Document:

Exhibit 4-xxx

 

EXECUTION COPY

 

 

 

LOAN AGREEMENT

 

 

between

 

 

INDIANA
DEVELOPMENT FINANCE AUTHORITY

 

 

and

 

 

PSI ENERGY, INC.

 

 

 

$35,000,000

Indiana Development Finance Authority

Environmental Refunding

Revenue Bonds, Series 2003

(PSI Energy, Inc. Project)

 

 

 

Dated

as of

February 15, 2003

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I.

  	
  DEFINITIONS

  
	
   

  	
   

  
	
  Section 1.1.

  	
  Use of Defined Terms

  
	
  Section 1.2.

  	
  Definitions

  
	
  Section 1.3.

  	
  Interpretation

  
	
  Section 1.4.

  	
  Captions and Headings

  
	
   

  	
   

  
	
  ARTICLE
  II.

  	
  REPRESENTATIONS

  
	
   

  	
   

  
	
  Section 2.1.

  	
  Representations of the Issuer

  
	
  Section 2.2.

  	
  No Warranty by Issuer of Condition or
  Suitability of the Project

  
	
  Section 2.3.

  	
  Representations and Covenants of the
  Company

  
	
   

  	
   

  
	
  ARTICLE
  III.

  	
  COMPLETION OF THE PROJECT; ISSUANCE OF THE
  BONDS

  
	
   

  	
   

  
	
  Section 3.1.

  	
  Acquisition, Construction and Installation

  
	
  Section 3.2.

  	
  Project Description

  
	
  Section 3.3.

  	
  Issuance of the Bonds; Application of
  Proceeds

  
	
  Section 3.4.

  	
  Investment of Fund Moneys

  
	
  Section 3.5.

  	
  Rebate Fund

  
	
   

  	
   

  
	
  ARTICLE
  IV.

  	
  LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS; MUNICIPAL BOND
  INSURANCE POLICY AND LIQUIDITY FACILITY

  
	
   

  	
   

  
	
  Section 4.1.

  	
  Loan Repayment

  
	
  Section 4.2.

  	
  Additional Payments

  
	
  Section 4.3.

  	
  Place of Payments

  
	
  Section 4.4.

  	
  Obligations Unconditional

  
	
  Section 4.5.

  	
  Assignment of Revenues and Agreement

  
	
  Section 4.6.

  	
  Municipal Bond Insurance Policy; Liquidity
  Facility; Cancellation

  
	
  Section 4.7.

  	
  Company’s Option to Elect Rate Period;
  Changes in Auction Date and Length of Auction Periods

  
	
  Section 4.8.

  	
  Company’s Obligation to Purchase Bonds

  
	
   

  	
   

  
	
  ARTICLE V.

  	
  ADDITIONAL AGREEMENTS AND COVENANTS

  
	
   

  	
   

  
	
  Section 5.1.

  	
  Right of Inspection

  
	
  Section 5.2.

  	
  Maintenance

  

 

i

 

	
  Section 5.3.

  	
  Removal of Portions of the Project
  Facilities

  
	
  Section 5.4.

  	
  Operation of Project Facilities

  
	
  Section 5.5.

  	
  Insurance

  
	
  Section 5.6.

  	
  Workers’ Compensation Coverage

  
	
  Section 5.7.

  	
  Damage; Destruction and Eminent Domain

  
	
  Section 5.8.

  	
  Company to Maintain its Corporate
  Existence; Conditions Under Which Exceptions Permitted

  
	
  Section 5.9.

  	
  Indemnification

  
	
  Section 5.10.

  	
  Company Not to Adversely Affect Exclusion
  of Interest on Bonds From Gross Income For Federal Income Tax Purposes

  
	
  Section 5.11.

  	
  Use of Project Facilities

  
	
  Section 5.12.

  	
  Assignment by Company

  
	
  Section 5.13.

  	
  The Depository Trust Company Letter of
  Representation

  
	
   

  	
   

  
	
  ARTICLE
  VI.

  	
  REDEMPTION

  
	
   

  	
   

  
	
  Section 6.1.

  	
  Optional Redemption

  
	
  Section 6.2.

  	
  Extraordinary Optional Redemption

  
	
  Section 6.3.

  	
  Mandatory Redemption

  
	
  Section 6.4.

  	
  Notice of Redemption

  
	
  Section 6.5.

  	
  Actions by Issuer

  
	
   

  	
   

  
	
  ARTICLE
  VII.

  	
  EVENTS OF DEFAULT AND REMEDIES

  
	
   

  	
   

  
	
  Section 7.1.

  	
  Events of Default

  
	
  Section 7.2.

  	
  Remedies on Default

  
	
  Section 7.3.

  	
  No Remedy Exclusive

  
	
  Section 7.4.

  	
  Agreement to Pay Attorneys’ Fees and
  Expenses

  
	
  Section 7.5.

  	
  No Waiver

  
	
  Section 7.6.

  	
  Notice of Default

  
	
   

  	
   

  
	
  ARTICLE
  VIII.

  	
  MISCELLANEOUS

  
	
   

  	
   

  
	
  Section 8.1.

  	
  Term of Agreement

  
	
  Section 8.2.

  	
  Amounts Remaining in Funds

  
	
  Section 8.3.

  	
  Notices

  
	
  Section 8.4.

  	
  Extent of Covenants of the Issuer; No
  Personal Liability

  
	
  Section 8.5.

  	
  Binding Effect

  
	
  Section 8.6.

  	
  Amendments and Supplements

  
	
  Section 8.7.

  	
  Execution Counterparts

  
	
  Section 8.8.

  	
  Severability

  
	
  Section 8.9.

  	
  Governing Law

  

 

ii

 

LOAN AGREEMENT

 

THIS LOAN
AGREEMENT is made and entered into as of February 15, 2003 between the
INDIANA DEVELOPMENT FINANCE AUTHORITY (the “Issuer”), a separate body corporate
and politic organized and existing under the laws of the State of Indiana, and
PSI ENERGY, INC. (the “Company”), a public utility and corporation duly
organized and validly existing under the laws of the State of Indiana.  Capitalized terms used in the following
recitals are used as defined in Article I of this Agreement.

 

Pursuant to
Indiana Code, Title 4, Article 4, Chapters 10.9 and 11 (collectively, the
“Act”), the Issuer has determined to issue, sell and deliver the Bonds, and to
lend the proceeds derived from the sale thereof to the Company to assist in the
refunding of the Refunded Bonds as defined below.  The Refunded Bonds were issued to provide funds to make a loan to
the Company to assist in the refinancing of its portion of the costs of the
Project as defined below.

 

The Company
and the Issuer each have full right and lawful authority to enter into this
Agreement and to perform and observe the provisions hereof on their respective
parts to be performed and observed.

 

NOW THEREFORE,
in consideration of the premises and the mutual representations and agreements
hereinafter contained, the Issuer and the Company agree as follows (provided
that any obligation of the Issuer or the State created by or arising out of
this Agreement shall never constitute a general debt of the Issuer or the State
or give rise to any pecuniary liability of the Issuer or the State but shall be
payable solely out of Revenues):

 

 

ARTICLE I.

 

DEFINITIONS

 

Section 1.1.            Use
of Defined Terms.  In addition to
the words and terms defined elsewhere in this Agreement, the Indenture or by
reference to another document, the words and terms set forth in Section 1.2
hereof shall have the meanings set forth therein unless the context or use
clearly indicates another meaning or intent. 
Such definitions shall be equally applicable to both the singular and
plural forms of any of the words and terms defined therein.

 

Section 1.2.            Definitions.  As used herein:

 

“Additional
Payments” means the amounts required to be paid by the Company pursuant to the
provisions of Section 4.2 hereof.

 

“Administration
Expenses” means the compensation (which compensation shall not be greater than
that typically charged in similar circumstances) and reimbursement of reasonable
expenses and advances payable to the Trustee, the Registrar, the Remarketing
Agent, the Broker-Dealer, the Auction Agent, any Paying Agent and any
Authenticating Agent.

 

“Agreement”
means this Loan Agreement, as amended or supplemented from time to time.

 

“Engineer”
means an engineer (who may be an employee of the Company) or engineering firm
qualified to practice the profession of engineering under the laws of the State
and who or which is acceptable to the Trustee.

 

“EPA” means
the Department of Environmental Management of the State and any successor body,
agency, commission or department.

 

“Event of
Default” means any of the events described as an Event of Default in
Section 7.1 hereof.

 

“Force
Majeure” means any of the following:

 

(i)            acts
of God; strikes, lockouts or other industrial disturbances; acts of public
enemies; orders or restraints of any kind of the government of the United
States of America or of the State or any of their departments, agencies,
political subdivisions or officials, or any civil or military authority;
insurrections; civil disturbances; riots; epidemics; landslides; lightning;
earthquakes; fires; hurricanes; tornados; storms; droughts; floods; arrests;
restraint of government and people; explosions; breakage, nuclear accidents or
other malfunction or accident to facilities, machinery, transmission pipes or
canals;  partial or entire failure of a
utility serving the Project; shortages of labor, materials, supplies or
transportation; or

 

2

 

(ii)           any
cause, circumstance or event not reasonably within the control of the Company.

 

“Generating
Station” means the Gibson Generating Station.

 

“Indenture”
means the Trust Indenture related to the Bonds, dated as of the same date as
this Agreement, between the Issuer and the Trustee, as amended or supplemented
from time to time.

 

“Insurance
Agreement” means the Insurance Agreement related to the Bonds, dated
March 7, 2003, between the Company and the Bond Insurer, as amended or
supplemented from time to time.

 

“Interest Rate
for Advances” means the interest rate per year payable on the Bonds.

 

“Loan” means
the loan by the Issuer to the Company of the proceeds received from the sale of
the Bonds.

 

“Loan Payment
Date” means any date on which any Bond Service Charges are due and payable.

 

“Loan
Payments” means the amounts required to be paid by the Company in repayment of
the Loan pursuant to Section 4.1 hereof.

