUCTS AND SERVICES REVENUE
- --------------------------------------------------------------------------------
In 1999, Products and Services revenues were $271.7 million (after elimination
of intercompany transactions of approximately $12 million), an increase of $59.3
million from 1998. This increase reflects revenues from a new cogeneration
project which began commercial operations in August 1998, increased pipeline
construction activity, increased line locating and marking activity and the
inclusion of revenue of BSG's unregulated subsidiaries commencing in February
1999. In 1998, Products and Services revenues were $212.4 million, an increase
of $55.8 million from 1997. This increase reflected increased pipeline
construction activity and line locating and marking activities in the amount of
$31.7 million reflecting a full year of operations included in 1998 (the
pipeline construction and line locating businesses were acquired in March 1997)
and a new cogeneration project which began commercial operations in August 1998.
The components of the changes in operating revenues at Products and
Services are shown in the following table:
YEAR 1999 YEAR 1998
COMPARED TO COMPARED TO
YEAR 1998 YEAR 1997
(In millions)
Products and Services
Revenue Changes
Pipeline construction............ $11.1 $14.4
Locate and marking............... 5.4 17.3
Cogeneration project............. 19.1 16.1
Other............................ 23.7 8.0
Products and Services ------- -------
Revenue Change................... $59.3 $55.8
- --------------------------------------------------------------------------------
PRODUCTS AND SERVICES COST OF SALES
- --------------------------------------------------------------------------------
The cost of sales in 1999 for Products and Services increased $38.3 million.
This increase reflects the inclusion of cost of sales for certain subsidiaries
acquired in connection with the BSG acquisition and increased pipeline
construction activity and line locating and marking activities.
27
<PAGE> 5
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
================================================================================
The cost of sales in 1998 for Products and Services increased $28.3 million
mainly due to inclusion of the cost of sales for the pipeline construction and
line locating and marking subsidiaries (acquired in March 1997) for twelve
months in 1998 compared to nine months in 1997.
- --------------------------------------------------------------------------------
PRODUCTS AND SERVICES COST OF SALES
- --------------------------------------------------------------------------------
Products and Services operating margin increased $21.0 million during 1999,
reflecting a new energy-related project, which began commercial operations in
August 1998 and increased pipeline construction activity and the inclusion of
the operating margin of BSG's unregulated subsidiaries in February 1999.
Products and Services operating margin in 1998 increased $27.6 million
reflecting the inclusion of a full year of operations of pipeline construction
activity and line locating and marking activities and a new cogeneration project
which began commercial operations in August 1998.
- --------------------------------------------------------------------------------
OPERATING EXPENSES AND TAXES (EXCEPT INCOME)
- --------------------------------------------------------------------------------
Operating expenses and taxes (except income) increased $213.1 million from 1998,
of which $127.3 million is due to the acquisition of BSG in February 1999.
Operating expenses and taxes (except income) increased $18.5 million in 1998
from 1997.
The operating and maintenance expenses of the Energy Utilities increased
$89.1 million from 1998. The increase was primarily due to the inclusion of
$79.1 million of operating expenses of BSG commencing in February 1999,
increased operating costs of $7.4 million, increased employee related costs of
$15.6 million and increased expenses for distributed generation and fuel cell
research and development which were partially offset by a $13 million insurance
settlement related to manufactured gas plants site cleanup costs. The
unregulated gas and electric businesses operation expenses increased $10.4
million primarily due to the inclusion of $6.1 million of TPC operation costs
from April to December 1999. Operating and maintenance expenses at the Energy
Utilities decreased $22.7 million 1998 from 1997 mainly due to decreased
employee related costs of $11.7 million, decreased sales and marketing
activities of $5.7 million and decreased electric production operating costs of
$4.3 million.
28
<PAGE> 6
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
================================================================================
Operating expenses at the Water Utilities increased $5.8 million from 1998 due
to increased water treatment and employee related costs. Operation expenses at
the Water Utilities increased $12.2 million from 1997 reflecting the inclusion
of a full year of operation of the Water Utilities.
Operating expenses for Products and Services increased $14 million in 1999
reflecting the inclusion of operating expense of BSG's unregulated subsidiaries
in February 1999, and a full year of operating costs for a new cogeneration
facility which began commercial operation during 1998. Operating expenses for
Products and Services increased $22.6 million in 1998 from 1997 reflecting a
full year of operations for pipeline construction and line locating activities
acquired in March 1997 and the startup of operations of a new cogeneration
facility during 1998.
Operating expenses also include charges of $13.1 million for professional
fees and filing costs incurred during 1999 in connection with the attempted
acquisition of CEG.
Depreciation and amortization expenses increased $54.9 million in 1999 from
1998, primarily resulting from inclusion of depreciation and amortization for
BSG ($36.2 million) and increased depreciation expense at the Energy and Water
Utilities due to plant additions. Depreciation and amortization expense
increased $6.7 million in 1998 from 1997 as a result of plant additions and the
inclusion of twelve months of depreciation and amortization expenses for the
Water Utilities and its unregulated subsidiaries, including the pipeline
construction business and the line locating and marking business.
Taxes (except income) increased $15.4 million in 1999 primarily as the
result of the BSG acquisition ($12.0 million).
- --------------------------------------------------------------------------------
INTEREST EXPENSE, NET
- --------------------------------------------------------------------------------
Interest expense, net increased $37.8 million and $8.2 million in 1999 and
1998, respectively. The 1999 increase reflects the inclusion of interest charges
for BSG of $19 million, interest on the September 1999 issuance of $160 million
in Puttable Reset Securities (PURS) and increased interest expense on higher
short-term borrowings. The 1998 increase reflects twelve months of interest
payments on $300 million of Capital Markets' medium-term notes and $75 million
of Capital Markets' Junior Subordinated Deferrable Interest Debentures, Series A
and the inclusion of twelve months of interest expense at IWC Resources
Corporation (IWCR), which was acquired in March 1997.
29
<PAGE> 7
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
================================================================================
- --------------------------------------------------------------------------------
MINORITY INTERESTS
- --------------------------------------------------------------------------------
The 1999 increase of $16.7 million in minority interests reflects the dividends
paid on Company-obligated mandatorily redeemable Preferred Securities issued in
February 1999.
- --------------------------------------------------------------------------------
OTHER NET
- --------------------------------------------------------------------------------
Other, net decreased $29.6 million primarily reflecting the impact of adverse
economic conditions on certain equity investments, the most significant of which
was in oil and gas development. NiSource also decided to abandon certain
businesses and facilities that were not consistent with its strategic direction.
- --------------------------------------------------------------------------------
INCOME TAXES
- --------------------------------------------------------------------------------
Income Taxes decreased $10.4 million in 1999. This decrease ~is primarily a
result of decreased income before income taxes. Income taxes decreased $5.3
million in 1998. This decrease is primarily as a result of a decrease in income
before income taxes and a lower effective income tax rate.
See Notes to Consolidated Financial Statements for a discussion of
accounting policies and transactions impacting this analysis.
- --------------------------------------------------------------------------------
ENVIRONMENTAL MATTERS
- --------------------------------------------------------------------------------
The operations of NiSource are subject to extensive and evolving federal, state
and local environmental laws and regulations intended to protect the public
health and the environment. Such environmental laws and regulations affect
NiSource's operations as they relate to impacts on air, water and land.
Refer to "Environmental Matters" in the Notes to Consolidated Financial
Statements for information regarding certain environmental issues.
30
<PAGE> 8
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
================================================================================
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
Generally, cash flow from operations has provided sufficient liquidity to meet
current operating requirements. Because the utility and utility construction
business is seasonal in nature, commercial paper is issued for short-term
financing. As of December 31, 1999 and December 31, 1998, $299.6 million and
$193.7 million of commercial paper was outstanding, respectively. The weighted
average interest rate on commercial paper outstanding as of December 31, 1999
was 6.29%.
NiSource and its subsidiaries may borrow under two five-year, $100 million
revolving credit agreements that terminate on September 23, 2003 and two 364-day
$100 million revolving credit agreements that terminate on September 23, 2000.
The 364-day agreements may be extended at expiration for additional periods of
364 days. Under these agreements, funds are borrowed at a floating rate of
interest or, under certain circumstances, at a fixed rate of interest for
short-term periods. These agreements provide financing flexibility and may be
used to support the issuance of commercial paper. At December 31, 1999 and 1998,
there were no borrowings outstanding under these agreements.
In addition, various NiSource subsidiaries maintain lines of credit for up
to an aggregate of $199.9 million with lenders at either the lender's commercial
prime or market lending rates. As of December 31, 1999, there were $54.1 million
of borrowings outstanding under these lines of credit with a weighted average
interest rate of 6.06%. As of December 31, 1998, there were $84.1 million of
borrowings outstanding under these lines of credit.
NiSource and its subsidiaries maintain money market lines of credit for up
to $394.4 million. As of December 31, 1999, there were $156.2 million
outstanding under these money market lines of credit at a weighted average
interest rate of 6.78%. At December 31, 1998, there were $127.3 million of
borrowings outstanding under these money market lines of credit.
Forty million dollars in revenue bonds were issued in July 1998 and $80.0
million in medium-term notes were issued in February 1999. The revenue bonds,
which were used to redeem previously existing revenue bonds, bear interest at
5.95% per annum and mature on July 15, 2028. The medium-term notes, which were
used in part to reduce existing credit facilities, consist of $35.0 million in
ten-year notes that bear interest at 5.99% interest per annum and $45.0 million
in twenty-year notes that bear interest at 6.61% per annum.
In February 1999 an underwritten public offering of Corporate Premium
Income Equity Securities (Corporate PIES) was completed. The net proceeds of
approximately $334.7 million were primarily used to refinance the short-term
borrowings incurred to pay the cash portion of the acquisition cost of BSG, and
repay other short-term indebtedness. In September 1999, Capital Markets issued
$160 million of PURS in an underwritten public offering and the underwriters
acquired a call option to purchase the PURS on September 28, 2000. The net
proceeds from the sale of the PURS of $162.4 million were also used to refinance
short-term indebtedness incurred in connection with the acquisition of BSG in
February 1999. See "Short-Term Borrowings" in the Notes to the Consolidated
Financial Statements for a description of the Corporate PIES and the PURS.
In June 1999, NiSource commenced a tender offer to acquire CEG. In December
1999, CEG acknowledged preliminary indications of interest from numerous other
third parties and invited formal bids from those companies that had indicated a
preliminary value higher than the NiSource tender offer price of $74 per share.
As a result, in December, NiSource wrote off the costs associated with its
tender offer. On February 11, 2000, the NiSource tender offer expired.
On February 28, 2000, after completion of the bidding process initiated by
CEG, NiSource and CEG announced approval of a merger agreement under which
NiSource will form a new holding company, which will acquire all of the
outstanding shares of CEG valued at approximately $6 billion. The new holding
company will also assume approximately $2.5 billion of CEG debt. Under the
agreement, CEG shareholders have the option to receive new holding company stock
for up to 30% of the outstanding CEG shares. Under the common stock option, each
CEG share will be exchanged for $74 in new holding company stock, based on the
average NiSource share price prior to the closing, but not more than 4.4848
shares of new holding company stock for each CEG share. Under the cash option,
each CEG share will be exchanged for $70 in cash plus a $2.60 face value unit
(consisting of a zero coupon debt security with a forward equity contract). A
commitment letter was accepted under which certain financial institutions
agreed, under specified conditions, to provide up to $6.0 billion to finance the
acquisition of CEG. The merger is conditioned upon, among other things, the
approvals of the shareholders of both companies and various regulatory
commissions. If NiSource shareholder approval is not obtained, the merger
agreement provides that the transaction will automatically be restructured to
eliminate the 30% common stock option for CEG shareholders.
Utility construction expenditures for 1999, 1998 and 1997 were
approximately $341 million, $245 million and $219 million, respectively.
NiSource's total utility plant investment on December 31, 1999 was $8.2 billion.
During recent years, NiSource has been able to finance its construction program
with internally generated funds and expects to be able to meet future
commitments through such funds.
The Energy Utilities do not anticipate the need to file for retail gas or
electric base rate increases in the near future. IWC has agreed to a moratorium
on water rate increases until 2002.
On January 27, 2000, the Citizens Action Coalition
31
<PAGE> 9
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
================================================================================
(CAC), a private consumer organization, filed a petition before the Indiana
Utility Regulatory Commission (IURC). The petition does not seek a specified
amount of rate reduction, but rather alleges that the existing Northern Indiana
electric rates are "unreasonable and unsafe," and seeks to have the IURC force
Northern Indiana to produce detailed financial calculations that would justify
its electric rates. Northern Indiana intends to oppose the petition on both
legal and factual grounds, and believes that its current rates are just and
reasonable as required by statute.
During 1999, NiSource's non-utility subsidiaries acquired interests in
other properties and investments totalling approximately $44 milion.
- --------------------------------------------------------------------------------
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
- --------------------------------------------------------------------------------
Risk Management
Risk is an inherent part of NiSource's energy businesses and activities. The
extent to which NiSource properly and effectively identifies, assesses, monitors
and manages each of the various types of risk involved in its businesses is
critical to its profitability. NiSource seeks to identify, assess, monitor and
manage, in accordance with defined policies and procedures, the following
principal risks involved in NiSource's energy businesses: commodity market risk,
interest rate risk, credit risk and foreign currency risk. Risk management at
NiSource is a multi-faceted process with independent oversight that requires
constant communication, judgment and knowledge of specialized products and
markets. NiSource's senior management takes an active role in the risk
management process and has developed policies and procedures that require
specific administrative and business functions to assist in the identification,
assessment and control of various risks. In recognition of the increasingly
varied and complex nature of the energy business, NiSource's risk management
policies and procedures are evolving and subject to ongoing review and
modification.
NiSource is exposed to risk through various daily business activities,
including specific trading risks and non-trading risks. The non-trading risks to
which NiSource is exposed include interest rate risk, foreign currency risk and
commodity price risk of its Energy Utilities and certain gas marketing
activities. The market risk resulting from trading activities consists primarily
of commodity price risk. NiSource's risk management policy permits the use of
certain financial instruments to manage its market risk, including futures,
forwards, options and swaps. Risk management at NiSource is defined as the
process by which the organization ensures that the risks to which it is exposed
are the risks to which it desires to be exposed to achieve its primary business
objectives. NiSource employs various analytic techniques to measure and monitor
its market risks, including value-at-risk (VaR) and instrument sensitivity to
market factors. VaR represents the potential loss for an instrument or portfolio
from adverse changes in market factors, for a specified time period and at a
specified confidence level.
Trading Risks
COMMODITY MARKET RISK. Market risk refers to the risk that a change in the level
of one or more market prices, rates, indices, volatilities, correlations or
other market factors, such as liquidity, will result in losses for a specified
position or portfolio. NiSource employs a VaR model to assess the market risk of
all open derivative financial instruments. NiSource estimates the one-day VaR
across all trading groups which utilize derivatives using either Monte Carlo
simulation or variance/covariance at a 95 percent confidence level. Based on the
results of the VaR analysis, the daily market risk exposure for power trading on
an average, high, and low basis was $0.4, $1.2, and $0.014 million during 1999,
respectively. The daily VaR for gas trading on an average, high and low basis
was $1.3, $2.1 and $0.4 million, during 1999, respectively. At December 31,
1998, the daily VaR for gas trading was not significant.
NiSource implemented a VaR methodology in 1999 to introduce additional
market sophistication and to recognize the developing complexity of its
businesses.
Non-Trading Risks
COMMODITY MARKET RISK. Currently, commodity price risk resulting from
non-trading activities at the Energy Utilities is limited, since current
regulations allow the Energy Utilities to recoup any prudently incurred fuel and
gas costs through rate-making. As the utility industry undergoes deregulation,
however, the Energy Utilities will be providing services without the benefit of
the traditional rate-making and, therefore, will be more exposed to commodity
price risk. Additionally, NiSource enters into certain sales contracts with
customers based upon a fixed sales price and varying volumes which are
ultimately dependent upon the customer's supply requirements. NiSource utilizes
derivative financial instruments to reduce the commodity price risk based on
modeling techniques to anticipate these future supply requirements.
INTEREST RATE RISK. Long-term debt is utilized as a primary source of
capital. A significant portion of this long-term debt consists of medium-term
notes. In addition, longer term fixed-price debt instruments have been used that
in the past have been refinanced when interest rates decreased. To the extent
that such refinancing is economical, refinancing these fixed-price instruments
will continue.
CREDIT RISK. Credit risk arises in many of NiSource's business activities.
In sales and trading activities, credit risk arises because of the possibility
that a counterparty will not be able or willing to fulfill its obligations on a
32
<PAGE> 10
1999 FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Concluded)
================================================================================
transaction on or before settlement date. In derivative activities, credit risk
arises when counterparties to derivative contracts, such as interest rate swaps,
are obligated to pay NiSource the positive fair value or receivable resulting
from the execution of contract terms. Exposure to credit risk is measured in
terms of both current and potential exposure. Current credit exposure is
generally measured by the notional or principal value of financial instruments
and direct credit substitutes, such as commitments and standby letters of credit
and guarantees. Current credit exposure includes the positive fair value of
derivative instruments. Because many of NiSource's exposures vary with changes
in market prices, NiSource also estimates the potential credit exposure over the
remaining term of transactions through statistical analyses of market prices. In
determining exposure, NiSource considers collateral and master netting
agreements, which are used to reduce individual counterparty risk, primarily in
connection with derivative products.
FOREIGN CURRENCY RISK. NiSource is exposed to foreign currency risk
arising from equity investments in businesses owned and operated in foreign
countries. Exposures to these investments are periodically reviewed by
management and were not material to consolidated results in 1999.
Refer to Consolidated Statement of Long-Term Debt for detailed information
related to NiSource's long-term debt outstanding and "Fair Value of Financial
Instruments" in Notes to Consolidated Financial Statements for current market
valuation of long-term debt. Refer to "Summary of Significant Accounting
Policies--Accounting for Price Risk Management Activities" for further
discussion of NiSource's risk management.
Risk
"Year 2000 issues" were concerned with 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 any
system could have resulted in material operational and financial risks. Possible
scenarios included a system failure in a generating plant, an operating
disruption or delay in transmission or distribution of gas, electricity or
water, or an inability to interconnect with the systems of other utilities.
Failure to achieve year 2000 readiness could have had a material adverse effect
on results of operations, financial position and cash flows.
The program to address risks associated with the year 2000 on both
information technology (IT) and non-IT systems was completed in a timely manner.
State of Readiness
The NiSource year 2000 program consisted of four phases: inventory (identifying
systems potentially affected by the year 2000), assessment (testing identified
systems), remediation (correcting or replacing non-compliant systems) and
validation (evaluating testing remediated systems to confirm compliance). All
phases in all subsidiaries were completed in a timely manner.
