INSURANCE AGREEMENT

 

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                                                                    EXHIBIT 10.6

 

                               INSURANCE AGREEMENT

 

         THIS INSURANCE AGREEMENT, dated as of December 18, 2003, is entered

into by and between AMBAC ASSURANCE CORPORATION, a Wisconsin-domiciled stock

insurance company ("Ambac"), and NORTHERN INDIANA PUBLIC SERVICE COMPANY, a

corporation duly organized under the laws of the State of Indiana (the

"Company").

 

         WHEREAS, pursuant to the Indenture of Trust, dated as of December 1,

2003 (the "Indenture"), between Jasper County, Indiana (the "Issuer") and

National City Bank of Indiana, as Trustee (the "Trustee"), the Issuer issued its

Pollution Control Refunding Revenue Bonds (Northern Indiana Public Service

Company Project) Series 2003 in the aggregate principal amount of $55,000,000

(the "Bonds");

 

         WHEREAS, the Company entered into a Financing Agreement with the

Issuer, dated as of December 1, 2003 (the "Financing Agreement"), pursuant to

which the Issuer has loaned to the Company the proceeds of the Bonds and the

Company has agreed to make repayment in an amount sufficient, together with

other funds available for such purpose, to pay when due the principal of,

premium, if any, and interest on the Bonds;

 

         WHEREAS, Ambac has made a commitment to issue its Financial Guaranty

Insurance Policy (the "Policy") to insure the scheduled payments of principal of

and interest on the Bonds, as specified in the Policy; and

 

         WHEREAS, the Company understands that Ambac expressly requires the

delivery of this Agreement as part of the consideration for the delivery by

Ambac of the Policy;

 

         NOW, THEREFORE, in consideration of the premises and of the agreements

herein contained and of the execution and delivery of the Policy, the Company

and Ambac agree as follows:

 

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                                    ARTICLE I

 

                        DEFINITIONS; PREMIUM AND EXPENSES

 

Section 1.01. Definitions. Except as otherwise expressly provided herein or

unless the context otherwise requires, the terms which are capitalized herein

shall have the meanings specified in Annex B hereto.

 

Section 1.02. Premium. In consideration of Ambac agreeing to issue the Policy

hereunder, the Company hereby agrees to pay the Premium, as follows:

 

         (a)      $1,756,647.70 shall be payable as a lump sum upon delivery of

the Policy (the "Initial Premium");

 

         (b)      an amount equal to the product of the Annual Premium Rate and

the principal amount of Bonds outstanding on each December 18 (the "Annual

Premium") shall be payable annually in advance on each December 18, commencing

on December 18, 2004; provided, that the Annual Premium due on the December 18

immediately preceding the stated maturity date of the Bonds shall be calculated

on a pro rata basis to reflect the period from such December 18 to such stated

maturity date.

 

Once paid, no Premium is refundable in whole or in part for any reason,

including, without limitation, in the event that the Bonds are retired prior to

their stated maturity. To the extent that any payment of Annual Premium is not

paid when due, interest shall accrue on such unpaid amounts at a rate equal to

the Effective Interest Rate.

 

Section 1.03. Certain Other Expenses. The Company will pay all reasonable fees

and disbursements of Ambac's counsel related to any Company-requested

modification of any Bond Document or, if delivered pursuant to Section 3.01,

First Mortgage Bonds.

 

                                   ARTICLE II

 

               REIMBURSEMENT OBLIGATION; UNCONDITIONAL OBLIGATION

 

Section 2.01. Reimbursement Obligation. (a) The Company agrees to reimburse

Ambac, from any available funds, immediately and unconditionally upon demand,

for all amounts advanced by Ambac under the Policy. To the extent that any such

payment due hereunder is not paid when due, interest shall accrue on such unpaid

amounts at a rate equal to the Effective Interest Rate.

 

         (b)      The Company also agrees to reimburse Ambac immediately and

unconditionally upon demand for (i) all reasonable expenses incurred by Ambac in

connection with each Policy Payment and (ii) all reasonable expenses incurred by

Ambac in connection with the enforcement by Ambac of the Company's obligations

under any Bond Document or, if delivered pursuant to Section 3.01, First

Mortgage Bonds, together with interest on all such expenses from and including

 

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the date which is 30 days from the date a statement for such expenses is

received by the Company to the date of payment at the Effective Interest Rate.