 

“1954 Code”
means the Internal Revenue Code of 1954 as amended from time to time through
the date of enactment of the Code. 
References to the 1954 Code and Sections of the 1954 Code include
relevant applicable regulations (including temporary regulations) and proposed
regulations thereunder and any successor provisions to those Sections,
regulations or proposed regulations.

 

“Notice
Address” means:

 

	
  (a)

  	
   

  	
  As to the Issuer:

  	
   

  	
  Indiana Development Finance Authority

  
	
   

  	
   

  	
   

  	
   

  	
  One North Capitol, Suite 900

  
	
   

  	
   

  	
   

  	
   

  	
  Indianapolis, Indiana  46204

  
	
   

  	
   

  	
   

  	
   

  	
  Attention: 
  Executive Director

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  As to the Company:

  	
   

  	
  PSI Energy, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
  139 East Fourth Street

  
	
   

  	
   

  	
   

  	
   

  	
  Cincinnati, Ohio  45202

  
	
   

  	
   

  	
   

  	
   

  	
  Attention: 
  Treasurer

  

 

3

 

	
  (c)

  	
   

  	
  As to the Trustee:

  	
   

  	
  Fifth Third Bank, Indiana

  
	
   

  	
   

  	
   

  	
   

  	
  Fifth Third Center

  
	
   

  	
   

  	
   

  	
   

  	
  38 Fountain Square

  
	
   

  	
   

  	
   

  	
   

  	
  Cincinnati, Ohio  45263

  
	
   

  	
   

  	
   

  	
   

  	
  Attention: 
  Corporate Trust Administration

  

 

or such additional or different address,
notice of which is given under Section 8.3 hereof.

 

“Original
Bonds” means the City of Princeton, Indiana Pollution Control Revenue Bonds,
1982 Series B (Public Service Company of Indiana, Inc. Project C).

 

“Person” or
words importing persons mean firms, associations, partnerships (including
without limitation, general and limited partnerships), limited liability
entities, joint ventures, societies, estates, trusts, corporations, public or
governmental bodies, other legal entities and natural persons.

 

“Pollution
Control Facility” or “Pollution Control Facilities” means those facilities
which are pollution control facilities as defined in Section 24 of Chapter 10.9
of the Act.

 

“Prior Bonds”
means the Original Bonds, the Series 1987 Bonds and the Refunded Bonds.

 

“Project” or
“Project Facilities” means the real, personal or real and personal property,
including undivided or other interests therein, identified in the Project
Description, financed with the proceeds of the Original Bonds.

 

“Project
Description” means collectively the description of the Project Facilities
originally financed with the proceeds of the Original Bonds, attached hereto as
Exhibit A.

 

“Project
Purposes” means the purposes of Pollution Control Facilities as described in
the Act and as particularly described in Exhibit A hereto.

 

“Project Site”
means the Gibson Generating Station, Highway 64 West, Gibson County, Indiana.

 

“Refunded
Bonds” means the City of Princeton, Indiana Pollution Control Revenue Refunding
Bonds, 1997 Series (PSI Energy, Inc. Project).

 

“Refunded
Bonds Indenture” means the Trust Indenture dated as of February 1, 1997
between the City of Princeton, Indiana and Fifth Third Bank, Indiana (as
successor to The Fifth Third Bank of Central Indiana).

 

“Refunded
Bonds Loan Agreement” means the Loan Agreement dated as of February 1,
1997 between the City of Princeton, Indiana 
and the Company.

 

4

 

“Refunded
Bonds Trustee” means Fifth Third Bank, Indiana (as successor to The Fifth Third
Bank of Central Indiana), as trustee under the Refunded Bonds Indenture.

 

“Revenues”
means (a) the Loan Payments, (b) all other moneys received or to be received by
the Issuer (excluding any fees paid to the Issuer and all Unassigned Issuer
Rights) or the Trustee in respect of repayment of the Loan, including without
limitation, all moneys and investments in the Bond Fund, (c) any moneys and
investments in the Refunding Fund, and (d) all income and profit from the
investment of the  foregoing
moneys.  The term “Revenues” does not
include any moneys or investments in the Rebate Fund or the Bond Purchase Fund.

 

“Series 1982
Indenture” means the Trust Indenture dated as of April 1, 1982 between
American Fletcher National Bank & Trust Company, as predecessor to Bank
One, Indianapolis, NA and Bank One Trust Company, NA, and the City of
Princeton, Indiana.

 

“Series 1982
Loan Agreement” means the Loan Agreement dated as of April 1, 1982 between
the City of Princeton, Indiana and Public Service Company of Indiana, Inc., as
predecessor to PSI Energy, Inc.

 

“Series 1987
Bonds” means the City of Princeton, Indiana 7.6% Pollution Control Refunding
Revenue Bonds, 1987 Series (Public Service Company of Indiana, Inc.
Project C).

 

“Series 1987
Indenture” means the Trust Indenture dated as of March 15, 1987 between
American Fletcher National Bank & Trust Company, as predecessor to Bank
One, Indianapolis, NA and Bank One Trust Company, NA, and the City of
Princeton, Indiana.

 

“Series 1987
Loan Agreement” means the Loan Agreement dated as of March 15, 1987
between the City of Princeton, Indiana and Public Service Company of Indiana,
Inc., as predecessor to PSI Energy, Inc.

 

“State” means
the State of Indiana.

 

“Trustee”
means Fifth Third Bank, Indiana located in Indianapolis, Indiana, a corporation
duly organized and validly existing under the laws of the State, until a
successor Trustee shall have become such pursuant to the applicable provisions
of the Indenture, and thereafter “Trustee” shall mean the successor
Trustee.  “Principal Office” of the
Trustee shall mean the principal corporate trust office of the Trustee, which
office at the date of issuance of the Bonds is located at its Notice Address.

 

“Unassigned
Issuer Rights” means all of the rights of the Issuer to receive Additional
Payments under Section 4.2 hereof, to inspection pursuant to Section 5.1
hereof, to be held harmless and indemnified under Section 5.9 hereof, to be
reimbursed for attorney’s fees and expenses under Section 7.4 hereof and to
give or withhold consent to amendments, changes, modifications, alterations and
termination of this Agreement under Section 8.6 hereof and its right to enforce
such rights.

 

5

 

Section 1.3.            Interpretation.  Any reference herein to the State, to the
Issuer or to any member or officer of either includes entities or officials
succeeding to their respective functions, duties or responsibilities pursuant
to or by operation of law or lawfully performing their functions.

 

Any reference to a section or provision of the Constitution of the
State or the Act, or to a section, provision or chapter of the Indiana Code, or
to any statute of the United States of America, includes that section,
provision or chapter as amended, modified, revised, supplemented or superseded
from time to time; provided, that no amendment, modification, revision,
supplement or superseding section, provision or chapter shall be applicable
solely by reason of this provision, if it constitutes in any way an impairment
of the rights or obligations of the Issuer, the State, the Holders, the
Trustee, the Registrar, the Auction Agent, an Authenticating Agent, a Paying
Agent, the Bond Insurer, the Remarketing Agent, or the Company under this
Agreement, the Indenture or the Bonds.

 

Unless the
context indicates otherwise, words importing the singular number include the
plural number, and vice versa; the terms “hereof”, “hereby”, “herein”,
“hereto”, “hereunder” and similar terms refer to this Agreement; and the term
“hereafter” means after, and the term “heretofore” means before, the date of
delivery of the Bonds.  Words of any
gender include the correlative words of the other genders, unless the sense
indicates otherwise.

 

Section 1.4.            Captions
and Headings.  The captions and
headings in this Agreement are used solely for convenience of reference and in
no way define, limit or describe the scope or intent of any Articles, Sections,
subsections, paragraphs or subparagraphs or clauses hereof.

 

(End of Article I)

 

6

 

ARTICLE II.

 

REPRESENTATIONS

 

Section 2.1.            Representations
of the Issuer.  The Issuer represents
that:  (a) it is a body corporate and
politic duly organized and validly existing under the laws of the State; (b) it
has duly accomplished all conditions necessary to be accomplished by it prior
to the issuance and delivery of the Bonds and the execution and delivery of
this Agreement and the Indenture; (c) it is not in  violation of or in conflict with any
provisions of the laws of the State which would impair its ability to carry out
its obligations contained in this Agreement or the Indenture; (d) it is
empowered to enter into the transactions contemplated by this Agreement and the
Indenture; (e) it has duly authorized the execution, delivery and
performance of this Agreement and the Indenture; and (f) it will do all
things in its power in order to maintain its existence or assure the assumption
of its obligations under this Agreement and the Indenture by any successor
municipal corporation.

 

Section 2.2.            No
Warranty by Issuer of Condition or Suitability of the Project.  The Issuer makes no warranty, either express
or implied, as to the suitability or utilization of the Project for the Project
Purposes, or as to the condition of the Project Facilities or that the Project
Facilities are or will be suitable for the Company’s purposes or needs.

 

Section 2.3.            Representations
and Covenants of the Company.  The
Company represents that:

 

(a)           The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State, with power and authority
(corporate and other) to own its properties and conduct its business, to
execute and deliver this Agreement and to perform its obligations under this
Agreement.

 

(b)           This Agreement has been duly authorized, executed and
delivered by the Company and this Agreement constitutes a valid and legally
binding obligation of the Company, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors’ rights and to
general equity principles.

 

(c)           The execution, delivery and performance by the Company of
this Agreement and the consummation of the transactions contemplated hereby
will not violate any provision of law or regulation applicable to the Company,
or of any writ or decree of any court or governmental instrumentality, or of
the Amended Articles of Consolidation, as amended, or the By-laws of the
Company, or of any mortgage, indenture, contract, agreement or other
undertaking to which the Company is a party or which purports to be binding
upon the Company or upon any of its assets.

 

(d)           The Project constitutes and will constitute either land or
property of a character subject to the allowance for depreciation for purposes
of the Code, and all expenditures for the 

 

7

 

cost of constructing the Project have been
charged to a capital account for federal income tax purposes (or would have
been so charged either with or but for a proper election to deduct such
amounts).

