-----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, JuCUlyXF0XWFPRsZrPzS7k+Spalg+2kb05my971UyX2lsTQx9XE8zPlIw/GGgA3G xuYyiVdheT9yXQpvMrFitw== 0000899652-97-000077.txt : 19970328 0000899652-97-000077.hdr.sgml : 19970328 ACCESSION NUMBER: 0000899652-97-000077 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11377 FILM NUMBER: 97565463 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5133812000 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET CITY: CINCINATI STATE: OH ZIP: 45202 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 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) 381-2000 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 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) 381-2000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Registrant Title of each class on which registered Cinergy Corp. Common Stock New York Stock Exchange The Cincinnati Gas Cumulative Preferred Stock & Electric Company 4% New York Stock Exchange Junior Subordinated Debentures 8.28% New York Stock Exchange PSI Energy, Inc. Cumulative Preferred Stock 4.32%, 4.16%, 6 7/8%, 7.15%, and 7.44% New York Stock Exchange First Mortgage Bonds Series S and Y New York Stock Exchange The Union Light, None Heat and Power Company Securities registered pursuant to Section 12(g) of the Act for Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company: None Indicate by check mark whether all 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 __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) Requirements pursuant to Item 405 of Regulation S-K are not applicable for The Union Light, Heat and Power Company. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction I(2) of Form 10-K. As of February 28, 1997, the aggregate market values of Cinergy Corp. Common Stock and PSI Energy, Inc. Cumulative Preferred Stock held by non-affiliates were $5.4 billion and $174 million, respectively. Cinergy Corp. is the sole owner of the Common Stock of each of PSI Energy, Inc. and The Cincinnati Gas & Electric Company. The Union Light, Heat and Power Company's Common Stock is wholly-owned by The Cincinnati Gas & Electric Company. As of February 28, 1997, shares of Common Stock outstanding for each registrant were as listed: Company Shares Cinergy Corp., par value $.01 per share 157,679,129 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 DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement of Cinergy Corp. dated March 17, 1997, and the Information Statement of PSI Energy, Inc. dated March 24, 1997, are incorporated by reference into Part III of this report. This combined Form 10-K 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. TABLE OF CONTENTS Item Page Number Number PART I 1 Business Organization . . . . . . . . . . . . . . . . . . . . . . X CG&E . . . . . . . . . . . . . . . . . . . . . . . . . . X ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . . X PSI. . . . . . . . . . . . . . . . . . . . . . . . . . . X Investments. . . . . . . . . . . . . . . . . . . . . . . X Services . . . . . . . . . . . . . . . . . . . . . . . . XX Customer, Sales, and Revenue Data. . . . . . . . . . . . XX Financial Information by Business Segment. . . . . . . . XX Regulation . . . . . . . . . . . . . . . . . . . . . . . XX Regulatory Matters . . . . . . . . . . . . . . . . . . . XX Power Supply . . . . . . . . . . . . . . . . . . . . . . XX Fuel Supply. . . . . . . . . . . . . . . . . . . . . . . XX Gas Supply . . . . . . . . . . . . . . . . . . . . . . . XX Competition. . . . . . . . . . . . . . . . . . . . . . . XX Capital Requirements . . . . . . . . . . . . . . . . . . XX Environmental Matters. . . . . . . . . . . . . . . . . . XX Employees. . . . . . . . . . . . . . . . . . . . . . . . XX 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . XX CG&E . . . . . . . . . . . . . . . . . . . . . . . . . . XX PSI. . . . . . . . . . . . . . . . . . . . . . . . . . . XX ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . . XX Other Utility Subsidiaries . . . . . . . . . . . . . . . XX 3 Legal Proceedings Merger Litigation. . . . . . . . . . . . . . . . . . . . XX WVPA Settlement Agreement. . . . . . . . . . . . . . . . XX Enertech Litigation.. . . . . . . . . . . . . XX 4 Submission of Matters to a Vote of Security Holders. . . . XX Executive Officers of the Registrant . . . . . . . . . . . XX PART II 5 Market for Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . XX 6 Selected Financial Data. . . . . . . . . . . . . . . . . . XX 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . XX Index to Financial Statements and Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . XX 8 Financial Statements and Supplementary Data. . . . . . . . XX 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . XXX PART III 10 Directors and Executive Officers of the Registrant . . . . XXX 11 Executive Compensation . . . . . . . . . . . . . . . . . . XXX 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . XXX 13 Certain Relationships and Related Transactions . . . . . . XXX PART IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K Financial Statements and Schedules . . . . . . . . . . XXX Reports on Form 8-K. . . . . . . . . . . . . . . . . . XXX Exhibits . . . . . . . . . . . . . . . . . . . . . . . XXX Signatures . . . . . . . . . . . . . . . . . . . . . . . . XXX PART I ITEM 1. BUSINESS Cinergy, CG&E, PSI, and ULH&P Organization Cinergy Corp., a Delaware corporation (Cinergy or Company), is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Cinergy was created in the October 1994 merger of PSI Resources, Inc. (Resources) and The Cincinnati Gas & Electric Company (CG&E). The business combination was accounted for as a pooling of interests. Following the merger, Cinergy became the parent holding company of PSI Energy, Inc. (PSI), previously Resources' utility subsidiary, CG&E, Cinergy Investments, Inc. (Investments) and Cinergy Services, Inc. (Services). Cinergy's two utility subsidiaries, CG&E and PSI, account for the majority of Cinergy's revenues and total assets. Cinergy, CG&E, and ULH&P CG&E CG&E, an Ohio corporation, is a combination electric and gas public utility company with five wholly-owned utility subsidiaries, The Union Light, Heat and Power Company (ULH&P), Miami Power Corporation (Miami), The West Harrison Gas and Electric Company, an Indiana corporation (West Harrison), KO Transmission Company (KO Transmission), and Lawrenceburg Gas Company, an Indiana corporation (Lawrenceburg). In addition, CG&E has one wholly-owned non- utility subsidiary, Tri-State Improvement Company (Tri-State). CG&E and its utility subsidiaries are engaged in the production, transmission, distribution, and sale of electric energy and/or the sale and transportation of natural gas in the southwestern portion of Ohio and adjacent areas in Kentucky and Indiana. The area served with electricity, gas, or both covers approximately 3,000 square miles, has an estimated population of 1.8 million people, and includes the cities of Cincinnati and Middletown in Ohio, Covington and Newport in Kentucky, and Lawrenceburg in Indiana. KO Transmission, a Kentucky corporation, acquired an interest in an interstate natural gas pipeline in June 1996, to which CG&E was entitled as a result of a settlement with the Columbia Gas Transmission Corp. KO Transmission is engaged in the transportation of natural gas in interstate commerce between Kentucky and Ohio. Tri-State, an Ohio corporation, is devoted to acquiring and holding property in Ohio, Kentucky, and Indiana for substations, electric and gas rights of way, office space, and other uses in CG&E's and its subsidiaries' operations. ULH&P ULH&P, a Kentucky corporation, is engaged in the transmission, distribution, and sale of electric energy and the sale and transportation of natural gas in northern Kentucky. The area served with electricity, gas, or both covers approximately 500 square miles, has an estimated population of 299,000 people, and includes the cities of Covington and Newport in Kentucky. Cinergy and PSI PSI PSI, an Indiana corporation, is engaged in the production, transmission, distribution, and sale of electric energy in north central, central, and southern Indiana. It serves an estimated population of two million people located in 69 of the state's 92 counties including the cities of Bloomington, Columbus, Kokomo, Lafayette, New Albany, and Terre Haute. PSI Energy Argentina, Inc., a wholly-owned subsidiary of PSI and an Indiana corporation (PSI Energy Argentina), was formed to invest in foreign utility companies. PSI Energy Argentina is a member of a multinational consortium which has controlling ownership of Edesur S.A. (Edesur). Edesur is an electricity-distribution network serving the southern half of Buenos Aires, Argentina. Edesur provides distribution services to 2.1 million customers. PSI Energy Argentina owns a small equity interest in this project and provides operating and consulting services. South Construction Company, Inc., a wholly-owned subsidiary of PSI and an Indiana corporation (South Construction), has been used solely to hold legal title to real estate and interests in real estate which are either not used and useful in the conduct of PSI's business (such as undeveloped real estate of PSI abutting a PSI office building) or which has some defect in title which is unacceptable to PSI. Most of the real estate to which South Construction acquires title relates to PSI's utility business. Cinergy Investments Investments, a Delaware corporation, is a non-utility subholding company that was formed to operate Cinergy's domestic non-utility and international businesses and interests. Investments holds the following non-utility subsidiaries and interests, which are more fully described below: Enertech Associates, Inc. (Enertech), formerly Power International, Inc. (Power International), formerly Enertech Associates International, Inc.; Cinergy Resources, Inc. (Cinergy Resources), formerly CG&E Resource Marketing, Inc.; CGE ECK, Inc.; Cinergy Technology, Inc. (Technology), formerly PSI Environmental Corp.; Cinergy Solutions, Inc. (Solutions); Cinergy Cooling Corp. (CoolCo); Cinergy UK, Inc. (Cinergy UK), formerly ME Holdings, Inc.; and Cinergy Capital & Trading, Inc. (Capital & Trading), formerly Wholesale Power Services, Inc. Enertech was incorporated in Ohio in 1992 as a vehicle for CG&E to offer utility management consulting services and to pursue investment opportunities in energy-related areas, including demand-side management (DSM) services, consulting, energy and fuel brokering, engineering services, construction and/or operation of generation, cogeneration, and independent power production facilities, and project development. In July 1994, Enertech acquired Beheer- En Belegginsmaatschappij Bruwabel B.V. (Bruwabel) and its subsidiaries for the purpose of pursuing design, engineering, and development work involving energy privatization projects, primarily in the Czech Republic. In June 1996, Investments sold what remained of its investment in Bruwabel and its subsidiaries and their assets, including the Vytopna Kromeriz Heating Plant which was acquired by Power Development s.r.o. in 1995. (See Note 12(d) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") Cinergy Resources, a Delaware corporation, was formed to hold CG&E's interest in U.S. Energy Partners, a gas marketing partnership that was dissolved effective September 1, 1995. Upon dissolution, Cinergy Resources took its portion of the partnership assets to continue in the gas marketing business. Cinergy Resources competes with traditional, regulated local distribution companies by offering "merchant service" (i.e., acquiring natural gas for resale to end-use customers) and brokers gas to industrial and large commercial customers. Technology, an Indiana corporation, was created to manage certain existing technology-related investments of Cinergy, assess the market potential for technology-related product and service development opportunities, and form key alliances for technology-related product development. Solutions, a Delaware corporation, was formed to market an array of energy- related products and services and develop, acquire, own, and operate certain energy-related projects. Solutions holds a 50% interest in Trigen-Cinergy Solutions LLC, a Delaware limited liability company, (Trigen-Cinergy). Trigen-Cinergy was formed to build, own, and operate cogeneration and trigeneration facilities for industrial plants, office buildings, shopping centers, hospitals, universities, and other major energy users that can benefit from combined heat and power production economies. Trigen-Cinergy will also provide energy and asset management services, including fuel procurement, ancillary to its activities. (See Note 1(e)(ii) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") CoolCo, incorporated in Ohio in February 1996, was formed to engage in the district cooling business. The City of Cincinnati awarded an exclusive franchise that permits CoolCo to construct, install, maintain, and operate a chilled water system in the downtown business district of Cincinnati, Ohio. Construction of such system began in the third quarter of 1996. Cinergy UK, a Delaware corporation, was formed to hold Cinergy's 50% interest in Avon Energy Partners Holdings, an unlimited liability company, and its wholly owned subsidiary, Avon Energy Partners PLC, a limited liability company (collectively, Avon Energy). During 1996, Avon Energy acquired all of the outstanding common stock of Midlands Electricity plc (Midlands), a United Kingdom (U.K.) regional electric company. Midlands primarily distributes and supplies electricity to 2.2 million industrial, commercial, and residential customers. In addition, Midlands, together