Because NiSource depends on outside suppliers and vendors with similar year
2000 issues, the ability of those suppliers and vendors to provide an
uninterrupted supply of goods and services was assessed. Critical vendors and
suppliers were contacted in order to investigate their year 2000 efforts. In
addition, electricity and gas industry groups such as the North American
Electric Reliability Council, the Electric Power Research Institute and the
American Gas Association were helpful in evaluating the potential impact of year
2000 problems upon the electric grid systems and pipeline networks.
Costs
The total cost of the NiSource year 2000 program was $25.0 million. These costs
were funded from operations. Costs related to the maintenance or modification of
existing systems were expensed as incurred. Costs related to the acquisition of
replacement systems were capitalized. These costs did not have a material impact
on results of operations.
Contingency Plans
NiSource developed its contingency plans to address the possibility that any
mission-critical system would be non-compliant. This included identifying
alternate suppliers and vendors, conducting staff training and developing
communication plans. In addition, NiSource evaluated the ability to maintain or
restore service in the event of a power failure or operating disruption or
delay, along with the limited ability to mitigate the effects of a network
failure by isolating its own network from the non-compliant segments of the
greater network. These contingency plans were completed during the second
quarter of 1999 and reviewed during the fourth quarter of 1999. They were not
needed for the century rollover.
Results NiSource did not experience any system failures as a result of the
year 2000 issue.
- --------------------------------------------------------------------------------
COMPETITION AND REGULATORY CHANGES
- --------------------------------------------------------------------------------
The regulatory frameworks applicable to the Energy Utilities, at both the state
and federal levels, are undergoing fundamental changes. These changes have
impacted and will continue to have an impact on NiSource's operations, structure
and profitability. At the same time, competition within the electric and gas
industries will create opportunities to compete for new customers and revenues.
Management has taken steps to become more competitive and profitable in this
changing environment, including partnering on energy projects with major
industrial customers, converting some of its generating units to allow use of
lower cost, low sulfur coal, providing its gas customers with increased customer
choice for new products and services, acquiring companies which increase our
scale and establishing subsidiaries that provide gas and develop new
energy-related products for residential, commercial and industrial customers.
The Electric Industry. At the Federal level, the Federal Energy Regulatory
Commission (FERC) issued Order No. 888-A in 1996 which required all public
utilities owning, controlling or operating transmission lines to file
non-discriminatory open-access tariffs and offer wholesale electricity suppliers
and marketers the same transmission service they provide themselves. In 1997,
FERC approved Northern Indiana's open-access transmission tariff. On December
20, 1999, FERC issued a final rule addressing the formation and operation of
Regional Transmission Organizations (RTOs). The rule is intended to eliminate
pricing inequities in the provision of wholesale transmission service. NiSource
does not believe that compliance with the new rules will be material to future
earnings. Although wholesale customers currently represent a small portion of
Northern Indiana's electricity sales, it intends to continue its efforts to
retain and add wholesale customers by offering competitive rates and also
intends to expand the customer base for which it provides transmission services.
At the state level, NiSource announced in 1997 and 1998 that if a consensus
could be reached regarding electric utility restructuring legislation, NiSource
would support a restructuring bill before the Indiana General Assembly. During
1999, discussions were held with the other investor-owned utilities in Indiana
and with other segments of the Indiana electric industry regarding the technical
and economic aspects of possible legislation leading to greater customer choice.
A consensus was not reached. Therefore, NiSource did not support legislation
regarding electric restructuring during the 2000 session of the Indiana General
Assembly. During 2000, discussions will continue with all segments of the
Indiana electric industry in an attempt to reach a consensus on electric
restructuring legislation for introduction during the 2001 session of the
Indiana General Assembly.
The Gas Industry. At the Federal level, gas industry deregulation began in
the mid-1980s when FERC required interstate pipelines to provide
nondiscriminatory transportation services pursuant to unbundled rates. This
regulatory change permitted large industrial and commercial customers to
purchase their gas supplies either from the Energy Utilities or directly from
competing producers and marketers, which would then use the Energy Utilities'
facilities to transport the gas. More recently, the focus of deregulation in the
gas industry has shifted to the states.
At the state level, the IURC approved in 1997 Northern Indiana's
Alternative Regulatory Plan (ARP) which implemented new rates and services that
included, among other things, unbundling of services for additional customer
classes (primarily residential and commercial users), 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 cost savings or
cost increases with its customers based upon a comparison of Northern Indiana's
actual gas supply portfolio cost to a market-based benchmark price. Phase I of
Northern Indiana's Customer Choice Pilot Program ended on March 31, 1999. This
pilot program offered 82,000 residential customers within St. Joseph County and
10,000 commercial customers throughout the NiSource service area the right to
choose alternative gas suppliers. Phase II of Northern Indiana's Customer Choice
Pilot Program commenced April 1, 1999 and will continue for a one-year period.
During this phase, Northern Indiana is offering customer choice to all 660,000
residential and 50,000 commercial customers throughout its gas service
territory. A limit of 150,000 residential and 20,000 commercial customers are
eligible to enroll in Phase II of the program. The IURC order allows NiSource's
natural gas marketing subsidiary to participate as a supplier of choice to
Northern Indiana customers. In addition, as Northern Indiana has allowed
residential and commercial customers to designate alternative gas suppliers, it
has also offered new services to all classes of customers including price
protection, negotiated sales and services, gas lending and parking, and new
storage services.
In Massachusetts, Bay State implemented new unbundled rates and services
for all commercial-industrial customers in 1993, and launched one of the
nation's earliest residential and small commercial-industrial customer choice
pilot programs in 1996. The Bay State pilot, in which almost 28% of eligible
customers participated, is scheduled to conclude on April 1, 2000 when all
Massachusetts gas utilities are expected to begin making unbundled gas service
available to all customer classes pursuant to new statewide model terms and
conditions that are currently awaiting approval by the Massachusetts Department
of Telecommunications and Energy.
In New Hampshire, Northern Utilities introduced unbundled tariffs and
services for all commercial-industrial customers in 1994. In 1998, the New
Hampshire Public Utilities Commission (NHPUC) formed a collaborative group to
investigate the merits of further unbundling and advise the NHPUC accordingly.
The collaborative group has recommended new model tariffs and regulation
designed to make unbundled services available to all commercial-industrial
customers statewide on November 1, 2000, with consideration of residential
unbundling at a later date. Hearings before the NHPUC regarding the
recommendations are expected to be held during the first quarter of 2000.
In Maine, Northern Utilities introduced unbundled rates and services for
large commercial-industrial customers in December 1995 and expanded the
availability to all daily metered commercial and industrial customers on
November 1, 1999. In June 1999 the Maine Public Utilities Commission opened an
inquiry into the potential merits of further regulatory changes related to
unbundling. This inquiry is intended to investigate all the key elements of full
customer choice and will include a review of customer choice programs in
Massachusetts and New Hampshire.
To date, the Energy Utilities have not been materially affected by
competition and management does not foresee substantial adverse affects in the
near future unless the current regulatory structure is substantially altered.
NiSource believes the steps that it has taken to deal with increased competition
have had and will continue to have significant positive effects in the next few
years.
- --------------------------------------------------------------------------------
IMPACT OF ACCOUNTING STANDARDS
- --------------------------------------------------------------------------------
Refer to "Summary of Significant Accounting Policies--Impact of Accounting
Standards" in the Notes to Consolidated Financial Statements for information
regarding impact of accounting standards not yet adopted.
- --------------------------------------------------------------------------------
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. NiSource cautions that,
while it believes such statements to be based on reasonable assumptions and
makes such statements in good faith, you cannot be assured that the actual
results will not differ materially from such assumptions or that the
expectations set forth in the forward-looking statements derived from these
assumptions will be realized. You should be aware of important factors that
could have a material impact on future results. These factors include weather,
the federal and state regulatory environment, the economic climate, regional,
commercial, industrial and residential growth in the service territories served
by NiSource's 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 NiSource's control.
<PAGE> 11
CONSOLIDATED STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
----------------------- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Operating Revenues:
Gas...................................................... $1,653,450 $1,209,775 $1,184,621
Electric................................................. 1,121,038 1,426,600 1,184,591
Water.................................................... 98,383 83,979 60,743
Products and Services.................................... 271,705 212,424 156,586
--------- --------- ---------
3,144,576 2,932,778 2,586,541
--------- --------- ---------
Cost of Sales:
Gas costs................................................ 1,187,458 925,038 857,146
Fuel for electric generation............................. 249,164 250,649 238,548
Power purchased.......................................... 71,745 412,290 203,800
Products and Services.................................... 142,684 104,390 76,120
--------- --------- ---------
1,651,051 1,692,367 1,375,614
--------- --------- ---------
Operating Margin............................................ 1,493,525 1,240,411 1,210,927
--------- --------- ---------
Operating Expenses and Taxes (except income):
Operation................................................ 534,808 399,594 390,253
Maintenance.............................................. 82,208 74,630 76,552
Depreciation and amortization............................ 311,404 256,474 249,804
Taxes (except income).................................... 103,569 88,207 83,765
----------- ----------- -----------
1,031,989 818,905 800,374
----------- ----------- -----------
Operating Income............................................ 461,536 421,506 410,553
----------- ----------- -----------
Other Income (Deductions):
Interest expense, net.................................... (166,617) (128,804) (120,607)
Minority interests....................................... (17,693) (1,024) (356)
Dividend requirements on preferred stock................. (8,334) (8,538) (8,691)
Other, net............................................... (18,030) 11,608 16,124
----------- ----------- -----------
(210,674) (126,758) (113,530)
----------- ----------- -----------
Income before income taxes 250,862 294,748 297,023
----------- ----------- -----------
Income Taxes 90,448 100,862 106,174
----------- ----------- -----------
Net Income $ 160,414 $ 193,886 $ 190,849
=========== =========== ===========
Average common shares outstanding--basic 124,343,117 120,778,077 123,849,126
=========== =========== ===========
Basic earnings per average common share $ 1.29 $ 1.60 $ 1.54
=========== =========== ===========
Diluted earnings per average common share $ 1.27 $ 1.59 $ 1.53
=========== =========== ===========
Dividends declared per common share $ 1.035 $ 0.975 $ 0.915
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
34
<PAGE> 12
CONSOLIDATED STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
----------------------- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 160,414 $ 193,886 $ 190,849
Adjustments to reconcile net income to net cash:
Depreciation and amortization............................ 311,404 256,474 249,804
Deferred federal and state operating
income taxes, net..................................... (7,891) (21,941) (1,649)
Deferred investment tax credits, net..................... (7,691) (7,361) (7,376)
Other, net............................................... 22,472 (2,740) (9,756)
Change in certain assets and liabilities--*
Accounts receivable, net............................... 52,508 (21,137) (37,369)
Other receivables...................................... 8,570 75,451 (65,047)
Natural gas in storage................................. 46,905 (8,204) 3,657
Accounts payable....................................... (113,534) 19,785 (18,567)
Taxes accrued.......................................... (3,714) (9,833) 3,389
Gas cost adjustment clause............................. (20,660) 44,253 10,223
Accrued employment costs............................... 252 (6,678) 12,135
Other accruals......................................... 36,540 (11,641) 11,994
Other, net............................................... (32,545) (16,182) 92,270
---------- -------- --------
Net cash provided by operating activities............ 453,030 484,132 434,557
---------- -------- --------
Cash flows provided by (used in) investing activities:
Utility construction expenditures........................ (341,263) (245,825) (218,931)
Acquisition of businesses, net of cash acquired.......... (737,869) -- (288,932)
Proceeds from disposition of assets...................... 29,775 12,588 35,993
Proceeds from settlement of litigation................... -- -- 41,069
Other, net............................................... (61,080) (57,638) (66,561)
---------- -------- --------
Net cash used in investing activities................ (1,110,437) (290,875) (497,362)
---------- -------- --------
Cash flows provided by (used in) financing activities:
Issuance of long-term debt............................... 269,536 47,380 658,232
Retirement of long-term debt............................. (203,957) (95,631) (324,604)
Change in short-term debt................................ 168,978 197,018 (237,361)
Retirement of preferred shares........................... (2,407) (2,413) (2,408)
Proceeds from Corporate Premium Income Equity
Securities, net ....................................... 334,650 -- --
Issuance of common shares................................ 324,893 10,356 218,566
Acquisition of treasury shares........................... (126,455) (203,976) (133,073)
Cash dividends paid on common shares..................... (125,599) (116,386) (111,593)
Other, net............................................... 453 463 (507
---------- -------- --------
Net cash provided by (used in) financing activities 640,092 (163,189) 67,252
---------- -------- --------
Net increase (decrease) in cash and cash equivalents....... (17,315) 30,068 4,447
Cash and cash equivalents at beginning of period............ 60,848 30,780 26,333
========== ======== ========
Cash and cash equivalents at end of period.................. $ 43,533 $ 60,848 $ 30,780
========== ======== ========
</TABLE>
*Net of effect from acquisitions of businesses.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
35
<PAGE> 13
CONSOLIDATED STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998
------------ ---- ----
<S> <C> <C>
(Dollars in thousands)
Assets
Property, Plant and Equipment:
Utility Plant (including construction work in progress of $240,637 and
$197,112, respectively):
Electric................................................................... $4,237,427 $4,154,060
Gas........................................................................ 2,871,824 1,447,945
Water...................................................................... 750,376 663,355
Common..................................................................... 381,486 364,822
--------- ---------
8,241,113 6,630,182
Less--Accumulated provision for depreciation and amortization.............. 3,444,311 2,968,078
--------- ---------
Total utility plant........................................................ 4,796,802 3,662,104
--------- ---------
Other property, at cost, less accumulated provision for depreciation
of $56,414 and $39,090, respectively ........................................ 433,616 86,565
--------- ---------
Total Property, Plant and Equipment........................................ 5,230,418 3,748,669
--------- ---------
Investments:
Investments, at equity......................................................... 118,259 111,340
Investments, at cost........................................................... 55,851 41,609
Other investments.............................................................. 32,839 28,702
--------- ---------
Total Investments.......................................................... 206,949 181,651
--------- ---------
Current Assets:
Cash and cash equivalents...................................................... 43,533 60,848
Accounts receivable, less reserve of $30,619 and $8,984, respectively.......... 390,990 261,971
Other receivables.............................................................. 6,572 1,780
Fuel adjustment clause......................................................... 4,201 --
Gas cost adjustment clause..................................................... 92,498 45,738
Materials and supplies, at average cost........................................ 64,530 62,818
Electric production fuel, at average cost...................................... 31,968 32,402
Natural gas in storage......................................................... 63,750 69,640
Prepayments and other.......................................................... 73,561 41,670
--------- ---------
Total current assets....................................................... 771,603 576,867
--------- ---------
Other Assets:
Regulatory assets.............................................................. 208,634 209,059
Intangible assets, less accumulated provision for amortization................. 128,564 65,039
Prepayments and other.......................................................... 289,061 205,218
--------- ---------
Total other assets......................................................... 626,259 479,316
--------- ---------
$6,835,229 $4,986,503
========= =========
</TABLE>
36
<PAGE> 14
CONSOLIDATED STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998
------------ ---- ----
<S> <C> <C>
(Dollars in thousands)
Capitalization and Liabilities
Capitalization:
Common shareholders' equity ...................................... $1,353,504 $1,149,708
Preferred stocks--
Northern Indiana Public Service Company:
Series without mandatory redemption provisions
81,114 81,116
Series with mandatory redemption provisions .................. 54,030 56,435
Indianapolis Water Company:
Series without mandatory redemption provisions ............... 4,497 4,497
Company-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Company debentures ................. 345,000 --
Long-term debt, excluding amounts due within one year .......... 1,975,184 1,667,965
--------- ---------
Total capitalization ......................................... 3,813,329 2,959,721
--------- ---------
Current Liabilities:
Current portion of long-term debt .............................. 173,721 6,790
Short-term borrowings .......................................... 679,321 411,040
Accounts payable ............................................... 277,358 251,399
Dividends declared on common and preferred stocks .............. 34,535 31,072
Customer deposits .............................................. 28,736 22,199
Taxes accrued .................................................. 42,853 44,939
Interest accrued ............................................... 34,157 21,202
Fuel adjustment clause ......................................... -- 6,279
Accrued employment costs .................................... 60,647 52,121
Other ....................................................... 142,388 39,022
--------- ---------
Total current liabilities ................................. 1,473,716 886,063
--------- ---------
Other:
Deferred income taxes ......................................... 996,193 667,167
Deferred investment tax credits, being amortized over life of
related property ............................................ 94,946 98,177
Deferred credits .............................................. 94,058 68,046
Customer advances and contributions in aid of construction .... 140,562 118,778
Accrued liability for postretirement benefits ................. 157,517 143,870
Other noncurrent liabilities .................................. 64,908 44,681
--------- ---------
Total other ............................................... 1,548,184 1,140,719
--------- ---------
Commitments and Contingencies (see notes)
$6,835,229 $4,986,503
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
37
<PAGE> 15
CONSOLIDATED STATEMENT OF LONG-TERM DEBT
===============================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998
(Dollars in thousands)
<S> <C> <C> <C> <C>
Common shareholders' equity .......................... $1,353,504 35.5% $1,149,708 38.8%
Preferred Stocks, which are redeemable solely at
option of issuer:
Northern Indiana Public Service Company--
Cumulative preferred stock--$100 par value--
41/4% series--209,035 and 209,051 shares
outstanding, respectively ................. 20,903 20,905
41/2% series--79,996 shares outstanding ..... 8,000 8,000
4.22% series--106,198 shares outstanding .... 10,620 10,620
4.88% series--100,000 shares outstanding .... 10,000 10,000
7.44% series--41,890 shares outstanding ..... 4,189 4,189
7.50% series--34,842 shares outstanding ..... 3,484 3,484
Premium on preferred stock .................. 254 254
Cumulative preferred stock--no par value--
Adjustable Rate Series A (stated value--
$50 per share), 473,285 shares
outstanding 23,664 23,664
81,114 2.1% 81,116 2.7%
Indianapolis Water Company--
Cumulative preferred stock--$100 par value--
41/2% Series--44,966 shares outstanding ..... 4,497 0.1% 4,497 0.2%
Redeemable Preferred Stocks, subject to mandatory-
redemption requirements or
whose redemption is outside the control of issuer:
Northern Indiana Public Service Company--
Cumulative preferred stock--$100 par value--
8.85% series--37,500 and 50,000 shares
outstanding, respectively ................ 3,750 5,000
73/4% series--27,798 and 33,352 shares
outstanding, respectively ................ 2,780 3,335
8.35% series--45,000 and 51,000 shares
outstanding, respectively ................ 4,500 5,100
Cumulative preferred stock--no par value--
6.50% series--430,000 shares outstanding .... 43,000 43,000
54,030 1.4% 56,435 1.9%
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Company debentures .................... 345,000 9.0% -- --
Long-term debt ....................................... 1,975,184 51.9% 1,667,965 56.4%
Total capitalization ......................... $3,813,329 100.0% $2,959,721 100.0%
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
38
<PAGE> 16
CONSOLIDATED STATEMENT OF LONG-TERM DEBT
===============================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998
------------ ---- ----
(Dollars in thousands)
<S> <C> <C>
Northern Indiana Public Service Company
First mortgage bonds--
Series T, 71/2%--due April 1, 2002 .................... $ 38,500 $ 39,000
Series NN, 7.10%--due July 1, 2017 .................... 55,000 55,000
Total ............................................. 93,500 94,000
Pollution control notes and bonds--
-Series A note--City of Michigan City--5.70% due
October 1, 2003 .................................... 14,000 16,500
-Series 1988 Bonds--Jasper County--Series A, B
and C ~ 4.06% weighted average at
December 31, 1999, due November 1, 2016 ............ 130,000 130,000
-Series 1988 Bonds--Jasper County--
Series D 4.04% weighted average at
December 31, 1999, due November 1, 2007 ............ 24,000 24,000
-Series 1994 Bonds--Jasper County--Series A
4.80% at December 31, 1999, due
August 1, 2010 ..................................... 10,000 10,000
-Series 1994 Bonds--Jasper County--Series B
4.80% at December 31, 1999, due June 1, 2013 ....... 18,000 18,000
-Series 1994 Bonds--Jasper County--Series C
3.80% at December 31, 1999, due April 1, 2019 ...... 41,000 41,00
Total ............................................. 237,000 239,500
Medium-term notes--
Issued at interest rates between 6.50% and 7.69%,
with a weighted average interest rate of 7.05%
and various maturities between August 15, 2001
and August 4, 2027 ................................... 593,025 748,025
Unamortized premium and discount on long-term
debt, net ............................................ (3,112) (3,567)
Total long-term debt of Northern Indiana
Public Service Company .......................... 920,413 1,077,958
IWC Resources Corporation:
Senior Notes Payable--6.31%--due March 15, 2001 ......... 14,000 14,000
Variable Bank Loan--7.47875%--due August 7, 2003 ........ 5,600 5,600
Installment promissory Note--7.00%--due
December 1, 2018 ...................................... 10,237 --
Indianapolis Water Company:
First mortgage bonds
Series 5.20%--due May 1, 2001 ......................... 11,600 11,600
Series 8.00%--due December 15, 2001 ................... -- 3,000
Series 9.83%--due June 15, 2019 ....................... 5,000 5,000
Series 6.10%--due December 1, 2022 .................... 5,000 5,000
Series 8.19%--due December 1, 2022 .................... 10,000 10,000
Series 5.85%--due September 1, 2025 ................... 18,000 18,000
Series 5.05%--due July 15, 2028 ....................... 40,000 40,000
89,600 92,600
Medium Term Notes--
Series 5.99%--due February 1, 2009 .................... 35,000 --
Series 6.61%--due February 1, 2019 .................... 45,000 --
80,000 --
Total long-term debt of IWC Resources Corporation ... 199,437 112,200
NiSource Capital Markets, Inc.:
Subordinated Debentures--Series A, 73/4%,
due March 31, 2026 .................................... 75,000 75,000
Senior Notes Payable--6.78%, due December 1, 2027 ....... 75,000 75,000
Medium-term notes--
Issued at interest rates between 7.38% and
7.99%, with a weighted average interest
rate of 7.66% and various maturities between
April 1, 2004 and May 5, 2027 ....................... 300,000 300,000
Total long-term debt of NiSource Capital
Markets, Inc. ................................... 450,000 450,000
NiSource Development Company, Inc.:
Lake Erie Land Company--Notes Payable--9.00%--due
July 7, 2004 .......................................... -- 2,533
NDC Douglas Properties, Inc.--Notes Payable--
Interest rates between 6.72% and 8.38% with a
weighted average ~ interest rate of 7.88% and
maturities through January 1, 2008 .................... 21,244 25,274
Total long-term debt of NiSource Development
Company, Inc. ................................... 21,244 27,807
EnergyUSA, Inc.:
EnergyUSA-TPC Corp.:
Notes Payable--
Interest rates between 7.00% and 12.00% with a
weighted average interest rate of 10.08% and
various maturities between September 6, 2003
and February 6, 2010 ................................ 1,224 --
EnergyUSA, Inc. (MA):
Notes payable--6.12% .................................. 3,033 --
Market Hub Partners, L.P.:
Notes Payable--
Interest rates of 10.34% and 8.25% with a weighted
average interest rate of 8.74% and maturities of
December 31, 2001 and March, 1, 2008 ................ 150,000 --
Total long-term debt of EnergyUSA, Inc. ........... 154,257 --
Bay State Gas Company:
Medium Term Notes--
Interest rates between 6.00% and 9.20% with a weighted
average interest rate of 6.96% and maturities between
January 30, 2001 and February 15, 2028 ................ 183,500 --
Northern Utilities:
Revolving Credit Agreement--due March 17, 2001 ........ 25,000 --
Medium Term Notes--Interest rates of 6.93%
and 9.70% with a weighted average interest rate of
6.91% and maturities of September 1, 2010 and
September 1, 2031 ................................. 21,333 --
Long-term debt of Bay State Gas Company ......... 229,833 --
Total long-term debt, excluding amount due within
one year ...................................... $ 1,975,184 $ 1,667,965
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
39
<PAGE> 17
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
===============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Accum.