 

(e)           No portion of the Project had been acquired and placed in
operation at substantially the level for which it was designed for more than
one year prior to the date of delivery of the Original Bonds which financed
such portion of the Project.

 

(f)            The weighted average maturity of the Bonds does not
exceed 120% of the average reasonably expected economic life of the Project
Facilities originally financed by the Original Bonds (determined under Section
147(b) of the Code).

 

(g)           The Project has been and will be used wholly to control
pollution and dispose of solid waste and sewage and was designed for no
significant purpose other than pollution control and disposal of solid waste
and sewage, and the Project was not designed to result in an increase in
production or capacity, in a material extension of the useful life of the
Generating Station or, in the case of the portions of the Project which are
Pollution Control Facilities, in the recovery of by-products of any substantial
value.

 

(h)           Substantially all (at least 90%) of the proceeds of the
Original Bonds were used to provide “solid waste disposal facilities” within
the meaning of Section 103(b)(4)(E) of the 1954 Code and “pollution control
facilities” within the meaning of Section 103(b)(4)(F) of the 1954 Code, the
original use of which facilities commenced with the Company on October 1, 1982,
and which facilities were described in inducement resolutions adopted by the
City of Princeton, Indiana, on October 16, 1978.  Construction of such facilities financed with the proceeds of the
Original Bonds was not commenced by the Company prior to October 16, 1978.  All of the proceeds of the Original Bonds
have been spent for the Project pursuant to the Series 1982 Loan Agreement or
to pay costs of issuance of the Original Bonds.  The proceeds of the Refunded Bonds (other than any accrued
interest thereon) were used exclusively to refund the Series 1987 Bonds, which
were used exclusively to refund the Original Bonds; any investment earnings on
such proceeds of any of the Refunded Bonds and the Series 1987 Bonds were used
to pay principal, premium or interest on the Series 1987 Bonds and the Original
Bonds, respectively; none of the proceeds of either the Refunded Bonds or the
Bonds was or will be used to pay for any costs of issuance of the Refunded
Bonds or the Bonds, respectively.  The
principal amount of the Bonds does not exceed the outstanding principal amount
of the Refunded Bonds.  The original
principal amount of the Refunded Bonds did not exceed the then-outstanding
principal amount of the Series 1987 Bonds and the original principal amount of
the Series 1987 Bonds did not exceed the then-outstanding amount of the
Original Bonds.  The proceeds of the
Bonds, the Refunded Bonds and the Series 1987 Bonds were each used to retire
the Refunded Bonds, the Series 1987 Bonds and the Original Bonds, respectively,
not later than 90 days after the date of issuance of such bonds.  The proceeds of the Bonds (other than any
accrued interest thereon) will be used exclusively to refund the Refunded
Bonds; any investment earnings thereon will be used to pay principal, premium
or interest on the Refunded Bonds.

 

8

 

(i)            It has caused the Project to be completed.  The Project constitutes Pollution Control
Facilities under the Act and is consistent with the purposes of the Act.  The Project is being, and the Company will
cause the Project to be, operated and maintained in such manner to conform with
all applicable zoning, planning, building, environmental and other applicable
governmental regulations and all permits, variances and orders issued or
granted pursuant thereto, including the permit-to-install for the Project,
which permits, variances and orders have not been withdrawn or otherwise
suspended, and to be consistent with the Act.

 

(j)            It has used or operated or has caused to be used or
operated, and presently intends to use or operate or cause to be used or
operated the Project Facilities in a manner consistent with the Project
Purposes until the date on which the Bonds have been fully paid and knows of no
reason why the Project Facilities will not be so operated.  The Company does not intend to sell or
otherwise dispose of the Project or any portion thereof.

 

(k)           None of the proceeds of each of the Prior Bonds was used
and none of the proceeds of the Bonds will be used to provide any airplane,
skybox or other private luxury box, or health club facility, any facility
primarily used for gambling or any store the principal business of which is the
sale of alcoholic beverages for consumption off premises.

 

(l)            Less than 25% of the proceeds of each of the Prior Bonds
was used to acquire land or any interest therein, and none of such proceeds was
used to provide land which was used for farming purposes.

 

(m)          None of the proceeds of each of the Prior Bonds was used to
acquire existing property or any interest therein unless the first use of such
property was by the Company and was pursuant to and followed such acquisition.

 

(n)           At no time will any funds constituting gross proceeds of
the Bonds be used in a manner as would constitute failure of compliance with
Section 148 of the Code.

 

(o)           The Prior Bonds were not, and the Bonds will not be,
“federally guaranteed” within the meaning of Section 149(b) of the Code.

 

(p)           It is not anticipated that as of the date hereof, there
will be created any “replacement proceeds”, within the meaning of Section
1.148-1(c) of the Treasury Regulations, with respect to the Bonds; however, in
the event that any such replacement proceeds are deemed to have been created,
such amounts will be invested in compliance with Section 148 of the Code.

 

(q)           On the date of issuance and delivery of each of the Prior
Bonds, the Company reasonably expected that at least 85% of the respective
spendable proceeds of each of the Prior Bonds would be expended to carry out
the respective governmental purpose of each such issue within the 3-year period
beginning on the issue date of such issue and the Company reasonably expected
that the proceeds of each of the Prior Bonds would be spent in accordance with
the spending requirements of Section 149(g)(2) of the Code.  The spendable proceeds of each of the 

 

9

 

Prior Bonds have been fully expended prior to
the date of issuance of the Bonds.  The
proceeds of each of the Prior Bonds series were not invested in nonpurpose
investments having a substantially guaranteed yield for four years or more.

 

(r)            The information furnished by the Company and used by the
Issuer in preparing the certifications and statements pursuant to Sections 148
and 149(e) of the Code or their statutory predecessors with respect to each of
the Prior Bonds was accurate and complete as of the respective date of issuance
thereof, and the information furnished by the Company and used by the Issuer in
preparing the certification pursuant to Section 148 of the Code and in
preparing the information statement pursuant to Section 149(e) of the Code,
both referred to in the Bond Resolution, will be accurate and complete as of
the date of issuance of the Bonds.

 

(s)           The Project Facilities do not include any office except
for offices (i) located on the Project Site and (ii) not more than a de minimis
amount of the functions to be performed at which is not directly related to the
day-to-day operations of the Project Facilities.

 

(End of Article II)

 

10

 

ARTICLE III.

 

COMPLETION OF THE
PROJECT; ISSUANCE OF THE BONDS

 

Section 3.1.            Acquisition,
Construction and Installation.  The
Company represents that it has caused the Project Facilities to be acquired,
constructed and installed on the Project Site, substantially in accordance with
the Project Description and in conformance with all applicable zoning,
planning, building and other similar regulations of all governmental
authorities having jurisdiction over the Project and all permits, variances and
orders issued in respect of the Project by EPA, and that the proceeds derived
from the Original Bonds and Refunded Bonds, including any investment thereof,
were expended in accordance with the Series 1982 Indenture or Series 1982 Loan
Agreement, Series 1987 Indenture or Series 1987 Loan Agreement, or Refunded
Bonds Indenture and the Refunded Bonds Loan Agreement.

 

Section 3.2.            Project
Description.  The Project
Description may be changed from time to time by, or with the consent of, the
Company provided that any such change shall also be filed with the Issuer and
provided further that no change in the Project Description shall materially
change the function of the Project Facilities unless the Trustee shall have
received (i) an Engineer’s certificate that such changes will not impair the
significance or character of the Project Facilities as Pollution Control
Facilities and (ii) an Opinion of Bond Counsel or ruling of the Internal
Revenue Service to the effect that such amendment will not adversely affect the
exclusion of interest on the Bonds from gross income for federal income tax
purposes.

 

Section 3.3.            Issuance
of the Bonds; Application of Proceeds. 
To provide funds to make the Loan to the Company to assist the Company
in the refunding of the Refunded Bonds, the Issuer will issue, sell and deliver
the Bonds to the Original Purchaser. 
The Bonds will be issued pursuant to the Indenture in the aggregate
principal amount, will bear interest, will mature and will be subject to
redemption as set forth therein.  The
Company hereby approves the terms and conditions of the Indenture and the
Bonds, and the terms and conditions under which the Bonds will be issued, sold
and delivered.

 

The Company
hereby requests that the Issuer notify the Refunded Bonds Trustee (unless the
Refunded Bonds Trustee has already received such notice), pursuant to the
Refunded Bonds Indenture, that the entire outstanding principal amount of the
Refunded Bonds is to be redeemed on April 1, 2003 at a redemption price of
100% of the principal amount thereof plus accrued interest to that redemption
date.

 

The proceeds
from the sale of the Bonds (other than any accrued interest) shall be loaned to
the Company to assist the Company in refunding the Refunded Bonds in order to
reduce the interest cost payable by the Company; those proceeds shall be
deposited in the Refunding Fund.  On
March 28, 2003, all moneys on deposit in the Refunding Fund shall be
disbursed by the Trustee as provided in Section 5.02 of the Indenture to the
Refunded Bonds Trustee for deposit in the Bond Fund created in the Refunded
Bonds Indenture and applied by the Refunded Bonds Trustee to the defeasance of
the Refunded Bonds on March 28, 2003, and for the payment of 

 

11

 

principal of and interest on the Refunded Bonds on April 1,
2003.  The Company shall pay to the
Refunded Bonds Trustee prior to the date of redemption of such series of
Refunded Bonds such additional amounts as shall be required to pay in full on
such date the entire amount of principal of, premium and interest due on the
Refunded Bonds.

 

Pending
disbursement pursuant to this Section, the proceeds so deposited in the
Refunding Fund, together with any investment earnings thereon, shall constitute
a part of the Revenues assigned by the Issuer to the Trustee for the payment of
Bond Service Charges.  Any accrued
interest shall be deposited in the Bond Fund.