with its subsidiaries, generates power, supplies natural gas to industrial and commercial customers, and performs electrical contracting services. (See Notes 1(e)(i) and 12(g) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") PSI Recycling, Inc. (Recycling) is an Indiana corporation which recycled metal from CG&E and paper, metal, and other materials from PSI, its largest single supplier, and other sources. Investments sold the assets of Recycling in August 1996. Power Equipment Supply Co. (PESCO) was incorporated in Indiana to sell equipment and parts from a PSI generating plant which was canceled, the Marble Hill Nuclear Project. PESCO also purchased equipment for resale, brokered equipment, and sold equipment on consignment for others. PESCO discontinued operations in early 1996. Capital & Trading, an Indiana corporation, was formed to engage in the business of marketing power, emission allowances, electricity futures, and related products and services and to provide consulting services in the wholesale power-related markets. Capital & Trading will be devoted to marketing and brokering energy commodities to customers nationwide. Cinergy, CG&E, PSI, and ULH&P Services Services, a Delaware corporation, is the service company for the Cinergy system, providing member companies with a variety of administrative, management, and support services. Cinergy, CG&E, PSI, and ULH&P Customer, Sales, and Revenue Data The number of customers served at year-end and the percent of operating revenues derived from the sale of electricity and the sale and transportation of natural gas for each registrant for 1996 are as follows: Operating Customers Revenues Registrant Electric Gas Electric Gas Cinergy and subsidiaries 1,391,938 450,047 84% 14% CG&E and subsidiaries 729,391 450,047 75% 24% PSI 662,549 N/A 98% N/A ULH&P 115,969 75,783 71% 28% Cinergy's utilities' service territory spans 86 counties in Ohio, Indiana, and Kentucky and includes approximately 840 cities, towns, unincorporated communities, and adjacent rural areas, including municipal utilities and rural electric cooperatives. The service territory of CG&E and its utility subsidiaries, including ULH&P, is heavily populated and characterized by a stable residential customer base and a diverse mix of industrial customers. CG&E's and its utility subsidiaries' service territory spans 19 counties in Ohio, Indiana, and Kentucky (of which ULH&P serves six counties in Kentucky) and includes approximately 130 (44 for ULH&P) cities, towns, unincorporated communities, and adjacent rural areas, including municipal utilities and rural electric cooperatives. The area served by PSI is a residential, agricultural, and widely diversified industrial territory. PSI's service territory includes approximately 710 cities, towns, unincorporated communities, and adjacent rural areas, including municipal utilities and rural electric cooperatives. No one customer accounts for more than 5% of operating revenues for PSI, 5% of electric or gas operating revenues for CG&E and its utility subsidiaries, or 10% of electric or gas operating revenues for ULH&P. Sales of electricity and gas sales and transportation are affected by seasonal weather patterns, and, therefore, operating revenues and associated operating expenses are not distributed evenly during the year. Cinergy, CG&E, and ULH&P Financial Information by Business Segment For financial information by business segment, see Note 15 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." For a discussion of the potential divestiture of CG&E's, including ULH&P's, gas operations, see Note 12(f) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." Regulation Cinergy, CG&E, PSI, and ULH&P Cinergy, its utility subsidiaries, and certain of its non-utility subsidiaries are subject to regulation by the Securities and Exchange Commission (SEC) under the Public Utilities Holding Company Act of 1935 (PUHCA) with respect to, among other things, issuances and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retentions of interests in non-utility businesses, intrasystem sales of certain goods and services, the method of keeping accounts, and access to books and records. In addition, the PUHCA generally limits registered holding companies to a single "integrated" public utility system, which the SEC traditionally has interpreted to prohibit a registered holding company, with limited exceptions, from owning both gas and electric properties. (Refer to the information appearing under the captions "Repeal of the PUHCA" in the "Competitive Pressures" section and "Potential Divestiture of Gas Operations" in the "Regulatory Matters" section in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and to Note 1(f) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") CG&E, ULH&P, Miami, and PSI are each subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act with respect to the classification of accounts, rates for wholesale sales of electricity, interconnection agreements, and acquisitions and sales of certain utility properties. In addition, services by KO Transmission are rendered in accordance with terms and conditions and at rates contained in a gas tariff filed with the FERC. Transportation of gas between CG&E and ULH&P is subject to regulation by the FERC under the Natural Gas Act. Cinergy, CG&E, and ULH&P CG&E, as a public utility under the laws of Ohio, is also subject to regulation by the Public Utilities Commission of Ohio (PUCO) as to retail electric and gas rates, services, accounts, depreciation, issuance of securities, acquisitions and sales of certain utility properties, and in other respects as provided by Ohio law. Rates within municipalities in Ohio are subject to original regulation by the municipalities. The Ohio Power Siting Board, a division of the PUCO, has jurisdiction in Ohio over the location, construction, and initial operation of new electric generating facilities and certain electric and gas transmission lines presently utilized by CG&E. As to retail rates and other matters, ULH&P is regulated by the Kentucky Public Service Commission (KPSC), and West Harrison and Lawrenceburg are regulated by the Indiana Utility Regulatory Commission (IURC). Cinergy and PSI PSI, as a public utility under the laws of Indiana, is also regulated by the IURC as to its retail rates, services, accounts, depreciation, issuance of securities, acquisitions and sales of certain utility properties, and in other respects as provided by Indiana law. Prior to the construction, purchase, or lease of a facility used for the generation of electricity, a public utility in Indiana must obtain from the IURC a certificate of public convenience and necessity. Cinergy, CG&E, PSI, and ULH&P Regulatory Matters Refer to the information appearing under the caption "Regulatory Matters" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Power Supply Cinergy, CG&E, PSI, and ULH&P Cinergy and other utilities in an eight-state region are participating in the East Central Area Reliability Coordination Agreement for the purpose of coordinating the planning and operation of generating and transmission facilities to provide for maximum reliability of regional bulk power supply. (Refer to the information appearing under the caption "Cinergy's Response to the Changing Competitive Environment" in the "Competitive Pressures" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of Cinergy's involvement in a coalition for operation of a regional transmission system.) In addition to an intercompany tie between CG&E's and PSI's electric systems, Cinergy's electric system, which is operated by Services, is interconnected with the electric systems of Indiana Michigan Power Company, Columbus Southern Power Company, Ohio Power Company (all doing business as American Electric Power Company, Inc. (AEP)), Central Illinois Public Service Company, East Kentucky Power Cooperative, Hoosier Energy Rural Electric Cooperative, Inc., Indianapolis Power and Light Company, Kentucky Utilities Company, Louisville Gas & Electric Company (LG&E), Northern Indiana Public Service Company, Southern Indiana Gas and Electric Company, The Dayton Power and Light Company, and Ohio Valley Electric Corporation. Cinergy and PSI PSI has a power supply relationship with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency (IMPA) through power coordination agreements. WVPA and IMPA are also parties with PSI to a joint transmission and local facilities agreement. Cinergy, CG&E, and ULH&P ULH&P does not own or operate any electric generating facilities. Its requirements for electric energy are purchased from CG&E at rates regulated by the FERC. Fuel Supply Cinergy Cinergy purchases approximately 25 million tons of coal annually for use by CG&E and PSI, which historically would rank Cinergy as the sixth largest utility coal purchaser in the United States. Cinergy, CG&E, and PSI A major portion of the coal required by CG&E and PSI is obtained through both long- and short-term coal supply agreements, with the remaining requirements purchased on the spot market. The prices to be paid under most of these contracts are subject to adjustment. In addition, some of these agreements include extension options and termination provisions pertaining to coal quality. The coal delivered under these contracts is primarily from mines located in Indiana, Illinois, and Pennsylvania for PSI and Ohio, Kentucky, West Virginia, and Pennsylvania for CG&E. CG&E and PSI monitor alternative sources to assure a continuing availability of economical fuel supplies. The companies intend to maintain the practice of purchasing a portion of their coal requirements on the spot market and will continue to investigate the least cost coal options in connection with their compliance with the Clean Air Act Amendments of 1990 (CAAA) (see the information appearing under the caption "Environmental Issues" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"). The companies believe they will be able to obtain sufficient coal to meet future generating requirements. However, both CG&E and PSI are unable to predict the extent to which coal availability and price may ultimately be affected by future environmental requirements. Presently, CG&E and PSI expect the cost of coal to rise in the long run as the supply of more accessible and higher-grade coal diminishes and as mining, transportation, and other related costs continue an upward trend. Cinergy, CG&E, and ULH&P Gas Supply In 1996, CG&E and its utility subsidiaries, including ULH&P, purchased the majority of their natural gas supply (78%) from firm supply agreements, with remaining volumes purchased in the spot market. These firm contracts feature dual levels of gas supply: base load for continuous supply for CG&E's and its utility subsidiaries' core requirements, and "swing" load, which is gas available on a daily basis to accommodate changes in demand. CG&E pays reservation charges for firm base and swing supplies. These charges guarantee delivery from the supplier during extreme weather and protect the supplier from fluctuations in daily prices associated with swing supplies. However, as the trend of industrial customers purchasing gas directly from producers and utilizing CG&E's facilities for transportation increases, CG&E and its subsidiaries seek to minimize contract commitment costs to firm suppliers, and reduce the amount of reservation charges paid to suppliers for firm supply. Accordingly, CG&E and its subsidiaries anticipate purchasing approximately 50% of their gas supply in the spot market and only 50% from firm supply agreements in 1997. Gas purchased by CG&E and its subsidiaries is transported on interstate pipelines either directly to CG&E's and its subsidiaries' distribution systems, or it is injected into pipeline storage facilities for withdrawal and delivery in the future. Most of CG&E's and its utility subsidiaries' gas supplies are sourced from the Gulf of Mexico coastal area. CG&E and its subsidiaries have also obtained limited supply sourced from the Appalachian region and the mid-continent (Arkansas - Oklahoma) basin, and from methane gas recovered from an Ohio landfill. Over the long term, natural gas is expected to retain its competitiveness with alternative fuels. However, colder or warmer than normal winter weather conditions can cause significant price fluctuation. Cinergy, CG&E, PSI, and ULH&P Competition Refer to the information appearing under the caption "Competitive Pressures" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Cinergy, CG&E, PSI, and ULH&P Capital Requirements Refer to the information appearing under the caption "Capital Requirements" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Cinergy, CG&E, and PSI Environmental Matters Environmental compliance construction expenditures for 1997 for Cinergy and its subsidiaries are forecasted to be as follows: Registrant Expenditures (in thousands) CG&E and subsidiaries $709 PSI 245 Cinergy and subsidiaries $954 In addition, refer to the information appearing under the caption "Environmental Issues" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Employees Cinergy The number of employees of Cinergy and its subsidiaries at December 31, 1996, was 7,973, of whom 4,678 belonged to bargaining units. These bargaining unit employees were represented by labor agreements between CG&E and its subsidiaries, including ULH&P, or PSI and the applicable union organization. Of Cinergy's total employees, 3,019 employees were represented by the International Brotherhood of Electrical Workers (IBEW), 456 were represented by the United Steelworkers of America (USWA), and 1,203 were represented by the Independent Utilities Union (IUU). Employees assigned to Services at December 31, 1996, totaled 