Additional Other
Common Treasury Paid-in Retained Comp. Comp.
Shares Shares Capital Earnings Other Income Total Income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 ............................ $870,930 $(392,995) $ 32,868 $591,370 $(4,280) $2,608 $1,100,501
Comprehensive Income
Net income ....................................... 190,849 190,849 $ 190,849
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized gain (net of income tax of $1,033) 1,689 1,689 1,689
Gain (loss) on foreign currency translation:
Unrealized ................................. (1,430) (1,430) (1,430)
Total Comprehensive Income .......................... $ 191,108
Dividends:
Common shares .................................... (114,303) (114,303)
Treasury shares acquired ............................ (133,073) 1 (133,072)
Issued:
Employee stock purchase plan ..................... 273 424 697
Long-term incentive plan ......................... 5,329 116 (443) 5,002
IWC Resources Corporation acquisition ............ 152,405 55,007 207,412
Acquisition of minority interest ................. 4,118 1,351 5,469
Amortization of unearned compensation ............... 2,099 2,099
Other ............................................... 1 (126) (125)
BALANCE, DECEMBER 31, 1997 .......................... $870,930 $(363,943) $ 89,768 $667,790 $(2,624) $2,867 $1,264,788
Comprehensive Income
Net income ....................................... 193,886 193,886 193,886
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized gain (net of income tax of $873) ... 1,429 1,429 1,429
Realized gain (net of income tax of $1,340) ......... (2,195) (2,195) (2,195)
Gain (loss) on foreign currency translation:
Unrealized ................................. (1,157) (1,157) (1,157)
Realized ................................... 186 186 186
Total Comprehensive Income .......................... $ 192,149
Dividends:
Common shares .................................... (116,596) (116,596)
Treasury shares acquired ............................ (203,976) 2 (203,974)
Issued:
Employee stock purchase plan ..................... 341 889 1,230
Long-term incentive plan ......................... 8,551 575 (1,084) 8,042
Amortization of unearned compensation ............... 1,893 1,893
Other ............................................... 2,947 (771) 2,176
BALANCE, DECEMBER 31, 1998 .......................... $870,930 $(559,027) $ 94,181 $744,309 $(1,815) $1,130 $1,149,708
Comprehensive Income
Net income ....................................... 160,414 160,414 $ 160,414
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $1,064) ..... 1,741 1,741 1,741
Realized (net of income tax of $445) 728 728 728
Gain/loss on foreign currency translation:
Unrealized ................................. 645 645 645
Realized ................................... 942 942 942
Total Comprehensive Income
$ 164,470
Dividends:
Common shares .................................... (129,144) (129,144)
Treasury shares acquired ............................ (126,455) (126,455)
Issued:
Employee stock purchase plan ..................... 473 1,084 1,557
Long-term incentive plan ......................... 3,853 188 (571) 3,470
Other acquisitions ............................... 2,722 939 3,661
Bay State Gas acquisition ........................ 205,881 109,753 315,634
Amortization of unearned compensation ............... 3,497 3,497
Equity contract costs ............................... (34,001) (34,001)
Other ............................................... 2,261 (1,154) 1,107
BALANCE, DECEMBER 31, 1999 .......................... $870,930 $(472,553) $174,405 $774,425 $1,111 $5,186 $1,353,504
</TABLE>
40
<PAGE> 18
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (Concluded)
================================================================================
Common Treasury
Shares* Shares*
BALANCE, JANUARY 1, 1997............................. 147,784,218 (28,172,896)
Treasury shares acquired............................. (6,536,928)
Issued:
Employee stock purchase plan....................... 34,376
Long-term incentive plan........................... 353,066
IWC Resources Corporation acquisition.............. 10,580,764
Acquisition of minority interest................... 270,064
Amortization of unearned compensation................
Other................................................
BALANCE, DECEMBER 31, 1997........................... 147,784,218 (23,471,554)
Treasury shares acquired............................. (7,309,906)
Issued:
Employee stock purchase plan....................... 42,796
Long-term incentive plan........................... 485,144
Amortization of unearned compensation................
Other................................................
BALANCE, DECEMBER 31, 1998........................... 147,784,218 (30,253,520)
Treasury shares acquired............................. (4,821,253)
Issued:
Employee stock purchase plan....................... 59,475
Long-term incentive plan........................... 194,208
Other acquisitions................................. 134,453
Bay State Gas acquisition.......................... 11,041,811
Amortization of unearned compensation................
Equity contract costs................................
Other................................................
BALANCE, DECEMBER 31, 1999........................... 147,784,218 (23,644,826)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
HOLDING COMPANY STRUCTURE
- --------------------------------------------------------------------------------
NiSource Inc. (NiSource), formerly NIPSCO Industries Inc., is an energy and
utility-based holding company headquartered in Merrillville, Indiana that
provides natural gas, electricity and water to the public for residential,
commercial and industrial uses. NiSource was organized as an Indiana holding
company in 1987 under the name NIPSCO Industries Inc., and changed its name to
NiSource Inc. on April 14, 1999 to reflect its new direction as a multi-state
supplier of energy and water resources and related services.
NiSource's gas business is comprised primarily of regulated gas utilities
that operate throughout northern Indiana and New England. In addition, NiSource
expanded its gas marketing, trading and storage operations with the April 1999
acquisition of TPC Corporation, now renamed EnergyUSA-TPC Corp. (TPC).
NiSource's electric business is comprised of a regulated electric utility that
operates in northern Indiana. The electric business also includes wholesale
sales and power trading activities. NiSource's regulated gas and electric
subsidiaries are collectively referred to as the "Energy Utilities." NiSource's
regulated water subsidiaries are collectively called the "Water Utilities."
Collectively the Energy and Water Utilities are referred to as the "Utilities."
The Utilities are subject to regulation with respect to rates, accounting and
certain other matters by the Indiana Utility Regulatory Commission (IURC), the
Massachusetts Department of Telecommunications and Energy (MDTE), the New
Hampshire Public Utilities Commission (NHPUC), the Maine Public Utilities
Commission (MEPUC) and the Federal Energy Regulatory Commission (FERC),
collectively called the "Commissions." Market Hub Partners, L.P., which is a
subsidiary of TPC Gas Storage Services L.P., is subject to regulation by the
Texas Railroad Commission and FERC.
Non-regulated energy and utility-related products and services are provided
through the "Products and Services" subsidiaries. Products and Services
subsidiaries perform energy-related services and offer products in connection
with these services, which include pipeline construction, repair and maintenance
of underground gas pipelines and locating and marking utility lines.
In addition to the Utilities and the Products and Services subsidiaries,
NiSource has a wholly-owned subsidiary, NiSource Capital Markets, Inc. (Capital
Markets), which engages in financing activities for NiSource and certain of its
subsidiaries, excluding Northern Indiana Public Service Company (Northern
Indiana).
ANNOUNCEMENT OF MERGER AGREEMENT WITH COLUMBIA ENERGY GROUP
In June 1999, NiSource commenced a tender offer to acquire CEG. In December
1999, CEG acknowledged preliminary indications of interest from numerous other
third parties and invited formal bids from those companies
41
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
that had indicated a preliminary value higher than the NiSource tender offer
price of $74 per share. As a result, in December, NiSource wrote off the costs
associated with its tender offer. On February 11, 2000, the NiSource tender
offer expired.
On February 28, 2000, after completion of the bidding process initiated by
CEG, NiSource and CEG announced approval of a merger agreement under which
NiSource will form a new holding company, which will acquire all of the
outstanding shares of CEG valued at approximately ~$6 billion. The new holding
company will also assume approximately $2.5 billion of CEG debt. Under the
agreement, CEG shareholders have the option to receive new holding company stock
for up to 30% of the outstanding CEG shares. Under the common stock option, each
CEG share will be exchanged for $74 in new holding company stock, based on the
average NiSource share price prior to the closing, but not more than 4.4848
shares of new holding company stock for each CEG share. Under the cash option,
each CEG share will be exchanged for $70 in cash plus a $2.60 face value unit
(consisting of a zero coupon debt security with a forward equity contract). A
commitment letter was accepted under which certain financial institutions
agreed, under specified conditions, to provide up to $6.0 billion to finance the
acquisition of CEG. The merger is conditioned upon, among other things, the
approvals of the shareholders of both companies and various regulatory
commissions. If NiSource shareholder approval is not obtained, the merger
agreement provides that the transaction will automatically be restructured to
eliminate the 30% common stock option for CEG shareholders.
CEG, based in Herndon, Va., is one of the nation's leading energy services
companies, with assets of approximately $7 billion. Its operating companies
engage in virtually all phases of the natural gas business, including
exploration and production, transmission, storage and distribution, as well as
propane and petroleum product sales, electric power generation and retail energy
marketing. CEG sells natural gas to about 2 million customers in Kentucky,
Maryland, Ohio, Pennsylvania and Virginia. It owns 16,500 miles of interstate
gas pipelines that run from Louisiana to the Northeast.
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NiSource and its
majority-owned subsidiaries after the elimination of significant intercompany
accounts and transactions. Investments for which at least a 20% interest is
owned 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.
On February 12, 1999, NiSource acquired Bay State Gas Company (BSG) and its
subsidiaries. Accordingly, the consolidated financial statements and disclosures
include operating results from BSG from the date of acquisition through December
31, 1999.
On April 1, 1999, NiSource acquired the stock of TPC. As a result of the
TPC acquisition, NiSource indirectly owned a 77.3% equity interest in Market Hub
Partners, L.P. (MHP), which stores natural gas in salt caverns. In the fourth
quarter of 1999 NiSource acquired the remaining interests in MHP. The
consolidated financial statements and disclosures include operating results of
TPC from the date of acquisition through December 31, 1999.
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
Except as discussed below, revenues are recorded as products and services are
delivered. However, utility revenues are billed to customers monthly on a cycle
basis. Effective January 1, 1999, revenues relating to energy trading operations
are recorded based upon changes in the fair values, net of reserves, of the
related energy trading contracts. 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. Provisions for losses on
construction contracts, if any, are recorded in the period in which such losses
become probable.
DEPRECIATION AND MAINTENANCE
The Utilities provide depreciation on a straight-line method over the remaining
service lives of the electric, gas, water and common properties. The approximate
weighted average remaining lives for major components of electric, gas, and
water plant are as follows:
Electric:
Electric generation plant......................................... 24 years
Transmission plant................................................ 26 years
Distribution plant................................................ 25 years
Other electric plant.............................................. 24 years
Gas:
Gas storage plant................................................. 15 years
Transmission plant................................................ 18 years
Distribution plant................................................ 34 years
Other gas plant................................................... 16 years
Water:
Water source and treatment plant.................................. 34 years
Distribution plant................................................ 68 years
Other water plant................................................. 13 years
42
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
The depreciation provisions for utility plant, as a percentage of the original
cost, for the period ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
Electric........................................ 3.7% 3.7% 3.6%
Gas............................................. 4.4% 5.1% 5.1%
Water........................................... 2.1% 2.1% 2.1%
The Utilities follow the practice of charging maintenance and repairs,
including the cost of removal of minor items of property, to expense as
incurred. When property that 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.
AMORTIZATION OF SOFTWARE COSTS
External and incremental internal costs associated with computer software
developed for internal use are capitalized. Capitalization of such costs
commences upon the completion of the preliminary stage of the project. Once the
installed software is ready for its intended use, such capitalized costs are
amortized on a straight-line basis over a period of five to ten years which the
FERC prescribes as reasonable useful life estimates for capitalized software.
PLANT ACQUISITION ADJUSTMENTS
Net utility plant includes amounts allocated to utility plant in excess of the
original cost as part of the purchase price allocation associated with the
acquisition of utility businesses, net of accumulated amortization. Net plant
acquisition adjustments were $722.8 million and $185.4 million at December 31,
1999 and December 31, 1998, respectively, and are being amortized over
forty-year periods from the respective dates of acquisition.
INTANGIBLE ASSETS
The excess of cost over the fair value of the net assets of non-utility
businesses acquired is recorded as goodwill. Goodwill of $125.7 million and
$61.9 million at December 31, 1999 and December 31, 1998, respectively, is being
amortized over a weighted average period of 27 years. Other intangible assets,
approximating $12.8 million and $7.7 million at December 31, 1999 and December
31, 1998, respectively, are being amortized over periods of four to eight years.
The recoverability of intangible assets is assessed on a periodic basis to
confirm that expected future cash flows will be sufficient to support the
recorded intangible assets. Accumulated amortization of intangible assets at
December 31, 1999 and December 31, 1998 was approximately $9.9 million and $4.6
million, respectively.
COAL RESERVES
The costs of reserves under a long-term mining contract to mine coal reserves
through the year 2001 are being recovered through the rate-making process as
such coal reserves are used to produce electricity.
ACCOUNTS RECEIVABLE
At December 31, 1999, $100.0 million of accounts receivable had been sold under
a sales agreement, which expires on May 31, 2002.
CUSTOMER ADVANCES AND CONTRIBUTIONS IN AID OF CONSTRUCTION
Certain developers install and provide for the installation of water main
extensions, which will 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
Comprehensive income is reported in the consolidated statements of common
shareholders' equity. The components of accumulated other comprehensive income
include unrealized gains (losses), net of income taxes, on available for sale
securities ("securities") and on foreign currency translation adjustments
("foreign currency"). The accumulated amounts for these components are as
follows:
JAN. 1, DEC. 31, DEC. 31, DEC. 31,
1997 1997 1998 1999
(In millions)
Securities.................... $ 2.7 $ 4.5 $ 3.6 $ 6.1
Foreign
currency.................... $(0.1) $(1.6) $(2.5) $(0.9)
STATEMENT OF CASH FLOWS
Temporary cash investments with an original maturity of three months or less are
considered to be cash equivalents.