 

Section 3.4.            Investment
of Fund Moneys.  At the oral
(confirmed promptly in writing) or written request of the Company, any moneys
held as part of the Bond Fund, the Refunding Fund or the Rebate Fund shall be
invested or reinvested by the Trustee in Eligible Investments; provided, that
such moneys shall be invested or reinvested by the Trustee only in Eligible
Investments which shall mature, or which shall be subject to redemption by the
holder thereof at the option of such holder, not later than the date upon which
the moneys so invested are needed to make payments from those Funds.  The Issuer (to the extent it retained or
retains direction or control) and the Company each hereby represents that the
investment and reinvestment and the use of the proceeds of the Refunded Bonds
were restricted in such manner and to such extent as was necessary so that the
Refunded Bonds would not constitute arbitrage bonds under Section 148 of the
Code or its statutory predecessor and each hereby covenants that it will
restrict that investment and reinvestment and the use of the proceeds of the
Bonds in such manner and to such extent, if any, as may be necessary so that
the Bonds will not constitute arbitrage bonds under Section 148 of the Code.

 

The Company
shall provide the Issuer with, and the Issuer may base its certificate and
statement, each as authorized by the Bond Resolution, solely on a certificate
of an appropriate officer, employee or agent of or consultant to the Company
for inclusion in the transcript of proceedings for the Bonds, setting forth the
reasonable expectations of the Company on the date of  delivery of and payment for the Bonds regarding the amount and
use of the proceeds of the Bonds and the facts, estimates and circumstances on
which those expectations are based.

 

Section 3.5.            Rebate
Fund.  To the extent required by
Section 5.08 of the Indenture, within five days after the end of the fifth Bond
Year (as defined in the Indenture) and every fifth Bond Year thereafter, and
within five days after payment in full of all outstanding Bonds, the Company
shall calculate the amount of Excess Earnings (as defined in the Indenture) as
of the end of that Bond Year or the date of such payment and shall notify the
Trustee of that amount.  If the amount
then on deposit in the Rebate Fund created under the Indenture is less than the
amount of Excess Earnings (computed by taking into account the amount or
amounts, if any, previously paid to the United States pursuant to Section 5.08
of the Indenture and this Section), the Company shall, within five days after
the date of the aforesaid calculation, pay to the Trustee for deposit in the
Rebate Fund an amount sufficient to cause the Rebate Fund to contain an amount
equal to the Excess Earnings.  The
obligation of the Company to make such payments 

 

12

 

shall remain in effect and be
binding upon the Company notwithstanding the release and discharge of the
Indenture.  The Company shall obtain and
keep such records of the computations made pursuant to this Section as are
required under Section 148(f) of the Code.

 

(End of Article III)

 

13

 

ARTICLE IV.

 

LOAN BY ISSUER;
LOAN PAYMENTS;

ADDITIONAL PAYMENTS; MUNICIPAL BOND INSURANCE

POLICY AND LIQUIDITY FACILITY

 

Section 4.1.            Loan
Repayment.  Upon the terms and
conditions of this Agreement, the Issuer agrees to make the Loan to the
Company.  The proceeds of the Loan shall
be deposited with the Trustee pursuant to Section 3.3 hereof.  In consideration of and in repayment of the
Loan, the Company shall make, as Loan Payments, to the Trustee for the account
of the Issuer, payments which correspond, as to time, and are equal in amount
as of the Loan Payment Date, to the corresponding Bond Service Charges payable
on the Bonds.  All Loan Payments
received by the Trustee shall be held and disbursed in accordance with the
provisions of the Indenture and this Agreement for application to the payment
of Bond Service Charges.

 

The Company
shall be entitled to a credit against the Loan Payments required to be made on
any Loan Payment Date to the extent that the balance of the Bond Fund is then
in excess of amounts required (a) for the payment of Bonds theretofore matured
or theretofore called for redemption, or to be called for redemption pursuant
to Section 6.1 hereof (b) for the payment of interest for which checks or
drafts have been drawn and mailed by the Trustee or Paying Agent, and (c) to be
deposited in the Bond Fund by the Indenture for use other than for the payment
of Bond Service Charges due on that Loan Payment Date.

 

Except for
such interest of the Company as may hereafter arise pursuant to Section 8.2
hereof or Sections 5.06 or 5.07 of the Indenture, the Company and the Issuer
each acknowledge that neither the Company, the State nor the Issuer has any
interest in the Bond Fund or the Bond Purchase Fund, and any moneys deposited
therein shall be in the custody of and held by the Trustee in trust for the
benefit of the Holders.

 

Section 4.2.            Additional
Payments.  The Company shall pay to
the Issuer, as Additional Payments hereunder, any and all costs and expenses
incurred or to be paid by the Issuer in connection with the issuance and
delivery of the Bonds or otherwise related to actions taken by the Issuer under
this Agreement or the Indenture.

 

The Company
shall pay the Administration Expenses to the Trustee, the Registrar, the
Remarketing Agent, the Auction Agent, and any Paying Agent or Authenticating
Agent, as appropriate, as Additional Payments hereunder.

 

The Company
may, without creating a default hereunder, contest in good faith the
reasonableness of any such cost or expense incurred or to be paid by the Issuer
and any Administration Expenses claimed to be due to the Trustee, the
Registrar, the Auction Agent, the Remarketing Agent, any Paying Agent or any
Authenticating Agent.

 

14

 

In the event
the Company should fail to pay any Loan Payments, Additional Payments or
Administration Expenses when due, the payment in default shall continue as an
obligation of the Company until the amount in default shall have been fully
paid together with interest thereon during the default period at the Interest
Rate for Advances.

 

Section 4.3.            Place
of Payments.  The Company shall make
all Loan Payments directly to the Trustee at its Principal Office.  Additional Payments shall be made directly
to the person or entity to whom or to which they are due.

 

Section 4.4.            Obligations
Unconditional.  The obligations of
the Company to make Loan Payments, Additional Payments and any payments
required of the Company under Section 5.08 of the Indenture shall be
absolute and unconditional, and the Company shall make such payments without
abatement, diminution or deduction regardless of any cause or circumstances
whatsoever including, without limitation, any defense, set-off, recoupment or
counterclaim which the Company may have or assert against the Issuer, the
Trustee, the Registrar, the Remarketing Agent, the Auction Agent, the Paying
Agent or any other Person.

 

Section 4.5.            Assignment
of Revenues and Agreement.  To
secure the payment of Bond Service Charges, the Issuer shall, by the Indenture,
(a) absolutely and irrevocably assign to the Trustee, its successors in trust
and its and their assigns forever, all of the Issuer’s rights and remedies
under this Agreement (except for the Unassigned Issuer Rights), and (b) grant a
security interest to the Trustee, its successors in trust and its and their assigns
forever, in all of its rights to and interest in the Revenues including,
without limitation, all Loan Payments and other amounts receivable by or on
behalf of the Issuer under the Agreement in respect of repayment of the Loan.  The Company hereby agrees and consents to
those assignments and that grant of a security interest.

 

Section 4.6.            Municipal
Bond Insurance Policy; Liquidity Facility; Cancellation.  (a) The Company agrees to provide for the
payment of the principal of and interest on the Bonds by causing the Municipal
Bond Insurance Policy to be delivered to the Trustee on the date of the
delivery of the Bonds.

 

(b)           The Company may provide for the delivery of a Liquidity
Facility.

 

(c)           The Company may cancel any Liquidity Facility then in
effect at such time and direct the Trustee in writing to surrender such
Liquidity Facility to the Liquidity Facility Issuer by which it was issued in
accordance with the Indenture; provided, that no such cancellation shall become
effective and no such surrender shall take place until all Bonds subject to
purchase pursuant to Section 4.07(d) of the Indenture have been so purchased or
redeemed with the proceeds of such Liquidity Facility.

 

Section 4.7.            Company’s
Option to Elect Rate Period; Changes in Auction Date and Length of Auction
Periods.  The Company shall have,
and is hereby granted, the option to elect to convert on any Conversion Date
the interest rate borne by the Bonds to another Variable Rate 

 

15

 

or return to the Auction Rate,
to be effective for a Rate Period pursuant to the provisions of Article II of
the Indenture and subject to the terms and conditions set forth therein.  The Company also shall have the option to
direct the change of Auction Dates and/or the length of Auction Rate Periods in
accordance with the Indenture.  To
exercise such options, the Company shall give the written notice required by
the Indenture.

 

Section 4.8.            Company’s
Obligation to Purchase Bonds.  The
Company hereby agrees to pay or cause to be paid to the Trustee or the Paying
Agent, on or before each day on which Bonds may be or are required to be
tendered for purchase, amounts equal to the amounts to be paid by the Trustee
or the Paying Agent with respect to the Bonds tendered for purchase on such
dates pursuant to Article IV of the Indenture; provided, however, that the
obligation of the Company to make any such payment under this Section shall be
reduced by the amount of (A) moneys paid by the Remarketing Agent as proceeds of
the remarketing of such Bonds by the Remarketing Agent, (B) moneys drawn under
any Liquidity Facility, for the purpose of paying such purchase price and (C)
other moneys made available by the Company, as set forth in Section 4.08(b)(ii)
of the Indenture.

 

(End of Article IV)

 

16

 

ARTICLE V.

 

ADDITIONAL
AGREEMENTS AND COVENANTS

 

Section 5.1.            Right
of Inspection.  The Company agrees
that, subject to reasonable security and safety regulations and to reasonable requirements
as to notice, the Issuer and the Trustee and their or any of their respective
duly authorized agents shall have the right at all reasonable times to enter
upon the Project Site to examine and inspect the Projects.

 

Section 5.2.            Maintenance.  The Company shall use its best efforts to
keep and maintain the Project Facilities, including all appurtenances thereto
and any personal property therein or thereon, in good repair and good operating
condition so that the Project Facilities will continue to constitute Pollution
Control Facilities for the purposes of the operation thereof as required by
Section 5.4 hereof.