2,798, of whom 905 belonged to bargaining units. These bargaining unit employees were represented by the labor agreements previously discussed. Of Services' total employees, 477 were represented by the IUU, 7 were represented by the USWA, and 421 were represented by the IBEW (142 were represented by the agreement with PSI and 279 were represented by the agreement with CG&E). Cinergy and CG&E The number of employees of CG&E and its subsidiaries at December 31, 1996, was 2,964, of whom CG&E employed 2,676, ULH&P employed 276, and Lawrenceburg employed 12. CG&E and its subsidiaries have collective bargaining agreements with several union organizations. Of CG&E's and its subsidiaries' total employees 726 employees were represented by the IUU, 449 were represented by the USWA, and 1,215 were represented by the IBEW. The current contract between CG&E and the IUU will expire in April 2001. CG&E and its subsidiaries have a contract with the USWA expiring May 15, 2002. The IBEW contract expires April 1, 2001. Cinergy and PSI The number of employees of PSI at December 31, 1996, was 2,211, of whom 1,383 were represented by the IBEW. PSI's collective bargaining agreement with the IBEW will expire at the end of April 1999. Cinergy and ULH&P The number of employees of ULH&P at December 31, 1996, was 276, of whom 229 belonged to bargaining units. These bargaining unit employees were represented by the same labor agreements between CG&E and the applicable union organization. Of ULH&P's total employees, 62 employees were represented by the IBEW, 102 were represented by the USWA, and 65 were represented by the IUU. The current contract between ULH&P and the IUU will expire in April 2001. ULH&P has agreements with the USWA and IBEW that will expire May 15, 2002, and April 1, 2001, respectively. ITEM 2. PROPERTIES Cinergy, CG&E, PSI, and ULH&P Substantially all utility plant is subject to the lien of each applicable company's first mortgage bond indenture. In addition to the information discussed herein, refer to Note 13 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." Cinergy, CG&E, and PSI At December 31, 1996, the Cinergy utility subsidiaries owned electric generating plants, or portions thereof in the case of jointly owned plants, with net capabilities (winter ratings) as shown in the following table:
Net Percent Principal Capability Plant Name Location Ownership Fuel Source megawatts (mw)__ CG&E Steam Electric Generating Plants: Miami Fort Station (Units 5&6) North Bend, Ohio 100.00% Coal 243 Miami Fort Station (Units 7&8) North Bend, Ohio 64.00 Coal 640 W.C. Beckjord Station (Units 1-5) New Richmond, Ohio 100.00 Coal 704 W.C. Beckjord Station (Unit 6) New Richmond, Ohio 37.50 Coal 158 J.M. Stuart Station Aberdeen, Ohio 39.00* Coal 913 Killen Station Adams County, Ohio 33.00* Coal 198 Conesville Station Conesville, Ohio 40.00* Coal 312 William H. Zimmer Generating Station Moscow, Ohio 46.50 Coal 605 East Bend Station Boone County, Kentucky 69.00 Coal 414 Combustion Turbines: Dicks Creek Station Middletown, Ohio 100.00 Gas 172 Miami Fort Gas Turbine Station North Bend, Ohio 100.00 Oil 78 W.C. Beckjord Gas Turbine Station New Richmond, Ohio 100.00 Oil 245 Woodsdale Generating Station Butler County, Ohio 100.00 Gas 564 PSI Steam Electric Generating Plants: Gibson Generating Station: (Units 1-4) Princeton, Indiana 100.00 Coal 2,532 (Unit 5) Princeton, Indiana 50.05 Coal 313 Wabash River Station Terre Haute, Indiana 100.00 Coal 668 Cayuga Station Cayuga, Indiana 100.00 Coal 1,005 R.A. Gallagher Station New Albany, Indiana 100.00 Coal 560 Edwardsport Station Edwardsport, Indiana 100.00 Coal 160 Noblesville Station Noblesville, Indiana 100.00 Coal 90 Combustion Turbines: Cayuga Combustion Turbine Cayuga, Indiana 100.00 Gas 120 Wabash River Coal Gasification Project Terre Haute, Indiana 100.00 Coal 262 Internal Combustion Units: Connersville Peaking Station Connersville, Indiana 100.00 Oil 98 Miami-Wabash Peaking Station Wabash, Indiana 100.00 Oil 104 Cayuga Peaking Units Cayuga, Indiana 100.00 Oil 11 Wabash River Peaking Units Terre Haute, Indiana 100.00 Oil 8 Hydroelectric Generating Station: Markland Generating Station Markland Dam, Ohio River 100.00 Water 45 Station is not operated by CG&E.
Cinergy and CG&E CG&E CG&E's 1996 peak load, which occurred on August 6 and was exclusive of off- system transactions, was 4,452 mw. For the period 1997 through 2006, peak load and kilowatt-hour (kwh) sales are each forecasted to have annual growth rates of 2%. These forecasts reflect CG&E's load growth, alternative fuel choices, population growth, and housing starts. These forecasts exclude an assessment of DSM, non-firm power transactions, and any potential off-system, long-term firm power sales. As of December 31, 1996, CG&E's transmission system consisted of 388 circuit miles of 345,000 volt line, 618 circuit miles of 138,000 volt line, 520 circuit miles of 69,000 volt line, and 116 circuit miles of lesser volt line, all within the states of Ohio and Kentucky. In addition, as of December 31, 1996, CG&E's distribution system consisted of 14,647 circuit miles, all within the state of Ohio. As of the same date, CG&E's transmission substations had a combined capacity of 14,845,000 kilovolt-amperes, and the distribution substations had a combined capacity of 5,968,000 kilovolt-amperes. A portion of CG&E's total transmission system is jointly owned, primarily in connection with its jointly owned electric generating units. During 1996, almost all of the electricity generated by units owned by CG&E or in which it has an ownership interest was produced by coal-fired generating units. Those units generate most of the electric requirements of CG&E and its utility subsidiaries. CG&E owns two propane/air peakshaving plants. Associated with these plants are two underground caverns, one with a seven million gallon capacity and one with an eight million gallon capacity. Both plants and storage caverns are located in Ohio and are used primarily to augment CG&E's supply of natural gas during periods of peak demand and emergencies. CG&E also owns natural gas distribution systems consisting of 5,632 miles of mains and service lines in southwestern Ohio. Cinergy and PSI PSI PSI's 1996 peak load, which occurred on August 7 and was exclusive of off- system transactions, was 5,227 mw. For the period 1997 through 2006, peak load and kwh sales are each forecasted to have annual growth rates of 2%. These forecasts reflect PSI's load growth, alternative fuel choices, population growth, and housing starts. These forecasts exclude an assessment of DSM, non-firm power transactions, and any potential off-system, long-term firm power sales. As of December 31, 1996, PSI's transmission system consisted of 719 circuit miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,595 circuit miles of 138,000 volt line, and 2,428 circuit miles of 69,000 volt line, all within the state of Indiana. In addition, as of December 31, 1996, PSI's distribution system consisted of 19,486 circuit miles, all within the state of Indiana. As of the same date, PSI's transmission substations had a combined capacity of 21,535,000 kilovolt-amperes, and the distribution substations had a combined capacity of 6,299,000 kilovolt-amperes. During 1996, almost all of PSI's kwh production was obtained from coal-fired and hydroelectric generation. Cinergy, CG&E, and ULH&P ULH&P As of December 31, 1996, ULH&P owned 104 circuit miles of 69,000 volt electric transmission line, an electric distribution system consisting of 2,510 circuit miles, and a gas distribution system consisting of 1,271 miles of mains and service lines in northern Kentucky. ULH&P also owns a propane/air peakshaving plant, a seven million gallon capacity underground cavern for the storage of liquid propane, and related liquid propane feeder lines, located in northern Kentucky and adjacent to one of the gas lines that transports natural gas to CG&E. The propane/air plant and cavern are used primarily to augment CG&E's and ULH&P's supply of natural gas during periods of peak demand and emergencies. Cinergy and CG&E Other Utility Subsidiaries As of December 31, 1996, Lawrenceburg owned a gas distribution system consisting of 170 miles of mains and service lines in Indiana adjacent to the western part of CG&E's service area. Lawrenceburg is connected with and sells gas at wholesale to the city of Aurora, Indiana, and is also connected within Indiana with the lines of Texas Gas Transmission Corporation and Texas Eastern Transmission Corporation. As of December 31, 1996, West Harrison owned a small electric distribution system consisting of 10 circuit miles in Indiana adjacent to CG&E's service area. As of the same date, Miami owned 40 miles of 138,000 volt transmission line connecting the lines of LG&E with those of CG&E. As of December 31, 1996, KO Transmission owned a 32.67% interest in a 90-mile interstate natural gas pipeline. KO Transmission transports gas from southeast Kentucky northward to the service territories of CG&E and ULH&P. ITEM 3. LEGAL PROCEEDINGS Cinergy, CG&E, and PSI Merger Litigation Hearings before the United States Court of Appeals for the District of Columbia Circuit in connection with AEP's petition for review of the FERC's order approving the merger of CG&E and Resources to form Cinergy (Merger Order) concluded on March 18, 1997. AEP has objected to the Merger Order alleging that the post-merger operations of Cinergy would require the use of AEP's transmission facilities on a continuous basis without compensation. AEP contends that the FERC, in issuing the Merger Order, did not adequately evaluate the impact on AEP or whether the need to use AEP's transmission facilities would interfere with Cinergy achieving merger benefits. In addition, AEP claims that the FERC failed to evaluate the extent to which the merged facilities' operations would be consistent with the integrated public utility concept of the PUHCA. CG&E and PSI have intervened in this action. While a decision in the appeal is expected by the end of 1997, Cinergy, CG&E, and PSI currently cannot predict the outcome. Cinergy and PSI Wabash Valley Power Association, Inc. Settlement Agreement See Note 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." Cinergy, CG&E, and PSI Enertech Litigation See Note 12(d) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." ULH&P ULH&P has no material pending legal proceedings. Cinergy, CG&E, PSI, and ULH&P In addition to the above litigation, see " Regulatory Matters" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes 12(b), 12(c), and 12(f) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Cinergy, CG&E, and PSI None. ULH&P Omitted pursuant to instruction I(2)(c). EXECUTIVE OFFICERS OF THE REGISTRANTS (at February 28, 1997) Age at Dec. 31, Name 1996 Office & Date Elected or in Job Cinergy, CG&E, and PSI Jackson H. Randolph 66 Chairman of Cinergy, CG&E, and PSI - 1995 Chairman and Chief Executive Officer of Cinergy, CG&E, and PSI - 1994 Chairman, President, and Chief Executive Officer of CG&E - 1993 President and Chief Executive Officer of CG&E - 1986 James E. Rogers 49 Vice Chairman, President, and Chief Executive Officer of Cinergy - 1995 Vice Chairman and Chief Executive Officer of CG&E and PSI - 1995 Vice Chairman, President, and Chief Operating Officer of Cinergy - 1994 Vice Chairman and Chief Operating Officer of CG&E and PSI - 1994 Chairman and Chief Executive Officer of Resources - 1993 Chairman, President, and Chief Executive Officer of PSI - 1990 Cheryl M. Foley 49 Vice President, General Counsel, and Secretary of CG&E - 1995 Vice President, General Counsel, and Secretary of Cinergy - 1994 Vice President, General Counsel, and Secretary of PSI and Resources - 1991 Vice President and General Counsel of Resources - 1990 Elizabeth K. Lanier 1/ 45 Vice President and Chief of Staff - 1996 Partner - Frost & Jacobs 2/ - 1984 J. Wayne Leonard 46 President, Energy Commodities Business Unit of Cinergy - 1996 Group Vice President and Chief Financial Officer of CG&E and PSI - 1995 Group Vice President and Chief Financial Officer of Cinergy - 1994 Senior Vice President and Chief Financial Officer of PSI and Resources - 1992 Vice President and Chief Financial Officer of PSI and Resources - 1989 William L. Sheafer 53 Treasurer of Cinergy and PSI - 1994 Treasurer of CG&E - 1987 EXECUTIVE OFFICERS OF THE REGISTRANTS (continued) Age at Dec. 31, Name 1996 Office & Date Elected or in Job Larry E. Thomas 51 President, Energy Delivery Business Unit of Cinergy - 1996 Group Vice President and Chief Transformation Officer of Cinergy, CG&E, and PSI - 1995 Group Vice President, Reengineering and Operations Services of CG&E and PSI - 1995 Group Vice President, Reengineering and Operations Services of Cinergy - 1994 Senior Vice President and Chief Operations Officer of PSI - 1992 Senior Vice President and Chief Operating Officer, Customer Operations of PSI - 1990 Charles J. Winger 51 Comptroller of CG&E - 1995 Comptroller of Cinergy - 1994 Comptroller of Resources - 1988 Comptroller of PSI - 1984 Cinergy and CG&E William J. Grealis 3/ 51 President, Energy Services Business Unit of Cinergy - 1996 President of CG&E - 1995 Vice President of Cinergy - 1995 President, Gas Business Unit of CG&E - 1995 President of Investments - 1995 Partner - Akin, Gump, Strauss, Hauer & Feld 2/ - 1978 Cinergy and PSI John M. Mutz 4/ 61 Vice President of Cinergy - 1995 President of PSI - 1994 President of Resources - 1993 President - Lilly Endowment, Inc. 2/ - 1989 Cinergy J. Joseph Hale, Jr. 47 Vice President of Cinergy - 1996 General Manager, Marketing Operations of CG&E - 1995 President of Cinergy Foundation, Inc. 5/ - 1992 President - The Kaiser Group, Inc. 2/ - 1989 EXECUTIVE OFFICERS OF THE REGISTRANTS (continued) Age at Dec. 31, Name 1996 Office & Date Elected or in Job M. Stephen Harkness 48 Vice President of Cinergy - 1996 Executive Vice President and Chief Operating Officer of Trigen-Cinergy Solutions LLC 6/ - 1996 General Manager, Corporate Development and Financial Services of Cinergy - 1994 Treasurer of PSI and Resources - 1986 Jerry W. Liggett 55 Vice President of Cinergy - 1996 Senior Manager, Human Resources Strategy of Cinergy - 1995 General Manager, Employee Relations, Compensation & Benefits of Cinergy - 1995 Executive Director, Human Resources of PSI and Resources - 1990 Michael M. Sample 44 Vice President of Cinergy - 1996 General Manager, International Investments of Cinergy - 1994 Vice President, Government Affairs of PSI and Resources - 1991 ULH&P Omitted pursuant to instruction I(2)(c). Cinergy, CG&E, and PSI None of the officers is related in any manner. Executive officers of Cinergy are elected to the offices set opposite their respective names until the next annual meeting of the Board of Directors and until their successors shall have been duly elected and shall have been qualified. 