Cash paid during the periods reported for income taxes and interest was as
follows:
1999 1998 1997
(In thousands)
Income taxes.................. $115,992 $127,713 $116,849
Interest, net of
amounts
capitalized................. 160,046 118,079 102,361
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 IURC 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
43
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
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
IURC and remains in effect for a three-month period.
On August 18, 1999, the IURC issued a generic order which established new
guidelines for the recovery of purchased power costs through fuel adjustment
clauses. The IURC ruled that each utility had to establish a "benchmark" which
is the utility's highest on-system fuel cost per kilowatt-hour (kwh) during the
most recent annual period. The IURC stated that if the weekly average of a
utility's purchased power costs were less than the "benchmark," these costs per
kwh should be considered net energy costs which are presumed "fuel costs
included in purchased power." If the weekly average of a utility's purchased
power costs exceeded the "benchmark," the utility would need to submit
additional evidence demonstrating the reasonableness of these costs. The Office
of Utility Consumer Counselor (OUCC) has appealed the August 18 order to the
Indiana Court of Appeals.
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. Each gas cost adjustment factor is subject to a
monthly, quarterly, semi-annual or annual hearing by the state Commissions and
remains in effect for a one-month, three-month, six-month or twelve-month
period. On August 11, 1999, the IURC approved a flexible gas cost adjustment
mechanism for Northern Indiana. Under the new procedure, the demand component of
the adjustment factor will be determined, after hearings and IURC approval, and
made effective on November 1 of each year. The demand component will remain in
effect for one year until a new demand component is approved by the IURC. The
commodity component of the adjustment factor will be determined by monthly
filings, which will become effective on the first day of each calendar month,
subject to refund. The monthly filings do not require IURC approval but will be
reviewed by the IURC during the annual hearing that will take place regarding
the demand component filing.
If the statutory requirement relating to the level of return for the gas
utilities is satisfied, any under-recovery or over-recovery caused by variances
between estimated and actual cost in a given one-month, three-month, six-month
or twelve-month period will be included in a future filing. Any under-recovery
or over-recovery is recorded as a current asset or current liability until such
time it is billed or refunded to customers.
Northern Indiana's gas cost adjustment factor includes a gas cost incentive
mechanism (GCIM) which allows the sharing of any cost savings or cost increases
with customers based on a comparison of actual gas supply portfolio cost to a
market-based benchmark price.
NATURAL GAS IN STORAGE
Both the last-in, first-out (LIFO) inventory methodology and the weighted
average methodology are used to value natural gas in storage. Based on the
average cost of gas purchased under the LIFO method in December 1999 and
December 1998, the estimated replacement cost of gas in storage (current and
non-current) at December 31, 1999 and December 31, 1998 exceeded the stated LIFO
cost by $48.9 million and $33.7 million, respectively. Inventory valued using
LIFO was $23.0 million and $50.8 million at December 31, 1999 and December 31,
1998, respectively. Inventory valued using the weighted average methodology was
$40.8 million and $18.8 million at December 31, 1999 and December 31, 1998,
respectively.
ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES
NiSource is exposed to commodity price risk in its natural gas and electric
operations. A variety of commodity-based derivative financial instruments are
utilized to reduce this price risk. When these derivatives are used to reduce
price risk in non-trading operations such as activities in gas supply for
regulated gas utilities, certain customer choice programs for residential
customers and other retail customer activity, gains and losses on these
derivative financial instruments are deferred as assets and liabilities and are
recognized in earnings concurrent with the disposition of the underlying
physical commodity. In certain circumstances, a derivative financial instrument
will serve to hedge the acquisition cost of natural 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 gas. If a derivative financial instrument contract
is terminated early because it is probable that a transaction or forecasted
transaction will not occur, any gain or loss as of such date is immediately
recognized in earnings. If a derivative financial instrument is terminated for
other economic reasons, any gains or losses as of the termination date is
deferred and recorded when the associated transaction or forecasted transaction
affects earnings.
NiSource also uses derivative financial instruments in connection with
trading activities at its power trading and certain gas marketing and trading
operations. These derivatives, along with the related physical contracts, are
recorded at fair value pursuant to Emerging Issues Task Force (EITF) Issue No.
98-10, "Accounting for Energy Trading and Risk Management Activities." Because
the majority of our trading activities started in 1999, the impact of adopting
EITF Issue No. 98-10 on January 1, 1999, was insignificant. Transactions related
to utility system load management do not qualify as a trading activity under
EITF Issue No. 98-10 and are accounted for on an accrual basis. NiSource refers
to this activity as Power Marketing.
44
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
IMPACT OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," in June 1998 and SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133" in June 1999. Statement No. 133 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.
The standard also suggests in certain circumstances commodity based contracts
may qualify as derivatives. Special accounting within this Statement generally
provides for matching of the timing of gain or loss recognition of derivative
instruments qualifying as a hedge with the recognition of changes in the fair
value of the hedged asset or liability through earnings, and requires that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment. The 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. Unless those specific hedge accounting criteria are met, SFAS
No. 133 requires that changes in derivatives' fair value be recognized currently
in earnings.
SFAS No. 133, as amended by SFAS No. 137, is not effective for NiSource
until January 1, 2001. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts.
With respect to hybrid instruments, a company may elect to apply SFAS No. 133,
as amended, to (1) all hybrid instruments, (2) only those hybrid instruments
that were issued, acquired or substantively modified after December 31, 1997, or
(3) only those hybrid instruments that were issued, acquired or substantively
modified after December 31, 1998.
NiSource anticipates adopting SFAS No. 133 on January 1, 2001, but has not
yet determined the impact or method of adoption. The fair value of derivatives
used in price risk management are described in "Risk Management Activities."
The fair value of these derivatives would be recognized as assets or
liabilities on the balance sheet consistent with the current accounting
treatment for certain freestanding derivatives. NiSource has not yet quantified
the other effects of adopting SFAS No. 133 on its financial statements. However,
the Statement could increase volatility in earnings and other comprehensive
income.
REGULATORY ASSETS
The Utilities' operations are subject to the regulation of the appropriate state
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 December 31, 1999 and December 31, 1998, the
regulatory assets identified below represent probable future revenues to the
Utilities 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:
DECEMBER 31, DECEMBER 31,
1999 1998
(In thousands)
Unamortized reacquisition premium on debt
(See Long-Term Debt note).............. $ 39,719 $ 43,233
Unamortized R. M. Schahfer Unit 17 and
Unit 18 carrying charges and deferred
depreciation........................... 58,111 62,329
Bailly scrubber carrying charges and
deferred depreciation.................. 8,010 8,945
Deferral of SFAS No. 106 expense not
recovered (See Postretirement Benefits
note).................................. 75,527 81,339
FERC Order No. 636 transition costs...... 13,728 22,093
Regulatory income tax asset, net......... 24,941 18,793
Other.................................... 12,843 4,936
232,879 241,668
Less: Current portion of regulatory
assets................................. 24,245 32,609
$208,634 $209,059
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
IURC 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 IURC. The
accumulated balance of the deferred costs and related carrying charges is being
amortized over the remaining life of the scrubber service agreement.
45
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
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
A series of affordable housing projects are held as investments and accounted
for using the equity method. These investments include certain tax benefits,
including low-income housing tax credits and tax deductions for operating losses
of the housing projects. Investments, at equity, include $33.3 million and $34.0
million relating to affordable housing projects at December 31, 1999 and
December 31, 1998, respectively.
INCOME TAXES
The liability method of accounting is used 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 book and tax bases of
assets and liabilities. Deferred investment tax credits are being amortized
over the life of the related property.
ACQUISITIONS
On February 12, 1999, the acquisition of BSG was completed for approximately
$560.1 million in cash and NiSource common shares. The $237.7 million cash
portion was partially financed by the issuance of Corporate Premium Income
Equity Securities (Corporate PIES) and partially financed by the issuance of the
Puttable Reset Securities (PURS). The acquisition was accounted for as a
purchase, and the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values. The accompanying
financial statements reflect the allocation of the purchase price.
Assets acquired and liabilities assumed in the acquisition of BSG were
comprised of the following:
(In thousands)
Assets acquired:
Utility plant, net of accumulated
depreciation................................................ $1,086,008
Intangible assets............................................. 17,443
Other current assets.......................................... 177,148
Other noncurrent assets....................................... 75,126
1,355,725
Less liabilities assumed:
Long-term debt................................................ 244,337
Short-term debt............................................... 100,295
Other current liabilities..................................... 122,408
Deferred taxes.............................................. 299,710
Other noncurrent liabilities.................................. 28,866
795,616
Net assets acquired............................................. $ 560,109
On a pro forma basis, NiSource's consolidated results of operations for the
twelve months ended December 31, 1999, including BSG, would have been:
UNAUDITED
(In thousands) TWELVE MONTHS TWELVE MONTHS
DECEMBER 31, DECEMBER 31,
1999 1998
Operating revenue....... $3,218,730 $3,364,513
Operating income..... $ 469,386 $ 423,277
Net income........... $ 164,868 $ 179,922
Pro forma adjustments primarily reflect adjustments for the addition of the
plant acquisition adjustment and intangible assets, the issuance of the
applicable Corporate PIES and additional income taxes, as if the acquisition had
occurred on January 1, 1999 and 1998 for the twelve month results.
On April 1, 1999, NiSource acquired the stock of TPC, a Houston-based
natural gas marketing and storage company, for approximately $150 million in
cash. The acquisition was accounted for as a purchase, with the purchase price
allocated to the assets and liabilities acquired based on their estimated fair
values. As a result of the TPC acquisition, NiSource had an indirect investment
in the amount of $126.0 million, representing a 77.3% interest in MHP. During
the fourth quarter of 1999, NiSource purchased the remaining interests in MHP.
The accompanying financial statements reflect the preliminary allocation of the
purchase price. Assets acquired and liabilities assumed in the acquisition of
TPC and MHP were comprised of the following:
(In thousands) Assets acquired:
Other property, at cost............................... $320,048
Intangible assets..................................... 45,779
Other current assets.................................. 116,503
Other noncurrent assets............................... 7,154
489,484
Less Liabilities assumed:
Long-term debt........................................ 151,462
Short-term debt....................................... 165
Other current liabilities............................. 88,622
Deferred taxes........................................ 40,843
Other noncurrent liabilities.......................... 18,471
299,563
Net assets acquired..................................... $189,921
46
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
NESI ENERGY MARKETING CANADA LTD. LITIGATION
- --------------------------------------------------------------------------------
On October 31, 1996, NiSource's subsidiary NiSource 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
NiSource, Capital Markets, NI Energy Services, Inc. and NESI Canada, alleging
certain misrepresentations relating to NEMC's financial condition and claiming
damages. In addition, certain creditors of NEMC have, through the Canadian
bankruptcy court, asserted fraudulent transfer and other claims against
NiSource, Capital Markets, NI Energy Services, Inc., NESI Canada and the
directors of NEMC. NiSource intends 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. Management believes that any loss relating to NEMC will
not be material to the financial position or results of operations of NiSource.
- --------------------------------------------------------------------------------
ENVIRONMENTAL MATTERS
- --------------------------------------------------------------------------------
General
The operations of NiSource are subject to extensive and evolving federal, state
and local environmental laws and regulations intended to protect public health
and the environment. Such environmental laws and regulation affect operations as
they relate to impacts on air, water and land.
Superfund
Because several NiSource subsidiaries are a "potentially responsible party"
(PRP) under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) at several waste disposal sites, as well as at former
manufactured-gas plant sites which it, or its corporate predecessors, own or
owned or operated, it may be required to share in the cost of clean up of such
sites. A program was instituted to investigate former manufactured-gas plant
sites where it is the current or former owner, which investigation has
identified forty-six such sites. Initial sampling has been conducted at thirty
sites. Investigation activities have been completed at twenty-three sites and
remedial measures have been selected or implemented at sixteen sites. NiSource
intends to continue to evaluate its facilities and properties with respect to
environmental laws and regulations and take any required corrective action.
In an effort to recover a portion of the costs related to the former
manufactured gas plants, various companies that provided insurance coverage
which NiSource believed covered costs related to former manufactured-gas plant
sites were approached. Northern Indiana filed claims in Indiana state court
against various insurance companies, seeking coverage for costs associated with
several manufactured-gas plant sites and damages for alleged misconduct by some
of the insurance companies. Settlements have been reached with all insurance
companies. Additionally, agreements have been reached with other Indiana
utilities relating to cost sharing and management of the investigation and
remediation of several former manufactured-gas plant sites at which Northern
Indiana and such utilities or their predecessors were operators or owners.
BSG and Northern Utilities, Inc. have rate recovery for environmental
response costs in Maine, Massachusetts and New Hampshire. The rate treatment
allows for the recovery of 100% of prudently incurred costs for investigation
and remediation over a 5-7 year period from date of payment. Recoveries from
third parties or insurance companies in Maine and Massachusetts are allocated
50% to rate payers and 50% to shareholders. In New Hampshire 100% of any
recoveries from third parties or insurance companies are returned to rate
payers.
As of December 31, 1999, a reserve of approximately $23.8 million has been
recorded to cover probable corrective actions. The ultimate liability in
connection with these sites will depend upon many factors, including the volume
of material contributed to the site, the number of other PRPs and their
financial viability, the extent of corrective actions required and rate
recovery. Based upon investigations and management's understanding of current
environmental laws and regulations, NiSource believes that any corrective
actions required, after consideration of insurance coverages, contributions from
other PRPs and rate recovery, will not have a material effect on its financial
position or results of operations.
Clean Air Act
The Clean Air Act Amendments of 1990 (CAAA) imposed limits to control acid rain
on the emission of sulfur dioxide and nitrogen oxides (NOx) which become fully
effective in 2000. All of NiSource's facilities are already in compliance with
the sulfur dioxide limits. NiSource has already taken most of the steps
necessary to meet the NOx limits.
The CAAA also contain other provisions that could lead to limitations on
emissions of hazardous air pollutants and other air pollutants (including
47
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
NOx as discussed below), which may require significant capital expenditures for
control of these emissions. Until specific rules have been issued that affect
NiSource's facilities, what these requirements will be or the costs of complying
with these potential requirements cannot be predicted.
NITROGEN OXIDES
During 1998, the Environmental Protection Agency (EPA) issued a final rule, the
NOx State Implementation Plan (SIP) call, requiring certain states, including
Indiana, to reduce NOx levels from several sources, including industrial and
utility boilers. The EPA stated that the intent of the rule is to lower regional
transport of ozone impacting other states' ability to attain the federal ozone
standard. According to the rule, the State of Indiana must issue regulations
implementing the control program. The State of Indiana, as well as some other
states, filed a legal challenge in December 1998 to the EPA NOx SIP call rule.
Lawsuits have also been filed against the rule by various groups, including
utilities. On May 25, 1999, the D.C. Circuit Court of Appeals issued an order
staying the NOx SIP call rule's September 30, 1999 deadline for the state
submittals until further order of the court. Any resulting NOx emission
limitations could be more restrictive than those imposed on electric utilities
under the CAAA's acid rain NOx reduction program described above. NiSource is
evaluating the EPA's final rule and any potential requirements that could result
from the final rule as implemented by the State of Indiana. NiSource believes
that the costs relating to compliance with the new standards may be substantial,
but such costs depend upon the outcome of the current litigation and the
ultimate control program agreed to by the targeted states and the EPA. Northern
Indiana is continuing its programs to reduce NOx emissions and NiSource will
continue to closely monitor developments in this area.
In a related matter to EPA's NOx SIP call, several Northeastern states have
filed petitions with the EPA under Section 126 of the Clean Air Act. The
petitions allege harm and request relief from sources of emissions in the
Midwest that allegedly cause or contribute to ozone nonattainment in their
states. NiSource is monitoring EPA's decisions on these petitions and existing
litigation to determine the impact of these developments on Northern Indiana's
programs to reduce NOx emissions.
The EPA issued final rules revising the National Ambient Air Quality
Standards for ozone and particulate matter in July 1997. On May 14, 1999, the
United States Court of Appeals for the D.C. Circuit remanded the new rules for
both ozone and particulate matters to the EPA. Once rectified, the revised
standards could require additional reductions in sulfur dioxide, particulate
matter and NOx emissions from coal-fired boilers (including Northern Indiana's
generating stations) beyond measures discussed above. Final implementation
methods will be set by the EPA as well as state regulatory authorities. NiSource
believes that the costs relating to compliance with any new limits may be
substantial but are dependent upon the ultimate control program agreed to by the
targeted states and the EPA. NiSource will continue to closely monitor
developments in this area and anticipates the exact nature of the impact of the
new limits on its operations will not be known for some time.
In a letter dated September 15, 1999, the Attorney General of the State of
New York alleged that Northern Indiana violated the Clean Air Act by
constructing a major modification of one of its electric generating stations
without obtaining pre-construction permits required by the Prevention of
Significant Deterioration (PSD) program. The major modification allegedly took
place at the R. M. Schahfer Station when, "in approximately 1995-1997, Northern
Indiana upgraded the coal handling system at Unit 14 at the plant." While
Northern Indiana is investigating these allegations, Northern Indiana does not
believe that the modifications required pre-construction review under the PSD
program and believes that all appropriate permits were acquired.
CARBON DIOXIDE
Initiatives are being discussed both in the United States and worldwide to
reduce so-called "greenhouse gases" such as carbon dioxide and other by-products
of burning fossil fuels. Reduction of such emissions could result in significant
capital outlays or operating expenses to NiSource.
CLEAN WATER ACT AND RELATED MATTERS
NiSource's wastewater and water operations are subject to pollution control and
water quality control regulations, including those issued by the EPA and the
States of Indiana, Louisiana, Massachusetts and Texas.
Under the Federal Clean Water Act and state regulations, NiSource must obtain
National Pollutant Discharge Elimination System permits for water discharges
from various facilities, including electric generating and water treatment
stations and a propane plant. These facilities either have permits for their
water discharge or they have applied for a permit renewal of any expiring
permits. 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 that 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. In December 1998, EPA
promulgated two National Primary Drinking Water rules, the Interim Enhanced
Surface Water Treatment Rule and the Disinfectants and Disinfection Byproducts
Rule. The Water Utilities must comply with these rules by December 2001.
Management does not believe that significant changes will be required for the
Water Utilities' operations to comply with these rules; however, some
48
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
cost expenditures for equipment modifications or enhancements may
be necessary to comply with the Interim Enhanced Surface Water Treatment Rule.
Additional rules are anticipated to be promulgated under the 1996 amendments.
Compliance with such rules could be costly and could require substantial changes
in the Water Utilities' operations.
Under a 1991 law enacted by the Indiana legislature, a water utility may
petition the IURC for prior approval of its plans and estimated expenditures
required to comply with the provisions of, and regulations under, the Federal
Clean Water Act and SDWA. Upon obtaining such approval, a water utility may
include such costs in its rate base for rate-making purposes, to the extent of
its estimated costs as approved by the IURC, 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. Such an addition to rate base,
however, would effect a change in water rates. NiSource's principal water
utility, IWC, has agreed to a moratorium on water rate increases until 2002.
