-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BPb/r7Y59sqe2XT1NevQStqQcDDdBxU1elIfCIr3MLYXBIbKzc1EFEV/Pm4luZcP SYZ+VL9IM9bA6epi3viv5g== 0000899652-99-000076.txt : 19990514 0000899652-99-000076.hdr.sgml : 19990514 ACCESSION NUMBER: 0000899652-99-000076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11377 FILM NUMBER: 99620863 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5134219500 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET CITY: CINCINATI STATE: OH ZIP: 45202 10-Q 1 CINERGY CORP. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MarkOne) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format. As of April 30, 1999, shares of Common Stock outstanding for each registrant were as listed: Company Shares - ---------------------------------------------------------------- ------------ Cinergy Corp., par value $.01 per share 158,870,194 The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086 PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701 The Union Light, Heat and Power Company, par value $15.00 per share 585,333 TABLE OF CONTENTS Item Page Number Number Glossary of Terms . . . . . . . . . . . . . . . . . . . 3 PART I. FINANCIAL INFORMATION 1 Financial Statements Cinergy Corp. Consolidated Balance Sheets . . . . . . . . . . . . . 6 Consolidated Statements of Income . . . . . . . . . . 8 Consolidated Statements of Changes in Common Stock Equity. . . . . . . . . . . . . . . . . . . . 9 Consolidated Statements of Cash Flows . . . . . . . . 10 Results of Operations . . . . . . . . . . . . . . . . 11 The Cincinnati Gas & Electric Company Consolidated Balance Sheets . . . . . . . . . . . . . 15 Consolidated Statements of Income and Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . 17 Consolidated Statements of Cash Flows . . . . . . . . 18 Results of Operations . . . . . . . . . . . . . . . . 19 PSI Energy, Inc. Consolidated Balance Sheets. . . . . . . . . . . . 23 Consolidated Statements of Income and Comprehensive Income . . . . . . . . . . . . . . . 25 Consolidated Statements of Cash Flows. . . . . . . . 26 Results of Operations . . . . . . . . . . . . . . . . 27 The Union Light, Heat and Power Company Balance Sheets. . . . . . . . . . . . . . . . . . . . 31 Statements of Income. . . . . . . . . . . . . . . . . 33 Statements of Cash Flows. . . . . . . . . . . . . . . 34 Results of Operations . . . . . . . . . . . . . . . . 35 Notes to Financial Statements . . . . . . . . . . . . . 37 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 45 3 Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . 51 PART II. OTHER INFORMATION 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 52 4 Submission of Matters to a Vote of Security Holders . . 52 5 Other Information . . . . . . . . . . . . . . . . . . . 53 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 53 Signatures. . . . . . . . . . . . . . . . . . . . . . . 56 GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below: TERM DEFINITION 1998 Form Combined 1998 Annual Report on Form 10-K filed separately by 10-K Cinergy, CG&E, PSI, and ULH&P Avon Energy Avon Energy Partners Holdings, an Unlimited Liability Company and its wholly-owned subsidiary Avon Energy Partners PLC, a Limited Liability Company CAAA Clean Air Act Amendments of 1990 CC&T Cinergy Capital and Trading, Inc. (a subsidiary of Investments) CERCLA Comprehensive Environmental Response, Compensation and Liability Act CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) CIBU Cinergy Investments Business Unit Cinergy or Cinergy Corp. Company Committed Lines A line of credit providing short-term loans on a committed basis Destec Destec Energy, Inc. DOE United States Department of Energy Dynegy Dynegy Inc. ECBU Energy Commodities Business Unit EDBU Energy Delivery Business Unit EPA United States Environmental Protection Agency EPS Earnings per share FASB Financial Accounting Standards Board Gibson PSI's Gibson Generating Station (steam electric generating plant) IBU International Business Unit ICR Information Collection Request IDEM Indiana Department of Environmental Management IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water Company, Inc. Investments Cinergy Investments, Inc. (a subsidiary of Cinergy) IT Information Technology GLOSSARY OF TERMS (Continued) TERM DEFINITION IURC Indiana Utility Regulatory Commission kwh Kilowatt-hour mcf Thousand cubic feet MGP Manufactured gas plant Midlands Midlands Electricity plc, a United Kingdom regional electric company (a wholly-owned subsidiary of Avon Energy) MW Megawatts N/A Not applicable NERC North American Electric Reliability Council NIPSCO Northern Indiana Public Service Company NOx Nitrogen oxide ProEnergy Producers Energy Marketing, LLC (a subsidiary of CC&T), which is engaged in the marketing of natural gas PSI PSI Energy, Inc. (a subsidiary of Cinergy) RUS Rural Utilities Service SEC United States Securities and Exchange Commission September 1996 An IURC order issued in September 1996 on PSI's retail Order rate proceeding SIP State Implementation Plan SO2 Sulfur dioxide Statement 131 Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information Statement 133 Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) Uncommitted A line of credit providing short-term loans on an Lines uncommitted basis US United States WVPA Wabash Valley Power Association, Inc. CINERGY CORP. AND SUBSIDIARY COMPANIES
CINERGY CORP. CONSOLIDATED BALANCE SHEETS ASSETS March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 92,652 $ 100,154 Restricted deposits 3,641 3,587 Notes receivable 59 64 Accounts receivable less accumulated provision for doubtful accounts of $31,355 at March 31, 1999, and $25,622 at December 31, 1998 397,686 580,305 Materials, supplies, and fuel - at average cost 180,969 202,747 Prepayments and other 73,692 74,849 Energy risk management assets 703,278 969,000 ----------- ------------ 1,451,977 1,930,706 Utility Plant - Original Cost In service Electric 9,248,374 9,222,261 Gas 794,785 786,188 Common 197,299 186,364 ----------- ----------- 10,240,458 10,194,813 Accumulated depreciation 4,100,406 4,040,247 ----------- ----------- 6,140,052 6,154,566 Construction work in progress 209,461 189,883 ----------- ----------- Total utility plant 6,349,513 6,344,449 Other Assets Regulatory assets 940,386 970,767 Investments in unconsolidated subsidiaries 645,250 574,401 Other 459,022 478,472 ----------- ----------- 2,044,658 2,023,640 $ 9,846,148 $10,298,795 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. LIABILITIES AND SHAREHOLDERS' EQUITY March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 433,732 $ 668,860 Accrued taxes 240,179 228,347 Accrued interest 40,878 51,679 Notes payable and other short-term obligations 1,052,811 903,700 Long-term debt due within one year 25,959 136,000 Energy risk management liabilities 828,424 1,117,146 Other 86,814 93,376 ---------- ----------- 2,708,797 3,199,108 Non-Current Liabilities Long-term debt 2,605,657 2,604,467 Deferred income taxes 1,100,473 1,091,075 Unamortized investment tax credits 154,381 156,757 Accrued pension and other postretirement benefit costs 323,949 315,147 Other 268,042 298,370 ---------- ----------- 4,452,502 4,465,816 Total liabilities 7,161,299 7,664,924 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 92,616 92,640 Common Stock Equity Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 158,779,900 at March 31, 1999, and 158,664,532 at December 31, 1998 1,588 1,587 Paid-in capital 1,598,884 1,595,237 Retained earnings 1,001,034 945,214 Accumulated other comprehensive loss (9,273) (807) ---------- ----------- Total common stock equity 2,592,233 2,541,231 $9,846,148 $10,298,795
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended March 31 1999 1998 (in thousands, except per share amounts) Operating Revenues Electric $ 968,532 $1,158,724 Gas 421,308 184,846 Other 12,439 4,891 ---------- ---------- 1,402,279 1,348,461 Operating Expenses Fuel and purchased and exchanged power 433,169 652,404 Gas purchased 334,402 107,586 Other operation and maintenance 244,548 212,693 Depreciation and amortization 86,477 79,935 Taxes other than income taxes 69,534 70,135 ---------- ---------- 1,168,130 1,122,753 Operating Income 234,149 225,708 Equity in Earnings of Unconsolidated Subsidiaries 44,682 11,854 Other Income and (Expenses) - Net (11,886) (11,815) Interest 60,772 59,805 ---------- ---------- Income Before Taxes 206,173 165,942 Income Taxes 77,564 57,449 Preferred Dividend Requirements of Subsidiaries 1,364 2,422 ---------- ---------- Net Income $ 127,245 $ 106,071 Average Common Shares Outstanding 158,746 157,764 Earnings Per Common Share Net income $0.80 $0.67 Earnings Per Common Share - Assuming Dilution Net income $0.80 $0.67 Dividends Declared Per Common Share $0.45 $ 0.45 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (dollars in thousands) (unaudited) Accumulated Other Total Total Common Paid-in Retained Comprehensive Comprehensive Common Stock Stock Capital Earnings Loss Income (Loss) Equity Quarter Ended March 31, 1999 Balance at January 1, 1999 $1,587 $1,595,237 $ 945,214 $ (807) $2,541,231 Comprehensive income Net income 127,245 $127,245 127,245 Other comprehensive income, net of tax Foreign currency translation adjustment (8,451) (8,451) Unrealized gains/losses - grantor trusts (15) (15) -------- Other comprehensive loss total (8,466) (8,466) -------- Comprehensive income total $118,779 Issuance of 115,368 shares of common stock - net 1 1,978 1,979 Treasury shares purchased (233) (233) Treasury shares reissued 1,902 1,902 Dividends on common stock (see page 8 for per share amounts) (71,422) (71,422) Other (3) (3) ------ ---------- ---------- ------- ---------- Balance at March 31, 1999 $1,588 $1,598,884 $1,001,034 $(9,273) $2,592,233 Quarter Ended March 31, 1998 Balance at January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200 Comprehensive income Net income 106,071 $106,071 106,071 Other comprehensive income, net of tax Foreign currency translation adjustment (367) (367) Minimum pension liability adjustment (51) (51) -------- Other comprehensive loss total (418) (418) -------- Comprehensive income total $105,653 ======== Issuance of 19,362 shares of common stock - net 1 289 290 Treasury shares purchased (1) (1,430) (1,431) Treasury shares reissued 1 2,149 2,150 Dividends on common stock (see page 8 for per share amounts) (70,994) (70,994) Other 8 (2) 6 ------ ---------- ---------- ------- ---------- Balance at March 31, 1998 $1,578 $1,574,080 $1,002,495 $(3,279) $2,574,874 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date March 31 1999 1998 (in thousands) Operating Activities Net income $ 127,245 $ 106,071 Items providing (using) cash currently: Depreciation and amortization 86,477 79,935 Deferred income taxes and investment tax credits - net 12,877 (12,955) Equity in earnings of unconsolidated subsidiaries (44,682) (11,854) Allowance for equity funds used during construction (775) (21) Regulatory assets - net 5,140 10,670 Changes in current assets and current liabilities Restricted deposits (54) (29) Accounts and notes receivable, net of reserves on receivables sold 182,265 (106,525) Materials, supplies, and fuel 21,778 4,660 Accounts payable (235,128) 69,305 Accrued taxes and interest 1,031 24,938 Energy risk management - net (23,000) - Other items - net 9,478 25,788 --------- --------- Net cash provided by operating activities 142,652 189,983 Financing Activities Issuance of common stock 1,979 290 Issuance of long-term debt 6,623 98,901 Retirement of preferred stock of subsidiaries (20) (85,229) Redemption of long-term debt (116,000) (160,291) Change in short-term debt 149,111 108,767 Dividends on common stock (71,422) (70,994) --------- --------- Net cash used in financing activities (29,729) (108,556) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (79,143) (66,348) Investments in unconsolidated subsidiaries (41,282) (9,658) --------- --------- Net cash used in investing activities (120,425) (76,006) Net increase (decrease) in cash and temporary cash investments (7,502) 5,421 Cash and temporary cash investments at beginning of period 100,154 53,310 --------- --------- Cash and temporary cash investments at end of period $ 92,652 $ 58,731 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. Below is information concerning the consolidated results of operations for Cinergy for the quarter ended March 31, 1999. For information concerning the results of operations for each of the other registrants for the quarter ended March 31, 1999, see the discussion under the heading "Results of Operations" following the financial statements of each registrant. RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999 Operating Revenues Electric Operating Revenues The components of electric operating revenues and the related kwh sales are shown below: Quarter Ended March 31 Revenue Kwh Sales 1999 1998 1999 1998 ($ and kwh in millions) Retail $676 $ 633 12,276 11,678 Sales for resale 266 515 10,694 21,733 Other 27 11 172 - ---- ------ ------ ------- Total $969 $1,159 23,142 33,411 Electric operating revenues decreased $190 million (16%) for the quarter ended March 31, 1999, when compared to the same period for 1998. This decrease was primarily due to decreased volumes on non-firm power sales for resale transactions related to energy marketing and trading operations. Partially offsetting the decline was an increase in the average price per kwh for retail customers, higher retail and firm power kwh sales resulting from growth in the average number of residential and commercial customers and a return to more normal weather in the first quarter of 1999, as compared to 1998, and increased international operations. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Quarter Ended March 31 Revenue Mcf Sales ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ----- ($ and mcf in millions) Sales for resale $243 $ - 143 N/A Retail 158 174 26 26 Transportation 20 11 13 16 ---- ---- --- --- Total $421 $185 182 42 Gas operating revenues increased $236 million in the first quarter of 1999, when compared to the same period last year, primarily due to the gas operating revenues of ProEnergy, which was acquired in June 1998. A lower average cost per mcf of gas purchased, which was passed on to end users, contributed to the decrease in retail sales. Transportation revenues increased as more residential and commercial customers began to purchase gas directly from suppliers, using transportation services provided by CG&E. This increase in transportation revenues was partially offset by a decrease in mcf transportation volumes resulting from the loss of a large industrial transportation customer during late 1998. Other Revenues Other revenues increased $8 million for the quarter ended March 31, 1999, over the same period of 1998. This increase was primarily the result of increased revenues of new non-regulated initiatives operated by the various business units. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Quarter Ended March 31 1999 1998 (in millions) Fuel $198 $181 Purchased and exchanged power 235 471 ---- ---- Total $433 $652 Electric fuel costs increased $17 million (9%) for the quarter ended March 31, 1999, as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended March 31 (in millions) Fuel expense - March 31, 1998 $181 Increase (Decrease) due to change in: Price of fuel (2) Deferred fuel cost 5 Kwh generation 9 Other 5 ---- Fuel expense - March 31, 1999 $198 Purchased and exchanged power expense decreased $236 million (50%) for the quarter ended March 31, 1999, as compared to the same period last year, primarily reflecting decreased purchases of non-firm power for resale to others as a result of a decline in sales for resale volumes in the energy marketing and trading operations. Gas Purchased Gas purchased for the quarter ended March 31, 1999, increased $227 million, when compared to the same period last year, primarily due to the gas purchased expenses of ProEnergy, which was acquired in June 1998. Partially offsetting this increase was a lower average cost per mcf of gas purchased. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended March 31 1999 1998 (in millions) Other operation $195 $174 Maintenance 50 39 ---- ---- Total $245 $213 Other operation expenses increased $21 million (12%) for the quarter ended March 31, 1999, as compared to the same period last year, primarily due to an increase in operating expenses related to various non-regulated subsidiaries and the estimated loss on a specific customer account. Maintenance expenses increased $11 million (28%) for the quarter ended March 31, 1999, as compared to the same period of 1998, primarily due to an increase in maintenance activities associated with planned outages at certain production facilities. Depreciation and Amortization The components of depreciation and amortization expenses are shown below: Quarter Ended March 31 1999 1998 (in millions) Depreciation $79 $73 Amortization of phase-in deferrals 6 6 Amortization of post-in-service deferred operating expenses 1 1 --- --- Total $86 $80 Depreciation expense increased $6 million (8%) for the quarter ended March 31, 1999, as compared to the same period last year, primarily due to additions to depreciable plant. Equity in Earnings of Unconsolidated Subsidiaries The $33 million increase in equity in earnings of unconsolidated subsidiaries for the quarter ended March 31, 1999, as compared to the same period of 1998, is primarily attributable to an increase in the earnings of Avon Energy resulting from increased profits related to Midlands' supply business and lower costs of purchased electricity. Preferred Dividend Requirements of Subsidiaries The decrease in preferred dividend requirements of subsidiaries of $1 million (44%) for the quarter ended March 31, 1999, as compared to the same period of 1998, is primarily attributable to PSI's redemption of all outstanding shares of its 7.44% Series Cumulative Preferred Stock on March 1, 1998. THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS ASSETS March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 17,856 $ 26,989 Restricted deposits 1,173 1,173 Notes receivable from affiliated companies 109,725 84,358 Accounts receivable less accumulated provision for doubtful accounts of $19,295 at March 31, 1999, and $17,607 at December 31, 1998 119,288 205,060 Accounts receivable from affiliated companies 431 22,635 Materials, supplies, and fuel - at average cost 94,163 115,294 Prepayments and other 41,369 40,158 Energy risk management assets 351,639 484,500 ---------- --------- 735,644 980,167 Utility Plant - Original Cost In service Electric 4,817,108 4,806,958 Gas 794,786 786,188 Common 197,299 186,364 ---------- ---------- 5,809,193 5,779,510 Accumulated depreciation 2,184,770 2,147,298 ---------- ---------- 3,624,423 3,632,212 Construction work in progress 121,476 119,993 ---------- ---------- Total utility plant 3,745,899 3,752,205 Other Assets Regulatory assets 616,784 627,035 Other 101,817 100,061 ---------- ---------- 718,601 727,096 $5,200,144 $5,459,468 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY LIABILITIES AND SHAREHOLDER'S EQUITY March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 171,792 $ 282,743 Accounts payable to affiliated companies 34,376 13,166 Accrued taxes 138,096 151,455 Accrued interest 13,920 20,571 Long-term debt due within one year 20,000 130,000 Notes payable and other short-term obligations 288,991 189,283 Notes payable to affiliated companies 4,289 17,020 Energy risk management liabilities 414,212 558,573 Other 25,961 26,422 ---------- ---------- 1,111,637 1,389,233 Non-Current Liabilities Long-term debt 1,219,901 1,219,778 Deferred income taxes 779,201 771,145 Unamortized investment tax credits 109,260 110,801 Accrued pension and other postretirement benefit costs 149,830 146,361 Other 134,550 134,990 ---------- ---------- 2,392,742 2,383,075 Total liabilities 3,504,379 3,772,308 Cumulative Preferred Stock Not subject to mandatory redemption 20,697 20,717 Common Stock Equity Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at March 31, 1999, and December 31, 1998 762,136 762,136 Paid-in capital 553,929 553,926 Retained earnings 360,127 351,505 Accumulated other comprehensive loss (1,124) (1,124) ---------- ---------- Total common stock equity 1,675,068 1,666,443 $5,200,144 $5,459,468
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited) Quarter Ended March 31 1999 1998 (in thousands) Operating Revenues Electric $481,586 $593,305 Gas 163,797 173,462 -------- -------- 645,383 766,767 Operating Expenses Fuel and purchased and exchanged power 198,871 325,171 Gas purchased 78,878 96,588 Other operation and maintenance 108,156 101,405 Depreciation and amortization 50,570 47,660 Taxes other than income taxes 54,114 54,683 -------- -------- 490,589 625,507 Operating Income 154,794 141,260 Other Income and (Expenses) - Net (1,261) (2,494) Interest 24,407 26,789 -------- -------- Income Before Taxes 129,126 111,977 Income Taxes 48,889 40,785 -------- -------- Net Income $ 80,237 $ 71,192 Preferred Dividend Requirement 214 215 -------- -------- Net Income Applicable to Common Stock $ 80,023 $ 70,977 Other Comprehensive Income (Loss), Net of Tax - (155) -------- -------- Comprehensive Income $ 80,023 $ 70,822 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date March 31 1999 1998 (in thousands) Operating Activities Net income $ 80,237 $ 71,192 Items providing (using) cash currently: Depreciation and amortization 50,570 47,660 Deferred income taxes and investment tax credits - net 8,795 (27) Allowance for equity funds used during construction (775) (10) Regulatory assets - net 4,496 2,912 Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 80,619 391 Materials, supplies, and fuel 21,131 14,073 Accounts payable (89,741) 51,971 Accrued taxes and interest (20,010) (4,439) Energy risk management - net (11,500) - Other items - net (1,938) 9,753 --------- -------- Net cash provided by operating activities 121,884 193,476 Financing Activities Retirement of preferred stock (17) (9) Redemption of long-term debt (110,000) (160,291) Change in short-term debt 86,977 49,157 Dividends on preferred stock (214) (215) Dividends on common stock (71,400) (42,600) --------- --------- Net cash used in financing activities (94,654) (153,958) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (36,363) (36,483) Net cash used in investing activities (36,363) (36,483) Net increase (decrease) in cash and temporary cash investments (9,133) 3,035 Cash and temporary cash investments at beginning of period 26,989 2,349 --------- --------- Cash and temporary cash investments at end of period $ 17,856 $ 5,384 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999 Operating Revenues Electric Operating Revenues The components of electric operating revenues and the related kwh sales are shown below: Quarter Ended March 31 Revenue Kwh Sales 1999 1998 1999 1998 ($ and kwh in millions) Retail $358 $336 5,882 5,438 Sales for resale 121 254 4,918 10,793 Other 3 3 N/A N/A ---- ---- ------ ------ Total $482 $593 10,800 16,231 Electric operating revenues decreased $111 million (19%) for the quarter ended March 31, 1999, when compared to the same period for 1998. This decrease was primarily due to decreased volumes on non-firm power sales for resale transactions related to Cinergy's energy marketing and trading operations. Partially offsetting the decline was higher retail kwh sales resulting from growth in the average number of residential and commercial customers and a return to more normal weather in the first quarter of 1999, as compared to 1998. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Quarter Ended March 31 Revenue Mcf Sales 1999 1998 1999 1998 ($ and mcf in millions) Retail $144 $162 26 26 Transportation 20 11 13 16 ---- ---- -- -- Total $164 $173 39 42 Gas operating revenues decreased $9 million (5%) in the first quarter of 1999, when compared to the same period last year. A lower average cost per mcf of gas purchased, which was passed on to end users, contributed to the decrease in retail sales. Transportation revenues increased as more residential and commercial customers began to purchase gas directly from suppliers, using transportation services provided by CG&E. This increase in transportation revenues was partially offset by a decrease in mcf transportation volumes resulting from the loss of a large industrial transportation customer during late 1998. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Quarter Ended March 31 1999 1998 (in millions) Fuel $ 86 $ 88 Purchased and exchanged power 113 237 ---- ---- Total $199 $325 Electric fuel costs decreased $2 million (2%) for the quarter ended March 31, 1999, as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended March 31 (in millions) Fuel expense - March 31, 1998 $88 Increase (Decrease) due to change in: Price of fuel 1 Deferred fuel cost (7) Kwh generation 4 --- Fuel expense - March 31, 1999 $86 Purchased and exchanged power expense decreased $124 million (52%) for the quarter ended March 31, 1999, as compared to the same period last year. This decline primarily reflects decreased purchases of non-firm power for resale to others as a result of a decline in sales for resale volumes in Cinergy's energy marketing and trading operations. Gas Purchased Gas purchased for the quarter ended March 31, 1999, decreased $18 million (18%), when compared to the same period last year, primarily due to an decrease in the average cost per mcf of gas purchased. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended March 31 1999 1998 (in millions) Other operation $ 84 $ 82 Maintenance 24 19 --- --- Total $108 $101 Maintenance expenses increased $5 million (26%) for the quarter ended March 31, 1999, as compared to the same period of 1998, primarily due to an increase in maintenance activities associated with planned outages at certain production facilities. Depreciation and Amortization The components of depreciation and amortization expenses are shown below: Quarter Ended March 31 1999 1998 (in millions) Depreciation $43 $41 Amortization of phase-in deferrals 7 6 Amortization of post-in-service deferred operating expenses 1 1 --- --- Total $51 $48 Depreciation expense increased $2 million (5%) for the quarter ended March 31, 1999, as compared to the same period of 1998, primarily due to additions to depreciable plant. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $1 million for the quarter ended March 31, 1999, as compared to the same period of 1998, is primarily due to an increase in interest income and an increase in allowance for equity funds used during construction resulting from an increase in the equity rate applied and an increase in construction expenditures subject to allowance. Interest The decrease in interest expense of $2 million (9%) for the quarter ended March 31, 1999, as compared to the same period last year, was due to decreases in both interest on long-term debt and other interest expense. The decrease in interest expense on long-term debt is primarily due to a net redemption of approximately $90 million of long-term debt during the period of March 1998 through February 1999. The decrease in other interest expense was due to a reduction in average short-term borrowings and lower short-term interest rates. PSI ENERGY, INC. AND SUBSIDIARY COMPANY
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS ASSETS March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 31,187 $ 18,788 Restricted deposits 2,468 2,414 Notes receivable 8,298 17,024 Notes receivable from affiliated companies 70 73 Accounts receivable less accumulated provision for doubtful accounts of $11,968 at March 31, 1999, and $7,893 at December 31, 1998 139,685 225,449 Accounts receivable from affiliated companies 10,674 384 Materials, supplies, and fuel - at average cost 83,789 80,445 Prepayments and other 27,485 31,461 Energy risk management assets 351,639 484,500 ---------- ---------- Total current assets 655,295 860,538 Electric Utility Plant - Original Cost In service 4,431,266 4,415,303 Accumulated depreciation 1,915,636 1,892,949 ---------- ---------- 2,515,630 2,522,354 Construction work in progress 87,984 69,891 ---------- ---------- Total electric utility plant 2,603,614 2,592,245 Other Assets Regulatory assets 323,603 343,731 Other 92,496 93,012 ---------- ---------- Total other assets 416,099 436,743 $3,675,008 $3,889,526 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. LIABILITIES AND SHAREHOLDER'S EQUITY March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 141,076 $ 217,959 Accounts payable to affiliated companies 12,954 30,145 Accrued taxes 90,558 58,901 Accrued interest 17,628 28,335 Notes payable and other short-term obligations 157,597 173,162 Notes payable to affiliated companies 103,092 102,946 Long-term debt due within one year 5,959 6,000 Energy risk management liabilities 414,212 558,573 Other 2,161 2,227 ---------- ---------- 945,237 1,178,248 Non-Current Liabilities Long-term debt 1,020,093 1,025,659 Deferred income taxes 360,007 364,049 Unamortized investment tax credits 45,121 45,956 Accrued pension and other postretirement benefit costs 116,664 112,387 Other 101,641 115,656 ---------- ---------- 1,643,526 1,663,707 Total liabilities 2,588,763 2,841,955 Cumulative Preferred Stock Not subject to mandatory redemption 71,919 71,923 Common Stock Equity Common stock - without par value; $0.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at March 31, 1999, and December 31, 1998 539 539 Paid-in capital 410,740 410,739 Retained earnings 603,557 564,865 Accumulated other comprehensive loss (510) (495) ---------- ---------- Total common stock equity 1,014,326 975,648 $3,675,008 $3,889,526