1/ Prior to becoming Vice President effective June 1, 1996, Ms. Lanier was a partner in the law firm of Frost & Jacobs located in Cincinnati, Ohio. 2/ Non-affiliate of Cinergy. 3/ Prior to becoming President of Investments, Mr. Grealis was a partner in the Washington, D.C. law firm of Akin, Gump, Strauss, Hauer & Feld. In addition, prior to the merger, Mr. Grealis was President of PSI Investments, Inc. on an interim basis beginning in 1992. 4/ Prior to becoming President of Resources, Mr. Mutz was President of Lilly Endowment, Inc., a private philanthropic foundation located in Indianapolis, Indiana. 5/ An affiliated public benefit corporation organized and operating exclusively for charitable purposes. 6/ Joint venture company formed by Cinergy and Trigen Energy Corporation. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Cinergy, CG&E, PSI, and ULH&P Cinergy's common stock is listed on the New York Stock Exchange and has unlisted trading privileges on the Boston, Chicago, Cincinnati, Pacific, and Philadelphia exchanges. As of February 7, 1997, Cinergy's most recent dividend record date, there were 77,405 common shareholders of record. The following table shows the high and low sales prices per share, if applicable, and the dividends on common stock declared by Cinergy, CG&E, PSI, and ULH&P for the past two years: Market Price (a) Dividends Declared_____ High Low (per share) (in thousands) 1995 Cinergy 4th Quarter 31 1/8 27 3/4 .43 3rd Quarter 27 7/8 25 1/4 .43 2nd Quarter 27 24 5/8 .43 1st Quarter 25 1/4 23 3/8 .43 CG&E 4th Quarter 56 600 (b) 3rd Quarter 55 400 (b) 2nd Quarter 55 900 (b) 1st Quarter 51 650 (b) ULH&P 4th Quarter 6.00 (b) 1996 Cinergy 4th Quarter 34 1/4 30 7/8 .45 3rd Quarter 32 29 1/8 .43 2nd Quarter 32 27 1/2 .43 1st Quarter 32 1/8 28 1/4 .43 CG&E 4th Quarter 50 949 (b) 3rd Quarter 239 909 (b) 2nd Quarter 45 116 (b) 1st Quarter 41 995 (b) PSI 4th Quarter 29 713 (b) 3rd Quarter 28 311 (b) 2nd Quarter 28 165 (b) 1st Quarter 25 887 (b) ULH&P 4th Quarter 8.50 (b) (a) Market price for CG&E, PSI, and ULH&P is not applicable. (b) All of CG&E's and PSI's dividends were paid to Cinergy and all of ULH&P's dividends were paid to CG&E. See Note 2(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a brief description of common dividend restrictions. All CG&E and PSI common stock is held by Cinergy and all ULH&P common stock is held by CG&E; therefore, there is no public trading market for their common stock. ITEM 6. SELECTED FINANCIAL DATA Cinergy 1996 1995 1994 1993 1992 (in millions, except per share amounts) Operating revenues (1) $3 243 $3 023 $2 888 $2 833 $2 613 Net income (1) 335 347 191 63 271 Common stock Earnings per share (1) (5) 2.00 2.22 1.30 .43 1.91 Dividends declared per share 1.74 1.72 1.50 1.46 1.39 Total assets (2) 8 849 8 220 8 150 7 804 7 133 Cumulative preferred stock of subsidiaries subject to mandatory redemption (3) - 160 210 210 210 Long-term debt (4) 2 535 2 531 2 715 2 645 2 547 Long-term debt due within one year 140 202 60 - 46 CG&E 1996 1995 1994 1993 1992 (in millions) Operating revenues (1) $1 976 $1 848 $1 788 $1 752 $1 553 Net income (loss)(1) 227 236 158 (9) 202 Total assets (2) 4 967 5 197 5 182 5 144 4 802 Cumulative preferred stock subject to mandatory redemption (3) - 160 210 210 210 Long-term debt (4) 1 565 1 703 1 838 1 829 1 810 Long-term debt due within one year 130 152 - - 7 PSI 1996 1995 1994 1993 1992 (in millions) Operating revenues (1) $1 332 $1 248 $1 114 $1 092 $1 066 Net income (1) 126 146 82 125 107 Total assets (2) 3 295 3 076 2 945 2 645 2 300 Long-term debt (4) 970 828 878 816 737 Long-term debt due within one year 10 50 60 - 40 Cinergy, CG&E, and PSI (1) See Notes 1 and 15 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." (2) See Notes 1(f) and 6 of the "Notes to Financial Statements" in (3) "Item 8. Financial Statements and Supplementary Data." (3) See Note 3 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." (4) See Note 4 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." (5) Includes costs incurred in 1996 by Cinergy of $.12 per share related to the reacquisition of 90% of CG&E's preferred stock through a tender offer. In addition, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for discussions of material uncertainties for Cinergy, CG&E, and PSI. ULH&P Omitted pursuant to Instruction I(2)(a). ITEM 7. 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 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" reflect and elucidate the Companies' 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. 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 affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; unanticipated changes to fossil fuel costs, gas supply costs, or availability constraints due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints. Increased competition in the electric and gas utility industries including effects of: industry restructuring; transmission system operation and/or administration; customer choice; and cogeneration. Regulatory factors such as unanticipated changes in rate-setting policies or procedures; recovery of investments made under traditional regulation, and the frequency and timing of rate increases. Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), state public utility commissions, state entities which regulate natural gas transmission, gathering and processing and similar entities with regulatory oversight. Economic conditions including inflation rates and monetary fluctuations. Changing market conditions and a variety of other factors associated with physical energy and financial trading activities including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, currency exchange, interest rate, and warranty risks. Availability or cost of capital, resulting from changes in: Cinergy and its subsidiaries, interest rates, and securities ratings or market perceptions of the utility industry and energy-related industries. Employee workforce factors including changes in key executives, collective bargaining agreements with union employees, or work stoppages. Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures. Costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters, including but not limited to those described in Note 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." Changes in international, Federal, state, or local legislative requirements such as changes in tax laws or rates; environmental laws and regulations. Cinergy and its subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements. Cinergy, CG&E, PSI, and ULH&P THE COMPANIES Cinergy Corp., a Delaware corporation (Cinergy or Company) is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Cinergy was created in the October 1994 merger of PSI Resources, Inc. (Resources) and The Cincinnati Gas & Electric Company (CG&E). The business combination was accounted for as a pooling of interests. Following the merger, Cinergy became the parent holding company of PSI Energy, Inc. (PSI), previously Resources' utility subsidiary, CG&E, Cinergy Investments, Inc. (Investments), and Cinergy Services, Inc. FINANCIAL CONDITION COMPETITIVE PRESSURES Electric Utility Industry Cinergy, CG&E, PSI, and ULH&P Introduction The changing competitive environment for energy services continues as the primary factor which will influence the future operations, structure, and profitability of Cinergy. Changes in the industry include the convergence of gas and electricity as complementary energy sources, new emerging technologies, the commoditization of electric power, full competition in the wholesale power markets from both traditional electric utilities and new power marketers and brokers, and continuing pressure for "customer choice" by all classes of customers. In addition, traditional investor owned utilities are becoming more diversified by using merger and acquisition strategies to support regional, national, and international market strategies. These merger and acquisition strategies include the combining of electric utilities with one another and cross-commodity combinations of electric utilities with gas transmission, distribution, and marketing companies. Pressures for Customer Choice Extending choice to end-use customers, sometimes referred to as retail wheeling or retail access, will allow all customers within a particular utility's franchise service territory to "unbundle" their purchase decisions. In effect, customers would be allowed to purchase power as a commodity directly from any available source and would buy delivery services (i.e., transmission and distribution) from the local utilities which own the power lines or from independent system operators (ISO) (see below). Other value-added services beyond delivery to the customer's premises could potentially be provided by third-party energy services companies. The regulatory and legislative reforms to facilitate customer choice are primarily driven by: (1) large industrial energy users' need to access lower cost power sources; (2) the continuing emergence of new technologies and new marketers to provide electric power; and (3) evidence from other previously regulated industries that wherever effective competition is feasible, it can yield both lower costs and a wider range of customer options and services as compared to traditional cost-of-service regulation. The genesis for the new competitors to the local franchise utilities was the enactment of the Energy Policy Act of 1992 (Energy Act), which granted the FERC authority to order wholesale transmission access. As a result, in 1996, the FERC's order 888 (FERC Order 888) was implemented. This order encourages full wholesale competition by requiring all utilities subject to the FERC's jurisdiction to make their transmission systems available to power buyers and sellers at prices comparable to those the transmission owner charges itself for comparable service. These new competitors to the local franchise utility include power marketers, power brokers, and other utilities, who now have the ability to sell power in regional or national markets. To date, the FERC has granted licenses to more than 200 power marketers, enabling these new competitors to sell wholesale power at market-based rates. Cinergy was granted a power marketing license in December 1995. Power brokers are intermediaries between buyers and sellers and do not take title to the power which they broker. Power marketers conduct bulk power trades at market-based prices. They manage owned generation and portfolios of power contracts, to which they have title, and package energy products for customers of bulk power, including price risk management contracts such as options on fixed-price energy and guaranteed fixed-price contracts. Power marketers compete not only in price, but also on service, such as structuring, hedging services, and scheduling flexibility. The demands of industrial and commercial customers continue to drive deregulation into the legislative process in many states. Four states, California, New Hampshire, Pennsylvania, and Rhode Island, enacted legislation in 1996 which will lead to total customer choice for power supply. Several states have proposed legislation which is currently being debated in their respective legislatures and in most other states the complex technical and economic issues presented by deregulation and restructuring are being discussed and examined. Among other things, states are considering the trade- offs between achieving long-run economic efficiency and potential short-term wealth transfers between customers and shareholders or among customer groups, as well as the potential impact (if any) restructuring may have on state and local tax structures and socially desirable objectives such as clean air or energy efficiency. In addition to legislative efforts to totally restructure the electric utility industry, several states have initiated pilot retail access programs which allow a limited number of retail customers the opportunity to shop for electricity among several suppliers. The most contentiously debated issue has been how best to transition from the historical monopoly cost-of-service regulated environment to the competitive market-driven environment and who will bear the costs of past commitments made under the old order. If the generation component of the industry was immediately brought to market and priced at competitive wholesale prices, it is likely many utilities would be unable to recover a large percentage of their fixed costs. Other costs such as investments in energy efficiency (demand-side management (DSM) investments) could also become "stranded" (i.e., unrecoverable at