Therefore, recovery of any increased costs discussed above may not be timely.
- --------------------------------------------------------------------------------
INCOME TAXES
- --------------------------------------------------------------------------------
Deferred income taxes are recognized as costs in the rate-making 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 consolidated
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.
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
allowance for funds used during construction-equity ~(AFUDC) 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 income 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 December 31, 1999
and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
(In thousands)
<S> <C> <C>
Deferred tax liabilities--
Accelerated depreciation and other property differences.................... $1,125,132 $ 806,148
AFUDC-equity............................................................... 31,274 33,029
Adjustment clauses......................................................... 16,730 14,965
Other regulatory assets.................................................... 27,616 29,739
Prepaid pension and other benefits......................................... 64,853 34,170
Reacquisition premium on debt.............................................. 15,919 17,311
Deferred tax assets--
Deferred investment tax credits............................................ (36,650) (37,236)
Removal costs.............................................................. (171,645) (157,728)
Other postretirement/postemployment benefits............................... (55,684) (51,754)
Other, net................................................................. (28,871) (29,353)
988,674 659,291
Less: Deferred income taxes related to current assets and liabilities........ (7,519) (7,876)
Deferred income taxes--noncurrent............................................ $ 996,193 $ 667,167
</TABLE>
49
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
Federal and state income taxes as set forth in the Consolidated Statement of
Income are comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current income taxes--
Federal................................................................. $ 91,899 $113,680 $ 98,126
State................................................................... 14,131 16,484 17,073
-------- -------- --------
106,030 130,164 115,199
-------- -------- --------
Deferred income taxes, net--
Federal................................................................. (7,877) (20,426) (1,772)
State................................................................... (14) (1,515) 123
-------- -------- --------
(7,891) (21,941) (1,649)
-------- -------- --------
Deferred investment tax credits, net...................................... (7,691) (7,361) (7,376)
-------- -------- --------
Total income taxes.................................................... $ 90,448 $100,862 $106,174
======== ======== ========
</TABLE>
A reconciliation of total income tax expense to an amount computed by applying
the statutory federal income tax rate to pretax income is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net income................................................................ $160,414 $193,886 $190,849
Add--Income taxes......................................................... 90,448 100,862 106,174
Dividend requirements on preferred stocks of subsidiaries................. 8,334 8,538 8,691
-------- -------- --------
Income before preferred dividend requirements of subsidiaries and
income taxes............................................................ $259,196 $303,286 $305,714
======== ======== ========
Amount derived by multiplying pretax income by statutory rate............. $ 90,719 $106,150 $107,000
Reconciling items multiplied by the statutory rate:
Book depreciation over related tax depreciation......................... 3,934 3,992 4,072
Amortization of deferred investment tax credits......................... (7,691) (7,361) (7,376)
State income taxes, net of federal income tax benefit................... 9,171 9,200 11,220
Reversal of deferred taxes provided at rates in excess of the
current federal income tax rate....................................... (5,457) (6,472) (6,151)
Low-income housing credits.............................................. (4,512) (3,840) (3,056)
Nondeductible amounts related to amortization of intangible
assets and plant acquisition adjustments.............................. 2,476 2,516 1,640
Other, net................................................................ 1,808 (3,323) (1,175)
-------- -------- --------
Total income taxes.................................................... $ 90,448 $100,862 $106,174
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
PENSION PLANS
- --------------------------------------------------------------------------------
Noncontributory, defined benefit retirement plans cover the majority of
employees. Benefits under the plans reflect the employees' compensation, years
of service and age of retirement.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Benefit obligation at beginning of year (January 1,)...................................... $949,039 $875,756
Service cost.............................................................................. 19,811 17,092
Interest cost............................................................................. 69,610 60,686
Plan amendments........................................................................... -- 14,656
Actuarial (gain) loss..................................................................... (60,108) 38,773
Acquisition of BSG........................................................................ 78,684 --
Benefits paid............................................................................. (66,687) (57,924)
-------- --------
Benefit obligation at end of the year (December 31,)...................................... $990,349 $949,039
======== ========
</TABLE>
50
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
The change in the fair value of the plans' assets for the years 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
Fair value of plan assets at beginning of year (January 1,)............................... $ 987,030 $924,857
Actual return on plan assets.............................................................. 170,814 85,254
Employer contributions.................................................................... 42,641 34,843
Acquisition of BSG........................................................................ 92,070 --
Benefits paid............................................................................. (66,687) (57,924)
---------- --------
Plan assets at fair value at end of the year (December 31,)............................... $1,225,868 $987,030
========== ========
</TABLE>
The plans' assets are invested primarily in common stocks, bonds and notes.
The plans' funded status as of December 31, 1999 and December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
Plan assets in excess of benefit obligation............................................... $ 235,519 $ 37,991
Unrecognized net actuarial (gain)......................................................... (150,984) (10,938)
Unrecognized prior service cost........................................................... 55,662 57,193
Unrecognized transition amount............................................................ 22,113 26,813
---------- --------
Prepaid pension costs..................................................................... $ 162,310 $111,059
========== ========
</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 7.75% and 7.00% and rates of increase in
compensation levels of 4.5% and 4.5% were used to determine the benefit
obligations at December 31, 1999 and 1998, respectively.
The long-term portion of prepaid pension cost amounts for 1999 and 1998 are
included in "Prepayments and other" in the Consolidated Balance Sheet.
The following items are the components of provisions for pensions for the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Service costs............................................................. $ 19,811 $ 17,092 $ 14,438
Interest costs............................................................ 69,610 60,686 57,645
Expected return on plan assets............................................ (95,228) (82,671) (72,253)
Amortization of transition obligation..................................... 6,169 5,294 5,326
Amortization of prior service costs....................................... 6,510 4,746 3,501
-------- -------- --------
$ 6,872 $ 5,147 $ 8,657
======== ======== ========
</TABLE>
Assumptions used in the valuation and determination of 1999, 1998 and 1997
pension expense were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Discount rate............................................................. 7.00% 7.00% 7.75%
Rate of increase in compensation levels................................... 4.50% 4.50% 5.50%
Expected long-term rate of return on assets............................... 9.00% 9.00% 9.00%
</TABLE>
Certain union employees participate in industry-wide, multi-employer pension
plans which 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 $2.5 million, $2.0 and $1.7 million were made
to these plans for the years ended December 31, 1999, 1998 and 1997,
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.
- --------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS
- --------------------------------------------------------------------------------
NiSource provides certain health care and life insurance benefits for certain
retired employees. The majority of employees may become eligible for these
benefits if they reach retirement age while working for NiSource.
The expected cost of such benefits is accrued during the employees' years of
service. Current rates include postretirement benefit costs on an accrual basis,
including amortization of the regulatory assets that arose prior to inclusion of
these costs in rates. Cash contributions are remitted to grantor trusts.
51
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
The following table sets forth the change in the plans' accumulated
postretirement benefit obligation (APBO) as of December 31, 1999 and 1998:
1999 1998
-------- --------
(In thousands)
Accumulated postretirement
benefit obligation at
beginning of year
(January 1,)............... $240,601 $223,908
Service cost................. 5,531 5,249
Interest cost................ 18,101 15,793
Participant contributions.... 1,204 --
Plan amendments.............. -- (283)
Actuarial (gain) loss........ (17,627) 8,453
Acquisition of Bay State..... 23,205 --
Benefits paid................ (17,116) (12,519)
-------- --------
Accumulated postretire-
ment benefit obligation
at end of the year
(December 31,)............. $253,899 $240,601
======== ========
The change in the fair value of the plan assets for the years 1999 and 1998 is
as follows:
1999 1998
-------- --------
(In thousands)
Fair value of plan assets at
beginning of year
(January 1,)............... $ 2,903 $ 2,400
Actual return of plan
assets..................... 2,521 1,103
Employer contributions....... 13,877 10,637
Participant contributions.... 1,204 1,282
Acquisition of Bay State..... 26,620 --
Benefits paid................ (17,116) (12,519)
-------- --------
Plan assets at fair value
at end of the year
(December 31,)............. $ 30,009 $ 2,903
======== ========
Following is the funded status for postretirement benefits as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Funded status............................................................. $(223,890) $(237,698)
Unrecognized net actuarial gain........................................... (106,161) (87,087)
Unrecognized prior service cost........................................... 3,550 3,873
Unrecognized transition amount............................................ 167,322 164,436
--------- ---------
Accrued liability for postretirement benefits............................. $(159,179) $(156,476)
========= =========
</TABLE>
In order to determine the APBO at December 31, 1999, a discount rate of 7.75%
and a pre-Medicare medical trend rate of 6% to a long-term rate of 5% was used,
and at December 31, 1998, a discount rate of 7% and a pre-Medicare medical trend
rate of 7% declining to a long-term rate of 5% was used.
Net periodic postretirement benefit costs, before consideration of the
rate-making discussed previously, for the years ended December 31, 1999, 1998
and 1997 include the following components:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Service costs............................................................. $ 5,531 $ 5,249 $ 4,904
Interest costs............................................................ 18,101 15,793 15,878
Expected return on plan assets............................................ (2,347) (216) --
Amortization of prior service cost........................................ 322 322 279
Amortization of transition obligation..................................... 12,810 11,745 11,558
Amortization of (gain) loss............................................... (5,637) (5,747) (5,844)
------- ------- -------
$28,780 $27,146 $26,775
======= ======= =======
</TABLE>
Assumptions used in the determination of 1999, 1998 and 1997 net periodic
postretirement benefit costs were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................................. 7.00% 7.00% 7.75%
Rate of increase in compensation levels................................... 4.50% 4.50% 5.50%
Assumed annual rate of increase in health care benefits................... 7.00% 8.00% 8.00%
Assumed ultimate trend rate............................................... 5.00% 5.00% 6.00%
</TABLE>
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
December 31, 1999 by approximately $25.6 million, and increase the aggregate of
the service and interest cost components of plan costs by approximately $5.2
million for the year ended December 31, 1999. The effect of a 1% decrease in the
assumed health care cost trend rates
52
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
for each future year would decrease the accumulated postretirement benefit
obligation at December 31, 1999 by approximately $21.1 million, and decrease the
aggregate of the service and interest cost components of plan costs by
approximately $4.0 million. Amounts disclosed above could be changed
significantly in the future by changes in health care costs, work force
demographics, interest rates, or plan changes.
Authorized Classes of Cumulative Preferred and Preference Shares
NiSource--20,000,000 shares--Preferred--without par value. 4,000,000 shares are
designated Series A Junior Participating Preferred Shares and are reserved for
issuance pursuant to the Share Purchase Rights Plan described in Common Shares.
The authorized classes of par value and no par value cumulative preferred
and preference stocks of Northern Indiana are as follows: Cumulative
Preferred--$100 par value--2,400,000 shares; Cumulative Preferred--no par
value--3,000,000 shares; Cumulative Preference--$50 par value--2,000,000 shares
(none outstanding); and Cumulative Preference--no par value--3,000,000 shares
(none outstanding).
Indianapolis Water Company--(IWC) 300,000 shares --Cumulative
Preferred--$100 par value.
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.
The redemption prices at December 31, 1999 for the cumulative preferred
stock, which is redeemable solely at the option of Northern Indiana and IWC, in
whole or in part, at any time upon thirty days' notice, were as follows:
REDEMPTION
PRICE PER
SERIES SHARE
Northern Indiana Public Service Company:
Cumulative preferred stock--$100 par value--......... 41/4% $101.20
41/2% $100.00
4.22% $101.60
4.88% $102.00
7.44% $101.00
7.50% $101.00
Cumulative preferred stock--no par value--
adjustable rate (6.00% at December 31, 1999),
Series A (stated value $50 per share).............. $50.00
Indianapolis Water Company:
Cumulative preferred stock--$100 par value--
rates ranging from 4% to 5% $100-$105
The redemption prices at December 31, 1999, as well as sinking fund provisions,
for the cumulative preferred stock subject to mandatory redemption requirements,
or whose redemption is outside the control of Northern Indiana, were as follows:
<TABLE>
<CAPTION>
REDEMPTION PRICE SINKING FUND OR
SERIES PER SHARE MANDATORY REDEMPTION
<S> <C> <C>
Cumulative preferred stock--$100 par value--
8.85% $100.37, reduced periodically 12,500 shares on or before April 1.
8.35% $103.20, reduced periodically 3,000 shares on or before July 1;
increasing to 6,000 shares
beginning in 2004; noncumu-
lative option to double amount
each year.
73/4% $103.88, 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 December 31, 1999 for each of the four years subsequent to
December 31, 2000 were as follows:
Year Ending December 31, (In thousands)
2001..................................................... $ 1,828
2002..................................................... $44,828
2003..................................................... $ 1,828
2004..................................................... $ 878
Sinking fund payments due within one year are reported under the caption "Other"
in the Consolidated Balance Sheets.
53
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
- --------------------------------------------------------------------------------
COMMON SHARE DIVIDEND
- --------------------------------------------------------------------------------
During the next few years, NiSource's ability to pay dividends will depend upon
dividends it receives from 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 the earned surplus or net profits
of Northern Indiana. At December 31, 1999, Northern Indiana had approximately
$136.1 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.
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Basic earnings per share were 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 the conversion of
nonqualified stock options and the equity forward share purchase contract into
common shares.
The net income, preferred dividends and shares used to compute basic and
diluted earnings per share is presented in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Basic
Weighted Average Number of Shares:
Average Common Shares Outstanding.......................... 124,343,117 120,778,077 123,849,126
=========== =========== ===========
Net Income to be Used to Compute Basic Earnings per Average
Common Share:
Net Income............................................... $160,414 $193,886 $190,849
=========== =========== ===========
Basic Earnings per Average Common Share...................... $ 1.29 $ 1.60 $ 1.54
=========== =========== ===========
Diluted
Weighted Average Number of Shares:
Average Common Shares Outstanding.......................... 124,343,117 120,778,077 123,849,126
Dilutive Shares............................................ 996,275 556,799 374,344
----------- ------------ -----------
Weighted Average Shares.................................... 125,339,392 121,334,876 124,223,470
Net Income to be Used to Compute Diluted Earnings per
Average Common Share:
Net Income............................................... $160,414 $193,886 $190,849
=========== =========== ===========
Diluted Earnings per Average Common Share.................... $ 1.27 $ 1.59 $ 1.53
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
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.
All references to numbers of common shares reported, including per share amounts
and stock option data, have been adjusted to reflect the two-for-one stock split
paid February 20, 1998.
SHARE PURCHASE RIGHTS PLAN
Each Right, when exercisable, would initially entitle the holder to purchase
from NiSource one two-hundredth of a share of Series A Junior Participating
Preferred Share, without par value, at a price of $30 per one two-hundredth of a
share. In certain circumstances, if an acquirer ~obtained 25% of NiSource's
outstanding shares, or merged into NiSource or merged NiSource into the
acquirer, the Rights would entitle the holders to purchase NiSource's or the
acquirer's common shares for one-half of the market price. The Rights will not
dilute NiSource's 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 NiSource. The Rights are not currently
exercisable. On February 17, 2000, the Board of Directors of NiSource adopted a
new Share Purchase Rights Plan which has substantially the same terms as the
existing Share Purchase Rights Plan.
54
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
COMMON SHARE REPURCHASES
The Board has authorized the repurchase of 62.1 million common shares, subject
to certain limits. At December 31, 1999, approximately 56.2 million shares had
been repurchased at an average price of $16.98 per share.
EQUITY FORWARD SHARE PURCHASE CONTRACT
During the second quarter of 1999, a forward purchase contract was entered into
covering the purchase of up to 5% of NiSource's outstanding common shares. At
the end of each quarterly period during the term of the forward purchase
contract, NiSource has the option, but not the obligation, to settle the forward
purchase contract with respect to all or a portion of the common shares held by
the counterparty. As of December 31, 1999, the counterparty informed NiSource
that approximately 5.6 million shares had been purchased at a weighted average
cost of $26.90 per share. NiSource has the option to settle with the
counterparty by means of physical, net cash or net share settlement. On a
quarterly basis, NiSource will pay the counterparty a fee based on the amount
paid for common shares purchased by the counterparty, and the counterparty will
remit dividends received on shares owned. All such amounts paid and remitted
under the contract are reflected in equity contract costs of common
shareholders' equity. The net amount was a charge of $658,128 for the year
ending December 31, 1999.
NiSource will be obligated to settle the forward purchase contract with
respect to all the remaining common shares in May 2003, or under certain
circumstances after an extension period of up to six months, at NiSource's
option. As of December 31, 1999, the nominal amount and fair value of the equity
forward purchase contract was approximately $150 million and $100 million,
respectively.
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS
- --------------------------------------------------------------------------------
There are 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 common
shares to key employees through April 1998 and April 2004, respectively. The
1988 Plan, as amended and restated, and the 1994 Plan, as amended and restated,
were re-approved by shareholders at the 1999 Annual Meeting of Shareholders,
held on April 14, 1999.
At December 31, 1999, there were 1.8 million shares reserved for future
awards under the 1994 Plan. The Plans permit 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
December 31, 1999. Under the Plans, the exercise price of each option equals the
market price of common stock on the date of grant. Each option has a maximum
term of ten years and vests one year from the date of grant.
In connection with the acquisition of BSG, all outstanding BSG nonqualified
stock options were replaced with NiSource nonqualified stock options. The
replacement of such options did not change their original vesting provisions,
terms or fair values. Information regarding these options can be found in the
following tables about changes in nonqualified stock options under the caption
"converted."
Stock appreciation rights (SARs) may be granted only in tandem with stock
options on a one-for-one basis and are payable in cash, NiSource's common
shares, or a combination thereof. There were no SARs outstanding at December 31,
1999. 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 varies from 0%
to 200% of the number awarded, subject to specific earnings per share and stock
appreciation goals. Restrictions on shares awarded in 1998 and 1999 lapse two
years from date of grant and vesting varies 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 513,500, 534,666 and
542,666 restricted shares outstanding at December 31, 1999, 1998 and 1997,
respectively.
The Nonemployee Director Stock Incentive Plan, which was approved by
shareholders, provides for the issuance of up to 200,000 common shares to
nonemployee directors. 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 for the award of nonqualified stock options, subject to immediate vesting
in the event of the director's death or disability, or a change in control of
NiSource. If a director's service on the Board is terminated for any reason
other than retirement at or after age seventy, death or disability, any common
shares not vested as of the date of termination are forfeited. As of December
31, 1999, 75,500 shares had been issued under the Plan.
These plans are accounted for under Accounting Principles Board Opinion No.