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited) Quarter Ended March 31 1999 1998 (in thousands) Operating Revenues Electric $482,465 $592,125 Operating Expenses Fuel and purchased and exchanged power 234,927 352,746 Other operation and maintenance 113,240 101,685 Depreciation and amortization 33,743 32,275 Taxes other than income taxes 14,488 14,967 -------- -------- 396,398 501,673 Operating Income 86,067 90,452 Other Income and (Expenses) - Net 323 1,718 Interest 21,364 22,898 -------- -------- Income Before Taxes 65,026 69,272 Income Taxes 25,185 25,944 -------- -------- Net Income $ 39,841 $ 43,328 Preferred Dividend Requirement 1,150 2,208 -------- -------- Net Income Applicable to Common Stock $ 38,691 $ 41,120 Other Comprehensive Income (Loss), Net of Tax (15) 944 -------- --------- Comprehensive Income $ 38,676 $ 42,064 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date March 31 1999 1998 (in thousands) Operating Activities Net income $ 39,841 $ 43,328 Items providing (using) cash currently: Depreciation and amortization 33,743 32,275 Deferred income taxes and investment tax credits - net (3,476) (473) Allowance for equity funds used during construction - (11) Regulatory assets - net 644 7,758 Changes in current assets and current liabilities Restricted deposits (54) (29) Accounts and notes receivable, net of reserves on receivables sold 85,834 (75,348) Materials, supplies, and fuel (3,344) (9,413) Accounts payable (94,074) 33,541 Accrued taxes and interest 20,950 26,088 Energy risk management - net (11,500) - Other items - net 7,593 (14,292) --------- --------- Net cash provided by operating activities 76,157 43,424 Financing Activities Issuance of long-term debt - 98,901 Retirement of preferred stock (3) (85,220) Redemption of long-term debt (6,000) - Change in short-term debt (15,419) 8,481 Dividends on preferred stock (1,150) (2,736) Dividends on common stock - (28,400) --------- --------- Net cash used in financing activities (22,572) (8,974) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (41,186) (26,803) Net cash used in investing activities (41,186) (26,803) Net increase in cash and temporary cash investments 12,399 7,647 Cash and temporary cash investments at beginning of period 18,788 18,169 --------- --------- Cash and temporary cash investments at end of period $ 31,187 $ 25,816 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999 Operating Revenues The components of operating revenues and the related kwh sales are shown below: Quarter Ended March 31 Revenue Kwh Sales 1999 1998 1999 1998 ($ and kwh in millions) Retail $318 $297 6,393 6,239 Sales for resale 157 287 6,282 12,185 Other 7 8 N/A N/A ---- ---- ------ ------ Total $482 $592 12,675 18,424 Operating revenues decreased $110 million (19%) for the quarter ended March 31, 1999, when compared to the same period for 1998. This decrease was primarily due to decreased volumes on non-firm power sales for resale transactions related to Cinergy's energy marketing and trading operations. Partially offsetting the decline was an increase in the average price per kwh for retail customers and higher retail and firm power kwh sales resulting from growth in the average number of residential and commercial customers and a return to more normal weather in the first quarter of 1999, as compared to 1998. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Quarter Ended March 31 1999 1998 (in millions) Fuel $107 $ 92 Purchased and exchanged power 128 261 ---- ---- Total $235 $353 Fuel costs increased $15 million (16%) for the first quarter of 1999, as compared to the same period last year. An analysis of fuel costs is shown below: Quarter Ended March 31 (in millions) Fuel expense - March 31, 1998 $ 92 Increase (Decrease) due to change in: Price of fuel (3) Deferred fuel cost 12 Kwh generation 6 ---- Fuel expense - March 31, 1999 $107 Purchased and exchanged power expense decreased $133 million (51%) for the quarter ended March 31, 1999, as compared to the same period last year. This decline primarily reflects decreased purchases of non-firm power for resale to others as a result of a decline in sales for resale volumes in Cinergy's energy marketing and trading operations. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended March 31 1999 1998 (in millions) Other operation $ 88 $ 82 Maintenance 25 20 ---- ---- Total $113 $102 Other operation expense increased $6 million (7%) for the quarter ended March 31, 1999, as compared to the same period of 1998, primarily due to the estimated loss on a specific customer account. Maintenance expense increased $5 million (25%) for the quarter ended March 31, 1999, as compared to the same period of 1998, primarily due to an increase in maintenance activities associated with planned outages at certain production facilities. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $1 million for the quarter ended March 31, 1999, as compared to the same period of 1998, is primarily attributable to a decrease in interest income. Interest The $2 million (7%) decrease in interest expense for the quarter ended March 31, 1999, as compared to the same period of 1998, is primarily due to a decrease in other interest expense resulting from a reduction in average short-term borrowings and lower short-term interest rates. Partially offsetting the decrease was an increase in interest expense on long-term debt resulting from the net issuance of approximately $144 million of long-term debt during the period from March 1998 through December 1998. Preferred Dividend Requirement The decrease in preferred dividend requirement of $1 million (48%) for the quarter ended March 31, 1999, as compared to the same period of 1998, is primarily attributable to PSI's redemption of all outstanding shares of its 7.44% Series Cumulative Preferred Stock on March 1, 1998. THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS ASSETS March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 4,993 $ 3,244 Accounts receivable less accumulated provision for doubtful accounts of $1,826 at March 31, 1999, and $1,248 at December 31, 1998 9,076 14,125 Accounts receivable from affiliated companies - 666 Materials, supplies, and fuel - at average cost 3,668 8,269 Prepayments and other 154 308 -------- -------- Total current assets 17,891 26,612 Utility Plant - Original Cost In service Electric 234,791 232,222 Gas 165,629 164,040 Common 20,358 18,908 -------- -------- 420,778 415,170 Accumulated depreciation 146,128 143,386 -------- -------- 274,650 271,784 Construction work in progress 9,971 11,444 -------- -------- Total utility plant 284,621 283,228 Other Assets Regulatory assets 10,893 10,978 Other 5,470 3,767 -------- -------- 16,363 14,745 $318,875 $324,585 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY LIABILITIES AND SHAREHOLDER'S EQUITY March 31 December 31 1999 1998 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 6,729 $ 5,903 Accounts payable to affiliated companies 15,582 14,986 Accrued taxes 6,616 3,216 Accrued interest 1,432 1,959 Long-term debt due within one year 20,000 20,000 Notes payable to affiliated companies 11,386 31,817 Other 4,179 4,247 -------- -------- 65,924 82,128 Non-Current Liabilities Long-term debt 54,571 54,553 Deferred income taxes 25,711 26,134 Unamortized investment tax credits 4,168 4,238 Accrued pension and other postretirement benefit costs 11,920 11,678 Amounts due to customers - income taxes 9,253 8,959 Other 11,968 8,077 -------- -------- 117,591 113,639 Total liabilities 183,515 195,767 Common Stock Equity Common stock - $15.00 par value; authorize shares - 1,000,000; outstanding shares - 585,333 at March 31, 1999, and December 31, 1998 8,780 8,780 Paid-in capital 19,525 19,525 Retained earnings 107,055 100,513 -------- -------- Total common stock equity 135,360 128,818 $318,875 $324,585
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended March 31 1999 1998 (in thousands) Operating Revenues Electric $49,159 $46,999 Gas 33,000 28,480 ------- ------- 82,159 75,479 Operating Expenses Electricity purchased from parent company for resale 36,748 34,090 Gas purchased 17,322 16,353 Operation and maintenance 10,190 9,430 Depreciation 3,571 3,232 Taxes other than income taxes 1,083 1,005 ------- ------- 68,914 64,110 Operating Income 13,245 11,369 Other Income and (Expenses) - Net (390) (496) Interest 1,563 1,115 ------- ------- Income Before Taxes 11,292 9,758 Income Taxes 4,749 3,989 ------- ------- Net Income $ 6,543 $ 5,769 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Year to Date March 31 1999 1998 (in thousands) Operating Activities Net income $ 6,543 $ 5,769 Items providing (using) cash currently: Depreciation 3,571 3,232 Deferred income taxes and investment tax credits - net (200) 462 Allowance for equity funds used during construction 16 14 Regulatory assets 35 (41) Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 4,006 240 Materials, supplies, and fuel 4,601 3,111 Accounts payable 1,422 (5,751) Accrued taxes and interest 2,873 (1,000) Other current assets and liabilities 86 - Other items - net 4,200 1,627 -------- -------- Net cash provided by operating activities 27,153 7,663 Financing Activities Change in short-term debt (20,431) (2,030) -------- -------- Net cash used in financing activities (20,431) (2,030) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (4,973) (6,175) Net cash used in investing activities (4,973) (6,175) Net increase (decrease) in cash and temporary cash investments 1,749 (542) Cash and temporary cash investments at beginning of period 3,244 546 -------- -------- Cash and temporary cash investments at end of period $ 4,993 $ 4 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999 Operating Revenues Electric Operating Revenues Electric operating revenues increased $2 million (5%) for the quarter ended March 31, 1999, as compared to the same period last year. This increase primarily reflects a return to more normal weather conditions, as compared to the same period in 1998, and higher retail kwh sales resulting from growth in the average number of residential and commercial customers. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Quarter Ended March 31 Revenue Mcf Sales 1999 1998 1999 1998 ($ and mcf in thousands) Retail $31,555 $27,266 5,219 4,491 Transportation 1,445 1,214 1,078 1,106 ------- ------- ----- ----- Total $33,000 $28,480 6,297 5,597 Gas operating revenues increased $5 million (16%) in the first quarter of 1999, when compared to the same period last year, primarily due to a increase in mcf volumes sold, a return to more normal weather conditions, and an increase in the number of customers. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased increased $3 million (8%) for the quarter ended March 31, 1999, as compared to the same period last year. This increase reflects higher volumes purchased from CG&E. Gas Purchased Gas purchased for the quarter ended March 31, 1999, increased $1 million (6%), when compared to the same period last year, primarily due to an increase in the volumes of gas purchased, due to higher demand and an increase in the number of customers. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended March 31 1999 1998 (in thousands) Other operation $ 8,948 $8,135 Maintenance 1,242 1,295 ------- ------- Total $10,190 $9,430 Other operation expenses increased $.8 million (10%) for the quarter ended March 31, 1999, as compared to the same period last year, primarily due to an increase in administrative and general activities. Depreciation Depreciation increased $.3 million (10%) for the quarter ended March 31, 1999, as compared to the same period last year, due to additions to depreciable plant. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $.1 million for the quarter ended March 31, 1999, as compared to the same period of 1998, is primarily attributable to an increase in miscellaneous non-utility revenues. Interest The increase in interest expense of $.4 million (40%) for the quarter ended March 31, 1999, as compared to the same period last year, was primarily due to the net issuance of approximately $30 million of long-term debt during the period of April 1998 through December 1998. NOTES TO FINANCIAL STATEMENTS Cinergy, CG&E, PSI, and ULH&P 1. These Financial Statements reflect all adjustments (which include normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1998 Form 10-K of the registrants. Certain amounts in the 1998 Financial Statements have been reclassified to conform to the 1999 presentation. Cinergy 2. On April 16, 1999, Cinergy issued and sold $200 million principal amount of its 6.125% Debentures due 2004. Proceeds from the sale were used to repay a portion of short-term indebtedness and for general corporate purposes. Cinergy and PSI 3. On April 30, 1999, PSI issued: $124.7 million principal amount of its First Mortgage Bonds, Series BBB, 8%, due July 15, 2009, in exchange for $125.7 million principal amount of certain outstanding Secured Medium-term Notes, Series A; $60.1 million principal amount of its First Mortgage Bonds, Series CCC, 8.85%, due January 15, 2022, in exchange for $60.5 million principal amount of certain outstanding Secured Medium-term Notes, Series A; and $38 million principal amount of its First Mortgage Bonds, Series DDD, 8.31%, due September 1, 2032, in exchange for $38 million principal amount of certain outstanding Secured Medium-term Notes, Series B. Also on April 30, 1999, PSI issued $97 million principal amount of its 6.52% Senior Notes due 2009 in exchange for a like principal amount of outstanding 7.25% Junior Maturing Principal Securities due 2028 ("JUMPS(sm)"). The Secured Medium-term Notes and JUMPS(sm) received by PSI in the exchange transactions described above have been cancelled. Cinergy, CG&E, and PSI 4. Cinergy'senergy marketing and trading operations, conducted primarily through its ECBU, markets and trades electricity, natural gas, and other energy-related products. The power marketing and trading operation has both physical and trading activities. Generation not required to meet native load requirements is available to be sold to third parties, either under long-term contracts, such as full requirements transactions or firm forward sales contracts, or in short-term and spot market transactions. When transactions are entered into, each transaction is designated as either a physical or trading transaction. In order for a transaction to be designated as physical, there must be intent and ability to physically deliver the power from company-owned generation. Physical transactions are accounted for on a settlement basis. All other transactions are considered trading transactions and are accounted for using the mark-to-market method of accounting. Under the mark-to-market method of accounting, these trading transactions are reflected at fair value as "Energy risk management assets" and "Energy risk management liabilities." Changes in fair value, resulting in unrealized gains and losses, are reflected in "Fuel and purchased and exchanged power." Revenues and costs for all transactions are recorded gross in the Consolidated Statements of Income as contracts are settled. Revenues are recognized in "Operating Revenues - Electric" and costs are recorded in "Fuel and purchased and exchanged power." Although physical transactions are entered with the intent and ability to settle the contract with company-owned generation, it is likely, that from time to time, due to numerous factors such as generating station outages, native load requirements, and weather, power used to settle the physical transactions will be required to be purchased on the open market. Depending on the factors giving rise to these open market purchases, the cost of such purchases could be in excess of the associated revenues. Losses such as this will be recognized as the power is delivered. In addition, physical contracts are subject to permanent impairment tests. At March 31, 1999, management has concluded that no physical contracts are impaired. Prior to December 31, 1998, the transactions now included in the trading portfolio were accounted for and valued at the aggregate lower of cost or market. Under this method, only the net value of the entire portfolio was recorded as a liability in the Consolidated Balance Sheets. Contracts in the trading portfolio are valued at end-of-period market prices, utilizing factors such as closing exchange prices, broker and over-the-counter quotations, and model pricing. Model pricing considers time value and volatility factors underlying any options and contractual commitments. Management expects that some of these obligations, even though considered as trading contracts, will ultimately be settled from time to time by using company-owned generation. The cost of this generation is typically below the market prices at which the trading portfolio has been valued. Because of the volatility currently experienced in the power markets, and the factors discussed above pertaining to both the physical and trading activities, volatility in future earnings (losses) from period to period in the ECBU is likely. Cinergy's ECBU also physically markets natural gas and trades natural gas and other energy-related products. All of these operations are accounted for on the mark-to-market method of accounting. Revenues and costs from physical marketing are recorded gross in the Consolidated Statements of Income as contracts are settled due to the exchanging of title to the natural gas throughout the earnings process. All non-physical transactions are recorded net in the Consolidated Statements of Income. Energy risk management assets and liabilities and gross margins from these trading activities currently are not significant. Cinergy, CG&E, and PSI 5. Cinergy and its subsidiaries use derivative financial instruments to hedge exposures to foreign currency exchange rates, lower funding costs, and manage exposures to fluctuations in interest rates. Instruments used as hedges must be designated as a hedge at the inception of the contract and must be effective at reducing the risk associated with the exposure being hedged. Accordingly, changes in market values of designated hedge instruments must be highly correlated with changes in market values of the underlying hedged items at inception of the hedge and over the life of the hedge contract. Cinergy and its subsidiaries utilize foreign exchange forward contracts and currency swaps to hedge certain of its net investments in foreign operations. Accordingly, any translation gains or losses related to the foreign exchange forward contracts or the principal exchange on the currency swap are recorded in "Accumulated other comprehensive loss," which is a separate component of common stock equity. Aggregate translation losses related to these instruments are reflected in "Current Liabilities" in the Consolidated Balance Sheets. Interest rate swaps are accounted for under the accrual method. Accordingly, gains and losses based on any interest differential between fixed-rate and floating-rate interest amounts, calculated on agreed upon notional principal amounts, are recognized in the Consolidated Statements of Income as a component of interest expense as realized over the life of the agreement. Cinergy, CG&E, PSI, and ULH&P 6. As discussed in the 1998 Form 10-K, prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of coal and/or oil. The gas produced from this process was sold for residential, commercial, and industrial uses. Cinergy and PSI Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 MGP sites which PSI or its predecessors previously owned. PSI acquired four of the sites from NIPSCO in 1931 and at the same time it sold NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold 19 of these sites (including the four it acquired from NIPSCO) to Indiana Gas and Water Company, Inc. (now IGC). One of the 19 sites, located in Rochester, Indiana, was later sold by IGC to NIPSCO. IGC and NIPSCO both made claims against PSI, contending that PSI is a Potentially Responsible Party under the CERCLA with respect to the 21 MGP sites, and therefore legally responsible for the costs of investigating and remediating these sites. Moreover, in August 1997, NIPSCO filed suit against PSI in federal court, claiming, pursuant to CERCLA, recovery from PSI of NIPSCO's past and future costs of investigating and remediating MGP related contamination at the Goshen MGP site. In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation and Cost Sharing Agreement by which they settled allocation of CERCLA liability for past and future costs, among the three companies, at seven MGP sites in Indiana. Pursuant to this agreement, NIPSCO's lawsuit against PSI was dismissed. The parties have assigned one of the parties lead responsibility for managing further investigation and remediation activities at each of the sites. Similar agreements were reached between IGC and PSI which allocate CERCLA liability at 14 MGP sites with which NIPSCO had no involvement. These agreements conclude all CERCLA and similar claims between the three companies relative to MGP sites. Pursuant to the agreements and applicable laws, the parties are continuing to investigate and remediate the sites as appropriate. Investigation and cleanup of some of the sites is subject to oversight by the IDEM. PSI has placed its insurance carriers on notice of IGC's, NIPSCO's, and the IDEM's claims related to MGP sites. In April 1998, PSI filed suit in Hendricks County Circuit Court against its general liability insurance carriers seeking, among other matters, a declaratory judgment that its insurance carriers are obligated to defend MGP claims against PSI or pay PSI's costs of defense and to indemnify PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims associated with MGP sites. PSI cannot predict the outcome of this litigation. Based upon the work performed to date, PSI has accrued costs for the sites related to investigation, remediation, and groundwater monitoring. Estimated costs of certain remedial activities are accrued when such costs are reasonably estimable. PSI does not believe it can provide an estimate of the reasonably possible total remediation costs for any site prior to completion of a remedial investigation/feasibility study and the development of some sense of the timing for the implementation of the potential remedial alternatives, to the extent such remediation may be required. Accordingly, the total costs that may be incurred in connection with the remediation of all sites, to the extent remediation is necessary, cannot be determined at this time. These future costs at the 21 Indiana MGP sites, based on information currently available, are not material to Cinergy's financial condition or results of operations. However, as further investigation and remediation activities are undertaken at these sites, the potential liability for the 21 MGP sites could be material to Cinergy's and PSI's financial condition or results of operations. Cinergy, CG&E, and ULH&P CG&E and its utility subsidiaries are aware of potential sites where MGP activities have occurred at some time in the past. None of these sites is known to present a risk to the environment. CG&E and its utility subsidiaries have undertaken preliminary site assessments to obtain more information about some of these MGP sites. Cinergy, CG&E, PSI, and ULH&P 7. During the second quarter of 1998, the FASB issued Statement 133. The new standard requires companies to record derivative instruments, as defined in Statement 133, as assets or liabilities, measured at fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. The standard is effective for fiscal years beginning after June 15, 1999, and Cinergy expects to adopt the provisions of Statement 133 in the first quarter of 2000. The Company has not yet quantified the impacts of adopting Statement 133 on its consolidated financial statements. However, Statement 133 could increase volatility in earnings and other comprehensive income.
Cinergy Presented below is a reconciliation of earnings per common share (basic EPS) and earnings per common share assuming dilution (diluted EPS). Income Shares Earnings (Numerator) (Denominator) Per Share (In thousands, except per share amounts) Quarter ended March 31, 1999 Earnings per common share: Net income $127,245 158,746 $ .80 Effect of dilutive securities: Common stock options 412 Contingently issuable common stock 13 EPS--assuming dilution: Net income plus assumed conversions $127,245 159,171 $ .80 Quarter ended March 31, 1998 Earnings per common share: Net income $106,071 157,764 $ .67 Effect of dilutive securities: Common stock options 787 Contingently issuable common stock 123 EPS--assuming dilution: Net income plus assumed conversions $106,071 158,674 $ .67
Options to purchase shares of common stock that were excluded from the calculation of EPS--assuming dilution because the exercise prices of these options were greater than the average market price of the common shares during the period are summarized below: Quarter Average Ended Exercise March 31 Shares Price 1999 1,744,800 $35.70 1998 914,800 37.61 Cinergy 9. Midlands (of which the Company owns 50%) has a 40% ownership interest in a 586 MW power project in Pakistan ("Uch project" or "Uch") which as originally scheduled to begin commercial operation in late 1998. In July 1998, the Pakistani government-owned utility issued a notice of intent to terminate certain key project agreements relative to the Uch project. The notice asserted that various forms of corruption were involved in the original granting of the agreements to the Uch investors by a predecessor government. The Company believes that this notice is similar to notices received by a number of other independent power projects in Pakistan. The Uch investors, including a subsidiary of Midlands, strongly deny the allegations and have pursued all available legal options to enforce their contractual rights under the project agreements. Physical construction of the project is complete; however, commercial operations have been delayed pending resolution of the dispute. In December 1998, the Pakistani government offered to withdraw its notice. Through its 50% ownership of Midlands, the Company's current investment in the Uch project is approximately $36 million. In addition, project lenders could require investors to make additional capital contributions to the project under certain conditions. The Company's share of these additional contributions is approximately $8 million. At the present time, the Company cannot predict the ultimate outcome of this matter. Cinergy and PSI 10. As discussed in the 1998 Form 10-K, PSI and Dynegy (formerly Destec) entered into a 25-year contractual agreement for the provision of coal gasification services in November 1995. The agreement requires PSI to pay Dynegy a base monthly fee including certain monthly operating expenses. PSI received authorization in the September 1996 Order for the inclusion of these costs in retail rates. In addition, PSI received authorization to defer, for subsequent recovery in retail rates, the base monthly fees and expenses incurred prior to the effective date of the September 1996 Order. Over the next five years, the base monthly fees and expenses for the coal gasification service agreement are expected to total $201 million. During the third quarter of 1998, PSI reached an agreement with Dynegy to purchase the remainder of its 25-year contract for coal gasification services for $265.7 million. The proposed purchase, which is contingent upon regulatory approval satisfactory to PSI, could be completed in 1999. PSI is investigating financing alternatives. The transaction, if approved as proposed, is not expected to have a material impact on PSI's earnings. Currently, natural gas prices have fallen to a level which causes the synthetic gas supply taken under the current gasification services agreement to be substantially above market. If the buyout of the gasification services agreement is approved, the combustion turbine will be fired with natural gas, or with synthetic gas if it can be produced at a cost competitive with natural gas. 11. As discussed in the 1998 Form 10-K, the collective-bargaining agreement with the International Brotherhood of Electrical Workers Local No. 1393, covering approximately 1,470 employees, expired on May 1, 1999. A new labor agreement was ratified April 22, 1999, and is effective from May 1, 1999, through April 30, 2002. Cinergy, CG&E, PSI, and ULH&P 12. As discussed in the 1998 Form 10-K, during 1998, Cinergy and its subsidiaries adopted the provisions of Statement 131. During the first quarter of 1999, Cinergy reorganized its reportable segments. The business unit structure effective with that reorganization is described below. The ECBU operates and maintains, exclusive of certain jointly-owned plant, all of the Company's domestic electric generation facilities. In addition to the production of electric power, all energy risk management, marketing, and proprietary arbitrage trading, with the exception of electric and gas retail sales, is conducted through the ECBU. Revenues from external customers are derived from the ECBU's marketing, trading, and risk management activities. Intersegment revenues are derived from the sale of electric power to the EDBU. The EDBU plans, constructs, operates, and maintains the Company's transmission and distribution systems and provides gas and electric energy to end users. Revenues from customers other than end users are primarily derived from the transmission of electric power through the Company's transmission system. The CIBU manages the development, sales, and marketing of domestic, non-regulated wholesale energy and energy-related products and services. Most of the CIBU's revenues are derived from the sales of such products and services to external, end-use customers. In addition, some of the CIBU's activities are conducted through joint-venture affiliates, including the construction and sale or lease of cogeneration and trigeneration facilities to large commercial/industrial customers and energy management services to third parties. The IBU directs and manages all of the Company's international business holdings, which include wholly-owned subsidiaries and equity investments. Revenues and equity earnings from unconsolidated companies are primarily derived from energy-related businesses. Transfer pricing for sales of electric energy and sales of electric and gas transmission and distribution services between the ECBU and EDBU are derived from the operating utilities' retail and wholesale rate structures.