competitive market prices) in this scenario. The financial impact to the industry and each investor owned utility of alternative scenarios for a transition to a competitive market is highly dependent upon: (1) the speed of the transition and type of price regulation during the transition; (2) the ultimate clearing price for electricity in a competitive environment; and (3) customer behavior when afforded potentially lower-cost alternatives. Because of the complex nature of electric power flows, the variety of state- by-state regulations and the potential inability or unwillingness to shut down high-cost, uneconomical generation facilities, such as nuclear, in a fully competitive environment, great uncertainty exists as to the time frame required for the future price of electricity in a commodity market to rise to long-run marginal cost (e.g., full cost of new resources) and, importantly, how close to short-term marginal cost (e.g., fuel and variable operating costs) prices may fall in the interim. For example, Moody's Investors Service, Inc. (Moody's) has estimated the stranded investment issue for the industry at $136 billion (computed on a present value basis), while Standard and Poor's (S&P) has estimated a total exposure of between $10 billion and $26 billion (6% and 16%, respectively) of total industry annual revenues. The position that recovery of prudent past investments and commitments must be considered has received support at the FERC, in FERC Order 888, and in the four states which have enacted competition-related legislation (see further discussion herein). In addition either corporate separation and/or divestiture continues to be advocated by some constituents in order to protect against market power abuses which could result from one electric utility controlling large segments of generating capacity and transmission assets within a local or regional market. As a result, electric utilities could face substantial costs to restructure the corporate vertical integration in the delivery of electric power which exists today. If legal separation is required, for example, first mortgage bond indentures may not allow for major asset dispositions by the electric utility. In order to legally unbundle, the electric utility could be required to repurchase the outstanding debt under the indenture at substantial call premiums or pay similar fees to the bondholders in order to amend the bond indenture to allow for the unbundling. At a minimum, regulators will likely mandate functional unbundling of the generation, transmission, and distribution businesses. In addition, electric utilities could also face substantial costs or competitive restrictions to comply with codes of conduct which are likely to be implemented by regulators to encourage fair competition among the many new competitors entering a market and the local franchise utility. Cinergy's Response to the Changing Competitive Environment Cinergy continues to be an aggressive supporter of increased competition in the electric utility industry. Cinergy believes competition would benefit electric customers individually and the economy as a whole. At the same time, Cinergy possesses certain competitive advantages, such as low-cost generation, which could benefit shareholders in a deregulated environment. However, these advantages could be substantially eroded by restrictive regulations which lag the development of a competitive market and which limit Cinergy's energy commodity and energy services business units' ability to preempt the competition in responding to the needs of customers or which result in pricing at the lower of cost or market for former "franchise" holding utilities. As such, Cinergy will continue its leadership role in both state and Federal debates on industry reform. Cinergy believes there are two substantial impediments to realizing the potential efficiencies of competition in the generation component of the business: (1) resolving the issue of stranded costs associated with past utility commitments and (2) recognizing states' rights, concerns, and authority in regulating a product which flows in interstate commerce. While Cinergy is among the lowest-cost producers nationwide and has been recognized by both Moody's and S&P as having minimal exposure to stranded investment, Cinergy nevertheless recognizes the legitimacy of the industry's argument for recovery of at least some of the costs associated with past commitments and the importance of resolving this issue in the interest of moving the debate to more important issues such as, how to achieve the potential economic efficiencies which competition offers and what regulatory and structural reforms are necessary to achieve those results. Cinergy believes that even low-cost producers, under certain scenarios, could face difficult if not ruinous competition in an excess capacity market which was created at least in part by past government policies. Cinergy has approximately $1 billion of regulatory assets (past costs incurred for which regulators have promised recovery from customers in the future) which could be at risk, at least in part, in some scenarios. At the same time, regardless of certain regulatory actions or statements to the contrary, Cinergy believes full recovery of the industry's potential stranded investment is unrealistic to expect in a marketplace where certain customers can bypass stranded cost recovery mechanisms through self-generation (see Trigen Energy Corporation (Trigen) below), is politically infeasible, and is neither necessarily equitable nor efficient. Cinergy believes the resolution of certain broad restructuring issues (e.g., market power, codes of conduct, universal service to customers, reliability standards, and certain tax consequences) must be addressed on a regional or national basis to prevent state-by-state disparity which could provide inequitable advantages to some competitors while unduly harming others' ability to compete in the marketplace. During 1996, Cinergy has taken numerous steps to prepare itself not only for the changing environment, but to assure equity and consistency in the setting of rules and regulations in the various markets in which Cinergy competes, including the following: Cinergy and five other midwestern utilities formed a coalition to create and develop a multi-state transmission region operated by an ISO. Since its formation, 18 additional midwestern transmission owners have joined the coalition. The coalition is proposing a Midwest ISO which would ensure non-discriminatory open transmission access and system reliability, as well as, the development of a regional transmission tariff that helps eliminate the "pancaking" of transmission rates that occurs today when power is transmitted through multiple utility systems. Cinergy believes the existence of ISO's will ease regulatory and customer concerns over the exercise of market power by transmission-owning utilities. Cinergy reorganized its electric operations into three strategic business units. This functional unbundling separated Cinergy's electric utility business into an energy services business unit, an energy delivery business unit, and an energy commodities business unit. Each of these separate business units will be responsible for expanding its business through, among other things, expansion of its markets and the offering of new products and services. Cinergy acquired, through a joint venture, a 50% interest in Midlands Electricity plc (Midlands), an electricity distribution company located in the United Kingdom (U.K.). In addition to diversifying Cinergy's distribution business into a foreign market, the U.K.'s advanced stage of opening its electricity market to competition will allow Cinergy to gain experience and knowledge of customer behavior in a competitive market prior to deregulation in its United States (U.S.) markets. Cinergy and Trigen formed a joint venture to develop and operate cogeneration and trigeneration energy facilities throughout the U.S. and Canada. This will allow Cinergy to participate in the delivery of alternative low-cost energy solutions and technologies to its own franchise customers and to customers outside of its franchise territory. Cinergy was an active and successful participant in retail access pilot programs in Illinois, New Hampshire, New York, and Washington. In addition, Cinergy intends to be an active participant in certain states' restructuring processes. Cinergy's energy commodities business unit accelerated its marketing of power in the wholesale market (megawatt (mw) sales increased by more than 80%). Cinergy now has power marketing representation in all regions of the U.S. In late 1996, Cinergy acquired exclusive rights to provide power to two midwestern electric cooperatives for the next five to seven years. Cinergy continued its business reengineering efforts, which were initiated in 1994. These initiatives continue to streamline and make operations more efficient in order for Cinergy to become even more prepared to compete in a competitive environment. As discussed below, Cinergy worked with industrial groups and one other franchise utility in Indiana and is currently working with the other investor owned utilities in Ohio to propose customer choice legislation which properly considers the issues and trade-offs discussed above. For an electric utility to be successful in a competitive environment, it is critical that regulatory reform keep pace with the market realities facing electric utilities and their customers not only in generation, but also transmission, distribution, and energy services activities. Strict adherence to traditional, cost-based rate-of-return regulation will both significantly disadvantage a utility's ability to compete successfully to supply customer needs and result in a failure to realize the potential economic efficiencies from restructuring. For example, performance-based regulation for those businesses which remain regulated would result in better economic incentives to control costs and likely add flexibility for the franchise utility in the transition to a fully competitive environment. Federal Developments Open Access Transmission - FERC Orders 888 and 889 The Energy Act granted the FERC authority to order wholesale transmission access. Acting on that authority, in April 1996, the FERC issued its final orders. The final rules provide for mandatory filing of open access/comparability transmission tariffs, provide for functional unbundling of all services, require utilities to use the filed tariffs for their own bulk power transactions, establish an electronic bulletin board for transmission availability and pricing information, and establish a contract-based approach to recovering any potential stranded costs as a result of customer choice at the wholesale level. The final rules became effective in July 1996. PSI, CG&E, and its Kentucky subsidiary, The Union Light, Heat and Power Company (ULH&P) have made compliance filings with the FERC and are now operating under open access/comparability tariffs. In adopting these rules, the FERC considered, but did not require, the divestiture of any facilities. Additionally, ISO's will not be required; however, principles to guide the FERC's evaluation of ISO proposals are set forth to encourage their formation. FERC Merger Policy In December 1996, the FERC issued a policy statement setting forth new guidelines which address three key factors the FERC will consider in evaluating public utility mergers: the effect on competition (i.e., market power); the effect on rates; and the effect on regulation. The purpose of the policy statement is to ensure that mergers are consistent with the public interest and to provide greater certainty and expedition in the FERC's analysis of merger applications. The new guidelines are in response to the continuing changes in the electric power industry and the regulation of the industry and are intended to accelerate the FERC approval process. A proposed merger's effect on market power will be determined by analyzing the merger candidates' share of the defined market (in terms of both geographic and product markets). In cases where utilities may exercise market power, the guidelines encourage the utility to offer potential remedies such as turning over control of their transmission systems to an ISO or divesting themselves of generation assets. With respect to effect on rates, estimates of future costs and benefits of the merger will no longer be required. Instead, the utility should propose appropriate rate protections for its wholesale customers, such as open seasons for customers to terminate contracts, rate freezes, or rate reductions. Repeal of the PUHCA In 1995, the SEC endorsed recommendations for reform of the PUHCA. The recommendations call for repeal and, pending repeal, significant administrative reform of the 61-year-old statute. While the recommendation report offers three alternative approaches to repeal and legislative reform, the SEC's preferred option is repeal coupled with a transition period of one year or longer and a transfer of certain consumer- protection provisions of the PUHCA to the FERC. The report further recommends that, pending consideration of legislative options, the SEC take prompt administrative action, by rulemaking and on a case-by-case basis, to modernize and simplify regulation under the PUHCA, with particular reference to financing transactions, diversification into non- utility businesses, utility mergers and acquisitions, and the PUHCA's "integration" standards. In the latter regard, the report recommends a changed interpretation of the PUHCA to permit registered holding companies to own combination electric and gas utility companies, provided the affected