25, under which no compensation cost has been recognized for nonqualified stock
options. The compensation cost that was charged against net income for
restricted stock awards was $3.5 million, $1.9 million and $2.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Had compensation
cost for nonqualified stock options been determined consistent with SFAS No. 123
"Accounting for Stock-Based Compensation," net income and earnings per average
common share would have been reduced to the following pro forma amounts:
55
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Net Income:
As reported............................ $160,414 $193,886 $190,849
Pro forma.............................. 158,764 192,764 189,999
Earnings Per Average Common Share:
Basic:
As reported.......................... $ 1.29 $ 1.60 $ 1.54
Pro forma............................ 1.27 1.59 1.53
Diluted:
As reported.......................... $ 1.27 $ 1.59 $ 1.53
Pro forma............................ 1.26 1.59 1.52
</TABLE>
The fair value of each option granted as 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 years ended December 31, 1999, 1998 and 1997 respectively: risk-free
interest rate of 5.87%, 5.29% and 6.19%; expected dividend yield of $1.02, $0.96
and $0.90 per share; expected option term of five and one-quarter years for 1999
and 1998, and five years for 1997; and expected volatility of 15.72% for 1999
and 13.09% for 1998 and 12.2% for 1997.
Changes in outstanding shares under option for 1997, 1998 and 1999, are as
follows:
NONQUALIFIED
STOCK OPTIONS
---------------------
WEIGHTED
AVERAGE
OPTION
YEAR ENDED DECEMBER 31, 1997 OPTIONS PRICE
---------- --------
Balance at beginning of year......................... 2,360,900 $15.33
Granted............................................ 533,600 $20.64
Exercised.......................................... (330,400) $15.29
Cancelled.......................................... (28,700) $19.21
---------- -------
Balance at end of year............................... 2,535,400 $16.41
========== =======
Shares exercisable................................... 2,006,800 $15.30
========== =======
Weighted average fair value of options granted....... $2.66
==========
WEIGHTED
AVERAGE
OPTION
YEAR ENDED DECEMBER 31, 1998 OPTIONS PRICE
---------- ---------
Balance at beginning of year........................ 2,535,400 $16.41
Granted........................................... 607,000 $29.22
Exercised......................................... (457,700) $14.88
Cancelled......................................... (33,400) $16.07
---------- -------
Balance at end of year.............................. 2,651,300 $19.61
========== =======
Shares exercisable.................................. 2,046,300 $16.77
========== =======
Weighted average fair value of options granted...... $4.28
==========
56
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
WEIGHTED
AVERAGE
OPTION
YEAR ENDED DECEMBER 31, 1999 OPTIONS PRICE
---------- --------
Balance at beginning of year.......................... 2,651,300 $19.61
Granted............................................. 744,750 $24.59
Converted........................................... 740,780 $15.03
Exercised........................................... (171,374) $14.03
Cancelled........................................... (15,000) $28.45
---------- --------
Balance at end of year................................ 3,950,456 $19.90
========== ========
Shares exercisable.................................... 3,208,206 $18.82
========== ========
Weighted average fair value of options granted........ $3.66
At December 31, 1997, there were 11,200 SARs outstanding with an option price
of $5.47. There were no SARs outstanding at December 31, 1998 or 1999,
respectively.
The following table summarizes information about nonqualified stock options
at December 31, 1999:
OPTIONS OUTSTANDING AND EXERCISABLE BY PRICE RANGE AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------ --------------------------------------------------------
Weighted
Average Weighted
Remaining Average Weighted
Range of Outstanding as of Contractual Exercise Exercisable as of Average
Exercise Prices December 31, 1999 Life Price December 31, 1999 Exercise Price
- --------------- --------
<S> <C> <C> <C> <C> <C>
$ 8.53-$12.76 154,500 1.4 $10.46 154,500 $10.46
$12.77-$19.15 1,913,119 4.0 $15.79 1,913,119 $15.79
$19.16-$28.74 1,290,337 8.8 $22.85 548,087 $20.48
$28.75-$29.22 592,500 8.6 $29.22 592,500 $29.22
- ------------- --------- --- ------ --------- ------
$ 8.53-$29.22 3,950,456 6.1 $19.90 3,208,206 $18.81
============= ========= === ====== ========= ======
</TABLE>
- --------------------------------------------------------------------------------
LONG-TERM DEBT
- --------------------------------------------------------------------------------
The sinking fund requirements and maturities of long-term debt outstanding at
December 31, 1999, for each of the four years subsequent to December 31, 2000,
were as follows:
YEAR ENDING DECEMBER 31, (In thousands)
- ------------------------
2001.................................................$127,167
2002.................................................$119,183
2003.................................................$157,451
2004.................................................$118,158
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 have been deferred and are being amortized. These
premiums are not earning a return during the recovery period.
The first mortgage bonds constitute a direct first mortgage lien upon certain
utility property and franchises. Certain trust indentures require annual sinking
or improvement payments amounting to .50% of the maximum aggregate amount
outstanding. As permitted, this requirement has been satisfied by substituting a
portion of permanent additions to utility plant.
Northern Indiana is authorized to issue and sell up to $217,692,000
Medium-Term Notes, Series E, with various maturities, for purposes of
refinancing certain first mortgage bonds and medium-term notes. As of December
31, 1999, $139.0 million of these medium-term notes had been issued with various
interest rates and maturities.
In February 1999, $35.0 million of ten-year medium term notes were issued at
a rate of 5.99% with a maturity date of February 1, 2009 and $45.0 million of
twenty-year medium term notes were issued at a rate of 6.61% with a maturity
date of February 1, 2019. The majority of the proceeds were used to reduce
existing credit facilities and the remaining proceeds were used for general
corporate purposes.
The financial obligations of Capital Markets are subject to a Support
Agreement between NiSource and Capital Markets, under which NiSource has
committed to make payments of interest and principal on Capital Markets'
obligations in the event of a failure to pay by Capital
57
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
Markets. Restrictions in the Support Agreement prohibit recourse on the part of
Capital Markets' creditors against the stock and assets of Northern Indiana that
are owned by NiSource. Under the terms of the Support Agreement, in addition to
the cash flow of cash dividends paid to NiSource by any of its consolidated
subsidiaries, the assets of NiSource, 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 NiSource, other than the assets
of Northern Indiana, were approximately $3.2 billion at December 31, 1999.
- --------------------------------------------------------------------------------
CURRENT PORTION OF LONG-TERM DEBT
- --------------------------------------------------------------------------------
At December 31, 1999 and 1998, NiSource's current portion of long-term debt due
within one year was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -----------
(In thousands)
<S> <C> <C>
Medium-term notes--Interest rates between 6.0% and 6.93% with a weighted
average interest rate of 6.80% and maturities between September 1, 1999, and
November 17, 2006.................................................................... $166,254 $ --
Notes payable--Interest rates between 6.72% and 10.08% with a weighted
average interest rate of 7.82% and maturities between August 15, 2000, and
January 1, 2007...................................................................... 4,467 4,790
Sinking funds due within one year...................................................... 3,000 2,000
-------- ------
Total current portion of long-term debt.............................................. $173,721 $6,790
======== ======
</TABLE>
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
NiSource and its subsidiaries may borrow under two five-year $100 million
revolving credit agreements that terminate on September 23, 2003 and two 364-day
$100 million revolving credit agreements that terminate on September 23, 2000.
The 364-day agreements may be extended at expiration for additional periods of
364 days. Under these agreements, funds are borrowed at a floating rate of
interest or, under certain circumstances, at a fixed rate of interest for
short-term periods. These agreements provide financing flexibility and may be
used to support the issuance of commercial paper. At December 31, 1999, there
were no borrowings outstanding under these agreements.
In addition, various NiSource subsidiaries maintain lines of credit for up to
an aggregate of $199.9 million with lenders at either the lender's commercial
prime or market lending rates. As of December 31, 1999, there were $54.1 million
of borrowings outstanding under these lines of credit with a weighted average
interest rate of 6.06%. As of December 31, 1998, there were $84.1 million of
borrowings outstanding under these lines of credit.
NiSource and its subsidiaries maintain market lines of credit for up to
$394.4 million. As of December 31, 1999, there were $156.2 million outstanding
under these money market lines of credit with a weighted average interest rate
of 6.78%. At December 31, 1998, there were $127.3 million of borrowings
outstanding under these money market lines of credit.
In September 1999, Capital Markets issued $160 million PURS in an
underwritten public offering. The PURS are unsecured debentures of Capital
Markets and rank equally with all other unsecured and unsubordinated debt of
Capital Markets. The PURS are subject to a call option under which the
underwriters may purchase all of the outstanding PURS from the holders on
September 28, 2000. The net proceeds from the sale of the PURS and the call
option of $162.4 million were used to refinance short-term indebtedness incurred
in connection with the acquisition of BSG in February 1999. Until September 28,
2000, the PURS will accrue interest at a rate based on LIBOR plus 1.25%. On
September 28, 2000, if the underwriters do not exercise their call option,
Capital Markets will be obligated to repurchase all of the outstanding PURS. If
the underwriters purchase all of the outstanding PURS pursuant to their call
option, the interest rate will be reset to a fixed rate based on then current
market rates plus a fixed margin and the PURS will remain outstanding until
2010.
58
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
At December 31, 1999 and 1998, NiSource's short-term borrowings were as
follows:
DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
(In thousands)
Commercial paper--
Weighted average inter-
est rate of 6.29% at
December 31, 1999................ $299,565 $193,700
Notes payable--
Interest rates between
4.96% and 7.45% with
a weighted average
interest rate of 6.57%
and maturities between
January 10, 2000 and
March 15, 2000................... 379,756 217,340
-------- --------
Total short-term borrowings...... $679,321 $411,040
======== ========
CORPORATE PREMIUM INCOME EQUITY SECURITIES AND COMPANY-OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF TRUST HOLDING SOLELY COMPANY DEBENTURES
In February 1999 NiSource completed an underwritten public offering of Corporate
PIES. The net proceeds of approximately $334.7 million were primarily used to
fund the cash portion of the consideration payable in the acquisition of BSG,
and to repay short-term indebtedness.
The Corporate PIES were offered as one unit comprised of two separable
instruments. The first component consists of stock purchase contracts to
purchase, four years from the date of issuance, common shares at a face value of
$50. The second component consists of mandatorily redeemable preferred
securities (Preferred Securities) which represent an undivided beneficial
ownership ~interest in the assets of NIPSCO Capital Trust I (Capital Trust). The
Preferred Securities have a stated liquidation amount of $50. The sole assets of
Capital Trust are subordinated debentures (Debentures) of Capital Markets that
earn interest at the same rates as the Preferred Securities to which they
relate, and certain rights under related guarantees by Capital Markets. The
Preferred Securities have been pledged to secure the holders' obligation to
purchase common shares under the stock purchase contracts.
The face value of the stock purchase contracts is not recorded in the
Consolidated Balance Sheet. A $22.2 million present value contract fee payable
to the stock purchase contract holders has been recorded as a liability and as
reduction to paid-in capital. In addition, paid-in capital has been reduced by
$10.4 million for the issuance costs of the stock purchase contracts.
The distributions paid on Preferred Securities are presented under the
caption "minority interests" in NiSource's Consolidated Statements of Income.
The amounts outstanding are presented under the caption, "Company-obligated
mandatorily redeemable preferred securities of subsidiary trust holding solely
company debentures," in NiSource's Consolidated Balance Sheet. At December 31,
1999, there were 6.9 million 5.9% Preferred Securities outstanding with Capital
Trust assets of $345 million.
- --------------------------------------------------------------------------------
OPERATING LEASES
- --------------------------------------------------------------------------------
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
December 31, 1999:
YEAR ENDING DECEMBER 31, (In thousands)
- ------------------------
2000............................................. $34,372
2001............................................. 34,223
2002............................................. 64,639
2003............................................. 80,513
2004............................................. 25,341
Later years...................................... 218,905
--------
Total minimum payments required.................. $457,993
========
The consolidated financial statements include rental expense for all
operating leases as follows:
YEAR ENDING DECEMBER 31, (In thousands)
- ------------------------
1999............................................. $50,277
1998............................................. 23,700
1997............................................. 8,837
- --------------------------------------------------------------------------------
COMMITMENTS
- --------------------------------------------------------------------------------
NiSource expects that approximately $1.6 billion will be expended for
construction purposes for the period from January 1, 2000 to December 31, 2004.
Substantial commitments have been made in connection with this construction
program.
Northern Indiana has entered into a service agreement with Pure Air, a
general partnership between Air Products and Chemicals, Inc. and Mitsubishi
Heavy Industries
59
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
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 June 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.
A ten-year agreement to outsource all data center, application development
and maintenance, and desktop management expires in 2005. Annual fees under the
agreement are approximately $20 million.
Primary Energy, Inc. ("Primary") arranges energy-related projects for large
energy-intensive customers and offers such customers nationwide expertise in
managing the engineering, construction, operation and maintenance of such
projects. Through its subsidiaries, Primary has entered into agreements with
several of NiSource's largest industrial customers, principally steel mills and
a refinery, to service a portion of their energy needs. In order to serves its
customers under the agreements, Primary, through its subsidiaries, has entered
into certain operating lease commitments to lease these energy-related projects
which have a combined capacity of 393 megawatts. NiSource, principally through
Capital Markets, guarantees certain of Primary's obligations under each lease,
which are included in the Operating Leases.
Primary has advanced approximately $36.6 million and $31.8 million, at
December 31, 1999 and December 31, 1998, 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.
- --------------------------------------------------------------------------------
RISK MANAGEMENT ACTIVITIES
- --------------------------------------------------------------------------------
NiSource uses certain commodity-based derivative financial instruments to
manage certain risks inherent in its business. NiSource's senior management
takes an active role in the risk management process and has developed policies
and procedures that require specific administrative and business functions to
assist in the identification, assessment and control of various risks. The open
positions resulting from risk management activities are managed in accordance
with strict policies which limit exposure to market risk and require daily
reporting to management of potential financial exposure.
NiSource uses futures contracts, options and swaps to hedge a portion of
its price risk associated with its non-trading activities in gas supply for its
regulated gas utilities, certain customer choice programs for residential
customers and other retail customer activity. At December 31, 1999, NiSource had
futures contracts representing the hedge of natural gas sales in the notional
amount of 8.0 billion cubic feet (BCF) resulting in a deferred gain of $0.9
million.
NiSource's trading operations includes the activities of its power trading
business and non-affiliated transactions associated with TPC. NiSource employs a
VaR model to assess the market risk of its energy trading portfolios. NiSource
estimates the one-day VaR for both trading groups which utilize derivatives
using either a Monte Carlo simulation or variance/covariance at a 95 percent
confidence level. Based on the results of the VaR analysis, the daily market
exposure for power trading on an average, high and low basis was $0.4, $1.2 and
$0.014 million during 1999, respectively. The daily VaR for the gas trading
portfolio on an average, high and low basis was $1.3, $2.1 and $0.4 million
during 1999, respectively. There were no significant trading positions during
1998.
Unrealized gains and losses on our portfolio are recorded as price risk
management assets and liabilities. The market prices used to value price risk
management activities reflect the best estimate of market prices considering
various factors, including closing exchange and over-the-counter quotations and
price volatility factors underlying the commitments. The accompanying financial
statements reflect price risk management assets and liabilities (including net
option premiums) of $32 million and $54 million at December 31, 1999. Power
trading results are reflected on a net basis in the accompanying statement of
income, consistent with the guidance in EITF Issue No. 98-10 with respect to the
use of written options. NiSource has recorded a net profit of $11 million as a
component of electric revenues for the year ended December 31, 1999. Activities
with respect to gas trading are reflected on a gross basis with revenues and
cost of goods sold consistent with the physical nature of the trades. NiSource
has recorded gas trading revenues and cost of goods sold of approximately $365
million and $371 million, respectively for the year ended December 31, 1999.
- --------------------------------------------------------------------------------
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 fair
value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short maturity of those
instruments.
INVESTMENTS
Where feasible, the fair value of investments is estimated based on market
prices for those or similar investments.
60
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
LONG-TERM DEBT/PREFERRED STOCK AND PREFERRED SECURITIES
The fair values of these securities are estimated based on the quoted market
prices for the same or similar issues or on the rates offered 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 financial instruments were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------ ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents..................................... $ 43,533 $ 43,533 $ 60,848 $ 60,848
Investments................................................... 49,064 49,352 36,594 36,028
Long-term debt (including current portion).................... 2,148,905 1,992,348 1,674,755 1,769,937
Preferred stock (including current portion)................... 141,469 119,702 143,876 140,420
Preferred securities.......................................... $ 345,000 $ 248,831 N/A N/A
</TABLE>
A substantial portion 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.
- --------------------------------------------------------------------------------
CUSTOMER CONCENTRATIONS
- --------------------------------------------------------------------------------
The Utilities supply natural gas, electric energy and water. Natural gas and
electric energy are supplied to the northern third of Indiana and portions of
Massachusetts, New Hampshire and Maine. 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 following table shows the basic steel industry percentage of gas
revenue (including transportation services) and electric revenue for 1999, 1998
and 1997:
BASIC STEEL INDUSTRY 1999 1998 1997
---- ---- ----
Gas revenue percent................ 2% 3% 4%
Electric revenue percent........... 18% 13% 17%
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA(a)
- --------------------------------------------------------------------------------
The following data summarize certain operating results for each of the quarters
of 1999 and 1998:
<TABLE>
<CAPTION>
1999 QUARTERS ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues.................................... $891,604 $675,294 $692,993 $884,685
Operating expenses.................................... 735,723 590,370 586,944 770,003
-------- -------- -------- --------
Operating income...................................... 155,881 84,924 106,049 114,682
Others income (deductions)
Interest and other charges.......................... (38,804) (42,391) (44,447) (49,309)
Other, net.......................................... 4,404 (7,933) (19,866) (12,328)
Income taxes.......................................... 44,922 11,656 13,781 20,089
-------- -------- -------- --------
Net income............................................ $ 76,559 $ 22,944 $ 27,955 $ 32,956
-------- -------- -------- --------
Basic earnings per average common share(a)............ $ 0.62 $ 0.18 $ 0.22 $ 0.26
-------- -------- -------- --------
Diluted earnings per average common share(a).......... $ 0.62 $ 0.18 $ 0.22 $ 0.25
-------- -------- -------- --------
Market price for the quarter:
High................................................ $ 30.500 $ 28.188 $ 26.875 $ 23.000
Low................................................. $ 25.875 $ 25.813 $ 21.750 $ 16.563
</TABLE>
61
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
================================================================================
<TABLE>
<CAPTION>
1998 QUARTERS ENDED
-------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues.................................... $779,344 $652,408 $747,792 $753,234
Operating expenses.................................... 662,230 573,365 650,844 624,833
-------- -------- -------- --------
Operating income...................................... 117,114 79,043 96,948 128,401
Other income (deductions)
Interest and other charges.......................... 32,497 33,243 35,199 36,403
Other, net.......................................... 8,448 (931) 2,870 197
Income taxes.......................................... 32,343 15,424 21,492 31,603
-------- -------- -------- --------
Net income............................................ $ 60,722 $ 29,445 $ 43,127 $ 60,592
======== ======== ======== ========
Basic earnings per average common share(a)............ $ 0.49 $ 0.24 $ 0.36 $ 0.51
======== ======== ======== ========
Diluted earnings per average common share(a).......... $ 0.48 $ 0.24 $ 0.35 $ 0.51
======== ======== ======== ========
Market price for the quarter:
High................................................ $ 28.375 $ 28.313 $ 32.875 $ 33.625
Low................................................. $ 24.750 $ 25.813 $ 26.625 $ 28.875
</TABLE>
(a) Because of the combined mathematical effect of common shares repurchased and
issued and the cyclical nature of net income during the year, the sum of
earnings per share data for any four quarterly periods may vary slightly
from the earnings per share data for the equivalent twelve-month period.