Financial results by business unit for the quarters ended March 31, 1999, and 1998, and Total Segments Assets at March 31, 1999, and December 31, 1998, are as follows: 1999 All Reconciling Cinergy Business Units Other Eliminations ECBU EDBU CIBU IBU Total (1) (2) Consolidated ------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues - External Customers $ 503,638 $ 868,367 $17,400 $ 12,874 $1,402,279 $ - $ - $1,402,279 Intersegment Revenues 456,536 - - - 456,536 - (456,536) - Segment Profit (Loss) Before Taxes 83,317 102,754 (2,729) 24,136 207,478 (1,305) - 206,173 Total Segment Assets at March 31, 1999 $5,081,083 $3,897,368 $46,876 $789,840 $9,815,167 $30,981 $ - $9,846,148 1998 All Reconciling Cinergy Business Units Other Eliminations ECBU EDBU CIBU IBU Total (1) (2) Consolidated ------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues - External Customers $ 502,098 $ 832,452 $13,765 $ 146 $ 1,348,461 $ - $ - $ 1,348,461 Intersegment Revenues 434,931 - - - 434,931 - (434,931) - Segment Profit (Loss) Before Taxes 91,153 90,572 (3,268) (961) 177,496 (11,554) - 165,942 Total Segment Assets at December 31, 1998 $5,474,428 $3,987,055 $42,107 $751,861 $10,255,451 $ 43,344 $ - $10,298,795 1. The all other category represents miscellaneous corporate items, which are not allocated to business units for the purposes of segment profit measurement. 2. The reconciling eliminations category eliminates the intersegment revenues of the ECBU and the EDBU.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in this "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in "Part I. Financial Information" reflect and elucidate Cinergy's corporate vision of the future and, as a part of that, outline goals and aspirations, as well as specific projections. These goals and projections are considered forward-looking statements and are based on management's beliefs, as well as certain assumptions made by management. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. In addition to any assumptions and other factors that are referred to specifically in connection with these statements, other factors that could cause actual results to differ materially from those indicated in any forward-looking statements include, among others: factors generally affecting operations, such as unusual weather conditions, unscheduled generation outages; unusual maintenance or repairs, unanticipated changes in fuel costs, environmental incidents, or system constraints; legislative and regulatory initiatives regarding deregulation and restructuring of the industry; increased competition in the electric and gas utility environment; challenges related to Year 2000 readiness; regulatory factors; changes in accounting principles or policies; adverse political, legal, or economic conditions; changing market conditions; success of efforts to invest in and develop new opportunities in non-traditional business; availability or cost of capital; employee workforce factors; legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures; costs and effects of legal and administrative proceedings; changes in legislative requirements; and other risks. The SEC's rules do not require forward-looking statements to be revised or updated, and Cinergy does not intend to do so. FINANCIAL CONDITION Recent Developments Cinergy Acquisitions During the first quarter of 1999, Cinergy, through its international subsidiaries, invested an additional $41 million in international unconsolidated subsidiaries. Competitive Pressures Cinergy, CG&E, PSI, and ULH&P Ohio As discussed in the 1998 Form 10-K, electric restructuring legislation was reintroduced in 1999 in both houses of the Ohio General Assembly. These companion bills propose to give choice to all retail electric customers by January 1, 2001. As written, the legislation has not gained consensus among the stakeholders. The Ohio Senate Ways and Means Committee has scheduled a vote on a deregulation bill during the second quarter of 1999 with a full senate vote scheduled if a bill is reported from committee. It is uncertain whether these efforts will produce legislation in Ohio in 1999. Indiana As discussed in the 1998 Form 10-K, legislation by a large group of industrial customers was introduced into the Indiana legislature in January 1999. This legislation did not pass in the 1999 session of the Indiana General Assembly, which came to a close on April 29, 1999. Regulatory Matters Cinergy and PSI Coal Contract Buyout Costs See Note 10 of the "Notes to Financial Statements" in "Part I. Financial Information." Environmental Issues Cinergy, CG&E, and PSI Ozone Transport Rulemaking As discussed in the 1998 Form 10-K, in October 1998, the EPA finalized its Ozone Transport Rule (or NOx SIP Call). It applies to 22 states in the eastern half of the US, including the three states in which the Cinergy electric utilities operate, and also proposes a model NOx trading program. This rule recommends that states reduce NOx emissions from primarily industrial and utility sources to a certain limit by May 2003. The EPA gave the affected states until September 30, 1999, to incorporate utility NOx reductions with a trading program into their SIPs. Ohio, Indiana, a number of other states, and various industry groups, including some of which Cinergy is a member, filed legal challenges to the NOx SIP Call in late 1998. Ohio and Indiana have also provided preliminary indications that they will seek fewer NOx reductions from the utility sector in their implementing regulations than the EPA has budgeted in its rulemaking. On April 30, 1999, the EPA made an affirmative technical determination on the February 1998 northeast state CAAA Section 126 petitions seeking to reduce ozone in the eastern US. By affirming these Section 126 petitions the EPA makes a finding that the named Midwest stationary sources (including all of Cinergy's facilities) are significantly contributing to ozone problems in the northeast for both the one- and eight-hour ozone standard. The EPA has stated that the Section 126 petitions and the NOx SIP call requirements should be coordinated. Therefore, the EPA will defer fully granting the relief sought by petitioners until the affected states file their proposed SIPs in September 1999. Ambient Air Standards and Regional Haze As discussed in the 1998 Form 10-K, in 1997, the EPA revised the National Ambient Air Quality Standards for ozone and fine particulate matter and was scheduled to finalize new regional haze rules by the summer of 1999. It is currently anticipated that the new ozone standard will not require additional utility NOx reductions beyond those resulting from the NOx SIP Call discussed above. The EPA finalized the new regional haze rules on April 22, 1999. These rules established planning and emission reduction timelines for states to use to improve visibility in national parks throughout the US. The ultimate effect of the new regional haze rules could be requirements for newer and cleaner technologies and additional controls on conventional particulates and/or reductions in SO2 and NOx emissions from utility sources. If more utility emissions reductions are required, the compliance cost could be significant. The outcome or effects of the states' determination cannot currently be predicted. Air Toxics As discussed in the 1998 Form 10-K, in November 1998, the EPA finalized its Mercury ICR. Pursuant to the ICR, all generating units must provide detailed information about coal use and mercury content. The EPA has since selected about 100 generating units for one-time stack sampling, including Cinergy's Gibson Unit No. 3 and the Wabash River Repowering Project. The EPA is planning to make its regulatory determination on the need for additional regulation by the fourth quarter of 2000. If more air toxics regulations are issued, the compliance cost could be significant. The outcome or effects of the EPA's determination cannot currently be predicted. MGP Sites See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information." Accounting Issues Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 7 of the "Notes to Financial Statements" in "Part I. Financial Information." Market Risk Sensitive Instruments and Positions Cinergy, CG&E, and PSI Energy Commodities Sensitivity The Company markets and trades electricity, natural gas, and other energy-related products. The Company utilizes over-the-counter forward and option contracts for the purchase and sale of electricity and also trades exchange-traded futures contracts. See Notes 4 and 5 of the "Notes to Financial Statements" in "Part I. Financial Information" for the Company's accounting policies for certain derivative instruments. The Company's market risks have not changed materially from the market risks reported in the 1998 Form 10-K. Cinergy Exchange Rate Sensitivity The Company utilizes foreign exchange forward contracts and currency swaps to hedge certain of its net investments in foreign operations. See Notes 4 and 5 of the "Notes to Financial Statements" in "Part I. Financial Information" for the Company's accounting policies for certain derivative instruments. The Company's market risks have not changed materially from the market risks reported in the 1998 Form 10-K. Cinergy, CG&E, PSI, and ULH&P Interest Rate Sensitivity The Company's net exposure to changes in interest rates primarily consists of debt instruments with floating interest rates that are benchmarked to various market indices. To manage the Company's exposure to fluctuations in interest rates and to lower funding costs, the Company constantly evaluates the use of, and has entered into, interest rate swaps. See Notes 4 and 5 of the "Notes to Financial Statements" in "Part I. Financial Information" for the Company's accounting policies for certain derivative instruments. The Company's market risks have not changed materially from the market risks reported in the 1998 Form 10-K. CAPITAL RESOURCES AND REQUIREMENTS Cinergy, CG&E, PSI, and ULH&P Long-term Debt For information regarding recent issuances and redemptions of long-term debt securities, see Notes 2 and 3 of the "Notes to Financial Statements" in "Part I. Financial Information." As of April 30, 1999, CG&E and PSI have remaining state regulatory authority for long-term debt issuance of $200 million and $30 million, respectively. Cinergy, CG&E, PSI, and ULH&P Short-term Debt Obligations representing notes payable and other short-term obligations (excluding notes payable to affiliated companies) at March 31, 1999, were as follows: Cinergy Established Lines Outstanding (in millions) Cinergy Committed lines Acquisition line $ 160 $ 160 Revolving line 600 - Commercial paper - 336 Uncommitted line 45 83* Utility subsidiaries Committed lines 215 - Uncommitted lines 410 180 Pollution control notes 267 267 Non-utility subsidiary 130 27 ------ ------ Total $1,827 $1,053 * Excess over Established Line represents amount sold by dealers to other investors. CG&E Established Lines Outstanding (in millions) Committed lines $ 85 $ - Uncommitted lines 215 105 Pollution control notes 184 184 ---- ---- Total $484 $289 PSI Established Lines Outstanding (in millions) Committed lines $130 $ - Uncommitted lines 195 75 Pollution control notes 83 83 ---- ---- Total $408 $158 Cinergy, CG&E, and PSI Cinergy's committed lines are comprised of an acquisition line and a revolving line. The established revolving line also provides credit support for Cinergy's commercial paper program, which is limited to a maximum principal amount of $400 million. The proceeds from the commercial paper sales were used for general corporate purposes. The established committed lines for CG&E and PSI each include $75 million designated as backup for certain of the uncommitted lines at March 31, 1999. CG&E and PSI also have the capacity to issue commercial paper that must be supported by committed lines of the respective company. Neither CG&E nor PSI issued commercial paper during the first quarter of 1999. Both CG&E and PSI have issued variable rate pollution control notes. Holders of these pollution control notes have the right to put their notes on any business day. Accordingly, these issuances are reflected in the Consolidated Balance Sheets as "Notes payable and other short-term obligations." Cinergy Global Resources established a $100 million revolving credit agreement in 1998, which was due to expire in March 1999 and has been extended to June 29, 1999. Cinergy, CG&E, PSI, and ULH&P Year 2000 The Year 2000 issue generally exists because many computer systems and applications, including those embedded in equipment and facilities, use two-digit rather than four-digit date fields to designate an applicable year. As a result, the systems and applications may not properly recognize dates including and beyond the year 2000 or accurately process data in which such dates are included, potentially causing data miscalculations and inaccuracies or operational malfunctions and failures, which could materially affect a business's financial condition, results of operations, and cash flows. Cinergy has established a centrally-managed, company-wide initiative, known as the Cinergy Year 2000 Readiness Program, to identify, evaluate, and address Year 2000 issues. The Cinergy Year 2000 Readiness Program, which began in the fourth quarter of 1996, is generally focused on three elements that are integral to this initiative: (1) business continuity, (2) risk management, and (3) regulatory compliance. Business continuity includes providing reliable electric and gas supply and service in a safe and cost-effective manner. This element encompasses mission-critical generation, transmission, and distribution systems and related infrastructure, as well as operational and financial IT systems and applications, end-user computing resources, and building systems (such as security, elevator, and heating and cooling systems). Risk management includes a review of the Year 2000 readiness efforts of Cinergy's critical suppliers, key customers and other principal business partners, and, as appropriate, the development of joint business support, contingency plans, and the inclusion of Year 2000 concerns as a regular part of the due diligence process in any new business venture. Regulatory compliance includes communications with regulatory agencies, other utilities, and various industry groups. While this initiative is broad in scope, it has been structured to identify and prioritize efforts for mission-critical electric and gas systems and services and key business partners. Under the Cinergy Year 2000 Readiness Program, Cinergy has established a target date of June 30, 1999, for the remediation and testing of its mission-critical generation, transmission, and distribution systems (gas and electric). An innovative remediation and testing effort which Cinergy has initiated involves operating several electric-generating units with post Year 2000 dates. Cinergy's experience has been that those units have continued to operate without any material adverse result relating to a Year 2000 issue. Cinergy's progress to date ranges from approximately 95% regarding IT systems to approximately 87% regarding assessment of critical suppliers. Cinergy has also reviewed its existing contingency and business continuity plans and modified them in light of the Year 2000 issue. Contingency planning to maintain and restore service in the event of natural and other disasters (including software- and hardware-related problems) has been part of Cinergy's standard operation for many years, and Cinergy is working to leverage this experience in the review of existing plans to address Year 2000-related challenges. These reviews have assessed the potential for business disruption in various scenarios, including the most reasonably likely worst-case scenario, and to provide for key operational back up, recovery, and restoration alternatives. Cinergy cannot guarantee that third parties on whom it depends for essential goods and services (those where the interruption of the supply of such goods and services could lead to issues involving the safety of employees, customers, or the public; the continued reliable delivery of gas and/or electricity; and the ability to comply with applicable laws or regulations) will convert their mission-critical systems and processes in a timely manner. Failure or delay by any of these third parties could significantly disrupt business. However, to address this issue, Cinergy has established a supplier compliance program, and is working with its critical suppliers in an effort to minimize such risks. In addition, Cinergy is coordinating its findings and other issues with other utilities and various industry groups via the Electric Power Research Institute Year 2000 Embedded Systems Project and the Year 2000 Readiness Assessment Program of the NERC, acting at the request of the DOE. The DOE has asked NERC to report on the integrity of the transmission system for North America and to coordinate and assess the preparation of the electric systems in North America for the Year 2000. NERC submitted its initial quarterly status report and coordination plan to the DOE in September 1998, and a second quarterly status report for the fourth quarter of 1998 was submitted on January 11, 1999. A third quarterly status report for the first quarter of 1999 was submitted on April 30, 1999. Cinergy currently estimates that the total cost for the inventory, assessment, remediation, testing, and upgrading of its systems as a result of the Year 2000 effort is approximately $13 million. Approximately $12 million in expenses have been incurred through March 31, 1999, for such things as external labor, for hardware and software upgrades, and for Cinergy employees who are dedicated full-time to the Cinergy Year 2000 Readiness Program. The timing of these expenses may vary and is not necessarily indicative of readiness efforts or progress to date. Cinergy anticipates that a portion of its Year 2000 expenses will not be incremental costs, but rather, will represent the redeployment of existing IT resources. Since its formation, Cinergy has incurred, and will continue to incur, significant capital improvement costs related to planned system upgrades or replacements required in the normal course of business. These costs have not been accelerated as a result of the Year 2000 issue. The above information is based on Cinergy's current best estimates, which were derived using numerous assumptions of future events, including the availability and future costs of certain technological and other resources, third-party modification actions, and other factors. Given the complexity of these issues and possible unidentified risks, actual results may vary materially from those anticipated and discussed above. Specific factors that might cause such differences include, among others, the ability to locate and correct all affected computer code, the timing and success of remedial efforts of third-party suppliers, and similar uncertainties. The above information is a Year 2000 Readiness Disclosure pursuant to the Federal Year 2000 Information and Readiness Disclosure Act. Cinergy Other Commitments At March 31, 1999, Cinergy had issued $297 million in guarantees primarily related to the energy marketing and trading activities of its subsidiaries and affiliates. In addition, Cinergy had guaranteed $258 million of the debt securities of its subsidiaries and affiliates. RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "Item 1. Financial Statements" in "Part I. Financial Information." ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Cinergy, CG&E, PSI, and ULH&P Reference is made to the "Market Risk Sensitive Instruments and Positions" section in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in "Part I. Financial Information" and Notes 4 and 5 of the "Notes to Financial Statements" in "Part I. Financial Information." PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Cinergy, CG&E, and PSI Manufactured Gas Plant Sites See Note 6 of the "Notes to Financial Statements" in Part I. Financial Information. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Cinergy The annual meeting of shareholders of Cinergy was held April 21, 1999, in Cincinnati, Ohio. At the meeting, six Class II directors were elected to the board of Cinergy to serve three-year terms, expiring in 2002, as set forth below: Votes Votes Class II For Withheld Melvin Perelman, Ph.D. 128,436,454 2,555,756 Thomas E. Petry 128,566,730 2,425,480 Jackson H. Randolph 128,212,529 2,779,681 Mary L. Schapiro 128,329,336 2,662,874 Philip R. Sharp, Ph.D. 128,557,852 2,434,358 Dudley S. Taft 128,586,398 2,405,812 Also at the meeting, the following matters were submitted to a vote of security holders: Votes Votes Votes Item For Against Abstain Approval of Amended and Restated Cinergy Corp. Retirement Plan for Directors 107,613,574 21,666,413 1,712,217 Approval of Cinergy Corp. Directors' Equity Compensation Plan 112,705,936 16,438,145 1,848,122 Adoption of Amendment to Article III, Section 3.1, of the Company's By-laws 127,811,378 4,740,599 1,979,187 CG&E (a) In lieu of the annual meeting of shareholders of CG&E, a resolution was duly adopted via unanimous written consent of CG&E's sole shareholder, effective April 20, 1999. (b) The following members of the Board of Directors were elected via unanimous written consent of the sole shareholder of CG&E, in lieu of its annual meeting, for one-year terms expiring in 2000: Jackson H. Randolph James E. Rogers James L. Turner PSI (a) The annual meeting of shareholders of PSI was held April 21, 1999, in Cincinnati, Ohio. (b) Proxies were not solicited for the annual meeting, at which the Board of Directors was re-elected in its entirety (see (c) below). (c) The following members of the Board of Directors were unanimously re-elected at the annual meeting for one-year terms expiring in 2000: James K. Baker Michael G. Browning John A. Hillenbrand II John M. Mutz Jackson H. Randolph James E. Rogers ULH&P Omitted pursuant to Instruction H(2)(b). ITEM 5. OTHER INFORMATION Cinergy and PSI On April 20, 1999, the Company announced that John M. Mutz will retire May 31, 1999, as president of PSI. Mr. Mutz has served as president of PSI since October 1993. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits identified with a pound sign (#) are being filed herewith by the registrant identified in the exhibit discussion below and are incorporated herein by reference with respect to any other designated registrant. Exhibits not so identified are filed herewith: Exhibit Designation Nature of Exhibit Cinergy 3-a By-laws of Cinergy, as amended on April 21, 1999. 4-a Indenture between Cinergy and Fifth Third Bank, as Trustee, dated as of April 15, 1999. Cinergy and PSI 4-b #Fifty-second Supplemental Indenture between PSI and LaSalle National Bank, as Trustee, dated as of April 30, 1999. (Exhibit to PSI's March 31, 1999, Form 10-Q in File No. 1-3543.) 4-c #Sixth Supplemental Indenture between PSI and Fifth Third Bank, as Trustee, dated as of April 30, 1999. (Exhibit to PSI's March 31, 1999, Form 10-Q in File No. 1-3543.) Cinergy, CG&E, and PSI 10-a #First Amended and Restated Employment Agreement dated March 1, 1999, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Cheryl M. Foley. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) Exhibit Designation Nature of Exhibit 10-b #First Amended and Restated Employment Agreement dated March 1, 1999, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and William J. Grealis. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-c #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and M. Stephen Harkness. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-d #First Amended and Restated Employment Agreement dated March 1, 1999, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Donald B. Ingle, Jr. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-e #First Amended and Restated Employment Agreement dated March 1, 1999, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Madeleine W. Ludlow. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-f #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and William L. Sheafer. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-g #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and John P. Steffen. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-h #Employment Agreement dated February 16, 1999, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and James L. Turner. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-i #First Amended and Restated Employment Agreement dated March 1, 1999, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Charles J. Winger. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) 10-j #First Amended and Restated Employment Agreement dated March 1, 1999, between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Larry E. Thomas. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.) Cinergy, CG&E, PSI, and ULH&P 27 Financial Data Schedules (included in electronic submission only) The following reports on Form 8-K were filed during the quarter ended March 31, 1999. Date of Report Item Filed Cinergy December 31, 1998 Item 5. Other Events Item 7. Financial Statements and Exhibits SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY PSI ENERGY, INC. THE UNION LIGHT, HEAT AND POWER COMPANY Registrants Date: May 13, 1999 /s/Bernard F. Roberts --------------------------------------- Bernard F. Roberts Duly Authorized Officer and Chief Accounting Officer EX-3.(II) 2 BY-LAWS OF CINERGY CORP. BY-LAWS OF CINERGY CORP. Adopted: October 24, 1994 Amended: January 25, 1996 Amended: December 18, 1997 Amended: April 22, 1998 Amended: October 15, 1998 Amended: April 21, 1999 #43938 TABLE OF CONTENTS Page ARTICLE I Offices and Headquarters Section 1.1 Offices...................................................... 1 1.2 Headquarters................................................. 1 ARTICLE II Stockholders Section 2.1 Annual Meeting............................................... 2 2.2 Special Meetings............................................. 4 2.3 Notice of Meetings........................................... 4 2.4 Quorum....................................................... 5 2.5 Voting....................................................... 5 2.6 Presiding Officer and Secretary.............................. 6 2.7 Proxies...................................................... 6 2.8 List of Stockholders......................................... 7 ARTICLE III Directors Section 3.1 Number of Directors.......................................... 8 3.2 Election and Term of Directors............................... 8 3.3 Vacancies and Newly Created Directorships..................... 10 3.4 Resignation................................................... 11 3.5 Meetings...................................................... 11 3.6 Quorum and Voting............................................. 12 3.7 Written Consent of Directors in Lieu of a Meeting............. 12 3.8 Compensation.................................................. 12 3.9 Contracts and Transactions Involving Directors................ 12 ARTICLE IV Committees of the Board of Directors Section 4.1 Appointment and Powers........................................ 13 ARTICLE V Officers, Agents and Employees Section 5.1 Appointment and Term of Office................................ 15 5.2 The Chairman of the Board..................................... 16 5.3 Vice-Chairman................................................. 16 5.4 Chief Executive Officer....................................... 16 5.5 The President................................................. 17 5.6 The Vice-Presidents........................................... 17 5.7 The Secretary................................................. 17 5.8 The Treasurer................................................. 18 5.9 The Comptroller............................................... 19 5.10 Compensation and Bond......................................... 20 ARTICLE VI Indemnification Section 6.1 Indemnification of Directors, Officers, Employees and Agents.. 20 6.2 Advances for Litigation Expenses.............................. 22 6.3 Indemnification Nonexclusive.................................. 23 6.4 Indemnity Insurance........................................... 23 6.5 Definitions................................................... 24 ARTICLE VII Common Stock Section 7.1 Certificates.................................................. 25 7.2 Transfers of Stock............................................ 25 7.3 Lost, Stolen or Destroyed Certificates........................ 25 7.4 Stockholder Record Date....................................... 26 7.5 Beneficial Owners............................................. 27 ARTICLE VIII Seal Section 8.1 Seal........................................................... 27 ARTICLE IX Waiver of Notice Section 9.1 Waiver of Notice............................................... 28 ARTICLE X Fiscal Year Section 10.1 Fiscal Year................................................... 28 ARTICLE XI Contracts, Checks, etc. Section 11.1 Contracts, Checks, etc........................................ 29 ARTICLE XII Amendments Section 12.1 Amendments................................................... 29 ARTICLE XIII Dividends Section 13.1 Dividends.................................................... 30 BY-LAWS OF CINERGY CORP. (THE "CORPORATION") ARTICLE I Offices and Headquarters Section 1.1 Offices. The location of the Corporation's principal office shall be in the City of Cincinnati, County of Hamilton, State of Ohio. The Corporation may, in addition to the aforesaid principal office, establish and maintain an office or offices elsewhere in Delaware, Ohio or Indiana or in such other states and places as the Board of Directors may from time to time find necessary or desirable, at which office or offices the books, documents, and papers of the Corporation may be kept. Section 1.2 Headquarters. Subject to the sentence next following, the Corporation's headquarters and executive offices, shall be located in the City of Cincinnati, County of Hamilton, State of Ohio. The location of the Corporation's headquarters and executive offices may be changed from the City of Cincinnati, County of Hamilton, State of Ohio only by the affirmative vote of 80% of the full Board of Directors of the Corporation and not by the vote of any committee of the Board of Directors. As used in these By-Laws, the term "the full Board of Directors" shall mean all directors then in office together with any vacancies, however created. For the avoidance of doubt and as an example only, if the Board of Directors consists of 17 members and two vacancies exist, the affirmative vote of 14 of the 15 members of the Corporation's Board of Directors then in office would be required to authorize a change in location of the Corporation's headquarters and executive offices. The headquarters and executive offices of the Corporation's subsidiary, PSI Energy, Inc., shall be located in the City of Plainfield, Indiana and the headquarters and executive offices of the Corporation's subsidiary, The Cincinnati Gas & Electric Company, shall be located in the City of Cincinnati, Ohio. ARTICLE II Stockholders Section 2.1 Annual Meeting. An annual meeting of stockholders of the Corporation for the election of directors and for the transaction of any other proper business shall be held at such time and date in each year as the Board of Directors may from time to time determine. The annual meeting in each year shall be held at such hour on said day and at such place within or without the State of Delaware as may be fixed by the Board of Directors, or if not so fixed, at the principal business office of the Corporation in the City of Cincinnati, County of Hamilton, State of Ohio. No business may be transacted at an annual meeting of stockholders, other than business that is either: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof); (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof); or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation: (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.1 and on the record date for the determination of stockholders entitled to vote at such annual meeting; and (ii) who complies with the notice procedures set forth in this Section 2.1. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) calendar days nor more than one hundred twenty (120) calendar days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) calendar days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) calendar day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and record address of such stockholder; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. Notwithstanding anything to the contrary in the By-Laws, no business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.1; provided, however, that once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.1 shall be deemed to preclude discussion by any stockholder of any such business. If the presiding officer of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the presiding officer shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. Section 2.2 Special Meetings. A special meeting of the stockholders of the Corporation entitled to vote on any business to be considered at any such meeting may be called by the Chairman of the Board or the President or by a majority of the members of the Board of Directors then in office, acting with or without a meeting, or by the persons who hold 50% of all shares outstanding and entitled to vote thereat upon notice in writing, stating the time, place and purpose of the special meeting. The business transacted at the special meeting shall be confined to the purposes and objects stated in the call. Section 2.3 Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, unless notice is waived in writing by all stockholders entitled to vote at the meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, and except as to any stockholder duly waiving notice, the written notice of any meeting shall be given personally or by mail, not less than 10 days nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If, however, the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.4 Quorum. Except as otherwise provided by law or by the Certificate of Incorporation or by these By-Laws in respect of the vote required for a specified action, at any meeting of stockholders the holders of a majority of the outstanding stock entitled to vote thereat, either present, in person or represented by proxy, shall constitute a quorum for the transaction of any business, but the stockholders present, although less than a quorum, may adjourn the meeting to another time or place and, except as provided in the last paragraph of Section 2.3 of these By-Laws, notice need not be given of the adjourned meeting. Section 2.5 Voting. Whenever directors are to be elected at a meeting, they shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote thereon. Whenever any corporate action, other than the election of directors, is to be taken by vote of stockholders at a meeting, it shall, except as otherwise required by law or by the Certificate of Incorporation or by these By-Laws, be authorized by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote thereon. Except as otherwise provided by law, or by the Certificate of Incorporation, each holder of record of stock of the Corporation entitled to vote on any matter at any meeting of stockholders shall be entitled to one (1) vote for each share of such stock standing in the name of such holder on the stock ledger of the Corporation on the record date for the determination of the stockholders entitled to vote at the meeting. Upon the demand of any stockholder entitled to vote, the vote for directors or the vote on any other matter at a meeting shall be by written ballot, but otherwise the method of voting and the manner in which votes are counted shall be discretionary with the presiding officer at the meeting. Section 2.6 Presiding Officer and Secretary. At every meeting of stockholders, and where the offices of the Chairman of the Board and the Chief Executive Officer are held by different individuals, the Chief Executive Officer, or, in his or her absence, the Chairman of the Board, or, in his or her absence, the appointee of the meeting, shall preside. The Secretary, or, in his or her absence an Assistant Secretary, or if none be present, the appointee of the presiding officer of the meeting, shall act as secretary of the meeting. Section 2.7 Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Every proxy shall be signed by the stockholder or by his duly authorized attorney. A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission if such transmission is submitted with information from which it may be determined that the transmission was authorized by the stockholder. Section 2.8 List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. ARTICLE III Directors Section 3.1 Number of Directors. The Board of Directors shall consist of a number of directors not less than seven (7) and not more than twenty-three (23) as determined by a vote of not less than 75% of the full Board of Directors ("Supermajority Vote"). Any such determination made by the Board of Directors shall continue in effect unless and until changed by the Board of Directors by Supermajority Vote, but no such change shall affect the term of any director then in office. Section 3.2 Election and Term of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Except as may be required by applicable law, no person who is, at the time of nomination, 70 years of age or older shall be eligible for election as a director. Nominations of persons as candidates for election as directors of the Corporation may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors acting by Supermajority Vote (or by a unanimous vote of the remaining directors if a Supermajority Vote is not obtainable because the number of vacancies on the Board of Directors); or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth herein. Any nomination other than those governed by clause (i) of the preceding sentence shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal office of the Corporation in the State of Ohio not less than 50 days prior to the meeting; provided, however, that if less than 60 days' notice or prior public disclosure of the date of the meeting is given to stockholders or made public, to be timely notice by a stockholder must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice to the Secretary shall set forth: (a) as to each person whom the stockholder proposes to nominate for election as director: (i) the name, age, business address, and residence address of such person; (ii) the principal occupation or employment of such person; (iii) the class and number of any shares of capital stock of the Corporation that are beneficially owned by such person; and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for the election of directors pursuant to any then existing rules or regulations promulgated under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving notice: (i) the name and record address of such stockholder; (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by such stockholder, and (iii) the period of time such stockholder has held such shares. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director. No person otherwise eligible for election as a director shall be eligible for election as a director unless nominated as set forth herein. Commencing on October 24, 1994 (the "Classification Date") of the Board of Directors of the Corporation, the terms of office of the Board of Directors shall be divided into three (3) classes, Class I, Class II and Class III, as determined by the Board of Directors. All classes shall be as nearly equal in number as possible. The terms of office of directors classified shall be as follows: (1) that of Class I shall expire at the annual meeting of stockholders that occurs within the first year after the Classification Date, (2) that of Class II shall expire at the annual meeting of stockholders that occurs within the second year after the Classification Date, and (3) that of Class III shall expire at the annual meeting of stockholders that occurs within the third year after the Classification Date. At each annual meeting of stockholders after the Classification Date, the successors to directors whose terms shall expire shall be elected to serve from the time of election and qualification until the third annual meeting following election and until a successor shall have been elected and qualified or until his earlier resignation, removal from office or death. As being under 70 years of age constitutes a continuing qualification for service on the Board of Directors, any director who reaches the age of 70 years while in office shall, except as limited by applicable law, promptly resign from the Corporation's Board of Directors. Section 3.3 Vacancies and Newly Created Directorships. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by election at a meeting of stockholders. Except as otherwise provided by law, and notwithstanding the provision of Section 3.6, the remaining directors, whether or not constituting a majority of the whole authorized number of directors, may, by not less than a Supermajority Vote (or by a unanimous vote of the remaining directors if a Supermajority Vote is not obtainable because of the number of vacancies on the Board of Directors) fill any vacancy in the Board, however arising, for the unexpired term thereof. Any person elected to fill a vacancy in the Board shall hold office until the expiration of the term of office for the class to which he or she is elected and until a successor is elected and qualified or until his or her earlier resignation, removal from office or death. Section 3.4 Resignation. Any director may resign at any time upon written notice to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective. Section 3.5 Meetings. Meetings of the Board of Directors, regular or special, may be held at any place within or without the State of Delaware. Members of the Board of Directors, or of any committee designated by the Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. An annual meeting of the Board of Directors shall be held after each annual election of directors. If such election occurs at an annual meeting of stockholders, the annual meeting of the Board of Directors shall be held at the same place and immediately following such meeting of stockholders, and no notice thereof need be given. The Board of Directors may fix times and places for regular meetings of the Board and no notice of such meetings need be given. A special meeting of the Board of Directors shall be held whenever called by the Chairman of the Board, the President or by the written request of at least two (2) members of the Board of Directors, at such time and place as shall be specified in the notice or waiver thereof. Notice of each special meeting shall be given by the Secretary or by a person calling the meeting to each director in writing, through the mail, not later than the second day before the meeting, or personally served or by telephone, telecopy, telegram, cablegram or radiogram, in each such cases, not later than the day before the meeting, and such notice shall be deemed to be given at the time when the same shall be transmitted. Section 3.6 Quorum and Voting. A majority of the full Board of Directors shall constitute a quorum for the transaction of business, but, if there be less than a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting from time to time, and no further notice thereof need be given other than announcement at the meeting which shall be so adjourned. Except as otherwise provided by law, by the Certificate of Incorporation, or by these By-Laws (including, without limitation, where any Supermajority Vote or any other vote in excess of a majority is required), the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 3.7 Written Consent of Directors in Lieu of a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.8 Compensation. Each director of the Corporation (other than directors who are salaried officers of the Corporation or any of its subsidiaries) shall be entitled to receive as compensation for services such reasonable compensation, which may include pension, disability and death benefits, as may be determined from time to time by the Board of Directors. Reasonable compensation may also be paid to any person other than a director officially called to attend any such meeting. Section 3.9 Contracts and Transactions Involving Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV Committees of the Board of Directors Section 4.1 Appointment and Powers. The Board of Directors may, by resolution adopted by a majority of the Board, designate from time to time (subject to Article V hereof) no less than three (3) and no more than six (6) of their number to constitute an Executive Committee, and may delegate to such committee power to authorize the seal of the Corporation to be affixed to all papers which may require it and to exercise in the intervals between the meetings of the Board of Directors the powers of the Board in the management of the business and affairs of the Corporation to the fullest extent permitted by Section 141(c)(1) of the Delaware General Corporation Law; provided, however, that the Executive Committee shall not have the power or authority to take any action for which a Supermajority Vote or other vote in excess of a majority of the Board of Directors is required. Each member of the Executive Committee shall continue to be a member thereof only during the pleasure of a majority of the full Board of Directors. The Executive Committee may act by a majority of its members at a meeting or by a writing signed by all of its members. All action by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action. Non-employee members of such Executive Committee shall be entitled to receive such fees and compensation as the Board of Directors may determine. The Board of Directors may also appoint a Finance Committee, a Committee on Directors, an Audit Committee, a Public Policy Committee and a Compensation Committee and may also appoint such other standing or temporary committees from time to time as they may see fit, delegating to such committees all or any part of their own powers (subject to the provisions of these By-Laws); provided, however, that any compensation or benefits to be paid to an executive officer who is also a director must be approved by the Board of Directors. The members of such committees shall be entitled to receive such fees as the Board may determine. The Board of Directors shall not amend, modify, vary or waive any of the terms of the Amended and Restated Agreement and Plan of Reorganization by and among The Cincinnati Gas & Electric Company, PSI Resources, Inc., PSI Energy, Inc., the Corporation, Cinergy Corp., an Ohio corporation, and Cinergy Sub, Inc. dated as of December 11, 1992, as amended and restated as of July 2, 1993 and as of September 10, 1993 and as further amended as of June 20, 1994, as of July 26, 1994 and as of September 30, 1994 (the "Merger Agreement") other than by a Supermajority Vote of the Board of Directors. ARTICLE V Officers, Agents and Employees Section 5.1 Appointment and Term of Office. The executive officers of the Corporation, shall consist of a Chairman of the Board, a Vice-Chairman, a Chief Executive Officer, a President, one or more Vice-Presidents, a Secretary, a Treasurer and a Comptroller, all of whom shall be elected by the Board of Directors by a Supermajority Vote, and shall hold office for one (1) year and until their successors are chosen and qualified. Any number of such offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Any vacancy occurring in the office of the Chairman, Chief Executive Officer or President shall be filed by Supermajority Vote of the Board of Directors. The Chairman, Chief Executive Officer or President shall be subject to removal without cause only by Supermajority Vote of the Board of Directors at a special meeting of the Board of Directors called for that purpose. The Board of Directors may appoint, and may delegate power to appoint, such other non-executive officers, agents and employees as it may deem necessary or proper, who shall hold their offices or positions for such terms, have such authority and perform such duties as may from time to time be determined by or pursuant to authorization of the Board of Directors. Section 5.2 The Chairman of the Board. The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and, in the absence or inability to act of the Chief Executive Officer, meetings of stockholders and shall, subject to the Board's direction and control, be the Board's representative and medium of communication, and shall perform such other duties as may from time-to-time be assigned to the Chairman of the Board by Supermajority Vote of the Board of Directors. The Chairman of the Board shall direct the long-term strategic planning process of the Corporation and shall also lend his or her expertise to the President, as may be requested from time-to-time by the President. The Chairman shall be a member of the Executive Committee. Section 5.3 Vice-Chairman. The Vice-Chairman of the Board shall be a director and shall preside at meetings of the Board of Directors in the absence or inability to act of the Chairman of the Board or meetings of stockholders in the absence or inability to act of the Chief Executive Officer and the Chairman of the Board. The Vice-Chairman shall perform such other duties as may from time-to-time be assigned to him or her by Supermajority Vote of the Board of Directors. The Vice- Chairman shall be a member of the Executive Committee and the Corporate Governance Committee. Section 5.4 Chief Executive Officer. The Chief Executive Officer shall be a director and shall preside at all meetings of the stockholders, and, in the absence or inability to act of the Chairman of the Board and the Vice-Chairman, meetings of the Board of Directors, and shall submit a report of the operations of the Corporation for the fiscal year to the stockholders at their annual meeting and from time-to-time shall report to the Board of Directors all matters within his or her knowledge which the interests of the Corporation may require be brought to their notice. The Chief Executive Officer shall be the chairman of the Executive Committee and ex officio a member of all standing committees. Where the offices of President and Chief Executive Officer are held by different individuals, the President will report directly to the Chief Executive Officer. Section 5.5 The President. The President shall be the chief operating officer of the Corporation. The President shall have general and active management and direction of the affairs of the Corporation, shall have supervision of all departments and of all officers of the Corporation, shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect, and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. All corporate officers and functions except those reporting to the Chairman of the Board or the Chief Executive Officer shall report directly to the President. Section 5.6 The Vice-Presidents. The Vice-Presidents shall perform such duties as the Board of Directors shall, from time to time, require. In the absence or incapacity of the President, the Vice President designated by the President or Board of Directors or Executive Committee shall exercise the powers and duties of the President. Section 5.7 The Secretary. The Secretary shall attend all meetings of the Board of Directors, of the Executive Committee and any other committee of the Board of Directors and of the stockholders and act as clerk thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. The Secretary shall keep in safe custody the seal of the Corporation and, whenever authorized by the Board of Directors or the Executive Committee, affix the seal to any instrument requiring the same. The Secretary shall see that proper notice is given of all the meetings of the stockholders of the Corporation and of the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors, the Chairman, the Chief Executive Officer, or the President. Assistant Secretaries. At the request of the Secretary, or in his or her absence or inability to act, the Assistant Secretary or, if there be more than one, the Assistant Secretary designated by the Secretary, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions of the Secretary. The Assistant Secretaries shall perform such other duties as may from time to time be assigned to them by the President, the Secretary, or the Board of Directors. Section 5.8 The Treasurer. The Treasurer shall be the financial officer of the Corporation, shall keep full and accurate accounts of all collections, receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuables in the name and to the credit of the Corporation, in such depositories as may be directed by the Board of Directors, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chairman, the Chief Executive Officer, or the President, taking proper vouchers therefor, and shall render to the President, the Chief Executive Officer, the Chairman, and/or directors at all regular meetings of the Board, or whenever they may require it, and to the annual meeting of the stockholders, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board of Directors, the Chairman, the Chief Executive Officer, or the President may from time to time require. If required by the Board of Directors the Treasurer shall give the Corporation a bond in a form and in a sum with surety satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and the restoration to the Corporation in the case of his or her death, resignation or removal from office of all books, papers, vouchers, money and other property of whatever kind in his or her possession belonging to the Corporation. Assistant Treasurers. At the request of the Treasurer, or in his or her absence or inability to act, the Assistant Treasurer or, if there be more than one, the Assistant Treasurer designated by the Treasurer, shall perform the duties of the Treasurer and when so acting shall have all the powers of and be subject to all the restrictions of the Treasurer. The Assistant Treasurers shall perform such other duties as may from time to time be assigned to them by the President, the Treasurer, or the Board of Directors. Section 5.9 The Comptroller. The Comptroller shall have control over all accounts and records of the Corporation pertaining to moneys, properties, materials and supplies. He or she shall have executive direction over the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. He or she shall have such other powers and duties as are incident to the office of Comptroller of a corporation and shall be subject at all times to the direction and control of the Board of Directors, the Chairman, the Chief Executive Officer, the President, or a Vice President. Assistant Comptrollers. At the request of the Comptroller, or in his or her absence or inability to act, the Assistant Comptroller or, if there be more than one, the Assistant Comptroller designated by the Comptroller, shall perform the duties of the Comptroller and when so acting shall have all the powers of and be subject to all the restrictions of the Comptroller. The Assistant Comptrollers shall perform such other duties as may from time to time be assigned to them by the President, the Comptroller, or the Board of Directors. Section 5.10 Compensation and Bond. The compensation of the officers of the Corporation shall be fixed by the Compensation Committee of the Board of Directors, but this power may be delegated to any officer in respect of other officers under his or her control. The Corporation may secure the fidelity of any or all of its officers, agents or employees by bond or otherwise. ARTICLE VI Indemnification Section 6.1 Indemnification of Directors, Officers, Employees and Agents. (A) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than any action or suit by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (specifically including employee benefit plans), shall be indemnified by the Corporation, if, as and to the extent authorized by applicable law, against expenses (specifically including attorney's fees), judgments, fines (specifically including any excise taxes assessed on a person with respect to an employee benefit plan) and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense or settlement of such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he or she reasonably believed to be in and not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. (B) The Corporation shall, to the extent not prohibited by applicable law, indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, non-profit or for-profit, partnership, joint venture, trust or other enterprise (specifically including employee benefit plans), against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation; provided that, no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (C) To the extent that a director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in the paragraphs (A) or (B) of this Section, or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses, specifically including attorneys' fees, actually and reasonably incurred by him or her in connection therewith. (D) Any indemnification under Paragraphs (A) and (B) of this Section, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in such Paragraphs (A) and (B). Such determination shall be made as follows: (1) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding; (2) if the quorum described in (D)(1) of this Section is not obtainable or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (3) by the stockholders. Section 6.2 Advances for Litigation Expenses. Expenses (including attorneys' fees) incurred by a director, officer, employee, or agent of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding, shall be paid by the Corporation as they are incurred in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer, employee, or agent: (1) to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI; and (2) to cooperate reasonably with the Corporation concerning the action, suit or proceeding. Section 6.3 Indemnification Nonexclusive. The indemnification provided by this Article shall not be exclusive of and shall be in addition to any other rights granted to those seeking indemnification under the Certificate of Incorporation, these By-Laws, any agreement, any vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Section 6.4 Indemnity Insurance. The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance, on behalf of or for any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under this Article. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest. Section 6.5 Definitions. For purposes of this Article: (1) a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall conclusively be deemed to have acted in a manner "not opposed to the best interests of the Corporation"; (2) a person shall be deemed to have acted in "good faith" and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise; (3) the term "another enterprise" as used in this Article VI shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent; and (4) references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, and agents. ARTICLE VII Common Stock Section 7.1 Certificates. Certificates for stock of the Corporation shall be in such form as shall be approved by the Board of Directors and shall be signed in the name of the Corporation by the Chairman or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such certificates may be sealed with the seal of the Corporation or a facsimile thereof. Any of or all the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 7.2 Transfers of Stock. Transfers of stock shall be made only upon the books of the Corporation by the holder, in person or by duly authorized attorney, and on the surrender of the certificate or certificates for such stock properly endorsed. The Board of Directors shall have the power to make all such rules and regulations, not inconsistent with the Certificate of Incorporation and these By-Laws and the law, as the Board of Directors may deem appropriate concerning the issue, transfer and registration of certificates for stock of the Corporation. The Board of Directors or the Finance Committee may appoint one (1) or more transfer agents or registrars of transfers, or both, and may require all stock certificates to bear the signature of either or both. Section 7.3 Lost, Stolen or Destroyed Certificates. The Corporation may issue a new stock certificate in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate or his or her legal representative to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. The Board of Directors may require such owner to satisfy other reasonable requirements. Section 7.4 Stockholder Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than sixty days prior to any other action. Only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to give such consent, or to receive payment of such dividend or other distribution, or to exercise such rights in respect of any such change, conversion or exchange of stock, or to participate in such action, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any record date so fixed. If no record date is fixed by the Board of Directors, (l) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the date on which notice is given, or, if notice is waived by all stockholders entitled to vote at the meeting, at the close of business on the day next preceding the day on which the meeting is held and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 7.5 Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VIII Seal Section 8.1 Seal. The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX Waiver of Notice Section 9.1 Waiver of Notice. Whenever notice is required to be given by statute, or under any provision of the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. In the case of a stockholder, such waiver of notice may be signed by such stockholder's attorney or proxy duly appointed in writing. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. ARTICLE X Fiscal Year Section 10.1 Fiscal Year. The Fiscal Year of the Corporation shall begin on the first day of January and terminate on the thirty-first day of December each year. ARTICLE XI Contracts, Checks, etc. Section 11.1 Contracts, Checks, etc. The Board of Directors or the Finance Committee may by resolution adopted at any meeting designate officers of the Corporation who may in the name of the Corporation execute contracts, checks, drafts, and orders for the payment of money in its behalf and, in the discretion of the Board of Directors or the Finance Committee, such officers may be so authorized to sign such contracts or checks singly without the necessity of counter-signature. ARTICLE XII Amendments Section 12.1 Amendments. Except as set forth below, these By-Laws may be amended or repealed by the Board of Directors or by the affirmative vote of the holders of a majority of the issued and outstanding common stock of the Corporation, or by the unanimous written consent of the holders of the issued and outstanding common stock of the Corporation. Notwithstanding the foregoing paragraph, the affirmative vote of the holders of at least 80% of the issued and outstanding shares of common stock of the Corporation shall be required to amend, alter or repeal, or adopt any provision inconsistent with, the requirements of Section 2.2, Section 3.1, Section 3.2, Section 3.3 or this paragraph of Section 12.1 of these By-Laws, in addition to any requirements of law and any provisions of the Certificate of Incorporation, any By-law, or any resolution of the Board of Directors adopted pursuant to the Certificate of Incorporation (and notwithstanding that a lesser percentage may be specified by law, the Certificate of Incorporation, these By-Laws, such resolution, or otherwise). Notwithstanding any of the foregoing, the affirmative vote of a majority of the holders of the issued and outstanding common stock of the Corporation shall be required to amend, alter or repeal, or adopt any provision inconsistent with (i) any provision of these By-Laws requiring a Supermajority Vote of the Board of Directors (including this provision of Section 12.1) or (ii) the responsibilities of the Chief Executive Officer or President as set forth in Section 5.4 or Section 5.5, and the Board of Directors shall not recommend any such amendment to such provisions to the stockholders unless the proposed amendment is approved by the Board of Directors acting by Supermajority Vote. ARTICLE XIII Dividends Section 13.1 Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. #43938 EX-10 3 AMENDED/RESTATED EMPL AGREEMENT--FOLEY FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT This FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of March, 1999, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and Cheryl M. Foley (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Employment Agreement collectively as the "Company". WHEREAS, the Executive is currently serving as Vice President and Corporate Secretary of the Company, and President, International Business Unit of the Company, and the Company desires to secure the continued employment of the Executive in accordance with this Agreement; WHEREAS, the Company entered into an Employment Agreement with the Executive dated effective October 24, 1994 (the "1994 Employment Agreement"), as amended by a First Amendment dated effective October 24, 1994, and a Second Amendment dated effective January 29, 1997; WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement amending and restating the 1994 Employment Agreement as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as defined in this Agreement); NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company, and any successor thereto, agree to employ the Executive, and the Executive agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the 1994 Employment Agreement commenced as of October 24, 1994 (the "Effective Date") and continued until December 31, 1997; provided, however, that on January 1, 1996, and each January 1 thereafter (the "Renewal Date"), the 1994 Employment Agreement was automatically extended for one (1) additional year because neither the Company nor the Executive gave written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate the 1994 Employment Agreement. The Employment Period of the Executive shall continue uninterrupted under this Agreement until December 31, 2001; provided however, that on January 1, 2000, and each Renewal Date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year if, prior to such Renewal Date, neither the Company nor the Executive shall have given written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate this Agreement. For that portion of the Employment Period prior to, but not including the commencement date ("Commencement Date") of this Agreement, the 1994 Employment Agreement, as amended, shall remain in full force and effect. As of the Commencement Date, the 1994 Employment Agreement shall terminate and be of no force and effect. The parties to this Agreement agree that Cinergy shall be responsible for all of the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy (the Board of Directors of Cinergy may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to her from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Commencement Date of this Agreement, the Executive shall initially serve as Vice President and Corporate Secretary for the Company, and as President, International Business Unit of the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for her services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $390,000.00 and the amount in effect as of the day before the Commencement Date. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of the Company. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier II executives for compensation purposes, including, but not limited to Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, Cinergy's Non-Union Employees' 401(k) Plan, Cinergy's Non-Union Employees' Pension Plan, Cinergy's Supplemental Executive Retirement Plan (both the Mid-Career Benefit portion and the Senior Executive Supplement), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived her rights in writing. During the Employment Period, the Executive shall participate in the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan in accordance with its terms, except that effective as of the Executive's fiftieth (50th) birthday, the Executive shall be credited with and vested in twenty-five (25) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan), and shall be credited with and vested in an additional two (2) years of Participation on each birthday thereafter for the following five (5) years provided that she is employed by the Company as of each such birthday. If the Executive retires on or after having attained age fifty-five (55), the Executive shall be entitled to receive from the Company total annual retirement income for her lifetime equal to the greater of (i) sixty percent (60%) of the Executive's "Highest Average Earnings" (as such term is defined in Cinergy's Supplemental Executive Retirement Plan) or (ii) sixty percent (60%) of the Executive's "Earnings" (as such term is defined in the Supplemental Executive Retirement Plan) for the final twelve (12) calendar months immediately prior to the Executive's effective date of retirement. Thus, in addition to the Executive's retirement benefits under Cinergy's Pension Plan, its Supplemental Executive Retirement Plan, and its Excess Pension Plan, or any successors thereto, the Executive shall receive an annual amount known as the "Supplemental Executive Retirement Benefit" (a non-qualified benefit paid from the Company's general assets) that is equal to the difference between the greater of (i) sixty percent (60%) of the Executive's "Highest Average Earnings" (as such term is defined in Cinergy's Supplemental Executive Retirement Plan) or (ii) sixty percent (60%) of the Executive's "Earnings" (as such term is defined in Cinergy's Supplemental Executive Retirement Plan) for the final twelve (12) calendar months immediately prior to the Executive's effective date of retirement, and the sum of the amounts payable to the Executive under Cinergy's Pension Plan, its Supplemental Executive Retirement Plan, and its Excess Pension Plan, or any successors thereto. Upon her retirement on or after having attained age fifty (50), the Executive shall be eligible for comprehensive medical and dental insurance pursuant to the terms of Cinergy's Retirees' Medical Plan and its Retirees' Dental Plan, or any successors thereto. However, the Executive shall receive the full subsidy provided by the Company to retirees for purposes of determining the amount of monthly premiums due from the Executive. Notwithstanding anything in this Agreement to the contrary, in the event that the Executive's employment is terminated following a Change in Control, the Executive shall immediately be credited with and vested in thirty-five (35) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan), and the word "fifty (50)" shall be substituted for the word "fifty-five (55)" in the first sentence of the third paragraph of this Section 3(b). The Executive shall be a participant in Cinergy's Annual Incentive Plan. The Executive shall be paid by the Company an annual benefit of up to sixty percent (60%) of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. The Executive shall be a participant in Cinergy's Long-Term Incentive Plan (the "LTIP") implemented under Cinergy's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two (2) parts: the Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less seventy percent (70%) of her Annual Base Salary. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy), and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with her position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by her in the performance of her duties under this Agreement in accordance with the policies established from time to time by the Board. e. Relocation Benefits. Following termination of the Executive's employment for any reason (other than death), the Executive shall be entitled to reimbursement from the Company for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Company's Relocation Program in effect as of the Commencement Date. The expenses described in this Section shall be "grossed-up" to provide for adverse tax consequences to the Executive. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Corporation for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Employment Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) The breach by the Executive of the confidentiality provisions set forth in Section 9 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause", no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate her employment during the Employment Period for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Employment Agreement, or any other benefit or payment described in Section 3 of this Employment Agreement, except for across-the-board salary reductions similarly affecting all management personnel of the Company, and changes to the employee benefits programs affecting all management personnel of the Company, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without her consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b)); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which she is qualified and able to perform based upon her education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice that: (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)if the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)if the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation , other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Corporation Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate her employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (2) an amount equal to Cinergy's Annual Incentive Plan target percentage benefit described in Section 3(b) of this Agreement for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan benefit described in Section 3(b) of this Agreement payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had she remained in employment with the Company until the end of the Employment Period under Cinergy's Executive Supplemental Life Insurance Program ; (3) the Company shall pay to the Executive the value of all deferred compensation amounts and all executive life insurance benefits whether or not then vested or payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived her rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company (but on a prospective basis only unless and then only to the extent, such more favorable M&W Plans are by their terms retroactive); provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates her employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Corporation for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Employment Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Employment Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, and Cinergy's Excess Pension Plan, or any successors thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan. It is expressly understood, however, that the Executive will not receive simultaneously benefits from the Mid-Career portion of Cinergy's Supplemental Executive Retirement Plan and the Senior Executive Supplement portion of that plan. Instead, the Executive will receive benefits from either the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, the Senior Executive Supplement portion of that plan, or any contractual, nonqualified retirement benefit provided under Section 3(b) of this Agreement, whichever is greatest. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Employment Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Employment Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of Exhibit 10-a (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Employment Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived her rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the Commencement Date with the Company. Amounts which are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, the Company will reimburse or pay all legal fees and expenses which the Executive may reasonably incur as a result of the dispute as required by Section 7. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof all secret, confidential information, knowledge or data relating to the Company, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Company may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Employment Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its businesses and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such assumption and agreement prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Cheryl M. Foley Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Employment Agreement to be executed as of the day and year first above written. CINERGY CORP.; CINERGY SERVICES, INC.; THE CINCINNATI GAS & ELECTRIC COMPANY; AND PSI ENERGY, INC. By: /s/ James E. Rogers James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE /s/ Cheryl M. Foley Cheryl M. Foley EX-10 4 FIRST AMENDED/RESTATED EMPL AGREEMENT--GREALIS FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT This FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of March, 1999, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and William J. Grealis (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Employment Agreement collectively as the "Company". WHEREAS, the Executive is currently serving as Vice President, Corporate Services of the Company, and the Company desires to secure the continued employment of the Executive in accordance with this Agreement; WHEREAS, the Company entered into an Employment Agreement with the Executive dated effective January 1, 1995 (the "1995 Employment Agreement"), as amended by a First Amendment dated effective January 1, 1997, and a Second Amendment dated effective January 29, 1997; WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement amending and restating the 1995 Employment Agreement as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as defined in this Agreement); NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company, and any successor thereto, agree to employ the Executive, and the Executive agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the 1995 Employment Agreement commenced as of January 16, 1995 (the "Effective Date") and continued until June 30, 2000; provided, however, that on January 1, 1998, and each January 1 thereafter (the "Renewal Date"), the 1995 Employment Agreement was automatically extended for one (1) additional year because neither the Company nor the Executive gave written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate the 1995 Employment Agreement. The Employment Period of the Executive shall continue uninterrupted under this Agreement until December 31, 2001; provided however, that on January 1, 2000, and each Renewal Date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year if, prior to such Renewal Date, neither the Company nor the Executive shall have given written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate this Agreement. For that portion of the Employment Period prior to, but not including the commencement date ("Commencement Date") of this Agreement, the 1995 Employment Agreement, as amended, shall remain in full force and effect. As of the Commencement Date, the 1995 Employment Agreement shall terminate and be of no force and effect, and the Employment Period shall convert to a three (3) year term ending December 31, 2001, subject to automatic one-year extensions as set forth in this Section 1.b. The parties to this Agreement agree that Cinergy shall be responsible for all of the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy (the Board of Directors of Cinergy may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Commencement Date of this Agreement, the Executive shall initially serve as Vice President, Corporate Services for the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than Four Hundred Forty Thousand Dollars ($440,000.00) and the amount in effect as of the day before the Commencement Date. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of the Company. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier II executives for compensation purposes, including, but not limited to Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, Cinergy's Non-Union Employees' 401(k) Plan, Cinergy's Non-Union Employees' Pension Plan, Cinergy's Supplemental Executive Retirement Plan (both the Mid-Career Benefit portion and the Senior Executive Supplement), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. During the Employment Period, the Executive shall participate in the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan in accordance with its terms, except that effective as of the Executive's fiftieth (50th) birthday, the Executive shall be credited with and vested in twenty-five (25) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan), and shall be credited with and vested in an additional two (2) years of Participation on each birthday thereafter for the following five (5) years provided that he is employed by the Company as of each such birthday. If the Executive retires on or after having attained age fifty-five (55), the Executive shall be entitled to receive from the Company total annual retirement income for his lifetime equal to the greater of (i) sixty percent (60%) of the Executive's "Highest Average Earnings" (as such term is defined in Cinergy's Supplemental Executive Retirement Plan) or (ii) sixty percent (60%) of the Executive's "Earnings" (as such term is defined in the Supplemental Executive Retirement Plan) for the final twelve (12) calendar months immediately prior to the Executive's effective date of retirement. Thus, in addition to the Executive's retirement benefits under Cinergy's Pension Plan, its Supplemental Executive Retirement Plan, and its Excess Pension Plan, or any successors thereto, the Executive shall receive an annual amount known as the "Supplemental Executive Retirement Benefit" (a non-qualified benefit paid from the Company's general assets) that is equal to the difference between the greater of (i) sixty percent (60%) of the Executive's "Highest Average Earnings" (as such term is defined in Cinergy's Supplemental Executive Retirement Plan) or (ii) sixty percent (60%) of the Executive's "Earnings" (as such term is defined in Cinergy's Supplemental Executive Retirement Plan) for the final twelve (12) calendar months immediately prior to the Executive's effective date of retirement, and the sum of the amounts payable to the Executive under Cinergy's Pension Plan, its Supplemental Executive Retirement Plan, and its Excess Pension Plan, or any successors thereto. Upon his retirement on or after having attained age fifty (50), the Executive shall be eligible for comprehensive medical and dental insurance pursuant to the terms of Cinergy's Retirees' Medical Plan and its Retirees' Dental Plan, or any successors thereto. However, the Executive shall receive the full subsidy provided by the Company to retirees for purposes of determining the amount of monthly premiums due from the Executive. Notwithstanding anything in this Agreement to the contrary, in the event that the Executive's employment is terminated following a Change in Control, the Executive shall immediately be credited with and vested in thirty-five (35) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan), and the word "fifty (50)" shall be substituted for the word "fifty-five (55)" in the first sentence of the third paragraph of this Section 3(b). The Executive shall be a participant in Cinergy's Annual Incentive Plan. The Executive shall be paid by the Company an annual benefit of up to sixty percent (60%) of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. The Executive shall be a participant in Cinergy's Long-Term Incentive Plan (the "LTIP") implemented under Cinergy's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two (2) parts: the Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less seventy percent (70%) of his Annual Base Salary. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy), and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. e. Relocation Benefits. Following termination of the Executive's employment for any reason (other than death), the Executive shall be entitled to reimbursement from the Company for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Company's Relocation Program in effect as of the Commencement Date. The expenses described in this Section shall be "grossed-up" to provide for adverse tax consequences to the Executive. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Corporation for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Employment Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) The breach by the Executive of the confidentiality provisions set forth in Section 9 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause", no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Employment Agreement, or any other benefit or payment described in Section 3 of this Employment Agreement, except for across-the-board salary reductions similarly affecting all management personnel of the Company, and changes to the employee benefits programs affecting all management personnel of the Company, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b)); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice that: (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)if the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)if the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Corporation Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (2) an amount equal to Cinergy's Annual Incentive Plan target percentage benefit described in Section 3(b) of this Agreement for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan benefit described in Section 3(b) of this Agreement payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under Cinergy's Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts and all executive life insurance benefits whether or not then vested or payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company (but on a prospective basis only unless and then only to the extent, such more favorable M&W Plans are by their terms retroactive); provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Corporation for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Employment Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Employment Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, and Cinergy's Excess Pension Plan, or any successors thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan. It is expressly understood, however, that the Executive will not receive simultaneously benefits from the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan and the Senior Executive Supplement portion of that plan. Instead, the Executive will receive benefits from either the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, the Senior Executive Supplement portion of that plan, or any contractual, nonqualified retirement benefit provided under Section 3(b) of this Agreement, whichever is greatest. Notwithstanding anything in this Agreement to the contrary, if the Executive terminates employment prior to age fifty-five (55), he shall receive at a minimum total retirement benefits from all applicable sources from the Company of no less than $283,000 per year payable as a straight life annuity. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Employment Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Employment Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of Exhibit 10-b (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Employment Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the Commencement Date with the Company. Amounts which are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, the Company will reimburse or pay all legal fees and expenses which the Executive may reasonably incur as a result of the dispute as required by Section 7. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof all secret, confidential information, knowledge or data relating to the Company, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Company may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Employment Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its businesses and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such assumption and agreement prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: William J. Grealis Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Employment Agreement to be executed as of the day and year first above written. CINERGY CORP.; CINERGY SERVICES, INC.; THE CINCINNATI GAS & ELECTRIC COMPANY; AND PSI ENERGY, INC. By: __/s/ James E. Rogers_____ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE ___/s/ William J. Grealis______ William J. Grealis EX-10 5 EMPL AGREEMENT--HARKNESS EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made and entered into as of the 1st day of July, 1998, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and M. Stephen Harkness (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Agreement collectively as the "Company". WHEREAS, the Company desires to secure the continued employment of the Executive with the Company in accordance with this Agreement; WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth in this Agreement and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement as of the date first set forth above setting forth the terms and conditions for the employment relationship of the Executive; NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company agrees to employ the Executive, and the Executive agrees to be employed, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the Executive as provided in Section 1(a) will commence on July 1, 1998, (the "Effective Date") and shall continue until December 31, 2001; provided, however, commencing on January 1, 2000, and each January 1 thereafter (the "Renewal Date"), the Employment Period of this Agreement shall automatically be extended for one (1) additional year if neither the Company not the Executive shall have given between December 1 and December 15 prior to each applicable Renewal Date written notice to the other of its intent to terminate this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy or Cinergy Services (the Board of Directors of Cinergy or Cinergy Services, as the case may be, may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Effective Date of this Agreement, the Executive shall initially serve as Executive Vice President and Chief Operating Officer, Trigen-Cinergy Solutions LLC for the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the offices of the Company at 1000 East Main Street, Plainfield, Indiana, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more than thirty (30) miles from Plainfield, Indiana. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $192,612.00. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, PSI or CG&E. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier III executives for compensation purposes, including, but not limited to, Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan (effective January 1, 1999), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy); and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Company for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or The breach by the Executive of the confidentiality provisions set forth in Section 8 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause," no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Agreement, or any other benefit or payment described in Section 3 of this Agreement, except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, CG&E, and PSI, and changes to the employee benefits programs affecting all management personnel of those corporations, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which: (i) Indicates the specific termination provision in this Agreement relied upon; (ii) To the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)If the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) If the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) If the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)If the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) The Company or any of its subsidiaries; (ii) A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)An underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Company Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent most previously paid; (2) an amount equal to the Cinergy Annual Incentive Plan target percentage benefit for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan target percentage payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under the Cinergy Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts whether or not then payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination; provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Company for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, and its Excess Pension Plan, or any successor thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan effective January 1, 1999. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the date hereof with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. Except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of Cinergy, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof (the "Cinergy Companies"), all secret, confidential information, knowledge or data relating to the Cinergy Companies, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Cinergy Companies may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section 8. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: M. Stephen Harkness Cinergy Corp./PSI Energy, Inc. 1000 East Main Street Plainfield, Indiana 46168 If to the Company: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, and all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the day and year first above written. CINERGY CORP., CINERGY SERVICES, INC., THE CINCINNATI GAS & ELECTRIC COMPANY, AND PSI ENERGY, INC. By: __/s/ James E. Rogers_____ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE ___/s/ M. Stephen Harkness___ M. Stephen Harkness EX-10 6 FIRST AMENDED/RESTATED EMPL AGREEMENT--INGLE FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT This FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of March, 1999, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and Donald B. Ingle, Jr. (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Employment Agreement collectively as the "Company". WHEREAS, the Executive is currently serving as Vice President of the Company and President, Cinergy Investments Business Unit of the Company, and the Company desires to secure the continued employment of the Executive in accordance with this Agreement; WHEREAS, the Company entered into an Employment Agreement with the Executive dated effective October 1, 1997 (the "1997 Employment Agreement"); WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement amending and restating the 1997 Employment Agreement as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as defined in this Agreement); NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company, and any successor thereto, agree to employ the Executive, and the Executive agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the 1997 Employment Agreement commenced as of October 1, 1997 (the "Effective Date") and shall continue until December 31, 2000; provided, however, that on January 1, 1999, and each January 1 thereafter (the "Renewal Date"), the 1997 Employment Agreement was automatically extended for one (1) additional year because neither the Company nor the Executive gave written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate the 1997 Employment Agreement. The Employment Period of the Executive shall continue uninterrupted under this Agreement until December 31, 2001; provided however, that on January 1, 2000, and each Renewal Date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year if, prior to such Renewal Date, neither the Company nor the Executive shall have given written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate this Agreement. For that portion of the Employment Period prior to, but not including the commencement date ("Commencement Date") of this Agreement, the 1997 Employment Agreement, as amended, shall remain in full force and effect. As of the Commencement Date, the 1997 Employment Agreement shall terminate and be of no force and effect. The parties to this Agreement agree that Cinergy shall be responsible for all of the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy (the Board of Directors of Cinergy may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Commencement Date of this Agreement, the Executive shall initially serve as Vice President of the Company and as President, Cinergy Investments Business Unit for the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than Three Hundred Fifty Thousand Dollars ($350,000.00) and the amount in effect as of the day before the Commencement Date. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of the Company. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier II executives for compensation purposes, including, but not limited to Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, Cinergy's Non-Union Employees' 401(k) Plan, Cinergy's Non-Union Employees' Pension Plan, Cinergy's Supplemental Executive Retirement Plan (both the Mid-Career Benefit portion and the Senior Executive Supplement), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. During the Employment Period, the Executive shall participate in the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan in accordance with its terms, except that upon retirement on or after attainment of age fifty-five (55), the Executive shall be credited with and vested in thirty-five (35) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan). If the Executive terminates employment prior to attainment of age fifty-five (55), the Executive shall be credited with and vested in twenty-two (22) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan) as of October 1, 1997. The Executive shall be a participant in Cinergy's Annual Incentive Plan. The Executive shall be paid by the Company an annual benefit of up to sixty percent (60%) of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. The Executive shall be a participant in Cinergy's Long-Term Incentive Plan (the "LTIP") implemented under Cinergy's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two (2) parts: the Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less seventy percent (70%) of his Annual Base Salary. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy), and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. e. Relocation Benefits. Following termination of the Executive's employment for any reason (other than death), the Company shall purchase the Executive's primary residence in the general area of the Company's principal corporate office located in Cincinnati, Ohio, at its fair market value. For purposes of this Section, the term "fair market value" shall have the meaning as used in the Company's Relocation Program in effect as of the Commencement Date. The expenses described in this Section shall be "grossed-up" to provide for adverse tax consequences to the Executive. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Corporation for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Employment Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) The breach by the Executive of the confidentiality provisions set forth in Section 9 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause", no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Employment Agreement, or any other benefit or payment described in Section 3 of this Employment Agreement, except for across-the-board salary reductions similarly affecting all management personnel of the Company, and changes to the employee benefits programs affecting all management personnel of the Company, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b)); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice that: (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)if the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)if the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Corporation Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (2) an amount equal to Cinergy's Annual Incentive Plan target percentage benefit described in Section 3(b) of this Agreement for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan benefit described in Section 3(b) of this Agreement payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under Cinergy's Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts and all executive life insurance benefits whether or not then vested or payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company (but on a prospective basis only unless and then only to the extent, such more favorable M&W Plans are by their terms retroactive); provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Corporation for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Employment Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Employment Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, and Cinergy's Excess Pension Plan, or any successors thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan. It is expressly understood, however, that the Executive will not receive simultaneously benefits from the Mid-Career portion of Cinergy's Supplemental Executive Retirement Plan and the Senior Executive Supplement portion of that plan. Instead, the Executive will receive benefits from either the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, the Senior Executive Supplement portion of that plan, or any contractual, nonqualified retirement benefit provided under Section 3(b) of this Agreement, whichever is greater. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Employment Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Employment Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and Exhibit 10-d (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements. g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Employment Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the Commencement Date with the Company. Amounts which are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, the Company will reimburse or pay all legal fees and expenses which the Executive may reasonably incur as a result of the dispute as required by Section 7. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof all secret, confidential information, knowledge or data relating to the Company, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Company may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Employment Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its businesses and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such assumption and agreement prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Donald B. Ingle, Jr. Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Employment Agreement to be executed as of the day and year first above written. CINERGY CORP.; CINERGY SERVICES, INC.; THE CINCINNATI GAS & ELECTRIC COMPANY; AND PSI ENERGY, INC. By: _/s/ James E. Rogers______ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE ____/s/ Donald B. Ingle, Jr.____ Donald B. Ingle, Jr. EX-10 7 FIRST AMENDED/RESTATED EMPL AGREEMENT--LUDLOW FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT This FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of March, 1999, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and Madeleine W. Ludlow (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Employment Agreement collectively as the "Company". WHEREAS, the Executive is currently serving as Vice President and Chief Financial Officer of the Company, and the Company desires to secure the continued employment of the Executive in accordance with this Agreement; WHEREAS, the Company entered into an Employment Agreement with the Executive dated effective April 22, 1997 (the "1997 Employment Agreement"); WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement amending and restating the 1997 Employment Agreement as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as defined in this Agreement); NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company, and any successor thereto, agree to employ the Executive, and the Executive agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the 1997 Employment Agreement commenced as of April 22, 1997 (the "Effective Date") and continued until December 31, 1999; provided, however, that on January 1, 1998, and each January 1 thereafter (the "Renewal Date"), the 1997 Employment Agreement was automatically extended for one (1) additional year because neither the Company nor the Executive gave written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate the 1997 Employment Agreement. The Employment Period of the Executive shall continue uninterrupted under this Agreement until December 31, 2001; provided however, that on January 1, 2000, and each Renewal Date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year if, prior to such Renewal Date, neither the Company nor the Executive shall have given written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate this Agreement. For that portion of the Employment Period prior to, but not including the commencement date ("Commencement Date") of this Agreement, the 1997 Employment Agreement, as amended, shall remain in full force and effect. As of the Commencement Date, the 1997 Employment Agreement shall terminate and be of no force and effect. The parties to this Agreement agree that Cinergy shall be responsible for all of the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy (the Board of Directors of Cinergy may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to her from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Commencement Date of this Agreement, the Executive shall initially serve as Vice President and Chief Financial Officer for the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for her services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $375,000.00 and the amount in effect as of the day before the Commencement Date. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of the Company. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier II executives for compensation purposes, including, but not limited to Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, Cinergy's Non-Union Employees' 401(k) Plan, Cinergy's Non-Union Employees' Pension Plan, Cinergy's Supplemental Executive Retirement Plan (both the Mid-Career Benefit portion and the Senior Executive Supplement), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived her rights in writing. The Executive shall be a participant in Cinergy's Annual Incentive Plan. The Executive shall be paid by the Company an annual benefit of up to sixty percent (60%) of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. The Executive shall be a participant in Cinergy's Long-Term Incentive Plan (the "LTIP") implemented under Cinergy's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two (2) parts: the Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less seventy percent (70%) of her Annual Base Salary. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy), and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with her position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by her in the performance of her duties under this Agreement in accordance with the policies established from time to time by the Board. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Corporation for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Employment Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) The breach by the Executive of the confidentiality provisions set forth in Section 9 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause", no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate her employment during the Employment Period for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Employment Agreement, or any other benefit or payment described in Section 3 of this Employment Agreement, except for across-the-board salary reductions similarly affecting all management personnel of the Company, and changes to the employee benefits programs affecting all management personnel of the Company, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without her consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b)); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which she is qualified and able to perform based upon her education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice that: (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)if the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)if the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Corporation Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate her employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (2) an amount equal to Cinergy's Annual Incentive Plan target percentage benefit described in Section 3(b) of this Agreement for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan benefit described in Section 3(b) of this Agreement payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had she remained in employment with the Company until the end of the Employment Period under Cinergy's Executive Supplemental Life Insurance Program ; (3) the Company shall pay to the Executive the value of all deferred compensation amounts and all executive life insurance benefits whether or not then vested or payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived her rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company (but on a prospective basis only unless and then only to the extent, such more favorable M&W Plans are by their terms retroactive); provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates her employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Corporation for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Employment Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Employment Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, and Cinergy's Excess Pension Plan, or any successors thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan. It is expressly understood, however, that the Executive will not receive simultaneously benefits from the Mid-Career portion of Cinergy's Supplemental Executive Retirement Plan and the Senior Executive Supplement portion of that plan. Instead, the Executive will receive benefits from either the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, the Senior Executive Supplement portion of that plan, or any contractual, nonqualified retirement benefit provided under Section 3(b) of this Agreement, whichever is greatest. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Employment Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Employment Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Employment Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived her rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the Commencement Date with the Company. Amounts which are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, the Company will reimburse or pay all legal fees and expenses which the Executive may reasonably incur as a result of the dispute as required by Section 7. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof all secret, confidential information, knowledge or data relating to the Company, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Company may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Employment Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its businesses and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such assumption and agreement prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Madeleine W. Ludlow Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Employment Agreement to be executed as of the day and year first above written. CINERGY CORP.; CINERGY SERVICES, INC.; THE CINCINNATI GAS & ELECTRIC COMPANY; AND PSI ENERGY, INC. By: __/s/ James E. Rogers_____ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE ____/s/ Madeleine W. Ludlow__ Madeleine W. Ludlow EX-10 8 EMPL AGREEMENT--SHEAFER EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made and entered into as of the 1st day of July, 1998, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and William L. Sheafer (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Agreement collectively as the "Company". WHEREAS, the Company desires to secure the continued employment of the Executive with the Company in accordance with this Agreement; WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth in this Agreement and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement as of the date first set forth above setting forth the terms and conditions for the employment relationship of the Executive; NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company agrees to employ the Executive, and the Executive agrees to be employed, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the Executive as provided in Section 1(a) will commence on July 1, 1998, (the "Effective Date") and shall continue until December 31, 2001; provided, however, commencing on January 1, 2000, and each January 1 thereafter (the "Renewal Date"), the Employment Period of this Agreement shall automatically be extended for one (1) additional year if neither the Company nor the Executive shall have given between December 1 and December 15 prior to each applicable Renewal Date written notice to the other of its intent to terminate this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy or Cinergy Services (the Board of Directors of Cinergy or Cinergy Services, as the case may be, may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Effective Date of this Agreement, the Executive shall initially serve as Vice President and Treasurer for the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 139 and 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $181,272.00. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, PSI or CG&E. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier III executives for compensation purposes, including, but not limited to, Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan (effective January 1, 1999), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. It is expressly agreed, however, that the Amended and Restated Supplemental Executive Retirement Income Agreement between CG&E and the Executive dated as of January 1, 1995, shall remain in effect and is not superseded by this Agreement. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy); and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Company for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or The breach by the Executive of the confidentiality provisions set forth in Section 8 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause," no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Agreement, or any other benefit or payment described in Section 3 of this Agreement, except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, CG&E, and PSI, and changes to the employee benefits programs affecting all management personnel of those corporations, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which: (i) Indicates the specific termination provision in this Agreement relied upon; (ii) To the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)If the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) If the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) If the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)If the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) The Company or any of its subsidiaries; (ii) A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)An underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Company Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination, to the extent not previously paid; (2) an amount equal to the Cinergy Annual Incentive Plan target percentage benefit for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan target percentage payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under the Cinergy Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts whether or not then payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination; provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Company for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, and its Excess Pension Plan, or any successor thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan(commonly referred to as the "SERP") effective January 1, 1999. Although the Executive will be eligible to participate in the SERP, it is expressly understood that the Executive will not receive simultaneously benefits from the SERP and benefits under the Amended and Restated Supplemental Retirement Income Plan dated effective January 1, 1995 between the Executive and the Company (the "Restated CG&E SERP"). Instead, the Executive will receive benefits from either the SERP or the Restated CG&E SERP, whichever is greater. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the date hereof with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. Except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, the Company will reimburse or pay all legal fees and expenses which the Executive may reasonably incur as a result of the dispute as required by Section 7. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of Cinergy, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof (the "Cinergy Companies"), all secret, confidential information, knowledge or data relating to the Cinergy Companies, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Cinergy Companies may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section 8. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: William L. Sheafer Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Company: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. With the exception of the Restated CG&E SERP, this instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, and all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. Specifically, the Executive Severance Agreement dated as of January 17, 1990, as amended, is hereby superseded by this Agreement. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the day and year first above written. CINERGY CORP., CINERGY SERVICES, INC., THE CINCINNATI GAS & ELECTRIC COMPANY, AND PSI ENERGY, INC. By: _/s/ James E. Rogers______ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE _____/s/ William L. Sheafer____ William L. Sheafer EX-10 9 EMPL AGREEMENT--STEFFEN EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made and entered into as of the 1st day of July, 1998, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and John P. Steffen (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Agreement collectively as the "Company". WHEREAS, the Company desires to secure the continued employment of the Executive with the Company in accordance with this Agreement; WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth in this Agreement and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement as of the date first set forth above setting forth the terms and conditions for the employment relationship of the Executive; NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company agrees to employ the Executive, and the Executive agrees to be employed, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the Executive as provided in Section 1(a) will commence on July 1, 1998, (the "Effective Date") and shall continue until December 31, 2001; provided, however, commencing on January 1, 2000, and each January 1 thereafter (the "Renewal Date"), the Employment Period of this Agreement shall automatically be extended for one (1) additional year if neither the Company not the Executive shall have given between December 1 and December 15 prior to each applicable Renewal Date written notice to the other of its intent to terminate this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy or Cinergy Services (the Board of Directors of Cinergy or Cinergy Services, as the case may be, may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Effective Date of this Agreement, the Executive shall initially serve as Vice President and Comptroller for the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 139 and 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $155,256.00. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, PSI or CG&E. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier III executives for compensation purposes, including, but not limited to, Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan (effective January 1, 1999), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy); and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Company for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or The breach by the Executive of the confidentiality provisions set forth in Section 8 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause," no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Agreement, or any other benefit or payment described in Section 3 of this Agreement, except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, CG&E, and PSI, and changes to the employee benefits programs affecting all management personnel of those corporations, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which: (i) Indicates the specific termination provision in this Agreement relied upon; (ii) To the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)If the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) If the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) If the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)If the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) The Company or any of its subsidiaries; (ii) A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)An underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Company Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent most previously paid; (2) an amount equal to the Cinergy Annual Incentive Plan target percentage benefit for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan target percentage payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under the Cinergy Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts whether or not then payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination; provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Company for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, and its Excess Pension Plan, or any successor thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan effective January 1, 1999. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the date hereof with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. Except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of Cinergy, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof (the "Cinergy Companies"), all secret, confidential information, knowledge or data relating to the Cinergy Companies, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Cinergy Companies may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section 8. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John P. Steffen Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Company: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, and all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the day and year first above written. CINERGY CORP., CINERGY SERVICES, INC., THE CINCINNATI GAS & ELECTRIC COMPANY, AND PSI ENERGY, INC. By: __/s/ James E. Rogers_____ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE _____/s/ John P. Steffen_______ John P. Steffen EX-10 10 EMPL AGREEMENT--TURNER EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made and entered into as of the 16th day of February, 1999, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and James L. Turner (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Agreement collectively as the "Company". WHEREAS, the Executive is currently serving as President, Cincinnati Gas & Electric Company, and the Company desires to secure the continued employment of the Executive in accordance with this Agreement; WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth in this Agreement and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive during the Employment Period (as defined in this Agreement); NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company agrees to employ the Executive, and the Executive agrees to be employed, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the Executive as provided in Section 1(a) will commence on February 16, 1999, (the "Effective Date") and shall continue until December 31, 2001; provided, however, commencing on January 1, 2000, and each January 1 thereafter (the "Renewal Date"), the Employment Period of this Agreement shall automatically be extended for one (1) additional year if neither the Company nor the Executive shall have given between December 1 and December 15 prior to each applicable Renewal Date written notice to the other of its intent to terminate this Agreement. The parties to this Agreement agree that Cinergy shall be responsible for all of the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy or Cinergy Services (the Board of Directors of Cinergy or Cinergy Services, as the case may be, may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Effective Date of this Agreement, the Executive shall initially serve as President of The Cincinnati Gas & Electric Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 139 and 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $210,000.00. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, PSI or CG&E. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier III executives for compensation purposes, including, but not limited to, Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, Cinergy's Non-Union Employees' 401(k) Plan, Cinergy s Non-Union Employees' Pension Plan, the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan, and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. The Executive shall be a participant in Cinergy's Annual Incentive Plan. The Executive shall be paid by the Company an annual benefit of up to forty-five percent (45%) of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. The Executive shall be a participant in Cinergy's Long-Term Incentive Plan (the "LTIP") implemented under Cinergy's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two (2) parts: the Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less forty percent (40%) of his Annual Base Salary. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy); and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Company for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or The breach by the Executive of the confidentiality provisions set forth in Section 8 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause," no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Agreement, or any other benefit or payment described in Section 3 of this Agreement, except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, CG&E, and PSI, and changes to the employee benefits programs affecting all management personnel of those corporations, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which: (i) Indicates the specific termination provision in this Agreement relied upon; (ii) To the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)If the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) If the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) If the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)If the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) The Company or any of its subsidiaries; (ii) A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)An underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Company Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent most previously paid; (2) an amount equal to the Cinergy Annual Incentive Plan target percentage benefit for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan target percentage payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under the Cinergy Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts whether or not then payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination; provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Company for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, and its Excess Pension Plan, or any successor thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the date hereof with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. Except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of Cinergy, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof (the "Cinergy Companies"), all secret, confidential information, knowledge or data relating to the Cinergy Companies, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Cinergy Companies may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section 8. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: James L. Turner Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Company: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, and all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the day and year first above written. CINERGY CORP., CINERGY SERVICES, INC., THE CINCINNATI GAS & ELECTRIC COMPANY, AND PSI ENERGY, INC. By: __/s/ James E. Rogers_____ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE ____/s/ James L. Turner__ ____ James L. Turner EX-10 11 FIRST AMENDED/RESTATED EMPL AGREEMENT--WINGER FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT This FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of March, 1999, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and Charles J. Winger (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Employment Agreement collectively as the "Company". WHEREAS, the Executive is currently serving as Vice President, Corporate Development of the Company, and the Company desires to secure the continued employment of the Executive in accordance with this Agreement; WHEREAS, the Company entered into an Employment Agreement with the Executive dated effective April 1, 1998 (the "1998 Employment Agreement"); WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement amending and restating the 1998 Employment Agreement as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as defined in this Agreement); NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company, and any successor thereto, agree to employ the Executive, and the Executive agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the 1998 Employment Agreement commenced as of April 1, 1998 (the "Effective Date") and continued until December 31, 2000; provided, however, that on January 1, 1999, and each January 1 thereafter (the "Renewal Date"), the 1998 Employment Agreement was automatically extended for one (1) additional year because neither the Company nor the Executive gave written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate the 1998 Employment Agreement. The Employment Period of the Executive shall continue uninterrupted under this Agreement until December 31, 2001; provided however, that on January 1, 2000, and each Renewal Date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year if, prior to such Renewal Date, neither the Company nor the Executive shall have given written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate this Agreement. For that portion of the Employment Period prior to, but not including the commencement date ("Commencement Date") of this Agreement, the 1998 Employment Agreement, as amended, shall remain in full force and effect. As of the Commencement Date, the 1998 Employment Agreement shall terminate and be of no force and effect. The parties to this Agreement agree that Cinergy shall be responsible for all of the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy (the Board of Directors of Cinergy may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Commencement Date of this Agreement, the Executive shall initially serve as Vice President, Corporate Development for the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than Two Hundred Seventy-Five Thousand Dollars ($275,000.00) and the amount in effect as of the day before the Commencement Date. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of the Company. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier II executives for compensation purposes, including, but not limited to Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, Cinergy's Non-Union Employees' 401(k) Plan, Cinergy's Non-Union Employees' Pension Plan, Cinergy's Supplemental Executive Retirement Plan (both the Mid-Career Benefit portion and the Senior Executive Supplement), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. With regard to the Executive's retirement benefits, the Executive shall be entitled to a "Contractual Retirement Supplement" (paid from the Corporation's general assets) which extends to the Executive upon retirement on or after age fifty-five (55) a non-qualified benefit that, when added to the Executive's benefit under Cinergy's Non-Union Employees' Pension Plan and Cinergy's Excess Pension Plan, or any successors thereto, will provide total retirement income equivalent to a full career employee with equal annual earnings. For purposes of the preceding sentence, a "full career employee" shall mean an employee with thirty-five (35) full years of "participation" under Cinergy's Supplemental Executive Retirement Plan. In addition, the Contractual Retirement Supplement will include a sum equal to the amount by which the Executive's benefit under Cinergy's Non-Union Employees' Pension Plan is reduced by application of the customary actuarial reduction for early retirement if receipt of pension benefits under that plan commences prior to the Executive's attainment of age sixty-two (62). Upon his retirement on or after having attained age fifty (50), the Executive shall be eligible for comprehensive medical and dental insurance pursuant to the terms of Cinergy's Retirees' Medical Plan and its Retirees' Dental Plan, or any successors thereto. However, the Executive shall receive the full subsidy provided by the Company to retirees for purposes of determining the amount of monthly premiums due from the Executive. Notwithstanding anything in this Agreement to the contrary, in the event that the Executive's employment is terminated following a Change in Control, the Executive shall immediately be credited with and vested in thirty-five (35) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan), and the word "fifty (50)" shall be substituted for the word "fifty-five (55)" in the first sentence of the second paragraph of this Section 3(b). The Executive shall be a participant in Cinergy's Annual Incentive Plan. The Executive shall be paid by the Company an annual benefit of up to sixty percent (60%) of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. The Executive shall be a participant in Cinergy's Long-Term Incentive Plan (the "LTIP") implemented under Cinergy's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two (2) parts: the Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less seventy percent (70%) of his Annual Base Salary. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy), and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Corporation for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Employment Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) The breach by the Executive of the confidentiality provisions set forth in Section 9 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause", no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Employment Agreement, or any other benefit or payment described in Section 3 of this Employment Agreement, except for across-the-board salary reductions similarly affecting all management personnel of the Company, and changes to the employee benefits programs affecting all management personnel of the Company, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b)); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice that: (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)if the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)if the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Corporation Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (2) an amount equal to Cinergy's Annual Incentive Plan target percentage benefit described in Section 3(b) of this Agreement for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan benefit described in Section 3(b) of this Agreement payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under Cinergy's Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts and all executive life insurance benefits whether or not then vested or payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company (but on a prospective basis only unless and then only to the extent, such more favorable M&W Plans are by their terms retroactive); provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Corporation for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Employment Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Employment Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, and Cinergy's Excess Pension Plan, or any successors thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan. It is expressly understood, however, that the Executive will not receive simultaneously benefits from the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan and the Senior Executive Supplement portion of that plan. Instead, the Executive will receive benefits from either the Mid-Career Benefit portion of Cinergy's Supplemental Executive Retirement Plan, the Senior Executive Supplement portion of that plan, or any contractual, nonqualified retirement benefit provided under Section 3(b) of this Agreement, whichever is greatest. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Employment Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Employment Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Employment Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the Commencement Date with the Company. Amounts which are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, the Company will reimburse or pay all legal fees and expenses which the Executive may reasonably incur as a result of the dispute as required by Section 7. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof all secret, confidential information, knowledge or data relating to the Company, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Company may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Employment Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its businesses and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such assumption and agreement prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Charles J. Winger Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Employment Agreement to be executed as of the day and year first above written. CINERGY CORP.; CINERGY SERVICES, INC.; THE CINCINNATI GAS & ELECTRIC COMPANY; AND PSI ENERGY, INC. By: _/s/ James E. Rogers______ James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE __/s/ Charles J. Winger_______ Charles J. Winger EX-10 12 AMENDED/RESTATED EMPL AGREEMENT--THOMAS FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT This FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of March, 1999, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and Larry E. Thomas (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Employment Agreement collectively as the "Company". WHEREAS, the Executive is currently serving as Vice President of the Company and as President, Energy Delivery Business Unit of the Company, and the Company desires to secure the continued employment of the Executive in accordance with this Agreement; WHEREAS, the Company entered into an Employment Agreement with the Executive dated effective October 24, 1994 (the "1994 Employment Agreement"), as amended by a First Amendment dated effective October 24, 1994, a Second Amendment dated effective January 29, 1997, and a Third Amendment dated effective May 1, 1998. WHEREAS, the Executive is willing to continue to remain in the employ of the Company and any successor thereto, on the terms and conditions set forth and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Agreement amending and restating the 1994 Employment Agreement as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as defined in this Agreement); NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. a. The Company, and any successor thereto, agree to employ the Executive, and the Executive agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). b. The Employment Period of the 1994 Employment Agreement commenced as of October 24, 1994 (the "Effective Date") and continued until December 31, 1997; provided, however, that on January 1, 1996, and each January 1 thereafter (the "Renewal Date"), the 1994 Employment Agreement was automatically extended for one (1) additional year because neither the Company nor the Executive gave written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate the 1994 Employment Agreement. The Employment Period of the Executive shall continue uninterrupted under this Agreement until December 31, 2001; provided however, that on January 1, 2000, and each Renewal Date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year if, prior to such Renewal Date, neither the Company nor the Executive shall have given written notice to the other between December 1 and December 15 prior to any Renewal Date of its intent to terminate this Agreement. For that portion of the Employment Period prior to, but not including the commencement date ("Commencement Date") of this Agreement, the 1994 Employment Agreement, as amended, shall remain in full force and effect. As of the Commencement Date, the 1994 Employment Agreement shall terminate and be of no force and effect. The parties to this Agreement agree that Cinergy shall be responsible for all of the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Company in such responsible executive capacity or capacities as the Board of Directors of Cinergy (the Board of Directors of Cinergy may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Commencement Date of this Agreement, the Executive shall initially serve as Vice President for the Company and President, Energy Delivery Business Unit of the Company, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy during the Employment Period. b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Company, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Company who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Company. 3. Compensation. The Executive shall receive the following compensation for his services under this Agreement. a. Salary. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than Three Hundred Ninety Thousand Dollars ($390,000.00) and the amount in effect as of the day before the Commencement Date. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of the Company. b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be eligible, and the Company shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company who are considered Tier II executives for compensation purposes, including, but not limited to Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, Cinergy's Non-Union Employees' 401(k) Plan, Cinergy's Non-Union Employees' Pension Plan, Cinergy's Supplemental Executive Retirement Plan (the Senior Executive Supplement), and Cinergy's Excess Pension Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. With regard to the Executive's retirement benefits, the Executive shall be entitled to a "Contractual Retirement Supplement" (paid from the Corporation's general assets) which extends to the Executive upon retirement on or after age fifty-five (55) a non-qualified benefit that, when added to the Executive's benefit under Cinergy's Non-Union Employees' Pension Plan and Cinergy's Excess Pension Plan, or any successors thereto, will provide total retirement income equivalent to a full career employee with equal annual earnings. For purposes of the preceding sentence, a "full career employee" shall mean an employee with thirty-five (35) full years of "participation" under Cinergy's Supplemental Executive Retirement Plan. Upon his retirement on or after having attained age fifty (50), the Executive shall be eligible for comprehensive medical and dental insurance pursuant to the terms of Cinergy's Retirees' Medical Plan and its Retirees' Dental Plan, or any successors thereto. However, the Executive shall receive the full subsidy provided by the Company to retirees for purposes of determining the amount of monthly premiums due from the Executive. Notwithstanding anything in this Agreement to the contrary, in the event that the Executive's employment is terminated following a Change in Control, the Executive shall immediately be credited with and vested in thirty-five (35) full years of "Participation" (as that term is defined in Cinergy's Supplemental Executive Retirement Plan), and the word "fifty (50)" shall be substituted for the word "fifty-five (55)" in the first sentence of the second paragraph of this Section 3(b). The Executive shall be a participant in Cinergy's Annual Incentive Plan. The Executive shall be paid by the Company an annual benefit of up to sixty percent (60%) of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. The Executive shall be a participant in Cinergy's Long-Term Incentive Plan (the "LTIP") implemented under Cinergy's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two (2) parts: the Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less seventy percent (70%) of his Annual Base Salary. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Company, the Executive shall be entitled to the following additional fringe benefits: (i) The Company shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs; (ii) The Company shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership in a country club selected by the Executive; (iii)The Company shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Company's policy), and (iv) The Company shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. d. Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board. e. Relocation Benefits. Following termination of the Executive's employment for any reason (other than death), the Executive shall be entitled to reimbursement from the Company for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Company's Relocation Program in effect as of the Commencement Date. The expenses described in this Section shall be "grossed-up" to provide for adverse tax consequences to the Executive. 4. Termination of Employment. a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. b. By the Corporation for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Employment Agreement, "Cause" shall mean: (i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) The breach by the Executive of the confidentiality provisions set forth in Section 9 of this Agreement, or (iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Company. For purposes of this definition of "Cause", no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. Notwithstanding the above definition of "Cause", the Company may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Company in Section 5 shall apply. c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean: (i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Employment Agreement, or any other benefit or payment described in Section 3 of this Employment Agreement, except for across-the-board salary reductions similarly affecting all management personnel of the Company, and changes to the employee benefits programs affecting all management personnel of the Company, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date; (ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction; (iii)Any breach by the Company of any other material provision (including but not limited to the place of performance as specified in Section 2(b)); (iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or (v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. d. Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice that: (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii)if the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights under this Agreement. e. Date of Termination. "Date of Termination" means: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii)if the Executive's employment is terminated by reason of death, the date of death. f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii)During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii)an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. 5. Obligations of the Corporation Upon Termination. a. Certain Terminations. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) The Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (2) an amount equal to Cinergy's Annual Incentive Plan target percentage benefit described in Section 3(b) of this Agreement for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid. (The amounts specified in clauses (1), (2), and (3) shall be referred to in this Agreement as the "Accrued Obligations".) The amounts specified in this Section 5(a)(i) shall be paid within thirty (30) days after the Date of Termination. The Accrued Obligations described in this Section are payable to the Executive regardless of whether a Change in Control has occurred. (ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan benefit described in Section 3(b) of this Agreement payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Company until the end of the Employment Period under Cinergy's Executive Supplemental Life Insurance Program; (3) the Company shall pay to the Executive the value of all deferred compensation amounts and all executive life insurance benefits whether or not then vested or payable; and (4) the Company shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company (but on a prospective basis only unless and then only to the extent, such more favorable M&W Plans are by their terms retroactive); provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii)From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Company, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. b. Termination by the Corporation for Cause or by the Executive Other Than for Good Reason. Subject to the provisions of Section 7 of this Employment Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Employment Agreement other than the obligation to pay to the Executive the Accrued Obligations and the amounts determined under Section 5(c), plus any other earned but unpaid compensation, in each case to the extent not previously paid. c. Retirement Benefits on Termination. In addition to retirement benefits under Cinergy's Non-Union Employees' Pension Plan, and Cinergy's Excess Pension Plan, or any successors thereto, the Executive shall be eligible to participate in the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan. It is expressly understood, however, that the Executive will receive benefits from either the Senior Executive Supplement portion of Cinergy's Supplemental Executive Retirement Plan, or any contractual, nonqualified retirement benefit provided under Section 3(b) of this Agreement, whichever is greater. d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Employment Agreement for any reason. e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Employment Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Benefits, or (2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. f. Value Creation Plan and Stock Options. Upon termination of employment for any reason, the Executive's entitlement to restricted shares and performance shares under the Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and any stock options granted under the Cinergy Stock Option Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan shall be determined in reference to the terms of the appropriate plan, any applicable administrative guidelines and written agreements (all such plans, administrative guidelines and written agreements referred to in this Agreement collectively as the "Stock-Related Documents"). g. Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Employment Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the Commencement Date with the Company. Amounts which are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement. 7. Full Settlement: Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Company agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, the Company will reimburse or pay all legal fees and expenses which the Executive may reasonably incur as a result of the dispute as required by Section 7. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof all secret, confidential information, knowledge or data relating to the Company, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The Executive understands that during the Employment Period, the Company may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Company in law and equity, this Agreement is subject to termination by the Company for Cause under Section 4(b) in the event the Executive violates any provision of this Section. 10. Successors. a. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. b. This Employment Agreement shall inure to the benefit of and be binding upon the Company, and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its businesses and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such assumption and agreement prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 11. Miscellaneous. a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Larry E. Thomas Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. d. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. e. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. f. This instrument contains the entire agreement of the Executive and the Company with respect to the subject matter hereof; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3(b) and the Stock-Related Documents described in Section 5(f) hereof, all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded. g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. h. The Company and the Executive agree that Cinergy shall be authorized to act for the Company with respect to all aspects pertaining to the administration and interpretation of this Agreement. IN WITNESS WHEREOF, the Executive and the Company have caused this Employment Agreement to be executed as of the day and year first above written. CINERGY CORP.; CINERGY SERVICES, INC.; THE CINCINNATI GAS & ELECTRIC COMPANY; AND PSI ENERGY, INC. By: /s/ James E. Rogers James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE /s/ Larry E. Thomas Larry E. Thomas EX-27 13 CINERGY FDS FOR FORM 10-Q
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 PER-BOOK 6,349,513 645,250 1,451,977 940,386 459,022 9,846,148 1,588 1,598,884 991,761 2,592,233 0 92,616 2,605,657 1,052,811 0 0 25,959 0 0 0 3,476,872 9,846,148 1,402,279 77,564 1,168,130 1,245,694 156,585 32,796 189,381 60,772 128,609 1,364 127,245 71,422 50,077 142,652 0.80 0.80
EX-4 14 CINERGY INDENTURE - -------------------------------------------------------------------------------- CINERGY CORP. as Issuer TO FIFTH THIRD BANK Trustee Indenture Dated as of April 15, 1999 $200,000,000 6.125% Debentures due 2004 - ------------------------------------------------------------------------------- ............................... Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Trust Indenture Indenture Act Section Section ss. 310(a)(1)...............................................................609 (a)(2)...............................................................609 (a)(3)....................................................Not Applicable (a)(4)....................................................Not Applicable (b)..................................................................608 ss. 311(a)..................................................................613 (b)..................................................................613 ss. 312(a)..................................................................701 (b)...............................................................702(b) (c)...............................................................702(c) ss. 313(a)...............................................................703(a) (b)...............................................................703(a) (c)...............................................................703(a) (d)...............................................................703(b) ss. 314(a)..................................................................704 (b).......................................................Not Applicable (c)(1)...............................................................102 (c)(2)...............................................................102 (c)(3)....................................................Not Applicable (d).......................................................Not Applicable (e)..................................................................514 ss. 315(a)..................................................................601 (b)..................................................................602 (c)..................................................................601 (d)..................................................................601 (e)..................................................................514 ss. 316(a)(1)(A)............................................................512 (a)(1)(B)............................................................513 (a)(2)....................................................Not Applicable (b)..................................................................508 (c)...............................................................104(c) ss. 317(a)(1)...............................................................503 (a)(2)...............................................................504 (b).................................................................1003 ss. 318(a)..................................................................107 TABLE OF CONTENTS ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions................................................... 1 Section 102. Compliance Certificates and Opinions.......................... 9 Section 103. Form of Documents Delivered to Trustee........................ 9 Section 104. Acts of Holders; Record Dates................................ 10 Section 105. Notices, Etc., to Trustee and Company........................ 11 Section 106. Notice to Holders; Waiver.................................... 11 Section 107. Conflict with Trust Indenture Act............................. 11 Section 108. Effect of Headings and Table of Contents...................... 11 Section 109. Successors and Assigns........................................ 12 Section 110. Separability Clause........................................... 12 Section 111. Benefits of Indenture......................................... 12 Section 112. Governing Law................................................. 12 Section 113. Legal Holidays................................................ 12 Section 114. Certain Matters Relating to Currencies........................ 12 Section 115. Immunity of Incorporators, Stockholders, Officers and Directors13 Section 116. Counterparts...................................................13 Section 117. Assignment to Affiliate....................................... 13 ARTICLE TWO The Debentures Section 201. Form, Denominations and Terms................................. 13 Section 202. Execution, Authentication, Delivery and Dating................ 15 Section 203. Temporary Debentures.......................................... 15 Section 204. Debenture Registrar and Paying Agent.......................... 16 Section 205. Replacement Debentures........................................ 16 Section 206. Transfer and Exchange of Debentures........................... 17 Section 207. Payment of Interest; Interest Rights Preserved................ 28 Section 208. Persons Deemed Owners......................................... 29 Section 209. Cancellation.................................................. 30 Section 210. Computation of Interest....................................... 30 Section 211. CUSIP Numbers................................................. 30 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -1- ARTICLE THREE Redemption of Debentures Section 301. Redemption.................................................... 30 Section 302. Selection by Trustee of Debentures to Be Redeemed............. 32 Section 303. Notice of Redemption.......................................... 32 Section 304. Deposit of Redemption Price................................... 33 Section 305. Debentures Payable on Redemption Date......................... 33 Section 306. Debentures Redeemed in Part................................... 34 ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture....................... 34 Section 402. Application of Trust Money.................................... 35 ARTICLE FIVE Remedies Section 501. Events of Default............................................. 35 Section 502. Acceleration of Maturity; Rescission and Annulment............ 36 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee37 Section 504. Trustee May File Proofs of Claim.............................. 37 Section 505. Trustee May Enforce Claims Without Possession of Debentures... 38 Section 506. Application of Money Collected................................ 38 Section 507. Limitation on Suits........................................... 38 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest........................................... 39 Section 509. Restoration of Rights and Remedies............................ 39 Section 510. Rights and Remedies Cumulative................................ 39 Section 511. Delay or Omission Not Waiver.................................. 39 Section 512. Control by Holders............................................ 40 Section 513. Waiver of Past Defaults....................................... 40 Section 514. Undertaking for Costs......................................... 40 Section 515. Waiver of Stay or Extension Laws.............................. 40 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -2- ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities........................... 41 Section 602. Notice of Defaults............................................ 41 Section 603. Certain Rights of Trustee..................................... 41 Section 604. Not Responsible for Recitals.................................. 42 Section 605. May Hold Debentures........................................... 42 Section 606. Money Held in Trust........................................... 42 Section 607. Compensation and Reimbursement................................ 42 Section 608. Disqualification; Conflicting Interests....................... 43 Section 609. Corporate Trustee Required; Eligibility....................... 43 Section 610. Resignation and Removal; Appointment of Successor............. 43 Section 611. Acceptance of Appointment by Successor........................ 44 Section 612. Merger, Conversion, Consolidation or Successor to Business.... 45 Section 613. Preferential Collection of Claims Against Company............. 45 ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders..... 45 Section 702. Preservation of Information; Communications to Holders........ 46 Section 703. Reports by Trustee............................................ 46 Section 704. Reports by Company............................................ 46 ARTICLE EIGHT Consolidation, Merger and Sale Section 801. Consolidations and Mergers Permitted.......................... 47 Section 802. Rights and Duties of Successor Company........................ 47 Section 803. Opinion of Counsel............................................ 48 ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Holders............ 48 Section 902. Supplemental Indentures with Consent of Holders............... 48 Section 903. Execution of Supplemental Indentures.......................... 49 Section 904. Effect of Supplemental Indentures............................. 49 Section 905. Conformity with Trust Indenture Act........................... 49 Section 906. Reference in Debentures to Supplemental Indentures............ 50 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -3- ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest................... 50 Section 1002. Maintenance of Office or Agency.............................. 50 Section 1003. Money for Debentures Payments to Be Held in Trust............ 50 Section 1004. Statement by Officers as to Default.......................... 51 Section 1005. Existence.................................................... 51 Section 1006. Maintenance of Properties.................................... 52 Section 1007. Payment of Taxes and Other Claims............................ 52 Section 1008. Book-Entry System............................................ 52 Section 1009. Liens........................................................ 52 Section 1010. Limitation on Sale and Lease-Back Transactions............... 54 Section 1011. Waiver of Certain Covenants.................................. 55 ARTICLE ELEVEN Defeasance and Covenant Defeasance Section 1101. Company's Option to Effect Defeasance or Covenant Defeasance. 55 Section 1102. Defeasance and Discharge..................................... 55 Section 1103. Covenant Defeasance.......................................... 55 Section 1104. Conditions to Defeasance or Covenant Defeasance.............. 56 Section 1105. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions................... 57 Section 1106. Reinstatement................................................ 58 Testimonium ............................................................. 59 Signatures .......................................................... 59 EXHIBITS EXHIBIT A - FORM OF DEBENTURE EXHIBIT B - FORM OF CERTIFICATE OF TRANSFER EXHIBIT C - FORM OF CERTIFICATE OF EXCHANGE Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -4- INDENTURE, dated as of April 15, 1999, between CINERGY CORP., a Delaware corporation, as Issuer (herein called the "Company"), having its principal office at 139 East Fourth Street, Cincinnati, Ohio 45202, and FIFTH THIRD BANK, a banking corporation duly organized under the laws of the State of Ohio, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 6.125% Debentures due 2004 (herein called the "Debentures," which term includes Exchange Debentures as defined in Section 101) of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Debentures, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their terms and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Debentures, as follows: ARTICLE ONE ARTICLE ONE Definitions and Other Provisions of General Application Section 101. DefinitionsSection 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means any Debenture Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Debenture, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Attributable Debt" means, with respect to any particular Sale and Lease-Back Transaction, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction determined in accordance with generally accepted accounting principles) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Board of Directors" means, with respect to any Person, either the board of directors of such Person or any duly authorized committee of that board or any Person duly authorized to act on behalf of that board. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to close. "Cedel" means Cedel Bank, societe anonyme. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company either by (i) its Chairman of the Board, its Vice Chairman, its President, a Vice President, its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee, or (ii) any Person or Persons designated in a Board Resolution, or in a Company Order previously delivered to the Trustee signed by any of the foregoing, and delivered to the Trustee. "Consolidated Net Tangible Assets" means the total of all assets (including revaluations thereof as a result of commercial appraisals, price level restatement or otherwise) appearing on the most recent consolidated balance sheet of the Company as of the date of determination, net of applicable reserves and deductions, but excluding goodwill, trade names, trademarks, patents, unamortized debt discount and all other like intangible assets (which term shall not be construed to include such revaluations), less the aggregate of the consolidated current liabilities of the Company appearing on such balance sheet. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 38 Fountain Square Plaza, Cincinnati, Ohio 45263. "corporation" means a corporation, association, company, limited liability company, joint-stock company or business trust. "Debenture Custodian" means the Trustee, as custodian with respect to the Debentures in global form, or any successor entity thereto. "Debenture Register" and "Debenture Registrar" have the respective meanings specified in Section 204. "Debentures" has the meaning specified in the first paragraph of the Recitals of the Company. "Debt" means all obligations of the Company evidenced by bonds, debentures, notes or similar evidences of indebtedness in each case for money borrowed. "Default" means any event that is or with the passage of time or the giving of notice or both would become an Event of Default. "Defaulted Interest" has the meaning specified in Section 207. "Defeasance" has the meaning specified in Section 1102. "Definitive Debenture" means a certificated Debenture registered in the name of the Holder thereof and issued in accordance with Article Two hereof, in the form of Exhibit A-1 hereto except that such Debenture shall not bear the Global Debenture Legend and shall not have the "Schedule of Exchanges of Interests in the Global Debenture" attached hereto. "Depositary" means The Depository Trust Company until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean such successor Depositary. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. "Exchange Offer" means an exchange offer pursuant to a registration statement under the Securities Act, registering securities substantially identical to the Debentures, as provided by the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Exchange Debentures" means the Debentures issued in the Exchange Offer pursuant to Section 206. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, in each case, as in effect in the United States on the date hereof. "Global Debenture Legend" means the legend set forth in Section 206(f)(ii), which is required to be placed on all Global Debentures issued under this Indenture. "Global Debentures" means, individually and collectively, each of the Restricted Global Debentures and the Unrestricted Global Debentures in the form of Exhibit A hereto issued in accordance with Section 201, 206(b)(iv) or 206(d)(ii). "Holder" means a Person in whose name a Debenture is registered in the Debenture Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Indirect Participant" means a Person who holds a beneficial interest in a Global Debenture through a Participant. "Initial Purchasers" means Salomon Smith Barney Inc., Barclays Capital Inc., Chase Securities Inc. and Morgan Stanley & Co. Incorporated. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Debentures. "Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time. "Issue Date" means the date the Debentures are originally issued under this Indenture. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Debentures for use by such Holders in connection with the Exchange Offer. "Lien" means any mortgage, lien, pledge, security interest or other encumbrance; provided, however, that the term "Lien" shall not mean any easements, rights-of-way, restrictions and other similar encumbrances and encumbrances consisting of zoning restrictions, leases, subleases, licenses, sublicenses, restrictions on the use of property or defects in the title thereto. "Maturity", when used with respect to any Debenture, means the date on which the principal of such Debenture becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Non-U.S. Person" means a Person who is not a U.S. person, as defined in Regulation S. "Offering Memorandum" means the Offering Memorandum dated April 13, 1999, offering Debentures for sale as provided therein. "Officers' Certificate" means a certificate signed in the same manner and by the same Persons as provided for in a Company Request or a Company Order, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be (external or in-house) counsel for the Company, and who shall be acceptable to the Trustee. "Outstanding", when used with respect to Debentures, means, as of the date of determination, all Debentures theretofore authenticated and delivered under this Indenture, except: (i) Debentures theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Debentures for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Debentures; provided that, if such Debentures are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Debentures as to which Defeasance has been effected pursuant to Section 1102; and (iv) Debentures which have been paid or in exchange for or in lieu of which other Debentures have been authenticated and delivered pursuant to this Indenture, other than any such Debentures in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Debentures are held by a bona fide purchaser in whose hands such Debentures are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Debentures have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debentures which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Affiliate of the Company or of such other obligor. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "Participating Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Debentures on behalf of the Company. The Trustee shall initially be the Paying Agent. "Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Debenture" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture. "Private Placement Legend" means the legend set forth in Section 206(g)(i) hereof to be placed on all Debentures issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Purchase Agreement" means the Purchase Agreement entered into by the Company and the Initial Purchasers in connection with the sale of the Debentures. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Redemption Date", when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of April 16, 1999, between the Company and the Initial Purchasers, for the benefit of themselves and the Holders, as the same may be amended or modified from time to time in accordance with the terms thereof. "Regular Record Date" for the interest payable on any Interest Payment Date means the Business Day immediately preceding such Interest Payment Date. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Debenture" means a Regulation S Temporary Global Debenture or Regulation S Permanent Global Debenture, as appropriate. "Regulation S Permanent Global Debenture" means a permanent global Debenture in the form of Exhibit A-1 hereto bearing the Global Debenture Legend and the Private Placement Legend, if applicable, and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Debenture upon expiration of the Restricted Period. "Regulation S Temporary Global Debenture" means a temporary global Debenture in the form of Exhibit A-2 hereto bearing the Global Debenture Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Debentures initially sold in reliance on Rule 903 of Regulation S. "Responsible Officer" means any officer of the Trustee within the Corporate Trust Office of the Trustee including any vice president, assistant vice president, secretary, assistant secretary, trust officer, assistant trust officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer of the Trustee to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restricted Definitive Debenture" means a Definitive Debenture bearing the Private Placement Legend. "Restricted Global Debenture" means a Global Debenture bearing the Private Placement Legend. "Restricted Period" means the 40-day restricted period as defined in Regulation S. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 144A Global Debenture" means the form of the Debentures initially sold to QIBs. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "Sale and Lease-Back Transaction" means any transaction entered into by the Company with any Person providing for the leasing by the Company of any assets which have been or are to be sold or transferred by the Company to such Person. "Secured Debt" has the meaning specified in Section 1006. "Securities Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Special Record Date" for the payment of Defaulted Interest means a date fixed by the Trustee pursuant to Section 207. "Stated Maturity", when used with respect to the Debentures or any installment of interest thereon, means the date specified in the Debentures as the fixed date on which the principal thereof or such installment of interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Global Debenture" means a permanent global Debenture in the form of Exhibit A-1 attached hereto that bears the Global Debenture Legend and that has the "Schedule of Exchanges of Interests in the Global Debenture" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Debentures that do not bear the Private Placement Legend. "Unrestricted Definitive Debenture" means one or more Definitive Debentures that do not bear and are not required to bear the Private Placement Legend. "U.S. Government Obligation" has the meaning specified in Section 1104. "U.S. Person" means (i) any individual resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any estate of which an executor or administrator is a U.S. Person (other than an estate governed by foreign law and of which at least one executor or administrator is a non-U.S. Person who has sole or shared investment discretion with respect to its assets), (iv) any trust of which any trustee is a U.S. Person (other than a trust of which at least one trustee is a non-U.S. Person who has sole or shared investment discretion with respect to its assets and no beneficiary of the trust (and no settler, if the trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign entity located in the United States, (vi) any non-discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. Person, (vii) any discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States (other than such an account held for the benefit or account of a non-U.S. Person), (viii) any partnership or corporation organized or incorporated under the laws of a foreign jurisdiction and formed by a U.S. Person principally for the purpose of investing in securities not registered under the Securities Act (unless it is organized or incorporated and owned, by "accredited investors" within the meaning of Rule 501(a) under the Securities Act who are not natural persons, estates or trusts); provided that the term "U.S. Person" shall not include (A) a branch or agency of a U.S. Person that is located and operating outside the United States for valid business purposes as a locally regulated branch or agency engaged in the banking or insurance business, (B) any employee benefit plan established and administered in accordance with the law, customary practices and documentation of a foreign country and (C) the international organizations set forth in Section 902(o)(7) of Regulation S under the Securities Act and any other similar international organizations, and their agencies, affiliates and pension plans. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". Section 102. Compliance Certificates and OpinionsSection 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a statement that, in the opinion of each such individual, such individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and (3) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 103. Form of Documents Delivered to TrusteeSection 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 104. Acts of Holders; Record DatesSection 104. Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Debentures shall be proved by the Debenture Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. Section 105. Notices, Etc., to Trustee and CompanySection 105. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Section 106. Notice to Holders; Waiver.Section 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at such Holder's address as it appears in the Debenture Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be deemed conclusively to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 107. Conflict with Trust Indenture ActSection 107. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 108. Effect of Headings and Table of ContentsSection 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 109. Successors and AssignsSection 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 110. Separability ClauseSection 110. Separability Clause. In case any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 111. Benefits of IndentureSection 111. Benefits of Indenture. Nothing in this Indenture or in the Debentures, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Debentures, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 112. Governing LawSection 112. Governing Law. This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the State of New York. Section 113. Legal HolidaysSection 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Debenture shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Debentures) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. Section 114. Certain Matters Relating to CurrenciesSection 114. Certain Matters Relating to Currencies. Whenever any action or Act is to be taken hereunder by the Holders of Debentures denominated in different currencies or currency units, then for purposes of determining the principal amount of Debentures held by such Holders, the aggregate principal amount of the Debentures denominated in a foreign currency or currency unit shall be deemed to be that amount of Dollars that could be obtained for such principal amount on the basis of a spot exchange rate specified to the Trustee for such series in an Officers' Certificate for exchanging such foreign currency or currency unit into Dollars as of the date of the taking of such action or Act by the Holders of the requisite percentage in principal amount of the Debentures. The Trustee shall segregate moneys, funds and accounts held by the Trustee in one currency or currency unit from any moneys, funds or accounts held in any other currencies or currency units, notwithstanding any provision herein that would otherwise permit the Trustee to commingle such amounts. Section 115. Immunity of Incorporators, Stockholders, Officers and DirectorsSection 115. Immunity of Incorporators, Stockholders, Officers and Directors. No recourse shall be had for the payment of the principal of (and premium, if any), or the interest, if any, on any Debentures of any series, or for any claim based thereon, or upon any obligation, covenant or agreement of this Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise; it being expressly agreed and understood that this Indenture and all the Debentures of each series are solely corporate obligations, and that no personal liability whatever shall attach to, or is incurred by, any incorporator, stockholder, officer or director, past, present or future, of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, because of the incurring of the indebtedness hereby authorized or under or by reason of any of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures of any series, or to be implied herefrom or therefrom; and that all such personal liability is hereby expressly released and waived as a condition of, and as part of the consideration for, the execution of this Indenture and the issuance of the Debentures of each series. Section 116. CounterpartsSection 116. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 117. Assignment to AffiliateSection 117. Assignment to Affiliate. The Company will have the right at all times to assign by indenture supplemental hereto any of its rights or obligations under the Indenture to a direct, indirect, or wholly owned Affiliate of the Company; provided that, in the event of any such assignment, the Company will remain liable for all such obligations. ARTICLE TWO ARTICLE TWO The Debentures Section 201. Form, Denominations and Terms.Section 201. Form, Denominations and Terms. (a) General. The Debentures and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Debentures may have notations, legends or endorsements required by law, stock exchange rule or usage. The Debentures shall be in denominations of $100,000 and any integral multiple of $1,000 above that amount. The aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is limited to $200 million, except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures pursuant to the provisions hereof. The terms and provisions contained in the Debentures shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Debenture conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Debentures. Debentures issued in global form shall be substantially in the form of Exhibit A-1 attached hereto (including the Global Debenture Legend thereon and the "Schedule of Exchanges of Interests in the Global Debenture" attached thereto). Debentures issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Debenture Legend thereon and without the "Schedule of Exchanges of Interests in the Global Debenture" attached thereto). Each Global Debenture shall represent such of the outstanding Debentures as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Debentures from time to time endorsed thereon and that the aggregate principal amount of outstanding Debentures represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Debenture to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Debentures represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 206 hereof. (c) Temporary Global Debentures. Debentures offered and sold in reliance on Regulation S shall be issued initially in the form of Exhibit A-2 attached hereto, which shall be deposited on behalf of the purchasers of the Debentures represented thereby with the Trustee, at its Cincinnati office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as herein provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Debenture (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a Rule 144A Global Debenture, all as contemplated by Section 206(a)(ii)), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Debenture shall be exchanged for beneficial interests in Regulation S Permanent Global Debentures pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Debentures, the Trustee shall cancel the Regulation S Temporary Global Debenture. The aggregate principal amount of the Regulation S Temporary Global Debenture and the Regulation S Permanent Global Debentures may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (d) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Debenture and the Regulation S Permanent Global Debentures that are held by Participants through Euroclear or Cedel Bank. Section 202. Execution, Authentication, Delivery and Dating.Section 202. Execution, Authentication, Delivery and Dating. The Debentures shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President, one of its Vice Presidents, or its Treasurer. The signature of any of these officers on the Debentures may be manual or facsimile. Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Debentures. The Company Order shall specify the amount of Debentures to be authenticated and whether the Debentures are to be Exchange Debentures, and shall further specify the amount of such Debentures to be issued as a Global Debenture and the form thereof. The Trustee in accordance with such Company Order shall authenticate and deliver such Debentures as in this Indenture provided and not otherwise. Each Debenture shall be dated the date of its authentication. No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and delivered hereunder. Section 203. Temporary Debentures.Section 203. Temporary Debentures. Pending the preparation of definitive Debentures, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Debentures which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Debentures may determine, as evidenced by their execution of such Debentures. If temporary Debentures are issued, the Company will cause definitive Debentures to be prepared without unreasonable delay. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures upon surrender of the temporary Debentures at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Debentures of authorized denominations. Until so exchanged the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. Section 204. Debenture Registrar and Paying Agent.Section 204. Debenture Registrar and Paying Agent. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Debentures and of transfers of Debentures. The Trustee is hereby appointed "Debenture Registrar" for the purpose of registering Debentures and transfers of Debentures as herein provided. The Trustee is also appointed to act as Debenture Custodian with respect to the Global Debentures. The Company shall also maintain an office or agency where Debentures may be presented for payment. The Company initially appoints the Trustee to act as the Paying Agent for the Debentures. The Depositary is hereby appointed the Depositary for the Debentures. No service charge shall be made for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Debentures, other than exchanges pursuant to Section 203 or 906 not involving any transfer. Section 205. Replacement Debentures.Section 205. Replacement Debentures. If any mutilated Debenture is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Debenture and (ii) such debenture or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debenture, pay such Debenture. Upon the issuance of any new Debenture under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Debenture issued pursuant to this Section in lieu of any destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. Section 206. Transfer and Exchange of DebenturesSection 206. Transfer and Exchange of Debentures. (a) Transfer and Exchange of Global Debentures. A Global Debenture may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Debentures will be exchanged by the Company for Definitive Debentures if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Debentures (in whole but not in part) should be exchanged for Definitive Debentures and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Debenture be exchanged by the Company for Definitive Debentures prior to (x) the expiration of the Restricted Period and (y) the receipt by the Debenture Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act or (iii) there shall have occurred and be continuing a default or an Event of Default and the Trustee receives a request from the Depositary to issue Definitive Debentures. Upon the occurrence of any of the preceding events, Definitive Debentures shall be issued in such names as the Depositary shall instruct the Trustee. Global Debentures also may be replaced, in whole or in part, as provided in Sections 203 and 205. Every Debenture authenticated and delivered in exchange for, or in lieu of, a Global Debenture or any portion thereof, pursuant to this Section 206 or Sections 203 or 205, shall be authenticated and delivered in the form of, and shall be, a Global Debenture. A Global Debenture may not be exchanged for another Debenture other than as provided in this Section 206(a), however, beneficial interests in a Global Debenture may be transferred and exchanged as provided in Section 206(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Debentures. The transfer and exchange of beneficial interests in the Global Debentures shall be effected through the Depositary, in accordance with the provisions of this Supplemental Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Debentures shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Debentures also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Debenture. Beneficial interests in any Restricted Global Debenture may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Debenture in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Debentures may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Debenture may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture. No written orders or instructions shall be required to be delivered to the Debenture Registrar to effect the transfers described in this Section 206(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Debentures. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 206(b)(i) above, the transferor of such beneficial interest must deliver to the Debenture Registrar either (A)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Debenture in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Debenture in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Debenture Registrar containing information regarding the Person in whose name such Definitive Debenture shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Debentures be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Debenture prior to (x) the expiration of the Restricted Period and (y) the receipt by the Debenture Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 206(f) hereof, the requirements of this Section 206(b)(ii) shall be deemed to have been satisfied upon receipt by the Debenture Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interest in the Restricted Global Debentures. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Debentures contained in this Supplemental Indenture and the Debentures or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Debenture(s) pursuant to Section 206(h). (iii) Transfer of Beneficial Interests to Another Restricted Global Debenture. A beneficial interest in any Restricted Global Debenture may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Debenture if the transfer complies with the requirements of Section 206(b)(ii) above and the Debenture Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the Rule 144A Global Debenture, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Debenture or the Regulation S Global Debenture, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Debenture for Beneficial Interests in the Unrestricted Global Debenture. A beneficial interest in any Restricted Global Debenture may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Debenture or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture if the exchange or transfer complies with the requirements of Section 206(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Debentures or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Debenture Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Debenture, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Debenture proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Debenture Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Debenture Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) at a time when an Unrestricted Global Debenture has not yet been issued, the Company shall issue and the Trustee shall authenticate, pursuant to Section 202, one or more Unrestricted Global Debentures in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Debenture cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Debenture. (c) Transfer or Exchange of Beneficial Interests for Definitive Debentures. (i) Beneficial Interests in Restricted Global Debentures to Restricted Definitive Debentures. If any holder of a beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a Restricted Definitive Debenture or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Debenture, then, upon receipt by the Debenture Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a Restricted Definitive Debenture, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to the Company or any of its subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Debenture to be reduced accordingly pursuant to Section 206(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Debenture in the appropriate principal amount. Any Definitive Debenture issued in exchange for a beneficial interest in a Restricted Global Debenture pursuant to this Section 206(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Debenture Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Debentures to the Persons in whose names such Debentures are so registered. Any Definitive Debenture issued in exchange for a beneficial interest in a Restricted Global Debenture pursuant to this Section 206(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Restrictions on Exchanges of Regulation S Temporary Global Debentures. Notwithstanding Sections 206(c)(i)(A) and (C), a beneficial interest in the Regulation S Temporary Global Debenture may not be exchanged for a Definitive Debenture or transferred to a Person who takes delivery thereof in the form of a Definitive Debenture prior to (x) the expiration of the Restricted Period and (y) the receipt by the Debenture Registrar of any certificates required pursuant to Rule 903 under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Debentures to Unrestricted Definitive Debentures. A holder of a beneficial interest in a Restricted Global Debenture may exchange such beneficial interest for an Unrestricted Definitive Debenture or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Debenture only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Debentures or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Debenture Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a Definitive Debenture that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Debenture proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Debenture that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Debenture Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Debenture Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) Beneficial Interests in Unrestricted Global Debentures to Unrestricted Definitive Debentures. If any holder of a beneficial interest in an Unrestricted Global Debenture proposes to exchange such beneficial interest for a Definitive Debenture or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Debenture, then, upon satisfaction of the conditions set forth in Section 206(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Debenture to be reduced accordingly pursuant to Section 206(h), and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Debenture in the appropriate principal amount. Any Definitive Debenture issued in exchange for a beneficial interest pursuant to this Section 206(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Debenture Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Debentures to the Persons in whose names such Debentures are so registered. Any Definitive Debenture issued in exchange for a beneficial interest pursuant to this Section 206(c)(iv) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Debentures for Beneficial Interests. (i) Restricted Definitive Debentures to Beneficial Interests in Restricted Global Debentures. If any Holder of a Restricted Definitive Debenture proposes to exchange such Debenture for a beneficial interest in a Restricted Global Debenture or to transfer such Restricted Definitive Debentures to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Debenture, then, upon receipt by the Debenture Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Debenture proposes to exchange such Debenture for a beneficial interest in a Restricted Global Debenture, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Definitive Debenture is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Debenture is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Debenture is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof, or (E) if such Restricted Definitive Debenture is being transferred to the Company or any of its subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (F) if such Restricted Definitive Debenture is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Debenture, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Debenture, in the case of clause (B) above, the Rule 144A Global Debenture, and in the case of clause (C) above, the Regulation S Global Debenture. (ii) Restricted Definitive Debentures to Beneficial Interests in Unrestricted Global Debentures. A Holder of a Restricted Definitive Debenture may exchange such Debenture for a beneficial interest in an Unrestricted Global Debenture or transfer such Restricted Definitive Debenture to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Debentures or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Debenture Registrar receives the following: (1) If the Holder of such Definitive Debentures proposes to exchange such Debentures for a beneficial interest in the Unrestricted Global Debenture, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) If the Holder of such Definitive Debentures proposes to transfer such Debentures to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Debenture, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), and if the Debenture Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Debenture Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 206(d)(ii), the Trustee shall cancel the Definitive Debentures and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Debenture. (iii) Unrestricted Definitive Debentures to Beneficial Interests in Unrestricted Global Debentures. A Holder of an Unrestricted Definitive Debenture may exchange such Debenture for a beneficial interest in an Unrestricted Global Debenture or transfer such Definitive Debentures to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Debenture and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Debentures. If any such exchange or transfer from a Definitive Debenture to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Debenture has not yet been issued, the Company shall issue and the Trustee shall authenticate, pursuant to Section 202, one or more Unrestricted Global Debentures in an aggregate principal amount equal to the principal amount of Definitive Debentures so transferred. (e) Transfer and Exchange of Definitive Debentures for Definitive Debentures. Upon request by a Holder of Definitive Debentures and such Holder's compliance with the provisions of this Section 206(e), the Debenture Registrar shall register the transfer or exchange of Definitive Debentures. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Debenture Registrar the Definitive Debentures duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Debenture Registrar duly executed by such Holder or by the Holder's attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 206(e). (i) Restricted Definitive Debentures to Restricted Definitive Debentures. Any Restricted Definitive Debenture may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Debenture if the Debenture Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Debentures to Unrestricted Definitive Debentures. Any Restricted Definitive Debenture may be exchanged by the Holder thereof for an Unrestricted Definitive Debenture or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Debenture if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Debentures or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Debenture Registrar receives the following: (1) if the Holder of such Restricted Definitive Debentures proposes to exchange such Debentures for an Unrestricted Definitive Debenture, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Debentures proposes to transfer such Debentures to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Debenture, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and in each such case set forth in this subparagraph (D), if the Debenture Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Debentures to Unrestricted Definitive Debentures. A Holder of Unrestricted Definitive Debentures may transfer such Debentures to a Person who takes delivery thereof in the form of an Unrestricted Definitive Debenture. Upon receipt of a request to register such a transfer, the Debenture Registrar shall register the Unrestricted Definitive Debentures pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and the Trustee shall authenticate, pursuant to Section 202, (i) one or more Unrestricted Global Debentures in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Debentures tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Debentures and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Debentures in an aggregate principal amount equal to the principal amount of the Restricted Definitive Debentures accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Debentures, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Debentures to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Debentures so accepted Definitive Debentures in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Debentures and Definitive Debentures issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Debenture and each Definitive Debenture (and all Debentures issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS DEBENTURE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT HAS ACQUIRED THIS DEBENTURE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS DEBENTURE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS DEBENTURE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE FIRST SUPPLEMENTAL INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING." (B) Notwithstanding the foregoing, any Global Debenture or Definitive Debenture issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 206 (and all Debentures issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Debenture Legend. Each Global Debenture shall bear a legend in substantially the following form: "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (iii) Regulation S Temporary Global Debenture Legend. The Regulation S Temporary Global Debenture shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL DEBENTURE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED DEBENTURES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL DEBENTURE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Debentures. At such time as all beneficial interests in a particular Global Debenture have been exchanged for Definitive Debentures or a particular Global Debenture has been redeemed, repurchased or canceled in whole and not in part, each such Global Debenture shall be returned to or retained and canceled by the Trustee in accordance with Section 209. At any time prior to such cancellation, if any beneficial interest in a Global Debenture is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Debenture or for Definitive Debentures, the principal amount of Debentures represented by such Global Debenture shall be reduced accordingly and an endorsement shall be made on such Global Debenture by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Debenture, such other Global Debenture shall be increased accordingly and an endorsement shall be made on such Global Debenture by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Debentures and Definitive Debentures upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Debenture or to a Holder of a Definitive Debenture for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to this Section 206). (iii) The Debenture Registrar shall not be required to register the transfer of or exchange any Debenture selected for redemption in whole or in part, except the unredeemed portion of any Debenture being redeemed in part. (iv) All Global Debentures and Definitive Debentures issued upon any registration of transfer or exchange of Global Debentures or Definitive Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Debentures or Definitive Debentures surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Debentures during a period beginning at the opening of business 15 days before the day of any selection of Debentures for redemption under Section 301 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Debenture so selected for redemption in whole or in part, except the unredeemed portion of any Debenture being redeemed in part or (c) to register the transfer of or to exchange a Debenture between a record date and the next succeeding Interest Payment Date. (vi) The Trustee shall authenticate Global Debentures and Definitive Debentures in accordance with the provisions of Section 202. (vii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 206 to effect a registration of transfer or exchange may be submitted by facsimile. Section 207. Payment of Interest; Interest Rights PreservedSection 207. Payment of Interest; Interest Rights Preserved. Interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Debenture Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. Section 208. Persons Deemed Owners.Section 208. Persons Deemed Owners. Prior to due presentment of a Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Debenture is registered as the owner of such Debenture for the purpose of receiving payment of principal of, premium (if any) and (subject to Section 207) interest on such Debenture and for all other purposes whatsoever, whether or not such Debenture be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 209. Cancellation.Section 209. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Debentures previously authenticated hereunder which the Company has not issued and sold. The Trustee shall cancel and destroy all Debentures surrendered for registration of transfer, exchange, payment or cancellation and shall deliver certificates of destruction to the Company, all in accordance with its customary practices. The Company may not issue new Debentures to replace Debentures it has paid in full or delivered to the Trustee for cancellation. Section 210. Computation of Interest.Section 210. Computation of Interest. Interest on the Debentures shall be computed on the basis of a 360-day year of twelve 30-day months. Section 211. CUSIP NumbersSection 211. CUSIP Numbers. The Company in issuing the Debentures may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee may use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE THREE ARTICLE THREE Redemption of Debentures Section 301. RedemptionSection 301. Redemption. The Debentures shall not be subject to redemption prior to their Stated Maturity except as follows: (a) Optional Redemption. The Debentures are redeemable, in whole or from time to time in part, at the option of the Company on any date (each, a "Redemption Date") at a redemption price equal to the greater of (a) 100% of the principal amount of the Debentures to be redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to such Redemption Date) discounted to such Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to such Redemption Date. Notwithstanding the foregoing, installments of interest on the Debentures that are due and payable on an Interest Payment Date falling on or prior to the relevant Redemption Date will be payable to the Holders of such Debentures registered as such at the close of business on the relevant Regular Record Date according to their terms and the provisions of Sections 207 and 208. "Treasury Rate" means, with respect to any Redemption Date for Debentures (a) the yield, under the heading that represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15(519)" or any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Final Maturity Date, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding to the nearest month) or (b) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date. As used in the immediately preceding sentence and in the definition of "Reference Treasury Dealer Quotations" below, the term "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. "Comparable Treasury Issue" means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Debentures to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Debentures. "Independent Investment Banker" means Salomon Smith Barney Inc. or, if such firm is unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any Redemption Date for Debentures (a) the average of four Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (b) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer" means each of Salomon Smith Barney Inc., Barclays Capital Inc., Chase Securities Inc. and Morgan Stanley & Co. Incorporated and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in the City of New York (a "Primary Treasury Dealer"), the Company will substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time, on the third Business Day preceding such Redemption Date. "Final Maturity Date" means April 15, 2004. Notice of any redemption by the Company will be mailed at least 30 days but not more than 60 days before the relevant Redemption Date to each holder of Debentures to be redeemed. If less than all the Debentures are to be redeemed at the option of the Company, the Trustee will select, in such manner as it deems fair and appropriate, the Debentures to be redeemed. Unless the Company defaults in payment of the redemption price, on and after the Redemption Date interest will cease to accrue on the Debentures or portions thereof called for redemption. Section 302. Selection by Trustee of Debentures to Be RedeemedSection 302. Selection by Trustee of Debentures to Be Redeemed. If less than all the Debentures are to be redeemed (unless all the Debentures are to be redeemed or unless such redemption affects only a single Debenture), the particular Debentures to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debentures of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Debenture of such series, provided that the unredeemed portion of the principal amount of any Debenture shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Debenture. If less than all the Debentures are to be redeemed (unless such redemption affects only a single Debenture), the particular Debentures to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debentures not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Debentures selected for redemption as aforesaid and, in case of any Debentures selected for partial redemption as aforesaid, the principal amount thereof to be redeemed. The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Debenture, whether such Debenture is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Debenture shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Debenture. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debentures shall relate, in the case of any Debentures redeemed or to be redeemed only in part, to the portion of the principal amount of such Debentures which has been or is to be redeemed. Section 303. Notice of RedemptionSection 303. Notice of Redemption. Notice of redemption shall be given to each Holder of Debentures to be redeemed, at such Holder's address appearing in the Debenture Register. All notices of redemption shall identify the Debentures to be redeemed and shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all the Outstanding Debentures consisting of more than a single Debenture are to be redeemed, the identification (and, in the case of partial redemption of any such Debentures, the principal amounts) of the particular Debentures to be redeemed and, if less than all the Outstanding Debentures consisting of a single Debenture are to be redeemed, the principal amount of the particular Debenture to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Debenture to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, and (5) the place or places where each such Debenture is to be surrendered for payment of the Redemption Price. Notice of redemption of Debentures to be redeemed shall be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Debenture designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Debenture. Section 304. Deposit of Redemption PriceSection 304. Deposit of Redemption Price. On or before any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Debentures which are to be redeemed on that date. Section 305. Debentures Payable on Redemption DateSection 305. Debentures Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Debentures so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Debentures shall cease to bear interest. Upon surrender of any such Debenture for redemption in accordance with said notice, such Debenture shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Debentures, or one or more Predecessor Debentures, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 207. Section 306. Debentures Redeemed in PartSection 306. Debentures Redeemed in Part. Any Debenture which is to be redeemed only in part shall be surrendered at the office or agency of the Company designated pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Debenture without service charge, a new Debenture or Debentures and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debenture so surrendered; provided, however, that a Depositary need not surrender a Global Debenture for a partial redemption and may be authorized to make a notation on such Global Debenture of such partial redemption. In the case of a partial redemption of a Global Debenture, the Depositary, and in turn, the participants in the Depositary, shall have the responsibility to select any Debentures to be redeemed by random lot. ARTICLE FOUR ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture.Section 401. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Debentures herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Debentures theretofore authenticated and delivered (other than (i) Debentures which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Debentures for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Debentures not theretofore delivered to the Trustee for cancellation (i) have become due and payable or (ii) will become due and payable at their Stated Maturity within one year, and the Company, in the case of (A)(i) or (ii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness evidenced by such Debentures not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Debentures which have become due and payable) or to the Stated Maturity, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. Section 402. Application of Trust Money.Section 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE ARTICLE FIVE Remedies Section 501. Events of Default.Section 501. Events of Default. "Event of Default", wherever used herein, 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 any Debenture 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 any Debenture at its Maturity; or (3) default in the performance, or breach, of any covenant, agreement or condition of the Company in this Indenture or the Debentures, and continuance of such default for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 35% in principal amount of the Outstanding Debentures a written notice specifying such default 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 of a voluntary 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 by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it 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. Section 502. Acceleration of Maturity; Rescission and AnnulmentSection 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than those specified in Sections 501(4) and 501(5)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 35% in principal amount of the Outstanding Debentures may declare the principal of all the Debentures to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default specified in Sections 501(4) or 501(5), all Outstanding Debentures will ipso facto become due and payable without any declaration or other Act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Debentures, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Debentures, (B) the principal of any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Debentures, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607; and (2) all Events of Default, other than the nonpayment of the principal of Debentures which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 503. Collection of Indebtedness and Suits for Enforcement by TrusteeSection 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Debenture when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of any Debenture at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Debentures, the whole amount then due and payable on such Debentures for principal and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and on any overdue interest, at the rate borne by the Debentures, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default with respect to the Debentures occurs and is continuing, the Trustee may in its discretion, subject to applicable law, proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 504. Trustee May File Proofs of ClaimSection 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Debentures), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. Section 505. Trustee May Enforce Claims Without Possession of DebenturesSection 505. Trustee May Enforce Claims Without Possession of Debentures. All rights of action and claims under this Indenture or the Debentures may be prosecuted and enforced by the Trustee without the possession of any of the Debentures or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607, be for the ratable benefit of the Holders of the Debentures in respect of which such judgment has been recovered. Section 506. Application of Money Collected.Section 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal of, premium (if any) or interest, upon presentation of the Debentures and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; and SECOND: To the payment of the amounts then due and unpaid for principal of, premium (if any) and interest on the Debentures in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal and interest, respectively. THIRD: The balance, if any, to the Company. Section 507. Limitation on Suits.Section 507. Limitation on Suits. No Holder of any Debenture shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 35% in principal amount of the Outstanding Debentures shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Debentures; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest.Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right, which is absolute and unconditional, to receive payment of the principal of, premium (if any) and (subject to Section 307) interest on such Debenture on the respective Stated Maturities expressed in such Debenture (or, in the case of redemption, on the Redemption Date), and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 509. Restoration of Rights and Remedies.Section 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 510. Rights and Remedies Cumulative.Section 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 511. Delay or Omission Not WaiverSection 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Debenture 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 Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 512. Control by HoldersSection 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Debentures shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 513. Waiver of Past Defaults.Section 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Debentures may on behalf of the Holders of all the Debentures waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of, premium (if any) or interest on any Debenture, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Debenture affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 514. Undertaking for Costs.Section 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorney's fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any Suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the outstanding Debentures of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Debenture on or after the Stated Maturity of such Debenture (or, in the case of redemption, on or after the Redemption Date). Section 515. Waiver of Stay or Extension Laws.Section 515. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities.Section 601. Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. Section 602. Notice of Defaults.Section 602. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(3), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. Section 603. Certain Rights of Trustee.Section 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors of the Company may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. Section 604. Not Responsible for Recitals.Section 604. Not Responsible for Recitals. The recitals contained herein and in the Debentures, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of the Debentures or the proceeds thereof. Section 605. May Hold Debentures.Section 605. May Hold Debentures. The Trustee, any Paying Agent, any Debenture Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Debenture Registrar or such other agent. Section 606. Money Held in Trust.Section 606. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. Section 607. Compensation and ReimbursementSection 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section 607 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section 607, the Trustee shall have a lien prior to the Debentures on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on the Debentures. Such lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after a Default or an Event of Default specified in Sections 501(4) or 501(5) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under U.S. Code, Title 11 or any other similar foreign, federal or state law for the relief of debtors. Section 608. Disqualification; Conflicting Interests.Section 608. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 609. Corporate Trustee Required; Eligibility.Section 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 610. Resignation and Removal; Appointment of Successor.Section 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Debentures, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Debenture for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Debentures delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Section 611. Acceptance of Appointment by Successor.Section 611. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and, such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 612. Merger, Conversion, Consolidation or Successor to BusinessSection 612. Merger, Conversion, Consolidation or Successor to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. Section 613. Preferential Collection of Claims Against Company.Section 613. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). For purposes of Section 311(b) (4) and (6) of the Trust Indenture Act, the following terms shall mean: (a) "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; and (b) "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. ARTICLE SEVEN ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders.Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) on each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Debenture Registrar; provided, however, that no such list need be furnished so long as the Trustee is acting as Debenture Registrar. Section 702. Preservation of Information; Communications to Holders.Section 702. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Debenture Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Debentures, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. Section 703. Reports by Trustee.Section 703. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than January 31, in each calendar year, commencing in January 2000. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Debentures are listed, with the Commission and with the Company. The Company will notify the Trustee when the Debentures are listed on any stock exchange. Section 704. Reports by Company.Section 704. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. In the event the Company is not subject to Section 13 or 15(d) of the Exchange Act, it shall file with the Trustee upon request the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. ARTICLE EIGHT ARTICLE EIGHT Consolidation, Merger and Sale Section 801. Consolidations and Mergers Permitted.Section 801. Consolidations and Mergers Permitted. Nothing contained in this Indenture or in any of the Debentures 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 assets or 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 (premium, if any) and interest on all of the Debentures, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee 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 assets or property. Section 802. Rights and Duties of Successor CompanySection 802. Rights and Duties of Successor Company. In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of, premium, if any, and interest on all of the Debentures and the due and punctual performance of all of the covenants and conditions of this Indenture 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 Indenture and the Debentures. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company or any other predecessor obligor on the Debentures, any or all of the Debentures issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor company, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Debentures which previously shall have been signed and delivered by the officers of the predecessor Company to the Trustee for authentication, and any Debentures which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. Nothing contained in this Indenture or in any of the Debentures 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). Section 803. Opinion of CounselSection 803. Opinion of Counsel. The Trustee may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article. ARTICLE NINE ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of HoldersSection 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Debentures; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default for the benefit of the Holders; or (4) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided that such action pursuant to this Clause (4) shall not adversely affect the interests of the Holders in any material respect. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations which may be therein contained. Any supplemental indenture authorized by the provisions of this Section may be executed by the Company and the Trustee without the consent of the Holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 902. Section 902. Supplemental Indentures with Consent of HoldersSection 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Debentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Debenture, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Debenture or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Debentures, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 513 or Section 1011, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debenture affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental IndenturesSection 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, in addition to the documents required by Section 102, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 904. Effect of Supplemental IndenturesSection 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture ActSection 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. Section 906. Reference in Debentures to Supplemental IndenturesSection 906. Reference in Debentures to Supplemental Indentures. Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debentures. ARTICLE TEN ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and InterestSection 1001. Payment of Principal, Premium and Interest. The Company shall duly and punctually pay the principal of, premium (if any) and interest on the Debentures in accordance with the terms of the Debentures and this Indenture. Section 1002. Maintenance of Office or AgencySection 1002. Maintenance of Office or Agency. The Company shall maintain in the City of Cincinnati, an office or agency where Debentures may be presented or surrendered for payment, where Debentures may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the City of Cincinnati, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 1003. Money for Debentures Payments to Be Held in TrustSection 1003. Money for Debentures Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of or interest on any of the Debentures, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of, premium (if any) or interest on any Debentures, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Debentures) in the making of any payment in respect of the Debentures, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Debenture and remaining unclaimed for 18 months after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Debenture shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 1004. Statement by Officers as to DefaultSection 1004. Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. Section 1005. ExistenceSection 1005. Existence. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. Section 1006. Maintenance of PropertiesSection 1006. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary. Section 1007. Payment of Taxes and Other ClaimsSection 1007. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 1008. Book-Entry SystemSection 1008. Book-Entry System. If the Debentures cease to trade in the Depositary's book-entry settlement system, the Company covenants and agrees that it shall use reasonable efforts to make such other book-entry arrangements that it determines are reasonable for the Debentures. Section 1009. Liens. The Company shall not issue, assume or guarantee any Debt secured by a Lien upon any property or assets (other than cash) of the Company without at the same time effectively providing that the outstanding Debentures (together with any other indebtedness or obligation then existing or thereafter created ranking equally with the Debentures) shall be secured equally and ratably with (or prior to) such Debt for so long as such Debt shall be so secured. The foregoing restriction on Liens shall not, however, apply to: (a) Liens in existence on the date of original issuance of the Debentures; (b) (i) any Lien created or arising over any property which is acquired, constructed or created by the Company, but only if (A) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) of Debt incurred for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto or a guarantee given in respect thereof, (B) such Lien is created or arises on or before 90 days after the completion of such acquisition, construction or creation and (C) such Lien is confined solely to the property so acquired, constructed or created; or (ii) any Lien to secure Debt of the Company incurred in connection with a specifically identifiable project where the Lien relates and is confined to a property or properties (including, without limitation, shares or other rights of ownership in the entity(ies) which own such property or project) involved in such project and acquired by the Company after the date of original issuance of the Debentures and the recourse of the creditors in respect of such Debt is limited to any or all of such project and property (including the foregoing shares or other rights of ownership; (c) any Lien securing amounts not more than 90 days overdue or otherwise being contested in good faith; (d) (i) rights of financial institutions to offset credit balances in connection with the operation of cash management programs established for the benefit of the Company or in connection with the issuance of letters of credit for the benefit of the Company; (ii) any Lien securing Debt of the Company incurred in connection with the financing of accounts receivable; (iii) any Lien incurred or deposits made in the ordinary course of business, including, but not limited to, (A) any mechanics', materialmen's, carriers', workmen's, vendors' or other like Liens and (B) any Liens securing amounts in connection with workers' compensation, unemployment insurance and other types of social security; (iv) any Lien upon specific items of inventory or other goods and proceeds of the Company securing obligations of the Company in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (v) any Lien incurred or deposits made securing the performance of tenders, bids, leases, trade contracts (other than for borrowed money), statutory obligations, surety bonds, appeal bonds, government contracts, performance bonds, return-of-money bonds and other obligations of like nature incurred in the ordinary course of business; (vi) any Lien constituted by a right of set off or right over a margin call account or any form of cash or cash collateral or any similar arrangement for obligations incurred in respect of the hedging or management of risks under transactions involving any currency or interest rate swap, cap or collar arrangements, forward exchange transaction, option, warrant, forward rate agreement, futures contract or other derivative instrument of any kind; (vii) any Lien arising out of title retention or like provisions in connection with the purchase of goods and equipment in the ordinary course of business; and (viii) any Lien securing reimbursement obligations under letters of credit, guarantees and other forms of credit enhancement given in connection with the purchase of goods and equipment in the ordinary course of business; (e) (i) Liens on any property or assets acquired from a corporation which is merged with or into the Company and is not created in anticipation of any such transaction (unless such Lien was created to secure or provide for the payment of any part of the purchase price of such corporation) and (ii) any Lien on any property or assets existing at the time of acquisition thereof by the Company and which is not created in anticipation of such acquisition (unless such Lien was created to secure or provide for the payment of any part of the purchase price of such property or assets); (f) (i) Liens required by any contract or statute in order to permit the Company to perform any contract or subcontract made by it with or at the request of a governmental entity or any department, agency or instrumentality thereof, or to secure partial, progress, advance or any other payments by the Company to such governmental unit pursuant to the provisions of any contract or statute; (ii) any Lien securing industrial revenue, development or similar bonds issued by or for the benefit of the Company, provided that such industrial revenue, development or similar bonds are nonrecourse to the Company; and (iii) any Lien securing taxes or assessments or other applicable governmental charges or levies; (g) (i) any Lien which arises pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings and any Lien which secures the reimbursement obligation for any bond obtained in connection with an appeal taken in any court proceeding, so long as the execution or other enforcement of such Lien arising pursuant to such legal process is effectively stayed and the claims secured thereby are being contested in good faith and, if appropriate, by appropriate legal proceedings, or any Lien in favor of a plaintiff or defendant in any action before a court or tribunal as security for costs or expenses; or (ii) any Lien arising by operation of law or by order of a court or tribunal or any lien arising by an agreement of similar effect, including, without limitation, judgement liens; or (h) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses, for amounts not exceeding the principal amount of the Debt secured by the Lien so extended, renewed or replaced, provided that such extension, renewal or replacement Lien is limited to all or a part of the same property or assets that were covered by the Lien extended, renewed or replaced (plus improvements on such property or assets). Notwithstanding the foregoing restrictions, the Company shall be entitled, in addition to amounts permitted by this Section 1009, to create Indebtedness secured by Liens to the extent provided in the second paragraph of Section 1010. Section 1010. Limitation on Sale and Lease-Back Transactions. So long as any of the Debentures remain Outstanding, the Company shall not enter into any Sale and Lease-Back Transaction unless: (i) such transaction involves a lease for a temporary period not to exceed three years; (ii) such transaction is between the Company and an affiliate of the Company; (iii) the Company would be entitled to incur Debt secured by a Lien on the assets or property involved in such transaction at least equal in amount to the Attributable Debt with respect to such Sale and Lease-Back Transaction, without equally and ratably securing the Debentures, as provided in Section 1009; (iv) such transaction is entered into within 90 days after the initial acquisition by the Company of the assets or property subject to such transaction; (v) the Company, within the 12 months preceding the sale or transfer or the 12 months following the sale or transfer, regardless of when such sale or transfer may have been made by the Company, applies in the case of a sale or transfer for cash, an amount equal to the net proceeds thereof and, in the case of a sale or transfer otherwise than for cash, an amount equal to the fair value of the assets so leased at the time of entering into such arrangement (as determined by the Board of Directors of the Company), (a) to the retirement of Debt, incurred or assumed by the Company which by its terms matures at, or is extendible or renewable at the option of the obligor to, a date more than 12 months after the date of incurring, assuming or guaranteeing such Debt or (b) to investment in any assets of the Company. Notwithstanding the restrictions on Liens set forth in Section 1009 and restrictions on Sale and Lease-Back Transactions set forth in this Section 1010, the Company shall be entitled, in addition to amounts permitted under such restrictions, to create Indebtedness secured by Liens, or to enter into Sale and Lease-Back Transactions; provided that, after giving effect thereto, the aggregate outstanding amount of all such Indebtedness secured by Liens plus Attributable Debt resulting from such Sale and Lease-Back Transactions shall not exceed 10% of Consolidated Net Tangible Assets. Section 1011. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in this Indenture if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Debentures shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. ARTICLE ELEVEN ARTICLE ELEVEN Defeasance and Covenant Defeasance Section 1101. Company's Option to Effect Defeasance or Covenant DefeasanceSection 1101. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may elect, at its option at any time, to have Section 1102 or Section 1103 applied to the Outstanding Debentures upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution. Section 1102. Defeasance and DischargeSection 1102. Defeasance and Discharge. Upon the Company's exercise of its option (if any) to have this Section applied to the Outstanding Debentures, the Company shall be deemed to have been discharged from its obligations with respect to such Debentures as provided in this Section on and after the date the conditions set forth in Section 1104 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Debentures and to have satisfied all its other obligations under such Debentures and this Indenture insofar as such Debentures are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of such Debentures to receive, solely from the trust fund described in Section 1104 and as more fully set forth in such Section, payments in respect of the principal of, premium (if any) and interest on such Debentures when payments are due, (2) the Company's obligations with respect to such Debentures under Sections 304, 305, 306, 1002 and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (4) this Article. Subject to compliance with this Article, the Company may exercise its option (if any) to have this Section applied to the Outstanding Debentures notwithstanding the prior exercise of its option (if any) to have Section 1103 applied to such Debentures. Section 1103. Covenant DefeasanceSection 1103. Covenant Defeasance. Upon the Company's exercise of its option (if any) to have this Section applied to any Debentures, (1) the Company shall be released from its obligations under Sections 801, 1006 and 1007, and (2) the occurrence of any event specified in Sections 501(3) (with respect to any of Sections 1006 and 1007) or 501(4) shall be deemed not to be or result in an Event of Default, in each case with respect to such Debentures as provided in this Section on and after the date the conditions set forth in Section 1104 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that, with respect to such Debentures, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 501(3)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Debentures shall be unaffected thereby. Section 1104. Conditions to Defeasance or Covenant DefeasanceSection 1104. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to the application of Section 1102 or Section 1103 to the then Outstanding Debentures: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee which satisfies the requirements contemplated by Section 609 and agrees to comply with the provisions of this Article applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefits of the Holders of such Debentures, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of, premium (if any) and interest on such Debentures on the respective Stated Maturities, in accordance with the terms of this Indenture and such Debentures. As used herein, "U.S. Government Obligation" means (x) any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government Obligation which is specified in Clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the event of an election to have Section 1102 apply to such Debentures, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this instrument, there has been a change in the applicable Federal income tax law, in either case (A) or (B) to the effect that, and based thereon such opinion shall confirm that, the Holders of such Debentures will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to such Debentures and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) In the event of an election to have Section 1103 apply to such Debentures, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Debentures will not recognize gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to such Debentures and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) The Company shall have delivered to the Trustee an Officer's Certificate to the effect that such Debentures, if then listed on any securities exchange, will not be delisted as a result of such deposit. (5) No event which is, or after notice or lapse of time or both would become, an Event of Default with respect to such Debentures shall have occurred and be continuing at the time of such deposit or, with regard to any such event specified in Sections 501(5) and 501(6), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day). (6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Debentures are in default within the meaning of such Act). (7) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which the Company is bound. (8) Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act unless such trust shall be registered under such Act or exempt from registration thereunder. (9) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. Section 1105. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous ProvisionsSection 1105. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 1106, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 1104 in respect of the Outstanding Debentures shall be held in trust and applied by the Trustee, in accordance with the provisions of such Debentures and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Debentures, of all sums due and to become due thereon in respect of principal and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 1104 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Debentures. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1104 with respect to the Outstanding Debentures which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to such Debentures. Section 1106. ReinstatementSection 1106. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to the Outstanding Debentures by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations under this Indenture and such Debentures from which the Company has been discharged or released pursuant to Section 1102 or 1103 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Debentures, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 1105 with respect to such Debentures in accordance with this Article; provided, however, that if the Company makes any payment of principal of or interest on any such Debenture following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Debentures to receive such payment from the money so held in trust. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. CINERGY CORP. By /s/ William L. Sheafer William L. Sheafer Vice President and Treasurer FIFTH THIRD BANK By /s/ Kerry R. Byrne Kerry R. Byrne Vice President EXHIBIT A-1 ------------------ (FORM OF FACE OF DEBENTURE) No. R-1 $__________ CUSIP No. CINERGY CORP. 6.125% DEBENTURE DUE 2004 [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.])footnote reference)FICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT HAS ACQUIRED THIS DEBENTURE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS DEBENTURE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS DEBENTURE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING. - -------- 1 This should be included only if the Debenture is issued in global form. CINERGY CORP., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of Two Hundred Million and No/100 Dollars ($200,000,000) on April 15, 2004, and to pay, on April 15 and October 15 of each year, commencing October 15, 1999 (each an "Interest Payment Date"), interest thereon from April 16, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for at the rate of 6.125% per annum, until the principal hereof is paid or made available for payment. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Debentures of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Subject to agreements with or the rules of DTC or any successor book-entry security system or similar system with respect to Global Debentures, payment of the principal of (and premium, if any) and interest on this Debenture will be made at the office or agency of the Company maintained for that purpose in the City of Cincinnati, 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 mailed to the address of the Person entitled thereto as such address shall appear in the Debenture Register. Any payment on this Debenture due on any day which is not a Business Day 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, unless such payment is a payment at maturity or upon redemption, in which case interest shall accrue thereon at the stated rate for such additional days. As used herein, "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York are authorized or obligated by law, regulation or executive order to close. Reference is hereby made to the further provisions of this Debenture set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-1-1 Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Debenture shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. In Witness Whereof, the Company has caused this instrument to be duly executed. CINERGY CORP. By.............................. CERTIFICATE OF AUTHENTICATION Dated: This is one of the Debentures of the series designated therein referred to in the within-mentioned Indenture. FIFTH THIRD BANK, as Trustee By............................... Authorized Signatory A-1-2 (FORM OF REVERSE OF DEBENTURE) This Debenture is one of a duly authorized issue of securities of the Company (herein called the "Debentures"), issued under an Indenture, dated as of April 15, 1999 (the "Indenture") between the Company and Fifth Third Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Debentures and of the terms upon which the Debentures are, and are to be, authenticated and delivered. This Debenture is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. Capitalized terms used herein shall have the meanings assigned to them in the Indenture unless otherwise indicated. The Debentures will not be subject to any sinking fund. The Debentures are redeemable, in whole or from time to time in part, at the option of the Company on any date (each, a "Redemption Date") at a redemption price equal to the greater of (a) 100% of the principal amount of the Debentures to be redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to such Redemption Date) discounted to such Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to such Redemption Date. Notwithstanding the foregoing, installments of interest on the Debentures that are due and payable on an Interest Payment Date falling on or prior to the relevant Redemption Date will be payable to the Holders of such Debentures registered as such at the close of business on the relevant Regular Record Date according to the terms hereof and the provisions of the Indenture. "Treasury Rate" means, with respect to any Redemption Date for Debentures (a) the yield, under the heading that represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15(519)" or any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Final Maturity Date, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding to the nearest month) or (b) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date. As used in the immediately preceding sentence and in the definition of "Reference Treasury Dealer Quotations" below, the term "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. "Comparable Treasury Issue" means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Debentures to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Debentures. "Independent Investment Banker" means Salomon Smith Barney Inc. or, if such firm is unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any Redemption Date for the Debentures (a) the average of four Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (b) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer" means each of Salomon Smith Barney Inc., Barclays Capital Inc., Chase Securities Inc. and Morgan Stanley & Co. Incorporated and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company will substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time, on the third Business Day preceding such Redemption Date. "Final Maturity Date" means April 15, 2004. Notice of any redemption by the Company will be mailed at least 30 days but not more than 60 days before the relevant Redemption Date to each holder of Debentures to be redeemed. If less than all the Debentures are to be redeemed at the option of the Company, the Trustee will select, in such manner as it deems fair and appropriate, the Debentures to be redeemed. Unless the Company defaults in payment of the redemption price, on and after the Redemption Date interest will cease to accrue on the Debentures or portions thereof called for redemption. The Indenture contains provisions for defeasance at any time of the entire indebtedness of the Debentures or certain restrictive covenants and Events of Default with respect to the Debentures upon compliance with certain conditions set forth in the Indenture. If an Event of Default with respect to Debentures shall occur and be continuing, the principal of the Debentures may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Debentures any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Debentures at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Debentures at the time Outstanding, on behalf of the Holders of all Debentures, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Debenture shall be conclusive and binding upon such Holder and upon all future Holders of this Debenture and of any Debenture issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture. As provided in and subject to the provisions of the Indenture, the Holder of this Debenture shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Debentures, the Holders of not less than 35% in principal amount of the Debentures at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonably satisfactory indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Debentures at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Debenture for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium (if any) and interest on this Debenture at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Debenture is registrable in the Debenture Register, upon surrender of this Debenture for registration of transfer at the office or agency of the Company in any place where the principal of, premium (if any) and interest on this Debenture are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Debenture Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Debentures are issuable only in registered form without coupons in denominations of $100,000 and any integral multiple of $1,000 above that amount. The transfer of Debentures may be registered and Debentures may be exchanged as provided in the Indenture. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Debenture is registered as the owner hereof for all purposes, whether or not this Debenture be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Supplemental Indenture unless otherwise indicated. A-1-3 ASSIGNMENT FORM To assign this Debenture, fill in the form below: (I) or (we) assign and transfer this Debenture to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint _____________________ to transfer this Debenture on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Debenture) Signature Guarantee: A-1-4 [SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL DEBENTURE]2 [The following exchanges of a part of this Global Debenture for an interest in another Global Debenture or for a Definitive Debenture, or exchanges of a part of another Global Debenture or Definitive Debenture, for an interest in this Global Debenture, have been made: Principal Amount of Amount of Amount of Signature of decrease in increase in this Global authorized Principal Principal Debenture officer of Amount of Amount of following such Trustee or Date of this Global this Global decrease (or Debenture Exchange Debenture Debenture increase) Custodian) - -------- 1 This should be included only if the Debenture is issued in global form. A-1-5 EXHIBIT A-2 (FACE OF REGULATION S TEMPORARY GLOBAL DEBENTURE) The form of this Debenture shall be the same as Exhibit A-1, except that the following new paragraph shall be added immediately prior to the first paragraph thereof: THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL DEBENTURE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED DEBENTURES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL DEBENTURE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. A-2-1 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Cinergy Corp. 139 East Fourth Street Cincinnati, Ohio 45202 Fifth Third Bank 38 Fountain Square Plaza Cincinnati, Ohio 45263 Re: 6.125% Debentures due 2004 of Cinergy Corp., a Delaware corporation Reference is hereby made to the Indenture dated as of April 15, 1999 among Cinergy Corp. (the "Company") and Fifth Third Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the Debenture[s] or interest in such Debenture[s] specified in Annex A hereto, in the principal amount of $___________ in such Debenture[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. |_| Check if Transferee will take delivery of a beneficial interest in the 144A Global Debenture or a Definitive Debenture Pursuant to Rule 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Debenture is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Debenture for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable Blue Sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Debenture will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Rule 144A Global Debenture and/or the Definitive Debenture and in the Indenture and the Securities Act. 2. |_| Check if Transferee will take delivery of a beneficial interest in the Temporary Regulation S Global Debenture, the Regulation S Global Debenture or a Definitive Debenture pursuant to Regulation S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore Debentures market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Debenture will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Debenture, the Temporary Regulation S Global Debenture and/or the Definitive Debenture and in the Indenture and the Securities Act. 3. |_| Check and complete if Transferee will take delivery of a beneficial interest in a Definitive Debenture pursuant to any provision of the Securities Act other than Rule 144A or Regulation S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Debentures and Restricted Definitive Debentures and pursuant to and in accordance with the Securities Act and any applicable Blue Sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) |_| such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) |_| such Transfer is being effected to the Company or a subsidiary thereof; or (c) |_| such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act. 4. |_| Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Debenture or an Unrestricted Definitive Debenture. (a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable Blue Sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Debenture will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Debentures, on Restricted Definitive Debentures and in the Indenture. (b) |_| Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable Blue Sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Debenture will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Debentures, on Restricted Definitive Debentures and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. [Insert Name of Transferor] By: Name: Title: Dated: B-1 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) |_| a beneficial interest in the: (i) |_| 144A Global Debenture (CUSIP __________), or (ii) |_| Regulation S Global Debenture (CUSIP __________); or (b) |_| a Restricted Definitive Debenture. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) |_| a beneficial interest in the: (i) |_| 144A Global Debenture (CUSIP __________), or (ii) |_| Regulation S Global Debenture (CUSIP __________), or (iii)|_| Unrestricted Global Debenture without Transfer restrictions (CUSIP __________); or (b) |_| a Restricted Definitive Debenture; or (c) |_| an Unrestricted Definitive Debenture, in accordance with the terms of the Indenture. B-2 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Cinergy Corp. 139 East Fourth Street Cincinnati, Ohio 45202 Fifth Third Bank 38 Fountain Square Plaza Cincinnati, Ohio 45263 Re: 6.125% Debentures due 2004 of Cinergy Corp., a Delaware corporation (CUSIP: ) Reference is hereby made to the Indenture dated as of April 15, 1999 among Cinergy Corp. (the "Company") and Fifth Third Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ____________________, (the "Owner") owns and proposes to exchange the Debenture[s] or interest in such Debenture[s] specified herein, in the principal amount of $_______________ in such Debenture[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. Exchange of Restricted Definitive Debentures or Beneficial Interests in a Restricted Global Debenture for Unrestricted Definitive Debentures or Beneficial Interests in an Unrestricted Global Debenture (a) |_| Check if Exchange is from beneficial interest in a Restricted Global Debenture to beneficial interest in an Unrestricted Global Debenture. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Debenture for a beneficial interest in an Unrestricted Global Debenture in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Debentures and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Debenture is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. (b) |_| Check if Exchange is from beneficial interest in a Restricted Global Debenture to Unrestricted Definitive Debenture. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Debenture for an Unrestricted Definitive Debenture, the Owner hereby certifies (i) the Definitive Debenture is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Debentures and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Debenture is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. (c) |_| Check if Exchange is from Restricted Definitive Debenture to beneficial interest in an Unrestricted Global Debenture. In connection with the Owner's Exchange of a Restricted Definitive Debenture for a beneficial interest in an Unrestricted Global Debenture, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Debentures and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. (d) |_| Check if Exchange is from Restricted Definitive Debenture to Unrestricted Definitive Debenture. In connection with the Owner's Exchange of a Restricted Definitive Debenture for an Unrestricted Definitive Debenture, the Owner hereby certifies (i) the Unrestricted Definitive Debenture is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Debentures and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Debenture is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. 2. Exchange of Restricted Definitive Debentures or Beneficial Interests in Restricted Global Debentures for Restricted Definitive Debentures or Beneficial Interests in Restricted Global Debentures. (a) |_| Check if Exchange is from beneficial interest in a Restricted Global Debenture to Restricted Definitive Debenture. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Debenture for a Restricted Definitive Debenture with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Debenture is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Debenture issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Debenture and in the Indenture and the Securities Act. (b) |_| Check if Exchange is from Restricted Definitive Debenture to beneficial interest in a Restricted Global Debenture. In connection with the Exchange of the Owner's Restricted Definitive Debenture for a beneficial interest in the [CHECK ONE] "144A Global Debenture," "Regulation S Global Debenture," with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Debentures and pursuant to and in accordance with the Securities Act, and in compliance with any applicable Blue Sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Debenture and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer. [Insert Name of Owner] By: Name: Title: C-1 -----END PRIVACY-ENHANCED MESSAGE-----