 

So long as
such shall not be in violation of the Act or impair the character of the
Project Facilities as Pollution Control Facilities and provided there is
continued compliance with applicable laws and regulations of governmental
entities having jurisdiction thereof, the Company shall have the right to
remodel the Project Facilities or make additions, modifications and
improvements thereto, from time to time as it, in its discretion, may deem to
be desirable for its uses and purposes, the cost of which remodeling,
additions, modifications and improvements shall be paid by the Company and the
same shall, when made, become a part of the Project Facilities.

 

Section 5.3.            Removal
of Portions of the Project Facilities. 
The Company shall not be under any obligation to renew, repair or
replace any inadequate, obsolete, worn out, unsuitable, undesirable or
unnecessary portions of the Project Facilities, except that, subject to Section
5.4 hereof, it will use its best efforts to ensure the continued character of
the Project Facilities as Pollution Control Facilities.  The Company shall have the right from time to
time to substitute personal property or fixtures for any portions of the
Project Facilities, provided that the personal property or fixtures so
substituted shall not impair the character of the Project Facilities as
Pollution Control Facilities.  Any such
substituted property or fixtures shall, when so substituted, become a part of
the Project Facilities.  The Company
shall also have the right to remove any portion of the Project Facilities,
without substitution therefor; provided, that the Company shall deliver to the
Trustee a certificate signed by an Engineer describing said portion of the
Project Facilities and stating that the removal of such property or fixtures
will not impair the character of the Project Facilities as Pollution Control
Facilities.

 

Section 5.4.            Operation
of Project Facilities.  The Company
will, subject to its obligations and rights to maintain, repair or remove
portions of the Project Facilities, as provided in Sections 5.2 and 5.3 hereof,
use its best efforts to continue operation of the Project Facilities so long as
and to the extent that operation thereof is required to comply with laws or
regulations of governmental entities having jurisdiction thereof or unless the
Issuer shall have approved the discontinuance of such operation (which approval
shall not be unreasonably withheld). 
The 

 

17

 

Company agrees that it will,
within the design capacities thereof, use its best efforts to operate and
maintain the Project Facilities in accordance with all applicable, valid and enforceable
rules and regulations of governmental entities having jurisdiction thereof;
provided, that the Company reserves the right to contest in good faith any such
laws or regulations.

 

Nothing in
this Agreement shall prevent or restrict the Company, in its sole discretion,
at any time, from discontinuing or suspending either permanently or temporarily
its use of any facility of the Company served by the Project Facilities and in
the event such discontinuance or suspension shall render unnecessary the continued
operation of the Project Facilities, the Company shall have the right to
discontinue the operation of the Project Facilities during the period of any
such discontinuance or suspension.

 

Section 5.5.            Insurance.  The Company shall cause the Project Facilities
to be kept insured against fire or other casualty to the extent that property
of similar character is usually so insured by companies similarly situated and
operating like properties, to a reasonable amount by reputable insurance
companies or, in lieu of or supplementing such insurance in whole or in part,
adopt some other method or plan of protection against loss by fire or other
casualty at least equal in protection to the method or plan of protection
against loss by fire or other casualty of companies similarly situated and
operating properties subject to similar or greater fire or other hazards or on
which properties an equal or higher primary fire or other casualty insurance
rate has been set by reputable insurance companies.

 

Section 5.6.            Workers’
Compensation Coverage.  Throughout
the term of this Agreement, the Company shall comply, or cause compliance, with
applicable workers’ compensation laws of the State.

 

Section 5.7.            Damage;
Destruction and Eminent Domain.  If,
during the term of this Agreement, the Project Facilities or any portion
thereof is destroyed or damaged in whole or in part by fire or other casualty,
or title to, or the temporary use of, the Project Facilities or any portion
thereof shall have been taken by the exercise of the power of eminent domain,
the Company (unless it shall have exercised its option to prepay the Loan
Payments pursuant to Section 6.2 hereof) shall promptly repair, rebuild or
restore the portion of the Project Facilities so damaged, destroyed or taken
with such changes, alterations and modifications (including the substitution
and addition of other property) as may be necessary or desirable for the
administration and operation of the Project Facilities as Pollution Control
Facilities and as shall not impair the character or significance of the Project
Facilities as furthering the purposes of the Act.

 

Section 5.8.            Company
to Maintain its Corporate Existence; Conditions Under Which Exceptions
Permitted.  The Company agrees that,
during the term of this Agreement, it will maintain its corporate existence,
will not dissolve or otherwise dispose of all or substantially all of its
assets and will not consolidate with or merge into another corporation or
permit one or more other corporations to consolidate with or merge into it;
provided that the Company may, without violating its agreement contained in
this Section, consolidate with or merge into another 

 

18

 

corporation, or permit one or
more other corporations to consolidate with or merge into it, or sell or
otherwise transfer to another corporation all or substantially all of its
assets as an entirety and thereafter dissolve, provided the surviving,
resulting or transferee corporation, as the case may be (if other than the
Company), is a corporation organized and existing under the laws of one of the
states of the United States, and assumes in writing all of the obligations of
the Company herein, and, if not an Indiana corporation, is qualified to do
business in the State.

 

If
consolidation, merger or sale or other transfer is made as provided in this
Section, the provisions of this Section shall continue in full force and effect
and no further consolidation, merger or sale or other transfer shall be made
except in compliance with the provisions of this Section.

 

Section 5.9.            Indemnification.

 

(a)           The Company shall release the State of Indiana, the Issuer
(including, but not limited to, members of the Indiana Development Finance
Authority, and their attorneys, agents and employees) or any of their
officials, officers, employees, members, independent contractors or agents
(hereinafter the “Indemnified Parties”) from, agrees that the Indemnified
Parties shall not be liable for, and agrees to protect, defend, indemnify and
hold harmless the Indemnified Parties from and against, any loss or damage to
property, or any injury to or death of any person, that may be occasioned by
any cause whatsoever pertaining to the Project, or the use thereof or arising
from any act or failure to act by the Company or any of the Company’s agents,
contractors, servants, employees, or licensees, or arising from any accident,
injury or damage whatsoever caused to any person, firm or limited liability
company occurring during the term of this Agreement, or against all losses,
claims, costs, damages, liabilities and expenses which they may incur in
connection with or arising out of the direct or indirect application of the
proceeds of the Loan hereunder, and from and against all costs, liabilities and
expenses incurred in or in connection with any claim, action or proceeding
brought thereon; provided, however, that the indemnity in this
section shall be effective only to the extent of any loss in excess of amounts
paid to the Indemnified Parties from any insurance carried with respect to the
loss sustained.  The Company further
agrees to protect, defend, indemnify and hold harmless the Indemnified Parties
against and from any and all costs, liabilities, expenses and claims arising
from any breach or default on the part of the Company in the performance of any
covenant or agreement on the part of the Company to be performed pursuant to
the terms of any of the loan documents, or in connection with the issuance of
the Bonds and the furnishing of information concerning the Project, the
Company, its financial status or other matters relating to the Company.  In case any action or proceeding is brought
against the Indemnified Parties by reason of any such claim, the Company upon
notice from the Indemnified Parties covenants to resist or defend such action
or proceeding at the Company’s expense. 
None of the Indemnified Parties shall settle or compromise such claim,
action or proceeding without the written consent of the Company, which shall
not be unreasonably withheld, if there exists no Event of Default by the
Company as defined in Section 7.1 hereof. 
Nothing contained in this section, however, shall require the 

 

19

 

Company to indemnify the Indemnified Parties
from any cost, liability, expense, loss or claim arising out of or resulting
from the willful misconduct or gross negligence of any such Person.

 

(b)           Notwithstanding the foregoing, the Company shall be
entitled to pursue its remedies against the Issuer for damages to the Company
resulting directly from personal injury or property damage caused by the gross
negligence or willful misconduct of the Issuer.

 

(c)           Notwithstanding anything in the foregoing to the contrary,
the Company shall furnish the Issuer and Bond Counsel with information required
to complete Internal Revenue Service Form 8038 with respect to the Bonds, and
the Company shall protect, defend, indemnify and hold harmless the Issuer and
Bond Counsel against all consequences of any material misrepresentation in or
material omission from such Form 8038.

 

(d)           No covenant or agreement contained in the Bonds or this
Agreement shall be deemed to be a covenant or agreement of any member of the
Issuer or of any officer or employee of the Issuer in his or her individual
capacity, and neither the Issuer nor any officer or employee of the Issuer
executing the Bonds shall be liable personally on the Bonds or be subject to
any personal liability or accountability by reason of the issuance of the
Bonds.

 

(e)           The indemnity set forth herein shall be in addition to any
other obligations of the Company to the holder or amounts due hereunder to the
Issuer or at common law or otherwise, and shall survive any termination of this
Agreement, and the payment of all obligations.

 

Section 5.10.          Company
Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For
Federal Income Tax Purposes.  The
Company hereby covenants and represents that it has taken and caused to be
taken and shall take and cause to be taken all actions that may be required of
it for the interest on the Bonds to be and remain excluded from the gross
income of the Holders for federal income tax purposes, and that it has not
taken or permitted to be taken on its behalf, and covenants that it will not
take, or permit to be taken on its behalf, any action which, if taken, would
adversely affect that exclusion under the provisions of the Code.

 

Section 5.11.          Use
of Project Facilities.  The Issuer
agrees that it will not take any action, or cause any action to be taken on its
behalf, to interfere with the Company’s ownership interest in the Project or to
prevent the Company from having possession, custody, use and enjoyment of the
Project other than pursuant to Article VII of this Agreement or Article VII of
the Indenture.

 

Section 5.12.          Assignment
by Company.  Notwithstanding any
other provision of this Loan Agreement, this Agreement may be assigned in whole
or in part by the Company and the Project may be sold or conveyed by the
Company without the necessity of obtaining the consent of either the Issuer or
the Trustee and after providing written notice to the Issuer but, subject,
however, to each of the following conditions:

 

20

 

(a)           The Company must provide the Trustee and the Remarketing
Agent with an Opinion of Bond Counsel that such action will not affect the
exclusion of interest on the Bonds for federal income tax purposes.