states agree. Subsequent to the issuance of the report, the SEC adopted rule changes exempting various types of financing transactions by utility and non- utility subsidiaries of registered holding companies. The SEC also proposed a rule which would exempt investments by registered systems in specified "energy-related companies," subject to certain conditions. In February 1997, the rule was adopted substantially as proposed. Since the release of the SEC's report, numerous bills were introduced in both houses of the U.S. Congress providing for the repeal or significant amendment of the PUHCA. It is expected that similar bills addressing repeal of the PUHCA and industry restructuring will be introduced in Congress during 1997. Cinergy continues to support the repeal of the PUHCA, either as part of comprehensive reform of the electric industry or as separate legislation. Cinergy, CG&E, PSI, ULH&P State Developments While the pace of deregulation varies by state and region, nearly all states have initiated or taken part in formal or informal processes, held hearings, and/or passed legislation addressing retail wheeling, restructuring, competition, alternative regulation, or closely related issues. Cinergy and CG&E Ohio The Public Utilities Commission of Ohio (PUCO) continues to explore potential opportunities under the existing regulatory framework prior to embarking on a more fundamental restructuring which could lead to customer choice. In April 1996, the PUCO approved a "buy-through" plan allowing large industrial customers with interruptible contracts to purchase electricity supplies from generators outside the host utility's service territory in order to avoid an interruption in their power supply. Also, in December 1996, the PUCO issued its order and guidelines for a conjunctive electric service two- year pilot program. Under this program, different customer service locations in a service territory may be aggregated for cost of service, rate design, rate eligibility, and billing purposes. CG&E has filed tariffs complying with the buy-through order, and will submit tariffs complying with the conjunctive electric service order, during the first quarter of 1997. Both the interruptible buy-through plan and the conjunctive electric service guidelines were initially developed by The Ohio Electric Competition Roundtable (Roundtable). The Roundtable, which was formed by the PUCO, continues to meet and is currently discussing competitive market structures, including universal service and unbundling. The PUCO has approved long-term rate plans for two "at-risk," high-cost utilities, with both plans designed to improve the competitive position of the utilities by the end of each respective plan. One plan involved a price cap, together with provisions allowing for accelerated depreciation and amortization of the utility's nuclear generation and regulatory assets while the second plan involved a rate increase and a recommendation from the PUCO that the utility develop a plan to reduce the carrying value of its regulatory and nuclear generation assets during the next five years. Neither plan involved provisions for any type of customer choice. Finally, a retail wheeling and industry restructuring bill was introduced in the Ohio legislature during 1996. The bill, which was not passed during the 1996 legislative session, would have restructured the provision of electric service in Ohio, allowed all electric consumers to choose an alternative power supplier beginning in 1998, and permit utilities to recover "legitimate, verifiable, and fully mitigated costs." A similar bill (House Bill 220) has been introduced in the 1997 legislative session. Additionally, the state legislature has created a bipartisan joint study committee to make recommendations regarding customer choice legislation. Cinergy is currently working with other investor owned utilities in Ohio to propose customer choice legislation and will continue its efforts to bring consumer groups and other stakeholders into the process. Although Cinergy is aggressively pursuing customer choice legislation in Ohio, the time frame for passage of legislation providing for customer choice is uncertain due to the complex issues and numerous stakeholder interests involved. Cinergy and PSI Indiana Enacted legislation allows the Indiana Utility Regulatory Commission (IURC) to approve utility alternative regulation proposals upon a showing that, among other things, traditional regulation in a particular service sector is no longer needed. However, during 1996, the IURC did not approve the Company's limited customer choice pilot proposals which were included in a general rate case previously filed by PSI. The IURC stated that any type of industry restructuring should be left to the state legislature. Although no formal investigation into electric competition has been initiated, the IURC has continued to sponsor informal competition forums which are designed to develop a better understanding of issues related to expanding the competitive market on both the wholesale and retail levels. In January 1997, customer choice legislation was introduced in the Indiana legislature. The legislation was drafted by a coalition which included Cinergy, the Indiana Manufacturers Association, the Indiana Industrial Energy Consumers, Inc., and one other Indiana investor owned electric utility. Under the proposed legislation, there would be a transition period from October 1, 1999, through June 30, 2004, during which customers would have the right to choose their electric supplier. Those customers not selecting a supplier would continue to buy their electric power from the franchise utility at a total "bundled" price. The total bundled price would be frozen at the rate in effect as of July 1, 1999, subject to certain adjustments during the transition period, including limited adjustments for specific material cost changes and a downward trending of the retail electric production component of the total frozen price to the current statewide average. Trending of the frozen price would not be applicable to those utilities, such as PSI, whose retail electric production price is currently below the statewide average. Those customers choosing a supplier would pay that supplier's open market price for power and would pay the franchise utility the portion of the bundled price applicable to transmission and distribution services, and an access charge (designed to compensate the franchise utility for its loss in revenues, if any, during the transition period, after giving effect to the revenues which would be realized by the franchise utility from sales of the power in the open market). After June 30, 2004, all customers would continue to have the right to choose their supplier and would continue to pay the franchise utility for transmission and distribution services which would continue to be regulated as to price by the IURC. The access charge would no longer be paid by any customer. The proposed legislation provides for each utility to file a transition plan with the IURC which would include, among other things, a proposed amortization period for regulatory asset balances as of the beginning of the transition period. Recovery of regulatory assets during the transition period would be included in retail rates as a charge for transmission and distribution services. However, any regulatory assets, as well as other stranded costs, at the end of the transition period which are applicable to retail electric production, would be the responsibility of the shareholders. Although Cinergy is aggressively pursuing customer choice legislation in Indiana, the time frame for passage of legislation providing for customer choice is uncertain due to the complex issues and numerous stakeholder interests involved. Cinergy, CG&E, and ULH&P Kentucky There continues to be considerably less activity and interest in industry restructuring in Kentucky. This situation is generally attributable to the fact that Kentucky is one of the lowest-cost states in the country for electric service. During 1996, the Kentucky Public Service Commission (KPSC) began an informal investigation into alternative regulation by holding conferences addressing competition and soliciting input from interested parties to determine the appropriate approach to considering such regulation. Cinergy, CG&E, PSI, and ULH&P Other States As illustrated by the above discussion of customer choice initiatives in the states where Cinergy holds franchise agreements, the Midwest, traditionally a low-cost region, has moved more slowly than the high- cost regions of the country. Michigan has a pilot retail wheeling program in place and the state's governor has submitted a restructuring plan which proposes the creation of an ISO by 1998 and direct access for new commercial and industrial load by 1997. Illinois, which has pilot retail wheeling programs in place, has several retail access proposals supported by utilities and/or consumer groups which may be introduced in the state legislature during 1997. Outside the Midwest, California, New Hampshire, Pennsylvania, and Rhode Island, all of which are considered to be high-cost states, each enacted legislation during the year which will lead to complete retail competition over the next several years. Several other states likely will enact or at least consider customer choice legislation in 1997. Other states are pursuing restructuring plans and pilot retail wheeling experiments on a smaller scale to gain "real world" knowledge on the issues surrounding customer choice. The California plan, for example, will simultaneously create an ISO, a wholesale power exchange, and direct access (customer choice) phased in over four years beginning January 1, 1998. The plan further provides for a non- bypassable competitive transition charge (CTC) on all retail customers to provide utilities the opportunity for recovery of their stranded costs by 2002. The California legislation also allows utilities to securitize a portion of their stranded cost recovery through the issuance of state-backed rate reduction bonds. This will enable the utilities to receive the CTC in advance of payment by customers, thereby allowing for the repayment of higher- cost debt with the proceeds from issuance of the lower-cost rate reduction bonds. These cost savings will be used to fund decreases in customers' rates. Legislation in New Hampshire and Rhode Island requires customer choice by 1998. Pennsylvania requires full competition in generation by 2001. All three states' plans allow for at least partial stranded investment recovery during a transition period. Pennsylvania will also have a structure for utilities to securitize their stranded investment recovery. Cinergy United Kingdom Transition to full competition in the U.K.'s electric utility industry began with the industry's privatization in 1991. When the industry was privatized, the generation, transmission, and regional distribution businesses were, in effect, unbundled into separate companies. The regional distribution companies, including Midlands, own no transmission facilities and are limited as to the amount of generation they may own. Third-party access to the transmission and local distribution systems was also put into place, enabling licensed suppliers to use these networks. Upon privatization, customers with a maximum demand of greater than one mw were allowed to buy electricity from any licensed supplier and, since 1994, choice of supplier has been available to all customers with a maximum demand above 100 kilowatts. Beginning in 1998, choice of supplier will be permitted on a phased-in basis for all classes of customers. The distribution and transmission portions of the industry will continue to be regulated. Suppliers purchase their respective power requirements from a "pool" that was established as part of the overall industry privatization. Generators bid volumes and prices into the pool, which then issues a series of next-day half- hourly prices to meet expected demand. Suppliers purchase their requirements under this system, but also have the ability to enter into "contracts for differences" (Cfds) with generators and others. Cfds are used to avoid the uncertainties of pool prices, fix future obligations, and hedge at least portions of the risk of the pool system. New entrants into the industry have been limited to independent power producers, who compete with the formerly state-run generators by using new, efficient technology such as gas-fired combined-cycle generation. There have been no new major entrants into the supply business from outside of the industry. However, it is believed that with full competition for all customer classes in 1998, new entrants, such as retailers, banks, or companies with strong consumer brand names may emerge into the supply business. Approximately 30% of Midlands' revenues are related to the distribution business which remains a regulated monopoly. In the supply business, Midlands has retained a significant number of its customers who have the ability to choose suppliers and at the same time has gained new customers outside of its franchise territory. Midlands intends to actively pursue expansion of its customer base when all customers gain the ability to choose suppliers. Cinergy, CG&E, PSI, and ULH&P The Industry and Cinergy's Future - Others' Views The major credit rating agencies continue to recognize the risk of the restructuring of the electric utility industry. As discussed above, two major credit rating agencies have quantified their views of the potential stranded investment resulting from competition. In an October 1996 report, a credit rating agency stated that credit ratings will remain volatile as individual companies