- --------------------------------------------------------------------------------
SEGMENTS OF BUSINESS
- --------------------------------------------------------------------------------
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.
There are 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 wholesale power marketing and trading 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,
trading, storage and sales to wholesale and industrial customers.
Reportable segments are operations that are managed separately and meet
certain quantitative thresholds. The Other Products and Services column includes
a variety of businesses, such as installation, repair and maintenance of
underground pipelines, utility line locating and marking, the arrangement of
energy-related projects for large energy-intensive facilities, and other
products and services, which collectively do not constitute a segment for
reporting purposes.
Revenues for each segment are principally attributable to customers in the
United States. Additional revenues, which are insignificant to consolidated
revenues, are attributable to customers in Canada and the United Kingdom.
The following tables provide information about business segments. NiSource
uses income before interest and income taxes as its primary measurement for each
of the reported segments. NiSource makes decisions on finance, dividends and
taxes at the corporate level. These topics are addressed on a consolidated
basis. In addition, adjustments have been made to the segment information to
arrive at information included in the results of operations and financial
position. These adjustments include unallocated corporate assets, revenues and
expenses and the elimination of intercompany transactions. The accounting
policies of the operating segments are the same as those described in "Summary
of Significant Accounting Policies."
62
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
================================================================================
<TABLE>
<CAPTION>
Corporate
Other and
Gas Gas Products Adjust
1999 Utilities Electric Water Marketing & Services ments Total
- --------------------------------------- (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues .................. $1,072,778 $1,124,157 $ 98,500 $771,776 $283,528 $(206,163) $3,144,576
Other Income (Deductions)............ $ 4,162 $ 756 $ 1,982 $ 5,206 $(22,711) $ (7,425) $ (18,030)
Depreciation and amortization........ $ 116,145 $ 158,976 $ 15,427 $ 3,136 $ 13,109 $ 4,611 $ 311,404
Income before Interest and Other
Charges and Income Taxes........... $ 119,606 $ 363,674 $ 29,139 $ (485) $(16,482) $ (51,946) $ 443,506
Assets .............................. $2,424,695 $2,764,397 $685,346 $597,008 $555,206 $(191,423) $6,835,229
Capital Expenditures ................ $ 145,182 $ 134,019 $ 64,590 $ 733 $ 13,999 $ - $ 358,523
Investment in equity-method investees.. $ - $ - $ - $ 7,620 $129,145 $ - $ 136,765
<CAPTION>
Corporate
Other and
Gas Gas Products Adjust
1998 Utilities Electric Water Marketing & Services ments Total
- --------------------------------------- (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues .................. $ 637,098 $1,429,986 $ 83,979 $657,692 $226,901 $(102,878) $2,932,778
Other Income (Deductions) ........... $ 2,802 $ 553 $ 712 $ 2,017 $ 3,813 $ 1,711 $ 11,608
Depreciation and amortization ....... $ 75,547 $ 156,844 $ 11,589 $ 332 $ 11,223 $ 939 $ 256,474
Income before Interest and Other
Charges and Income Taxes ............ $ 68,284 $ 341,433 $ 23,460 $ 5,006 $ 5,814 $ (10,883) $ 433,114
Assets .............................. $1,074,501 $2,774,482 $619,505 $121,574 $465,674 $ (69,233) $4,986,503
Capital Expenditures ................ $ 62,981 $ 124,044 $ 59,265 $ 24 $ 11,325 $ - $ 257,639
Investment in equity-method investees.. $ - $ - $ - $ 6,707 $104,633 $ - $ 111,340
<CAPTION>
Corporate
Other and
Gas Gas Products Adjust
1997 Utilities Electric Water Marketing & Services ments Total
- --------------------------------------- (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues .................. $ 807,239 $1,186,331 $ 60,743 $480,986 $172,977 $(121,735) $2,586,541
Other Income (Deductions) ........... $ 821 $ 637 $ 1,465 $ 3,349 $ 11,047 $ (1,195) $ 16,124
Depreciation and amortization ....... $ 73,017 $ 153,843 $ 8,241 $ 233 $ 13,005 $ 1,465 $ 249,804
Income before Interest and Other
Charges and Income Taxes ............ $ 88,950 $ 312,243 $ 19,363 $ 7,085 $ 13,057 $ (14,021) $ 426,677
Assets .............................. $1,111,372 $2,746,232 $565,717 $ 94,690 $491,550 $ (72,528) $4,937,033
Capital Expenditures ................ $ 64,009 $ 115,012 $ 39,910 $ - $ - $ - $ 218,931
Investment in equity-method investees.. $ - $ - $ - $ 6,710 $ 76,145 $ - $ 82,855
</TABLE>
The following table reconciles total reportable segment income before
interest taxes to NiSource's consolidated net income for each of the years
ending 1999, 1998 and other charges and income and 1997 as follows:
<TABLE>
<CAPTION>
1999 1998 1999
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Total segment profit ................................ $443,506 $ 433,114 $ 426,677
Interest expense, net ............................... (166,617) (128,804) (120,607)
Minority interests .................................. (17,693) (1,024) (356)
Dividends requirements on preferred stock ........... (8,344) (8,538) (8,694)
-------- --------- ---------
Income before income taxes .......................... 250,862 294,748 297,023
Less: income taxes .................................. 90,448 100,&62 106,174
-------- --------- ---------
Net Income .......................................... $160,414 $ 193,886 $ 190,849
======== ========= =========
</TABLE>
63
<PAGE> 41
SELECTED SUPPLEMENTAL INFORMATION
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
GAS STATISTICS 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues ($000's):
Sales
Residential........................................................... $ 572,134 $ 385,030 $ 479,461
Commercial............................................................ 207,533 124,903 164,359
Industrial............................................................ 58,498 62,003 78,531
----------- ----------- -----------
Total............................................................... 838,165 571,936 722,351
Transportation
Residential........................................................... 5,609 741 --
Commercial............................................................ 34,350 4,873 1,742
Industrial............................................................ 35,124 34,279 35,062
----------- ----------- -----------
Total............................................................... 75,083 39,893 36,804
Transmission............................................................ 2,073 2,955 2,581
Gas marketing and trading............................................... 710,376 623,338 419,419
Other*.................................................................. 27,753 (28,347) 3,466
----------- ----------- -----------
Total............................................................... $ 1,653,450 $ 1,209,775 $ 1,184,621
=========== =========== ===========
Deliveries in dth (000's):
Sales
Residential........................................................... 92,766 63,514 79,816
Commercial............................................................ 38,834 24,256 31,640
Industrial............................................................ 13,205 12,824 16,989
----------- ----------- -----------
Total............................................................... 144,805 100,594 128,445
Transportation
Residential........................................................... 1,592 207 --
Commercial............................................................ 40,928 5,384 3,957
Industrial............................................................ 188,056 177,604 165,627
----------- ----------- -----------
Total............................................................... 230,576 183,195 169,584
Transmission............................................................ 21,878 19,695 31,275
Gas marketing and trading............................................... 354,399 311,942 249,857
Other................................................................... 601 503 566
----------- ----------- -----------
Total............................................................... 752,259 615,929 579,727
=========== =========== ===========
Customers Served--End of Year:
Sales
Residential........................................................... 939,426 675,782 669,833
Commercial............................................................ 85,632 53,061 55,088
Industrial............................................................ 3,788 3,801 4,179
----------- ----------- -----------
Total............................................................... 1,028,846 732,644 729,100
Transportation
Residential........................................................... 30,947 3,207 --
Commercial............................................................ 10,687 2,857 36
Industrial............................................................ 664 613 229
----------- ----------- -----------
Total............................................................... 42,298 6,677 265
Transmission............................................................ 8 8 9
Other................................................................... 69 71 75
----------- ----------- -----------
Total............................................................... 1,071,221 739,400 729,449
=========== =========== ===========
</TABLE>
*Includes deferred gas cost revenue of $(4,474), $(42,055) and $(11,075),
respectively.
64
<PAGE> 42
SELECTED SUPPLEMENTAL INFORMATION (Continued)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
ELECTRIC STATISTICS 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues ($000's):(a)
Residential............................................................. $ 294,223 $ 290,738 $ 272,619
Commercial.............................................................. 275,160 267,718 253,235
Industrial.............................................................. 415,388 404,507 416,741
Street lighting......................................................... 8,976 8,740 8,697
Wholesale............................................................... 90,006 430,422 214,150
Other**................................................................. 37,285 24,475 19,149
----------- ----------- -----------
Total................................................................. $ 1,121,038 $ 1,426,600 $ 1,184,591
=========== =========== ===========
Sales in kilowatt-hours (000's):(a)
Residential............................................................. 2,996,650 2,936,762 2,723,990
Commercial.............................................................. 3,292,066 3,159,095 2,973,823
Industrial.............................................................. 9,186,132 8,782,363 8,971,926
Street lighting......................................................... 59,713 57,607 57,764
Wholesale............................................................... 2,765,394 14,480,608 8,688,014
Other................................................................... 79,024 64,037 84,935
----------- ----------- -----------
Total................................................................. 18,378,979 29,480,472 23,500,452
=========== =========== ===========
Customers Served--End of Year:
Residential............................................................. 376,483 372,383 368,907
Commercial.............................................................. 45,821 44,960 43,802
Industrial.............................................................. 2,677 2,736 2,764
Other................................................................... 852 868 885
----------- ----------- -----------
Total................................................................. 425,833 420,947 416,358
=========== =========== ===========
</TABLE>
**Includes deferred fuel cost revenue of $10,480, $(8,880) and $(5,223),
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
WATER STATISTICS 1999 1998 1997***
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues ($000's):
Residential............................................................. $ 65,830 $ 55,281 $ 39,570
Commercial.............................................................. 22,393 19,942 14,763
Industrial.............................................................. 4,855 4,227 3,015
Other................................................................... 5,305 4,529 3,395
----------- ----------- -----------
Total................................................................. $ 98,383 $ 83,979 $ 60,743
=========== =========== ===========
Sales in millions of gallons (000's):
Residential............................................................. 25,964 22,454 18,095
Commercial.............................................................. 13,711 13,029 10,345
Industrial.............................................................. 4,690 4,392 3,310
Other................................................................... 1,059 947 754
----------- ----------- -----------
Total................................................................. 45,424 40,822 32,504
=========== =========== ===========
Customers Served--End of Year:
Residential............................................................. 254,075 232,333 225,627
Commercial.............................................................. 17,338 17,265 17,083
Industrial.............................................................. 343 348 347
Other................................................................... 3,932 3,718 3,586
----------- ----------- -----------
Total................................................................. 275,688 253,664 246,643
=========== =========== ===========
</TABLE>
***Amounts are for the period April 1997 through December 1997.
(a) 1997 and 1998 revenues and sales have been restated for consolidation.
65
<PAGE> 43
SELECTED SUPPLEMENTAL INFORMATION (Continued)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues
Gas ($000's)(a)............................................................ $ 1,653,450 $ 1,209,775 $ 1,184,621
Electric ($000's)(a)....................................................... 1,121,038 1,426,600 1,184,591
Water ($000's)............................................................. 98,383 83,979 60,743
Products and Services ($000's)(a)............................................. 271,705 212,424 156,586
------------ ------------ ------------
Total Operating Revenues ($000's)....................................... $ 3,144,576 $ 2,932,778 $ 2,586,541
Operating Margin ($000's)..................................................... $ 1,493,525 $ 1,240,411 $ 1,210,927
Operating Income ($000's)..................................................... $ 461,536 $ 421,506 $ 410,553
Net Income ($000's)........................................................... $ 160,414 $ 193,886 $ 190,849
Shares outstanding at year end................................................ 124,139,392 117,530,698 124,312,664
Number of common shareholders................................................. 40,741 36,277 37,373
Basic earnings per average common share....................................... $ 1.29 $ 1.60 $ 1.54
Diluted earnings per average common share..................................... $ 1.27 $ 1.59 $ 1.53
Return on average common equity............................................... 12.8% 16.1% 16.1%
Times interest earned (pre-tax)............................................... 2.07 3.13 3.43
Dividends paid per share...................................................... $ 1.02 $ 0.96 $ 0.90
Dividend payout ratio......................................................... 79.1% 60.0% 58.4%
Market values during the year:
High....................................................................... $ 30.500 $ 33.625 $ 24.938
Low........................................................................ $ 16.563 $ 24.750 $ 19.000
Close...................................................................... $ 17.875 $ 30.437 $ 24.719
Book value of common shares................................................... $ 10.90 $ 9.78 $ 10.17
Market-to-book ratio at year end.............................................. 163.9% 311.2% 243.1%
Total Assets ($000's)......................................................... $ 6,835,229 $ 4,986,503 $ 4,937,033
Utility construction expenditures ($000's)(b)................................. $ 341,263 $ 245,825 $ 218,931
Capitalization:
Common shareholders' equity ($000's)....................................... $ 1,353,504 $ 1,149,708 $ 1,264,788
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's)................ $ 81,114 $ 81,116 $ 81,123
Series with mandatory redemption provisions ($000's).................. $ 54,030 $ 56,435 $ 58,841
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's)................... $ -- $ -- $ --
Indianapolis Water Company:
Series without mandatory redemption provision ($000's)................ $ 4,497 $ 4,497 $ 4,497
Company obligated, mandatorily redeemable preferred securities of trust
holding solely Company debentures..................................... $ 345,000 $ -- $ --
Long-Term debt ($000's)....................................................... $ 1,975,184 $ 1,667,965 $ 1,667,925
------------ ------------ ------------
Total Capitalization ($000's)........................................... $ 3,813,329 $ 2,959,721 $ 3,077,174
Number of employees........................................................... 7,399 6,035 5,984
</TABLE>
Notes: (a) 1998 and 1997 revenues restated for consolidation.
(b) Including AFUDC.
66
<PAGE> 44
SELECTED SUPPLEMENTAL INFORMATION (Continued)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues
Gas ($000's)(a).................................................. $ 799,395 $ 691,402 $ 681,909 $ 714,229
Electric ($000's)(a)............................................. 1,022,231 1,030,923 994,492 963,643
Water ($000's)................................................... -- -- -- --
Products and Services ($000's)(a)................................... 166,322 46,983 91,628 59,387
------------ ------------ ------------ ------------
Total Operating Revenues ($000's)............................. $ 1,987,948 $ 1,769,308 $ 1,768,029 $ 1,737,259
Operating Margin ($000's)........................................... $ 1,115,965 $ 1,074,820 $ 1,014,566 $ 1,001,542
Operating Income ($000's)........................................... $ 386,308 $ 381,877 $ 353,452 $ 355,918
Net Income ($000's)................................................. $ 176,734 $ 175,465 $ 163,987 $ 156,140
Shares outstanding at year end...................................... 119,611,322 124,759,192 127,810,778 131,657,676
Number of common shareholders....................................... 35,339 37,299 39,172 41,038
Basic earnings per average common share............................. $ 1.44 $ 1.36 $ 1.24 $ 1.15
Diluted earnings per average common share........................... $ 1.43 $ 1.35 $ 1.23 $ 1.15
Return on average common equity..................................... 15.9% 15.5% 14.6% 14.4%
Times interest earned (pre-tax)..................................... 3.62 3.72 3.61 3.48
Dividends paid per share............................................ $ 0.84 $ 0.78 $ 0.72 $ 0.66
Dividend payout ratio............................................... 58.3% 57.4% 58.1% 57.4%
Market values during the year:
High............................................................. $ 20.125 $ 19.250 $ 16.500 $ 17.438
Low.............................................................. $ 17.625 $ 14.625 $ 13.063 $ 13.063
Close............................................................ $ 19.813 $ 19.125 $ 14.875 $ 16.438
Book value of common shares......................................... $ 9.20 $ 9.00 $ 8.67 $ 8.31
Market-to-book ratio at year end.................................... 215.4% 212.5% 171.6% 197.8%
Total Assets ($000's)............................................... $ 4,288,883 $ 3,999,520 $ 3,947,138 $ 3,912,324
Utility construction expenditures ($000's)(b)....................... $ 207,881 $ 192,966 $ 202,545 $ 180,852
Capitalization:
Common shareholders' equity ($000's)............................. $ 1,100,501 $ 1,122,215 $ 1,107,848 $ 1,094,672
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's)...... $ 81,126 $ 81,325 $ 86,389 $ 97,753
Series with mandatory redemption provisions ($000's)........ $ 61,246 $ 63,651 $ 66,057 $ 68,462
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's)......... $ -- $ 35,000 $ 35,000 $ 35,000
Indianapolis Water Company:
Series without mandatory redemption provision ($000's)...... $ -- $ -- $ -- $ --
Company obligated, mandatorily redeemable preferred
securities of trust holding solely Company debentures....... $ -- $ -- $ -- $ --
Long-Term debt ($000's)............................................. $ 1,127,106 $ 1,175,728 $ 1,180,338 $ 1,192,500
------------ ------------ ------------ ------------
Total Capitalization ($000's)................................. $ 2,369,979 $ 2,477,919 $ 2,475,632 $ 2,488,387
Number of employees................................................. 4,168 4,356 4,441 4,602
</TABLE>
67
<PAGE> 45
SELECTED SUPPLEMENTAL INFORMATION (Continued)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1992 1991 1990 1989
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues
Gas ($000's)(a).............................................. $ 666,221 $ 601,920 $ 625,159 $ 677,262
Electric ($000's)(a)......................................... 916,135 933,241 895,836 882,303
Water ($000's)............................................... -- -- -- --
Products and Services ($000's)(a)............................... -- -- -- --
------------ ------------ ------------ ------------
Total Operating Revenues ($000's)......................... $ 1,582,356 $ 1,535,161 $ 1,520,995 $ 1,559,565
Operating Margin ($000's)....................................... $ 927,089 $ 919,951 $ 885,262 $ 900,035
Operating Income ($000's)....................................... $ 246,217 $ 254,354 $ 247,777 $ 252,807
Net Income ($000's)............................................. $ 136,648 $ 133,388 $ 125,361 $ 72,112 (c)
Shares outstanding at year end.................................. 131,516,700 133,343,230 137,748,458 138,738,984
Number of common shareholders................................... 38,097 39,346 41,285 43,763
Basic earnings per average common share......................... $ 1.00 $ 0.97 $ 0.90 $ 0.50 (c)
Diluted earnings per average common share....................... $ 0.99 $ 0.96 $ 0.89 $ 0.49 (c)
Return on average common equity................................. 13.1% 12.9% 12.7% 7.2%(c)
Times interest earned (pre-tax)................................. 3.17 2.93 2.81 2.02 (c)
Dividends paid per share........................................ $ 0.62 $ 0.58 $ 0.52 $ 0.42
Dividend payout ratio........................................... 62.0% 59.8% 57.8% 84.0%(c)
Market values during the year:
High......................................................... $ 13.313 $ 13.500 $ 9.625 $ 9.813
Low.......................................................... $ 11.250 $ 9.250 $ 7.875 $ 6.563
Close........................................................ $ 13.250 $ 12.875 $ 9.438 $ 9.688
Book value of common shares..................................... $ 7.87 $ 7.59 $ 7.30 $ 6.96
Market-to-book ratio at year end................................ 168.4% 169.6% 129.3% 139.2%
Total Assets ($000's)........................................... $ 3,807,941 $ 3,647,557 $ 3,625,181 $ 3,657,718
Utility construction expenditures ($000's)(b)................... $ 172,329 $ 168,958 $ 152,280 $ 150,786
Capitalization:
Common shareholders' equity ($000's)......................... $ 1,034,530 $ 1,011,666 $ 1,005,982 $ 965,437
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's).. $ 97,917 $ 98,710 $ 99,374 $ 99,874
Series with mandatory redemption provisions ($000's).... $ 70,668 $ 53,978 $ 59,358 $ 66,309
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's)..... $ 35,000 $ 35,000 $ 35,000 $ --
Indianapolis Water Company:
Series without mandatory redemption provision ($000's).. $ -- $ -- $ -- $ --
Company obligated, mandatorily redeemable preferred
securities of trust holding solely Company debentures... $ -- $ -- $ -- $ --
Long-Term debt ($000's)......................................... $ 1,054,454 $ 1,068,708 $ 1,165,682 $ 1,261,760
------------ ------------ ------------ ------------
Total Capitalization ($000's)............................. $ 2,292,569 $ 2,268,062 $ 2,365,396 $ 2,393,380
Number of employees............................................. 4,648 4,600 4,547 4,825
</TABLE>
(c) Earnings per share were reduced by $0.72 due to the $82.0 million refund,
less associated tax benefits of $30.3 million, related to the Bailly N1
generating unit.