 

(b)           The Bond Insurer must provide to the Trustee its written
consent to such action.

 

(c)           The Company shall, within 30 days after execution thereof,
furnish or cause to be furnished to the Issuer and the Trustee a true and
complete copy of each such assignment together with any instrument of
assumption.

 

(d)           Any assignment from the Company shall not materially
impair fulfillment of the Project Purposes to be accomplished by operation of
the Project as herein provided.

 

Section 5.13.          The
Depository Trust Company Letter of Representation.  The Company agrees that it shall cause the
Trustee on behalf of the Issuer to fulfill the obligations set forth in the
Depository Trust Company Letter of Representation for the Bonds.

 

(End of Article V)

 

21

 

ARTICLE VI.

 

REDEMPTION

 

Section 6.1.            Optional
Redemption.  Provided no Event of
Default shall have occurred and be subsisting, at any time and from time to
time, the Company may deliver moneys to the Trustee in addition to Loan
Payments or Additional Payments required to be made and direct the Trustee to
use the moneys so delivered for the purpose of calling Bonds for optional
redemption in accordance with the applicable provisions of the Indenture
providing for optional redemption at the redemption price stated in the
Indenture.  Pending application for
those purposes, any moneys so delivered shall be held by the Trustee in a
special account in the Bond Fund and delivery of those moneys shall not, except
as set forth in Section 4.1 hereof, operate to abate or postpone Loan Payments
or Additional Payments otherwise becoming due or to alter or suspend any other
obligations of the Company under this Agreement.

 

Section 6.2.            Extraordinary
Optional Redemption.  The Company
shall have, subject to the conditions hereinafter imposed, the option during a
Term Rate Period to direct the redemption of the Bonds in whole upon the
occurrence of the event described below in paragraph (c) and in part upon
the occurrence of the other events described below in accordance with the
applicable provisions of the Indenture.

 

(a)           The Project Facilities or the Generating Station shall
have been damaged or destroyed to such an extent that (1) the Project
Facilities or the Generating Station cannot reasonably be expected to be
restored, within a period of six consecutive months, to the condition thereof
immediately preceding such damage or destruction or (2) the Company is
reasonably expected to be prevented from carrying on its normal use and
operation of the Project Facilities or Generating Station for a period of six consecutive
months.

 

(b)           Title to, or the temporary use of, all or a significant
part of the Project Facilities or the Generating Station shall have been taken
under the exercise of the power of eminent domain to such an extent (1) that
the Project Facilities or the Generating Station cannot reasonably be expected
to be restored within a period of six consecutive months to a condition of
usefulness comparable to that existing prior to the taking or (2) the Company
is reasonably expected to be prevented from carrying on its normal use and
operation of the Project Facilities or Generating Station for a period of six
consecutive months.

 

(c)           As a result of any changes in the Constitution of the
State, the Constitution of the United States of America or any state or federal
laws or as a result of legislative or administrative action (whether state or
federal) or by  final decree, judgment
or order of any court or administrative body (whether state or federal) entered
after any contest thereof by the Issuer or the Company in good faith, this
Agreement shall have become void or unenforceable or impossible of performance
in accordance with the intent and purpose of the parties as expressed in this
Agreement.

 

22

 

(d)           Unreasonable burdens or excessive liabilities shall have
been imposed upon the Issuer or the Company with respect to the Project
Facilities or the Generating Station or the operation thereof, including,
without limitation, the imposition of federal, state or other ad valorem,
property, income or other taxes other than ad valorem taxes at the rates
presently levied upon privately owned property used for the same general
purpose as the Project Facilities or the Generating Station.

 

(e)           Changes in the economic availability of raw materials,
operating supplies, energy sources or supplies or facilities (including, but
not limited to, facilities in connection with the disposal of industrial
wastes) necessary for the operation of the Project Facilities or the Generating
Station for the Project Purposes occur or technological or other changes occur
which the Company cannot reasonably overcome or control and which in the
Company’s reasonable judgment render the Project Facilities or Generating
Station uneconomic or obsolete for the Project Purposes.

 

(f)            Any court or administrative body shall enter a judgment,
order or decree, or shall take administrative action, requiring the Company to
cease all or any substantial part of its operations served by the Project
Facilities or the Generating Station to such extent that the Company is or will
be prevented from carrying on its normal operations at the Project Facilities
or Generating Station for a period of six consecutive months.

 

(g)           The termination by the Company of operations at the
Generating Station.

 

The amount
payable by the Company in the event of its exercise of the option granted in
this Section shall be the sum of the following:

 

(i)            An
amount of money which, when added to the moneys and investments held to the credit
of the Bond Fund, will be sufficient pursuant to the provisions of the
Indenture to pay, at 100% of the principal amount thereof plus accrued interest
to the redemption date, and discharge, all or such portion of Outstanding Bonds
to be redeemed on the earliest applicable redemption date, that amount to be
paid to the Trustee, plus

 

(ii)           An
amount of money equal to the Additional Payments relating to those Bonds
accrued and to accrue until actual final payment and redemption of those Bonds,
that amount or applicable portions thereof to be paid to the Trustee or to the
Persons to whom those Additional Payments are or will be due.

 

The requirement of (ii) above
with respect to Additional Payments to accrue may be met if provisions
satisfactory to the Trustee and the Issuer are made for paying those amounts as
they accrue.

 

23

 

The rights and
options granted to the Company in this Section may be exercised whether or not
the Company is in default hereunder; provided, that such default will not
relieve the Company from performing those actions which are necessary to
exercise any such right or option granted hereunder.

 

Section 6.3.            Mandatory
Redemption.  The Company shall
deliver to the Trustee the moneys needed to redeem the Bonds in accordance with
any mandatory redemption provisions relating thereto as may be set forth in
Sections 4.01(b) of the Indenture.

 

Section 6.4.            Notice
of Redemption.  In order to exercise
an option granted in, or to consummate a redemption required by, this Article
VI, the Company shall, within 180 days following the event authorizing the
exercise of such option, or at any time during the continuation of the
condition referred to in paragraphs (c), (d) or (e) of Section 6.2 hereof, or at
any time that optional redemption of the Bonds is permitted under the Indenture
as provided in Section 6.1 hereof, or promptly upon the occurrence of a
Determination of Taxability (as defined in the Indenture), give written notice
to the Issuer and the Trustee that it is exercising its option to direct the
redemption of Bonds, or that the redemption thereof is required by Section
4.01(b) of the Indenture due to the occurrence of a Determination of
Taxability, as the case may be, in accordance with the Agreement and the
Indenture, and shall specify therein the date on which such redemption is to be
made, which date shall not be more than 180 days from the date such notice is
mailed.  The Company shall make
arrangements satisfactory to the Trustee for the giving of the required notice
of  redemption to the Holders of the
Bonds, in which arrangements the Issuer shall cooperate.

 

Section 6.5.            Actions
by Issuer.  At the request of the
Company or the Trustee, the Issuer shall take all steps required of it under the
applicable provisions of the Indenture or the Bonds to effect the redemption of
all or a portion of the Bonds pursuant to this Article VI.

 

(End of Article VI)

 

24

 

ARTICLE VII.

 

EVENTS OF DEFAULT
AND REMEDIES

 

Section 7.1.            Events
of Default.  Each of the following
shall be an Event of Default:

 

(a)           The occurrence of an event of default as defined in
Section 7.01 (a), (b), or (c) of the Indenture;

 

(b)           The Company shall fail to observe and perform any other
agreement, term or condition contained in this Agreement, other than such
failure as will have resulted in an event of default described in (a) above and
the continuation of that failure for a period of 90 days after notice thereof
shall have been given to the Company by the Issuer or the Trustee, or for such
longer period as the Issuer and the Trustee may agree to in writing; provided,
that failure shall not constitute an Event of Default so long as the Company
institutes curative action within the applicable period and diligently pursues
that action to completion within 150 days after the expiration of initial cure
period as determined above, or within such longer period as the Issuer and the
Trustee may agree to in writing; and

 

(c)           The receipt by the Trustee of written notice from the Bond
Insurer that an event of default has occurred and is continuing under the
Insurance Agreement; and

 

(d)           (i)            By decree of a court of competent
jurisdiction the Company shall be adjudicated a bankrupt, or an order shall be
made approving a petition or answer filed seeking reorganization or
readjustment of the Company under the federal bankruptcy laws or other law or
statute of the United States of America or of the state of incorporation of the
Company or of any other state, or, by order of such a court, a trustee in
bankruptcy, a receiver or receivers shall be appointed of all or substantially
all of the property of the Company, and any such decree or order shall have
continued unstayed on appeal or otherwise and in effect for a period of sixty
(60) days; or

 

(ii)           The
Company shall file a petition in voluntary bankruptcy or shall make an
assignment for the benefit of creditors or shall consent to the appointment of
a receiver or receivers of all or any part of its property, or shall file a
petition seeking reorganization or readjustment under the Federal bankruptcy
laws or other law or statute of the United States of America or any state
thereof, or shall file a petition to take advantage of any debtors’ act.

 

Notwithstanding
the foregoing, if, by reason of Force Majeure, the Company is unable to perform
or observe any agreement, term or condition hereof which would give rise to an
Event of Default under subsection (b) hereof, the Company shall not be deemed
in default during the continuance of such inability.  However, the Company shall promptly give notice to the Trustee
and the Issuer of the existence of an event of Force Majeure and shall use its
best efforts to 

 

25

 

remove the effects thereof; provided that the settlement of strikes or
other industrial disturbances shall be entirely within its discretion.

 

The exercise
of remedies hereunder shall be subject to any applicable limitations of federal
bankruptcy law affecting or precluding that declaration or exercise during the
pendency of or immediately following any bankruptcy, liquidation or
reorganization proceedings.