reinvent themselves. Despite these cautious views of the electric industry, Cinergy has received praise and some measure of optimism for its position in a more competitive environment. At its last upgrading of Cinergy's operating subsidiaries' debt and preferred stock, in November 1995, Moody's expressed its opinion that Cinergy "will have no exposure to stranded costs" and that "Cinergy is expected to be a formidable competitor because of its low production costs." In its July 1995 upgrade of Cinergy's operating subsidiaries' debt and preferred stock, S&P commented that "the business position evaluation of all the Cinergy operating units is now high average" reflecting "low electric production costs, efficient coal-fired equipment, relatively low rates, a well-positioned gas operation, the absence of nuclear challenges, a healthy service territory, and a balanced capital structure." In October 1996, The Energy Daily presented its annual Corporate Leadership Award to Cinergy, for "the aggressive example it has set in moving forward with industry reform" and for Cinergy having "led the search for new and imaginative concepts in the reengineering of the industry." Certain sell-side equity analysts continue to rank Cinergy highly as a utility possessing a strong competitive profile and aggressive and forward-looking management with some considering Cinergy prepared to outperform the market in the competitive arena. In particular, in a recent study of global competition in various industries, Cinergy was one of nine energy companies world-wide which were identified as most likely to prosper in the more competitive environment of the coming decade. Cinergy believes these opinions further support its position that its competitive strategy and agenda will be successful. Cinergy, CG&E, and ULH&P Gas Utility Industry Order 636 In 1992, the FERC issued order 636 (Order 636) which restructured operations between interstate gas pipelines and their customers for gas sales and transportation services. Order 636 mandated changes in the way CG&E and its utility subsidiaries purchase gas supplies and contract for transportation and storage services, resulting in increased risks in meeting the gas demands of their customers. CG&E and its utility subsidiaries have responded to the supply risks and opportunities of Order 636 by introducing innovations to their supply strategy. These innovations include: contracting with major producers and marketers for firm gas supply agreements with flexible, market-sensitive pricing; marketing short-term unused pipeline capacity and storage gas to other companies throughout the country through use of electronic bulletin boards; and restructuring their allotment of interstate pipeline capacity among delivering pipelines. Order 636 also allowed pipelines to recover from customers, including CG&E and its utility subsidiaries, transition costs incurred in complying with the order. In July 1994, the PUCO issued an order approving a stipulation between CG&E and its residential and industrial customer groups providing for recovery of these pipeline transition costs. CG&E is presently recovering its Order 636 transition costs pursuant to a PUCO-approved tariff. CG&E's utility subsidiaries, including ULH&P, recover such costs through their gas cost recovery mechanisms. Customer Choice In a January 1996 filing in Ohio, CG&E proposed to initiate a pilot program which would allow residential customers the ability to choose their gas supplier and have CG&E transport the gas for them. The proposed pilot would extend to residential customers the choice that has been available for several years to large-volume commercial and industrial customers. The PUCO did not approve CG&E's pilot program as filed but directed CG&E to meet with interested parties and refine the program in accordance with certain guidelines specified by the PUCO. CG&E expects to file a modified plan, as directed by the PUCO, in the second quarter of 1997. House Bill 476 (HB 476) In June 1996, HB 476 was signed into law in Ohio. HB 476 addresses regulatory reform of the natural gas industry at the state level and thus is an extension of Order 636 for local distribution companies. HB 476, among other things, provides that natural gas commodity sales services may be exempted from PUCO regulation and that the PUCO allow alternative ratemaking methodologies in connection with other regulated services. The PUCO issued final rules under the new law in March 1997. Cinergy, CG&E, PSI, and ULH&P Substantial Accounting Implications Historically, regulated utilities have applied the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71). The accounting afforded regulated utilities in Statement 71 is based on the fundamental premise that rates authorized by regulators allow recovery of a utility's costs in its generation, transmission, and distribution operations. These principles have allowed the deferral of costs (i.e., regulatory assets) based on assurances of a regulator as to the future recoverability of the costs in rates charged to customers. Certain criteria must be met for the continued application of the provisions of Statement 71, including regulated rates designed to recover the specific utility's costs. Failure to satisfy the criteria in Statement 71 would eliminate the basis for recognition of regulatory assets. The provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (Statement 121), became effective in January 1996 for Cinergy. Statement 121, which addresses the identification and measurement of asset impairments for all enterprises, is particularly relevant for electric utilities as a result of the potential for deregulation of the generation component of the business. Statement 121 requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. In addition, Statement 121 imposes a stricter criterion for recognition of regulatory assets by requiring that future recovery be probable at each balance sheet date. Based on Cinergy's current regulatory orders and the regulatory environment in which it currently operates, the recognition of its regulatory assets as of December 31, 1996, is fully supported. In addition, the application of the provisions of Statement 121 did not have an effect on reported amounts for regulatory assets and other long-lived assets at December 31, 1996. The ultimate outcome of the changing competitive environment could result in Cinergy discontinuing the application of Statement 71 for its generation, transmission, and/or distribution businesses. As a result, regardless of whether such previously deferred costs would be recoverable (i.e., covered by revenues) in a competitive environment, Cinergy would be required to write-off the portion of any regulatory asset for which sufficient regulatory assurance of future recovery no longer exists. In addition, the outcome of applying the provisions of Statement 121 could change significantly as a result of future competitive pressures and the type of restructuring of the electric utility industry to which Cinergy will be subjected. Cinergy intends to continue its pursuit of competitive strategies which mitigate the potential impact of these issues on the financial condition of the Company. Cinergy, CG&E, PSI, and ULH&P SECURITIES RATINGS The current ratings provided by the major credit rating agencies; Duff & Phelps Credit Rating Co. (D&P), Fitch Investors Service, LP (Fitch), Moody's, and S&P are included in the following table: D&P Fitch Moody's S&P CG&E Secured Debt A- A- A3 A- Senior Unsecured Debt BBB+ Not rated Baa1 BBB+ Junior Unsecured Debt BBB Not rated Baa2 BBB+ Preferred Stock BBB BBB+ baa1 BBB+ PSI Secured Debt A- A A3 A- Unsecured Debt BBB+ A- Baa1 BBB+ Preferred Stock BBB BBB+ baa1 BBB+ ULH&P Secured Debt A- Not rated A3 A- Unsecured Debt Not rated Not rated Baa1 BBB+ These securities ratings may be revised or withdrawn at any time, and each rating should be evaluated independently of any other rating. REGULATORY MATTERS Cinergy and PSI Indiana IURC Orders - PSI's Retail Rate Proceeding and DSM Proceeding In September 1996, the IURC issued an order (September 1996 Order) approving an overall average retail rate increase for PSI of 7.6% ($75.7 million annually). PSI had requested a retail rate increase of 10.5% ($104.8 million annually). Among other things, the IURC authorized the inclusion in rates of the costs of a 262-mw clean coal power generating facility located at Wabash River Generating Station (Clean Coal Project) and the costs of a scrubber at Gibson Generating Station. The order also reflects a return on common equity of 11.0%, before the 100 basis points additional common equity return allowed as a merger savings sharing mechanism in the IURC's February 1995 order (February 1995 Order) discussed further herein, with an 8.21% overall rate of return on net original cost rate base. The difference between the Company's request and the authorized increase is primarily related to return on common equity and the deferral to a separate proceeding of an increase in the level of recovery of DSM costs, as discussed below. In October 1996, The Office of the Utility Consumer Counselor (UCC) and the Citizens Action Coalition of Indiana, Inc. (CAC) filed a Joint Petition for Reconsideration and Rehearing of the September 1996 Order with the IURC. The principal issues raised by the UCC and CAC are the fair value rate of return and the cut-off date for the inclusion of costs to achieve merger savings in retail rates. PSI has filed a response in opposition and cannot predict what action the IURC may take with respect to the requested rehearing and reconsideration. A settlement agreement between PSI and certain intervenors in a proceeding established to review PSI's current and proposed DSM programs was approved by the IURC in December 1996. The settlement agreement allows PSI to recover $35 million per year over the next four years, which is designed to recover all previously incurred, but as yet unrecovered, DSM costs and all costs related to satisfying remaining commitments associated with a previous DSM settlement agreement, together with carrying costs thereon, through a non-bypassable charge in PSI's retail rates. The new agreement also authorizes PSI to spend up to $8 million annually on ongoing DSM programs through the year 1999 and to collect such amounts currently in retail rates. February 1995 Order - Retail Rate Proceeding and Merger Savings Allocation Plan The IURC's February 1995 Order approved a settlement agreement between PSI and certain intervenors authorizing PSI to increase retail rates $33.6 million before credits to base rates of $4.4 million in 1995 and an additional $2.2 million and $2.4 million in 1996 and 1997, respectively, to reflect the sharing with customers of non-fuel operation and maintenance expense merger savings (Non-fuel Merger Savings). Additionally, the February 1995 Order provides PSI an opportunity to earn up to an additional 100 basis points above the common equity return authorized in the September 1996 Order until December 31, 1997. In order to be eligible for such additional earnings, PSI must meet certain performance-related standards. PSI currently meets these standards, which are measured in conjunction with quarterly fuel adjustment clause filings. After December 31, 1997, the 100 basis point increment to the authorized common equity return will be phased out ratably over a twelve-month period. Effective with this order, PSI began recovering carrying costs on certain environmental-related projects while under construction and prior to the date of an order reflecting such projects in rates. Through this mechanism, revenues were increased by $9 million, $18 million, and $2 million on an annual basis in February 1995, March 1995, and January 1996, respectively. Coal Contract Buyout Costs In August 1996, PSI entered into a coal supply agreement with Eagle Coal Company (Eagle) for the supply of approximately three million tons of coal per year. The agreement, which terminates December 31, 2000, provides for a buyout fee of $179 million (including interest) to be included in the price of coal to PSI over the term of the contract. This fee represents the costs to Eagle of the buyout of the coal supply agreement between PSI and Exxon Coal and Minerals Company. The retail jurisdictional portion of the buyout charge, excluding the portion applicable to joint owners, will be recovered through the quarterly fuel adjustment clause, with carrying costs on unrecovered amounts, through December 2002. PSI has also filed a petition at the FERC for recovery of the wholesale jurisdictional portion of the buyout costs through the wholesale fuel adjustment clause. Generally, the FERC will allow recovery if the utility can demonstrate there will be net benefits to customers during the buyout cost recovery period. The FERC is expected to issue an order on PSI's petition during 1997. PSI cannot predict what action the FERC may take with respect to this petition. (See Note 1(i) of the "Notes to Financial Statements" in Item 8. "Financial Statements and Supplementary Data.") Cinergy and CG&E Ohio PUCO Order - CG&E's Gas Rate Proceeding In December 1996, the PUCO issued an order (December 1996 Order) approving an overall average increase in gas revenues for CG&E of 2.5% ($9.3 million annually). CG&E had requested a rate increase of 7.8% ($26.2 million annually). The PUCO established an overall rate of return of 9.7%, including a return on common equity of 12.0%. In developing this return on common equity, the PUCO considered, among other things, CG&E's efforts to reduce costs and increase operating efficiency and its proposals to allow residential customers to choose their natural gas supplier. The PUCO disallowed