68
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
State of
Name of Company Organization Location Nature of Business
====================== ============= ================= =====================
<S> <C> <C> <C>
NiSource Inc. Indiana Merrillville, Holding company
Indiana
NiSource Corporate Indiana Merrillville, Management services
Services Company Indiana
Hamilton Harbour Indiana Merrillville, Captive insurance
Insurance Services, Ltd. Indiana program
NI Telecomm, Inc.(7) Indiana Merrillville, Inactive
Indiana
Crossroads Pipeline Indiana Merrillville, Interstate gas
Company (7) Indiana transmission
NiSource Capital Markets, Indiana Hammond, Funding agent for
Inc. Indiana all subsidiaries
other than Northern
Indiana Public Service
Company
NEM Acquisition Indiana Merrillville, Holding company
Corp. (25) Indiana
IWC Resources Indiana Indianapolis, Holding company
Corporation Indiana
Indianapolis Water Indiana Indianapolis, Water company
Company (1) Indiana
Harbour Water Indiana Indianapolis, Water company
Corporation (1) Indiana
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
Liberty Water Indiana Indianapolis, Water company
Corporation (1) Indiana
Utility Data Indiana Indianapolis, Provides customer
Corporation (1) Indiana billing and data
processing services
IWC Services, Inc. Indiana Indianapolis, Majority partner
(1) Indiana in wastewater
treatment
facilities
White River Indiana Indianapolis, Operator of waste-
Environmental Indiana water treatment
Partnership (2) plants
Waterway Holdings, Inc. Indiana Indianapolis, Real-estate
(1) Indiana development
SM&P Utility Resources, Indiana Indianapolis, Provides utility
Inc. (1) Indiana locate and
marking services
Miller Pipeline Indiana Indianapolis, Pipeline
Corporation (1) Indiana construction
Primary Energy, Inc. Indiana Merrillville, Arranges energy-
Indiana related projects
Harbor Coal Company (3) Indiana Merrillville, Coal pulverization
Indiana project company
Lakeside Energy Indiana Merrillville, Electric generator
Corporation (3) Indiana project company
North Lake Energy Indiana Merrillville, Electric generation
Corporation (3) Indiana project company
Portside Energy Indiana Merrillville, Power generation
Corporation (3) Indiana project company
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Cokenergy, Inc. (3) Indiana Merrillville, Power generation
Indiana project company
Ironside Energy Indiana Merrillville, Power generation
Corporation (3) Indiana project company
Ironside Energy LLC (3) Indiana Merrillville, Power generation
Indiana project company
Whiting Clean Indiana Merrillville, Power generation
Energy, Inc. (3) Indiana project company
Northern Indiana Public Indiana Hammond, Electric and
Service Company Indiana gas utility
NIPSCO Exploration Indiana Hammond, Gas exploration
Company, Inc. (4) Indiana investment in
off-shore Gulf of
Mexico oil and
gas leases
Shore Line Shops, Indiana Hammond, Real estate
Incorporated (4) Indiana purchase and sale
of transferred
employees
residences
NI Energy Services, Indiana Merrillville, Holding company for
Inc. Indiana energy-related
diversified
projects and
subsidiaries
Market Hub Partners, Delaware Wilmington, General partner of
Inc. (6) Delaware Market Hub Partners, L.P.
Market Hub Partners, Delaware Houston, Natural gas
L.P. (5)(22) Texas storage
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
NI Fuel Company, Indiana Merrillville, Investments in
Inc. (25) Indiana gas and oil
ventures
Bristol Resources Delaware Tulsa, Oil and gas
Production Company, Oklahoma exploration
L.L.C. (8) and production
NFCO Acquisition Company Texas Dallas, Investment in
(9) Texas gas and oil
properties
NI-TEX, Inc. (25) Indiana Merrillville, Gas supply and
Indiana transportation
NI-TEX Gas Services, Delaware Dallas, Gas storage
Inc. (25) Texas
Laredo Nueces Pipeline Texas Dallas, Intrastate gas
Company (20) Texas pipeline company
Midtex Gas Storage Texas Matagorda Gas storage and
Company, L.L.P. (21) County, Texas intrastate pipeline
company
NESI Energy Marketing, Indiana Merrillville, Marketing of natural
L.L.C. (10) (11) Indiana gas energy and
energy services
Green Fuels, Inc. (7) Indiana Merrillville, Alternative
Indiana fuels
NI Energy Services Indiana Merrillville, Gas Pipeline
Transportation, Inc. (25) Indiana
NESI Power Marketing, Indiana Merrillville, Inactive
Inc. (7) Indiana
EnergyUSA Retail, Indiana Merrillville, Retail gas
Inc. (25) Indiana marketing
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
EnergyUSA Consumer Massachusetts Taunton, Holding company
Products Group, Inc.(33) Massachusetts
EnergyUSA Commercial Indiana Merrillville, Energy consulting for
Energy Services, Inc. (25) Indiana commercial lighting
NIPSCO Energy Services Alberta Calgary, Holding company
Canada, Ltd. (7) Alberta, Canada for subsidiaries
NESI Canadian Holdings, Indiana Merrillville, Holding company for
Inc. (25) Indiana energy-related
diversified projects
and subsidiaries
Portland Natural Gas Maine Portsmouth, Gas pipeline
Transmission System (23) New Hampshire
NESI Energy Marketing Alberta Calgary, Inactive
Canada, Ltd. (12) Alberta, Canada (In bankruptcy)
NiSource Development Indiana Merrillville, Holding company
Company, Inc. Indiana (including real
estate development
investments)
Analytic Systems Indiana Hobart, Fluid filtration
Laboratories, Inc. (13) Indiana systems
Protonics Research, Inc. Indiana Merrillville, Energy research
(13) Indiana and development
JOF Transportation Indiana Merrillville, Rail freight
Company (14) Indiana venture
KOGAF Enterprises, Inc. Indiana Kokomo, Real estate
(14) Indiana investments
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Lake Erie Land Company (14) Indiana Merrillville, Development
Indiana of commercial
and residential
real estate
South Works Power Indiana Merrillville, Holds a lease
Company (14) Indiana
SCC Services, Inc. (15) Indiana Merrillville, Operation of
Indiana golf course
Illinois Indiana Illinois Merrillville, Rail freight
Development Co., LLC (34) Indiana venture
N Squared Aviation, Delaware Griffith, Aircraft
LLC (16) Indiana leasing
NDC Douglas Properties, Indiana Merrillville, Affordable
Inc. (14) Indiana housing projects
Customer Information Indiana Merrillville, Consulting services
Services, Inc. (14) Indiana for customer
information systems
Cardinal Property Indiana Merrillville, Building and
Management, Inc. (14) Indiana property
management
Progeni, Inc. Illinois Chicago, Energy product
(14) Illinois development
Sun Power California Sunnyvale, Silicon-based
Corporation (19) California semiconductor
products
Kokomo Gas and Fuel Indiana Kokomo, Gas utility
Company Indiana
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
KGF Trading Indiana Kokomo, Inactive
Company (18) Indiana
Northern Indiana Fuel and Indiana Auburn, Gas utility
Light Company, Inc. Indiana
Northern Indiana Trading Indiana Auburn, Gas brokering
Company, Inc.(17) Indiana
NIPSCO Capital Trust I Delaware Merrillville, Business trust
Indiana which issues
securities
Bay State Gas Company Massachusetts Westborough, Gas utility
Massachusetts
Bay State GPE, Inc.(24) Massachusetts Westborough, Electric generation
Massachusetts
Northern Utilities, New Hampshire Portsmouth, Gas utility
Inc. (24) New Hampshire
Lawrence Water Company, Indiana Lawrence, Water company
Inc. (1) Indiana
IWC Morgan Water Indiana Morgan County, Water company
Company (1) Indiana
The Darlington Water Indiana Darlington, Water company
Works Company (1) Indiana
Watertech Operational Indiana Indianapolis, Services company
Services, Inc. (1) Indiana
IWCR Management Indiana Indianapolis, Services company
Services Company (1) Indiana
Irishman's Run Indiana Zionsville, Acquisition vehicle
Acquisition Corp. (1) Indiana of IWC Resources Corporation
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
Colcom, Incorporated (1) Texas Austin, Provides utility
Texas locate and marking
services
UGTI /d.b.a./Underground California Ventura, Provides utility
Technology, Inc. (35) California locate and marking
services
EnergyUSA, Inc. Indiana Merrillville, Holding company
Indiana
EnergyUSA Inc. (25) Massachusetts Taunton, Propane company
Massachusetts
EnergySPE, Inc. (31) Massachusetts Taunton, Lighting services
Massachusetts
Savage Alert, Inc. (31) Connecticut Bloomfield, Holding company
Connecticut
Savage-Engineering, Connecticut Bloomfield, Engineering services
Inc. (36) Connecticut
Alert, Inc. (36) Connecticut Bloomfield, Design and
Connecticut construction management
Alert Air Systems, Massachusetts Bloomfield, HVAC contracting services
Inc. (36) Connecticut
Brayer Energy California Irwindale, Energy efficient
Solutions, Inc. (36) California lighting
Alert Mechanical Connecticut Bloomfield, HVAC contracting services
Services, Inc. (36) Connecticut
EnergyUSA-TCP Delaware Houston, Gas marketing
Corp. (25) Texas
TPC Electric Delaware Houston, Power marketing
Corporation (26) Texas
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
Evangeline Development Delaware Houston, Land development
Corporation (26) Texas
Allison Development Delaware Houston, Land development
Company (26) Texas
Copiah County Storage Mississippi Copiah, Real estate
Company (37) Mississippi holding company
Wolverine Land Michigan Houston, Land development
and Development Texas
Corporation(27)
Farmington Properties Pennsylvania Wellsboro, Land development
Inc. (27) Pennsylvania
TPC Gas Storage Delaware Houston, Holding company
Services, Inc. (26) Texas
TPC Transmission, Inc. (26) Delaware Houston, Inactive
Moss Bluff Development Delaware Houston, Land development
Corporation (32) Texas
MB Acquisition Delaware Houston, Land development
Corporation (27) Texas
TPC Gas Storage Delaware Houston, Holding company
Services, L.P. (27) Texas
Tioga Gas Storage Delaware Houston, Holding company
Company (27) Texas
NiSource Pipeline Indiana Merrillville, Holding company
Group, Inc. Indiana
Granite State Gas New Hampshire Westborough, Pipeline
Transmission, Inc. (29) Massachusetts
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Natural Gas Development Massachusetts Westborough, Holding company
Inc. (30) Massachusetts
Portland Natural Gas Maine Portsmouth, Gas pipeline
Transmission System (38) New Hampshire
Bay State Energy Massachusetts Westborough, Inactive
Enterprises, Massachusetts
Inc. (30)
LNG Development Corp. (30) Massachusetts Westborough, Inactive
Massachusetts
PNGTS Holding Corp. (29) Indiana Merrillville, Holding company
Indiana
Portland Natural Gas Maine Portsmouth, Gas pipeline
Transmission System (39) New Hampshire
TPC Storage Holding Delaware Houston, Holding company
Corp. (28) Texas
Market Hub Delaware Houston, Natural gas
Partners, L.P. (40) Texas storage
Copiah County Mississippi Copiah County, Real estate
Storage Company (41) Mississippi holding company
Market Hub Delaware Wilmington, General partner of
Partners, Inc. (42) Delaware Market Hub Partner, L.P.
</TABLE>
(1) Wholly-owned subsidiary of IWC Resources Corporation.
(2) Majority-owned interest of IWC Services, Inc.
(3) Wholly-owned subsidiary of Primary Energy, Inc.
(4) Wholly-owned subsidiary of Northern Indiana Public Service Company.
(5) Minority-owned partnership of NI Energy Services, Inc.
(6) Minority-owned interest of NI Energy Services, Inc.
<PAGE> 11
(7) Wholly-owned subsidiary of NI Energy Services, Inc.
(8) Majority-owned interest of NI Fuel Company, Inc.
(9) Wholly-owned subsidiary of NI Fuel Company, Inc.
(10) Majority-owned interest of EnergyUSA, Inc. (IN).
(11) Minority-owned interest of NEM Acquisition Corp.
(12) Majority-owned subsidiary of NiSource Energy Services Canada Ltd.
(13) Majority-owned subsidiary of NiSource Development Company, Inc.
(14) Wholly-owned subsidiary of NiSource Development Company, Inc.
(15) Wholly-owned subsidiary of Lake Erie Land Company.
(16) Minority-owned interest of NiSource Development Company, Inc.
(17) Wholly-owned subsidiary of Northern Indiana Fuel and Light Company,
Inc.
(18) Wholly-owned subsidiary of Kokomo Gas and Fuel Company.
(19) Minority-owned interest of NiSource Development Company, Inc.
(20) 50% owned interest of NI-TEX, Inc.
(21) Minority-owned interest of NI-TEX Gas Services, Inc.
(22) Minority-owned interest of Market Hub Partners, Inc.
(23) Minority-owned interest of PNGTS Holding Corp.
(24) Wholly-owned subsidiary of Bay State Gas Company.
(25) Wholly-owned subsidiary of EnergyUSA, Inc. (IN).
(26) Wholly-owned subsidiary of EnergyUSA-TPC Corp.
(27) Wholly-owned subsidiary of TPC Gas Storage Services, Inc.
(28) Wholly-owned subsidiary of TPC Gas Storage Services, L.P.
(29) Wholly-owned subsidiary of NiSource Pipeline Group, Inc.
(30) Wholly-owned subsidiary of Granite State Gas Transmission Inc.
(31) Wholly-owned subsidiary of EnergyUSA, Inc. (MA).
(32) Majority-owned subsidiary of TPC Storage Services, Inc.
(33) Wholly-owned subsidiary of EnergyUSA Retail, Inc.
(34) Minority-owned interest of SCC Services, Inc.
(35) 50% owned interest of IWC Resources Corporation.
(36) Wholly-owned subsidiary of Savage Alert, Inc.
(37) Minority-owned interest of Allison Development Company.
(38) Minority-owned interest of Natural Gas Development Inc.
(39) Minority-owned interest of PNGTS Holding Corp.
(40) Majority-owned interest of TPC Storage Services, L.P.
(41) Majority-owned interest of Market Hub Partners, L.P.
(42) Minority-owned interest of TPC Gas Storage Services, L.P.
<PAGE> 1
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-K, into NiSource Inc.'s (formerly known
as NIPSCO Industries, Inc.) previously filed Form S-8 Registration Statement No.
33-30619; Form S-8 Registration Statement No. 33-30621; Form 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-3 Registration Statement No. 333-26847; Form S-8 Registration
Statement No. 333-59151; Form S-8 Registration Statement No. 333-59153; Form S-3
Registration Statement No. 333-69279; Form S-8 Registration Statement No.
333-72367; Form S-8 Registration Statement No. 333-72401; Form S-3 Registration
Statement No. 333-76645 and Form S-3 Registration Statement No. 333-76909.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
March 28, 2000
48
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NISOURCE INC. FOR TWELVE MONTHS ENDED DECEMBER 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,796,802
<OTHER-PROPERTY-AND-INVEST> 640,565
<TOTAL-CURRENT-ASSETS> 771,603
<TOTAL-DEFERRED-CHARGES> 289,061
<OTHER-ASSETS> 337,198
<TOTAL-ASSETS> 6,835,229
<COMMON> 398,377
<CAPITAL-SURPLUS-PAID-IN> 175,516
<RETAINED-EARNINGS> 779,611
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,353,504
399,030
85,611
<LONG-TERM-DEBT-NET> 406,100
<SHORT-TERM-NOTES> 379,756
<LONG-TERM-NOTES-PAYABLE> 1,569,084
<COMMERCIAL-PAPER-OBLIGATIONS> 299,585
<LONG-TERM-DEBT-CURRENT-PORT> 173,721
1,828
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,167,030
<TOT-CAPITALIZATION-AND-LIAB> 6,835,229
<GROSS-OPERATING-REVENUE> 3,144,576
<INCOME-TAX-EXPENSE> 90,448
<OTHER-OPERATING-EXPENSES> 2,683,040
<TOTAL-OPERATING-EXPENSES> 2,683,040
<OPERATING-INCOME-LOSS> 461,536
<OTHER-INCOME-NET> (35,723)
<INCOME-BEFORE-INTEREST-EXPEN> 425,813
<TOTAL-INTEREST-EXPENSE> 174,951
<NET-INCOME> 160,414
0
<EARNINGS-AVAILABLE-FOR-COMM> 160,414
<COMMON-STOCK-DIVIDENDS> 129,144
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 453,030
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.27
</TABLE>