 

Section 7.2.            Remedies
on Default.  Whenever an Event of
Default shall have happened and be subsisting, either or both of the following
remedial steps may be taken:

 

(a)           The Issuer or the Trustee may have access to, inspect,
examine and make copies of the books, records, accounts and financial data of
the Company, only, however, insofar as they pertain to the Project; or

 

(b)           The Issuer or the Trustee may pursue all remedies now or
hereafter existing at law or in equity to recover all amounts, including all
Loan Payments and Additional Payments and under Section 4.8 hereof the purchase
price of Bonds tendered for purchase, then due and thereafter to become due
under this Agreement, or to enforce the performance and observance of any other
obligation or agreement of the Company under this Agreement.

 

Notwithstanding the foregoing,
the Issuer shall not be obligated to take any step which in its opinion will or
might cause it to expend time or money or otherwise incur liability unless and
until a satisfactory indemnity bond has been furnished to the Issuer at no cost
or expense to the Issuer.  Any amounts
collected as Loan Payments or applicable to Loan Payments and any other amounts
which would be applicable to payment of Bond Service Charges collected pursuant
to action taken under this Section shall be paid into the Bond Fund and applied
in accordance with the provisions of the Indenture or, if the outstanding Bonds
have been paid and discharged in accordance with the provisions of the
Indenture, shall be paid as provided in Section 5.07 of the Indenture for
transfers of remaining amounts in the Bond Fund.

 

The provisions
of this Section are subject to the further limitation that the rescission and
annulment by the Trustee of its declaration that all of the Bonds are
immediately due and payable also shall constitute a rescission and annulment of
any corresponding declaration made pursuant to this Section and a rescission
and annulment of the consequences of that declaration and of the Event of
Default with respect to which that declaration has been made, provided that no
such rescission and annulment shall extend to or affect any subsequent or other
default or impair any right consequent thereon.

 

Section 7.3.            No
Remedy Exclusive.  No remedy
conferred upon or reserved to the Issuer or the Trustee by this Agreement is
intended to be exclusive of any other available remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given under this Agreement, or now or hereafter existing at law,
in equity or by statute.  No delay or
omission to exercise any right or power accruing upon any default shall impair
that right or power or shall be construed to be a waiver thereof, but any such
right or 

 

26

 

power may be exercised from
time to time and as often as may be deemed expedient.  In order to entitle the Issuer or the Trustee to exercise any
remedy reserved to it in this Article, it shall not be necessary to give any
notice, other than any notice required by law or for which express provision is
made herein.

 

Section 7.4.            Agreement
to Pay Attorneys’ Fees and Expenses. 
If an Event of Default should occur and the Issuer or the Trustee should
incur expenses, including attorneys’ fees, in connection with the enforcement
of this Agreement or the collection of sums due hereunder, the Company shall be
required, to the extent permitted by law, to reimburse the Issuer and the
Trustee, as applicable, for the expenses so incurred upon demand.

 

Section 7.5.            No
Waiver.  No failure by the Issuer or
the Trustee to insist upon the strict performance by the Company of any
provision hereof shall constitute a waiver of their right to strict performance
and no express waiver shall be deemed to apply to any other existing or
subsequent right to remedy the failure by the Company to observe or comply with
any provision hereof.

 

Section 7.6.            Notice
of Default.  The Company shall
notify the Trustee and the Bond Insurer immediately if it becomes aware of the
occurrence of any Event of Default hereunder or of any fact, condition or event
which, with the giving of notice or passage of time or both, would become an
Event of Default.

 

(End of Article VII)

 

27

 

ARTICLE VIII.

 

MISCELLANEOUS

 

Section 8.1.            Term
of Agreement.  This Agreement shall
be and remain in full force and effect from the date of delivery of the Bonds
to the Original Purchaser until such time as (i) all of the Bonds shall have
been fully paid (or provision made for such payment) and the Indenture has been
released pursuant to Section 9.01 thereof and (ii) all other sums payable by
the Company under this Agreement shall have been paid; provided, however, the
obligations of the Company under Sections 4.2 and 5.9 hereof shall survive any
termination of this Agreement.

 

Section 8.2.            Amounts
Remaining in Funds.  Any amounts in
the Bond Fund remaining unclaimed by the Holders of Bonds for four years after
the due date thereof (whether at stated maturity, by redemption, upon
acceleration or otherwise), at the option of the Company, shall be deemed to
belong to and shall be paid, subject to Section 5.06 of the Indenture, at the
written request of the Company, to the Company by the Trustee.  With respect to that principal of and any
premium and interest on the Bonds to be paid from moneys paid to the Company
pursuant to the preceding sentence, the Holders of the Bonds entitled to those
moneys shall look solely to the Company for the payment of those moneys.  Further, any amounts remaining in the Bond
Fund and any other special funds or accounts created under this Agreement or
the Indenture, except the Rebate Fund, after all of the Bonds shall be deemed
to have been paid and discharged under the provisions of the Indenture and all
other amounts required to be paid under this Agreement and the Indenture have
been paid, shall be paid to the Company to the extent that those moneys are in
excess of the amounts necessary to effect the payment and discharge of the
Outstanding Bonds.

 

Section 8.3.            Notices.  All notices, certificates, requests or other
communications hereunder shall be in writing, except as provided in Section 3.4
hereof, and shall be deemed to be sufficiently given when mailed by registered
or certified mail, postage prepaid, and addressed to the appropriate Notice
Address.  A duplicate copy of each
notice, certificate, request or other communication given hereunder to the
Issuer, the Company, the Bond Insurer or the Trustee shall also be given to the
others.  The Company, the Issuer, the
Bond Insurer and the Trustee, by notice given hereunder, may designate any
further or different addresses to which subsequent notices, certificates,
requests or other communications shall be sent.

 

Section 8.4.            Extent
of Covenants of the Issuer; No Personal Liability.  All covenants, obligations and agreements of
the Issuer contained in this Agreement or the Indenture shall be effective to
the extent authorized and permitted by applicable law.  No such covenant, obligation or agreement
shall be deemed to be a covenant, obligation or agreement of any present or
future member, officer, agent or employee of the Issuer in other than his
official capacity, and neither the members of the Issuer nor any official
executing the Bonds shall be liable personally on the Bonds or be subject to
any personal liability or accountability by reason of the issuance thereof 

 

28

 

or by reason of the covenants,
obligations or agreements of the Issuer contained in this Agreement or in the
Indenture.

 

Section 8.5.            Binding
Effect.  This Agreement shall inure
to the benefit of and shall be binding in accordance with its terms upon the
Issuer, the Company and their respective permitted successors and assigns
provided that this Agreement may not be assigned by the Company (except as
permitted under Sections 5.8 or 5.12 hereof) and may not be assigned by the
Issuer except to (i) the Trustee pursuant to the Indenture or as otherwise may
be necessary to enforce or secure payment of Bond Service Charges or (ii) any
successor public body to the Issuer.

 

Section 8.6.            Amendments
and Supplements.  Except as
otherwise expressly provided in this Agreement or the Indenture, subsequent to
the issuance of the Bonds and prior to all conditions provided for in the
Indenture for release of the Indenture having been met, this Agreement may not
be effectively amended, changed, modified, altered or terminated by the parties
hereto except with the consents required by, and in accordance with, the
provisions of Article XI of the Indenture, as applicable.

 

Section 8.7.            Execution
Counterparts.  This Agreement may be
executed in any number of counterparts, each of which shall be regarded as an
original and all of which shall constitute but one and the same instrument.

 

Section 8.8.            Severability.  If any provision of this Agreement, or any
covenant, obligation or agreement contained herein is determined by a judicial
or administrative authority to be invalid or unenforceable, that determination
shall not affect any other provision, covenant, obligation or agreement, each
of which shall be construed and enforced as if the invalid or unenforceable
portion were not contained herein.  That
invalidity or unenforceability shall not affect any valid and enforceable
application thereof, and each such provision, covenant, obligation or agreement
shall be deemed to be effective, operative, made, entered into or taken in the
manner and to the full extent permitted by law.

 

Section 8.9.            Governing
Law.  This Agreement shall be deemed
to be a contract made under the laws of the State and for all purposes shall be
governed by and construed in accordance with the laws of the State.

 

(End of Article VIII)

 

29

 

IN WITNESS
WHEREOF, the Issuer and the Company have caused this Agreement to be duly executed
in their respective names, all as of the date hereinbefore written.

 

	
   

  	
  INDIANA DEVELOPMENT FINANCE

  AUTHORITY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ALFRED HAMMONDS

  	
   

  
	
   

  	
   

  	
  Alfred Hammonds, Chairman

  
	
   

  	
   

  
	
  Attest:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ W. CALVIN KELLY

  	
   

  	
   

  
	
  W. Calvin Kelly, Acting
  Executive Director

  	
   

  
					

 

[Issuer’s Signature Page to
Loan Agreement]

 

30

 

	
   

  	
  PSI ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ WENDY L. AUMILLER

  	
   

  
	
   

  	
   

  	
  Treasurer

  

 

 

[Borrower’s Signature Page to
Loan Agreement]

 

31

 

EXHIBIT A

 

DESCRIPTION OF POLLUTION
CONTROL FACILITIES

AT

GIBSON GENERATING STATION

 

 

Financed by Original Bonds

 

 

Flue Gas Desulphurization and
Sludge Fixation System for Unit 5 of the Gibson Generating Station

 

Electrostatic Precipitator for
Unit 5 of the Gibson Generating Station

 

Off-Road Solid Waste Transport
and Disposal Equipment and Solid Waste Disposal Site Improvement

 

32Exhibit 4-yyy

 

	
  No. 
  R-2003-1

  	
   

  	
  $200,000,000

  

 

 

PSI ENERGY,
INC.

6.302% Subordinated Note

Due 2004

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR THE SECURITIES OR BLUE SKY LAWS OF ANY JURISDICTION OF
THE UNITED STATES OF AMERICA (“BLUE SKY LAWS”)
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE ACT AND, IN EACH
CASE, IN ACCORDANCE WITH ALL APPLICABLE BLUE SKY LAWS.