 

Section 2.02. Unconditional Obligation. The obligations of the Company hereunder

are absolute and unconditional and will be paid or performed strictly in

accordance with this Agreement, irrespective of:

 

         (a)      any lack of validity or enforceability of, or any amendment or

other modification of, or waiver with respect to the Bonds, any other Bond

Document or, if delivered pursuant to Section 3.01, the First Mortgage Bonds;

 

         (b)      any exchange, release or nonperfection of any security

interest in property securing the Bonds, any other Bond Document , the First

Mortgage Bonds (if delivered pursuant to Section 3.01), or any obligations under

or related to the foregoing instruments and documents;

 

         (c)      any circumstances which might otherwise constitute a defense

available to, or discharge of, the Company under any Bond Document or otherwise

with respect to the Bonds or, if delivered pursuant to Section 3.01, the First

Mortgage Bonds; or

 

         (d)      whether or not the Company's obligations under the Bond

Documents or the obligations represented by the Bonds or, if delivered pursuant

to Section 3.01, the First Mortgage Bonds, are contingent or matured, disputed

or undisputed, liquidated or unliquidated.

 

                                   ARTICLE III

 

                  COVENANTS AND REPRESENTATIONS OF THE COMPANY

 

Section 3.01. Negative Pledge; Delivery of Collateral. (a) The Company agrees

that, so long as any Bonds remain outstanding or any Reimbursement Obligations

remain unpaid,

 

                  (i) if at any time the Company shall incur Secured Debt, the

         Company shall, concurrently with incurrence of such Secured Debt, grant

         to the Trustee, for the benefit of the holders of the Bonds, a pari

         passu lien on the Property that secures such Secured Debt, to secure

         the Company's obligations under the Financing Agreement; and

 

                  (ii) the Company shall not incur or suffer to exist any

         indebtedness to an affiliate the payment of which is secured by a lien

         on any Property of the Company. As used in this Section 3.01(a)(ii),

         the term "affiliate" means an entity controlling, controlled by, or

         under common control with, the Company.

 

         (b)      In the event that the ratings assigned to the Company's senior

unsecured long-term debt are downgraded to "Ba1" or below, in the case of

Moody's, or "BB+" or below, in the case of S&P, the Company shall, within thirty

(30) days of such downgrade deliver First Mortgage Bonds to the Trustee for the

benefit of the holders of the Bonds, or grant a security interest to the

 

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Trustee for the benefit of the holders of the Bonds in utility assets acceptable

to Ambac, to secure the Company's obligations under the Financing Agreement.

 

Section 3.02. Reorganization; Allocation of Debt. The Company hereby agrees

that, in the event of a Reorganization, unless otherwise consented to by Ambac,

the obligations of the Company under, and in respect of, the Bond Documents and,

if delivered pursuant to Section 3.01, the First Mortgage Bonds, shall be

assumed by, and shall become direct and primary obligations of, a Regulated

Utility Company that holds substantially all of the assets that were held by the

Company prior to such Reorganization.

 

Section 3.03. Liquidity Facilities. For so long as the Policy remains in effect

or any Reimbursement Obligation or Premium remains unpaid, the Company will

ensure that whenever a Bond bears interest at a rate (other than an Auction Rate

(as defined in the Indenture)) that is not fixed to maturity, the obligation of

the Company to purchase, or provide funds for the purchase of, such Bonds at the

end of any interest rate period shall be supported by a standby bond purchase

agreement or other liquidity facility from a provider, and on terms and

conditions, acceptable to Ambac.

 

Section 3.04. Representations and Warranties. The Company represents and

warrants as follows:

 

         (a)      it is incorporated and validly existing under the laws of the

                  State of Indiana;

 

         (b)      it has the corporate power to enter into and perform its

                  obligations under or with respect to the Bond Documents to

                  which it is a party, to carry out the transactions

                  contemplated by the Bond Documents to which it is a party, to

                  own its property and assets, and to carry on its business as

                  now conducted or contemplated;

 

         (c)      it has taken all necessary action to authorize the entry into

                  and performance of its obligations under or with respect to

                  the Bond Documents to which it is a party and to perform

                  obligations under them;

 

         (d)      its obligations under the Bond Documents to which it is a

                  party are legal, valid, binding and enforceable in accordance

                  with their respective terms, except to the