 

PSI Energy, Inc., a corporation
duly organized and existing under the laws of the state of Indiana (herein
called the “Company”), for value received, hereby promises to pay to CINERGY
CORP., or registered assigns, the principal sum of Two Hundred Million and
No/100 Dollars ($200,000,000.00) on April 15, 2004, and to pay interest thereon
from February 5, 2003 or from the most recent interest payment date to which
interest has been paid or duly provided for, semiannually on April 15 and October 15 in each year,
commencing April 15, 2003, at the rate of 6.302% per annum, until the principal
hereof is paid or made available for payment.

 

Payment of the principal of and interest on this Note will be made at
the office or agency of the Company maintained for that purpose in Cincinnati,
Ohio, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check.

 

Interest on this Note shall be computed on the basis
of a 360-day year of twelve 30-day months.

 

Any payment on
this Note due on any day which is not a Business Day in the City of Cincinnati,
Ohio need not be made on such day, but may be made on the next succeeding
Business Day with the same force and effect as if made on the due date and no
interest shall accrue for the period from and after such date.  For purposes of this Note “Business Day,”
means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day
on which banking institutions in Cincinnati, Ohio are authorized or obligated
by law or executive order to close.

 

 

Redemption

 

This Note is
subject to redemption upon not less than 30 days’ notice by mail, at a
redemption price equal to 100% of the principal amount, as a whole or in part,
at the election of the Company, together with accrued interest to the
redemption date.

 

In the event of redemption of this Note in part only, a new Note of
like tenor for the unredeemed portion hereof will be issued in the name of the
holder hereof upon the cancellation hereof.

 

Subordination

 

The
indebtedness evidenced by this Note is, to the extent and in the manner
provided herein, expressly subordinate and subject in right of payment to the
prior payment in full of all Senior Debt of the Company (as defined
hereinbelow) whether outstanding at the date hereof or hereafter incurred.  Each holder and owner of this Note, by
accepting the same, agrees to and shall be bound by such provisions.

 

For purpose
hereof, the “Senior Debt” of the Company means the principal of, premium, if
any, interest on and any other payment due pursuant to any of the following,
whether outstanding at the date of execution of this Note or thereafter
incurred, created or assumed: (a) all indebtedness of the Company evidenced by
notes, debentures, bonds or other securities sold by the Company for money,
excluding this Note, but including all first mortgage bonds of the Company
outstanding from time to time; (b) all indebtedness of others of the kinds
described in the preceding clause (a) assumed by or guaranteed in any manner by
the Company, including through an agreement to purchase, contingent or
otherwise; and (c) all renewals, extensions or refundings of indebtedness of
the kinds described in any of the preceding clauses (a) and (b); unless, in the
case of any particular indebtedness, renewal, extension or refunding, the
instrument creating or evidencing the same or the assumption or guarantee of
the same expressly provides that such indebtedness, renewal, extension or
refunding is not superior in right of payment to or is pari passu with this
Note.

 

In the event
and during the continuation of any default in the payment of principal,
premium, interest or any other payment due on any Senior Debt continuing beyond
the period of grace, if any, specified in the instrument evidencing such Senior
Debt, unless and until such default shall have been cured or waived or shall
have ceased to exist, or in the event that the maturity of any Senior Debt has
been accelerated because of a default, then no payment shall be made by the
Company with respect to the principal of or interest on this Note.

 

2

 

In the event
that, notwithstanding the foregoing, any payment shall be received by the
holder of this Note when such payment is prohibited by the preceding paragraph,
such payment shall be held in trust for the benefit of, and shall be paid over
or delivered to, the holders of Senior Debt or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear.

 

Upon any
payment by the Company, or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Debt shall
first be paid in full, or payment thereof provided for in money in accordance
with its terms, before any payment is made on account of the principal or
interest on this Note; and upon any such dissolution or winding-up or
liquidation or reorganization any payment by the Company, or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holder of this Note would be entitled, except for the
provisions of this Note, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the holder of this Note if received by it,
directly to the holders of Senior Debt (pro rata to such holders on the basis
of the respective amounts of Senior Debt held by such holders, as calculated by
the Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
Senior Debt may have been issued, as their respective interests may appear, to
the extent necessary to pay all Senior Debt in full, in money or money’s worth,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Debt, before any payment or distribution is made to the
holder of this Note.

 

In the event that, notwithstanding the foregoing, any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, prohibited by the foregoing, shall be received by the holder of
this Note before all Senior Debt is paid in full, or provision is made for such
payment in money in accordance with its terms, such payment or distribution
shall be held in trust for the benefit of and shall be paid over or delivered
to the holders of Senior Debt or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Debt may have been issued, as their respective interests
may appear, as calculated by the Company, for application to the payment of all
Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt in
full in money in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of such Senior Debt.

 

3

 

For purposes
of this Note, the words, “cash, property or securities” shall not be deemed to
include shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment, the payment of which is subordinated with
respect to this Note to the payment of all Senior Debt which may at the time be
outstanding; provided that (i) the Senior Debt is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment,
and (ii) the rights of the holders of the Senior Debt are not, without the
consent of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company into, another
corporation or the liquidation or dissolution of the Company following the
conveyance or transfer of its property as an entirety, or substantially as an
entirety, to another corporation upon the terms and conditions provided for in
this Note shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes hereunder if such other corporation shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated hereunder.

 

Subject to the
payment in full of all Senior Debt, the rights of the holder of this Note shall
be subrogated to the rights of the holders of Senior Debt to receive payments
or distributions of cash, property or securities of the Company applicable to
the Senior Debt; and, for the purposes of such subrogation, no payment or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the holder of this Note would be entitled except for the
provisions hereunder, and no payment over to or for the benefit of the holders
of Senior Debt by the holder of this Note, shall, as between the Company, its
creditors other than holders of Senior Debt, and the holder of this Note, be
deemed to be a payment by the Company to or on account of the Senior Debt.  It is understood that the subordination
provisions of this Note are and are intended solely for the purposes of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of the Senior Debt on the other hand.

 

Nothing
contained in this Note is intended to or shall impair, as between the Company,
its creditors other than the holders of Senior Debt, and the holder of this
Note, the obligation of the Company, which is absolute and unconditional, to
pay the principal of and interest on this Note as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holder of this Note and creditors of
the Company other than the holders of the Senior Debt, nor shall anything
herein or therein prevent the holder of this Note from exercising all remedies
otherwise permitted by applicable law upon default hereunder, subject to the
rights, if any, of the holders of Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.

 

4

 

Events of
Default

 

“Event of
Default,” wherever used herein with respect to this Note, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

 

(1)           default in the
payment of any interest upon this Note when it becomes due and payable, and
continuance of such default for a period of 30 days; or

 

(2)           default in the
payment of the principal of this Note at its maturity; or

 

(3)           default in the
performance, or breach, of any covenant or warranty of the Company in this Note
(other than a covenant or warranty a default in whose performance or whose
breach is elsewhere specifically dealt with) and continuance of such default or
breach for a period of 90 days after there has been given, by registered or
certified mail, to the Company by the holder of the Note a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a “Notice of Default” hereunder; or

 

(4)           the entry by a court
having jurisdiction in the premises of (A) a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any
applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company under
any applicable Federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or of any substantial part of its property, or ordering the winding up
or liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 90 consecutive days; or

 

(5)           the commencement by the Company of a
voluntary case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it of
a petition or answer or consent seeking reorganization or relief under any
applicable Federal or state law, or the consent by it to the filing of such
petition or to the appointment of, or taking possession of the Company or of
any substantial part of its property by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official or the making by the
Company of an assignment for the benefit of creditors, or the admission by it
in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any such
action; or

 

5

 

If an Event of
Default (other than an Event of Default specified in paragraphs (4) or (5)
above) occurs and is continuing, then the holder of this Note may declare the
principal amount to be due and payable immediately, by a notice in writing to
the Company, and upon any such declaration such principal amount shall become
immediately due and payable.  If an
Event of Default specified in paragraphs (4) or (5) above occurs, the principal
amount of this Note shall automatically, and without any declaration or other
action on the part of the holder, become immediately due and payable.

 

No delay or omission of the holder of this Note to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein.  Every right and remedy given
by this Note or by law to the holder may be exercised from time to time, and as
often as may be deemed expedient, by the holders.

 

Consolidations and Mergers Permitted

 

Nothing contained in this Note shall prevent any consolidation or
merger of the Company with or into any other corporation or corporations
(whether or not affiliated with the Company), or successive consolidations or
mergers in which the Company or its successor or successors shall be a party or
parties, or shall prevent any sale, conveyance, transfer or other disposition
of the property of the Company or its successor or successors as an entirety,
or substantially as an entirety, to any other corporation (whether or not
affiliated with the Company or its successor or successors) authorized to
acquire and operate the same; provided, however, the Company hereby covenants
and agrees that, upon any such consolidation, merger, sale, conveyance,
transfer or other disposition, the due and punctual payment of the principal of
and interest on this Note in accordance with its terms, according to its tenor,
and the due and punctual performance and observance of all the covenants and
conditions of hereunder to be kept or performed by the Company, shall be
expressly assumed, by written agreement satisfactory in form to the holder
executed and delivered to the holder by the entity formed by such consolidation,
or into which the Company shall have been merged, or by the entity which shall
have acquired such property.

 

In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition and upon the assumption by the successor corporation of
the due and punctual payment of the principal of and interest on this Note and
the due and punctual performance of all of the covenants and conditions
hereunder to be performed by the Company, 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 party of the first part, and thereupon the
predecessor corporation shall be relieved of all obligations and covenants
under this Note.

 

6

 

Nothing
contained in this Note shall prevent the Company from merging into itself or
acquiring by purchase or otherwise all or any part of the property of any other
corporation (whether or not affiliated with the Company).

 

 

IN WITNESS WHEREOF,
the Company has caused this instrument to be duly executed.

 

Dated:  February 5, 2003

 

	
   

  	
  PSI ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ WENDY L. AUMILLER

  	
   

  
	
   

  	
   

  	
   Wendy L. Aumiller

  
	
   

  	
   

  	
   Treasurer

  

 

7

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