certain of CG&E's requests, including the requested working capital allowance, recovery of certain capitalized information systems development costs, and certain merger-related costs. These disallowances resulted in a pretax charge to earnings during the fourth quarter of $20 million ($15 million net of taxes or 10 cents per share). CG&E's request for a rehearing on the disallowed information systems costs and other aspects of the order was denied. CG&E has until April 14, 1997 to appeal these issues to the Supreme Court of Ohio. Other In April 1994, the PUCO issued an order approving a settlement agreement among CG&E, the PUCO Staff, the Office of the Ohio Consumers' Counsel, and other intervenors which resolved outstanding issues related to the merger and the PUCO's May 1992 order which established a rate phase-in plan for the Wm. H. Zimmer Generating Station (Zimmer). As a result of this order, the rate phase-in plan, which granted annual increases in electric revenues of $37.8 million, $38.8 million, and $39.8 million in May 1992, 1993, and 1994, respectively, remained unchanged. Additionally, as part of this settlement, CG&E agreed to a moratorium on increases in base electric rates until January 1, 1999 (except under certain circumstances). In return, CG&E is allowed to retain all PUCO electric jurisdictional Non-fuel Merger Savings until 1999. Consistent with the provisions of the settlement agreement and the December 1996 Order, CG&E expensed merger transaction costs and costs to achieve merger savings (Merger Costs) applicable to its PUCO jurisdiction of $32 million, $5 million, and $41 million (including $6 million as a result of the December 1996 Order) in 1994, 1995, and 1996, respectively. CG&E and its utility subsidiaries are deferring the non-PUCO jurisdictional portion of Merger Costs for future recovery in customer rates. Additionally, in December 1996, the PUCO issued an order applicable to CG&E's DSM programs. The order requires CG&E to spend up to one-half of the annual $5 million currently included in retail rates on PUCO-sanctioned low-income residential programs. The remaining portion of the $5 million is to be applied to the recovery of DSM cost deferrals. CG&E's participation in the low-income programs will be a factor considered by the PUCO in setting future rates of return and approving competitive transition plans. Cinergy, CG&E, and ULH&P Kentucky In exchange for the KPSC's support of the merger, in May 1994, ULH&P accepted the KPSC's request for an electric rate moratorium commencing after ULH&P's next retail rate case (which has not yet been filed) and extending to January 1, 2000. In addition, the KPSC has authorized concurrent recovery of costs related to various DSM programs of ULH&P. ULH&P is deferring its portion of Merger Costs for future recovery in customers' rates. KPSC Order In July 1996, the KPSC issued an order authorizing a decrease in ULH&P's electric rates of approximately $1.8 million annually to reflect a reduction in the cost of electricity purchased from CG&E. Cinergy, CG&E, and ULH&P Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of CG&E's gas operations may be required. In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of the gas operations for a period of three years. As previously discussed in the "Competitive Pressures" section, in June 1995, the SEC endorsed recommendations for reform/repeal of the PUHCA, including allowing registered holding companies to own combination electric and gas utility companies, provided the affected states agree. It is expected that legislation addressing repeal of the PUHCA and industry restructuring will be introduced in Congress during 1997. Regardless of the outcome of the proposals to reform/repeal the PUHCA, Cinergy believes it has a justifiable basis for retention of its gas operations and will continue its pursuit of SEC approval. If divestiture is ultimately required, the SEC has historically allowed companies sufficient time to accomplish divestitures in a manner that protects shareholder value. ENVIRONMENTAL ISSUES Cinergy, CG&E, and PSI Clean Air Act Amendments of 1990 (CAAA) The 1990 revisions to the Clean Air Act require reductions in both sulfur dioxide and nitrogen oxide emissions from utility sources. Reductions of these emissions are to be accomplished in two phases. Compliance under Phase I was required by January 1, 1995, and Phase II compliance is required by January 1, 2000. To achieve the sulfur dioxide reduction objectives of the CAAA, emission allowances have been allocated by the United States Environmental Protection Agency (EPA) to affected sources (e.g., Cinergy's electric generating units). Each allowance permits one ton of sulfur dioxide emissions. The CAAA allows compliance to be achieved on a national level, which provides companies the option to achieve this compliance by reducing emissions and/or purchasing emission allowances. Cinergy's operating strategy for Phase I is based upon the compliance plans developed by PSI and CG&E and approved by the IURC and the PUCO. All required modifications to Cinergy's generating units to implement the compliance plans were completed prior to January 1, 1995. To comply with Phase II sulfur dioxide emission requirements, Cinergy's current strategy includes a combination of switching to lower-sulfur coal blends and utilizing an emission allowance banking strategy. This cost- effective strategy will allow Cinergy to meet Phase II sulfur dioxide reduction requirements while maintaining optimal flexibility to meet changes in output due to increased customer choice as well as potentially significant future environmental requirements. Cinergy intends to utilize an emission allowance banking strategy to the extent a viable emission allowance market exists. However, the availability and economic value of emission allowances over the long term is still uncertain. In the event the market price for emission allowances or lower-sulfur coal increases substantially from the current forecast, Cinergy could be forced to consider high capital cost options. To meet nitrogen oxide reductions required by Phase II, Cinergy may install additional low-nitrogen oxide burners on certain affected units in addition to the use of a system-wide nitrogen oxide emission averaging strategy. Cinergy is forecasting CAAA compliance capital expenditures of $27 million during the 1997 through 2001 period. Of these forecasted expenditures, $15 million relates to CG&E and $12 million relates to PSI. These expenditures are included in the amounts provided in the "Capital Requirements" section herein. In addition, operating costs may increase due to higher fuel costs (e.g., higher-quality, lower-sulfur coal; increased use of natural gas) and maintenance expenses. Global Climate Change Some scientists, environmentalists, and policymakers continue to express concern about the potential for climate change from increasing amounts of greenhouse gases released as by-products of burning fossil fuel and other industrial processes. However, significant uncertainty exists concerning increased greenhouse gas concentrations and their effect on the global climate system. Cinergy's plan for managing the potential risk and uncertainty of climate change includes: (1) implementing cost effective greenhouse gas emission reduction and offsetting activities; (2) encouraging the use of alternative fuels for transportation vehicles (a major source of greenhouse gases); (3) funding research of more efficient and alternative electric generating technologies; (4) funding research to better understand the causes and consequences of climate change; and (5) encouraging a global discussion of the issues and how best to manage them. Cinergy believes that voluntary programs, such as the United States Department of Energy Climate Challenge Program, which Cinergy joined in 1995, can successfully limit greenhouse gas emissions. Air Toxics The air toxics provisions of the CAAA exempted fossil-fueled steam utility plants from mandatory reduction of 189 listed air toxics until the EPA completes a study. In October 1996, the EPA issued its final interim report indicating these emissions create little risk to public health. A final report, including further assessments on mercury emissions, is expected at a later date. If additional air toxics regulations are issued, the cost of compliance could be significant. Cinergy cannot predict the outcome or the effects of this EPA study. Ambient Air Standards The EPA is proceeding with two programs aimed at assuring clean air. As required by the CAAA, the EPA is reviewing the adequacy of the ozone and particulate matter National Ambient Air Quality Standards (NAAQS) to protect human health. Preliminary proposals indicate the EPA's intent is to make the standards more stringent, thus designating more areas as non-attainment. The EPA has stated its intent to issue final rules by summer 1997. At the same time, the EPA has published its intent to notify certain states that their State Implementation Plans (SIPs) need to be modified in order for existing non-attainment areas to more rapidly reach attainment with the current ozone standard. Even states in attainment of the NAAQS could be required to reduce emissions if they are determined to impact non-attainment areas in other states. The specific affected states and proposed ozone precursor reductions are to be proposed this spring and finalized later in the year. Since the new NAAQS levels are not yet final and the studies of long-range pollution transport have not been completed, Cinergy cannot predict the outcome or effect of the proposed NAAQS and SIP modifications. Cinergy, CG&E, PSI, and ULH&P Other As more fully discussed in Note 12(b)(ii) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data", PSI has received notification from Indiana Gas Company, Inc. (IGC) and Northern Indiana Public Service Company (NIPSCO) alleging PSI is a Potentially Responsible Party under the Comprehensive Environmental Response, Compensation and Liability Act with respect to certain manufactured gas plant (MGP) sites. PSI has not assumed any responsibility to reimburse IGC or NIPSCO for their costs of investigating and remediating MGP sites, with the exception of a site at Shelbyville, Indiana, for which the costs are not material. It is premature, at this time, to predict the nature, extent, and ultimate costs of, or PSI's responsibility for, environmental investigations and remediations at MGP sites owned or previously owned by PSI or its predecessors. Information available to PSI regarding the current status of investigation and/or remediation at the sites identified in IGC's claim indicates PSI's potential exposure to probable and reasonably estimable liabilities associated with these MGP sites would not be material to its financial condition or results of operations. However, further investigation and remediation activities at these sites and the additional sites identified in NIPSCO's claim may indicate that the potential liability for MGP sites could be material. Refer to Note 12(b) and (c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a more detailed discussion of the status of certain environmental issues. CAPITAL REQUIREMENTS CONSTRUCTION AND OTHER INVESTING ACTIVITIES Cinergy, CG&E, PSI, and ULH&P Construction expenditures for the Cinergy system are forecasted to be approximately $345 million for 1997, and over the next five years (1997 through 2001), are forecasted to be approximately $1.7 billion. Of these projected expenditures, approximately $170 million and $817 million relate to CG&E (including $19 million and $111 million for ULH&P) and $175 million and $908 million relate to PSI, for 1997, and over the next five years, respectively. Substantially all of these expenditures are for capital improvements to and expansion of Cinergy's operating facilities. Cinergy's 1995 Form 10-K, as amended, and CG&E's, PSI's, and ULH&P's 1995 Form 10-K, reflected forecasted capital expenditures of $2.1 billion ($1.1 billion for CG&E, including $102 million for ULH&P, and $1.0 billion for PSI) for the period 1996-2000. That amount included expenditures for investments in new generation of $520 million ($285 million for CG&E and $235 million for PSI) over the five-year period. Cinergy is no longer forecasting investments in new generating facilities under the belief that excess supply in the market will continue to exist at least through the transition to full customer choice. However, Cinergy is in the process of securing options to purchase power in order to assure the necessary resources are available to meet its franchise obligations during the transition (see further discussion in "Competitive Pressures" section). If deregulation of the generation component of the electric utility industry does not occur in the manner or in the time frame anticipated, and depending on capacity constraints, franchise demand requirements, and the regulatory requirements dictated for Integrated Resource Planning, Cinergy could be forced to make capital investments in new generating facilities in excess of $100 million annually in lieu of relying upon the existing market for its energy needs. (All forecasted amounts are in nominal dollars and reflect assumptions as to the economy, capital markets, construction programs, legislative and regulatory actions, frequency and timing of rate increases, and other related factors, all or any of which may change significantly.) Cinergy As discussed in the "Competitive Pressures" section, during 1996, Cinergy acquired a 50% interest in Midlands. Cinergy and GPU, Inc. (GPU) formed Avon Energy Partners Holdings (Avon Energy), a 50%/50% joint venture, and acquired the outstanding common stock of Midlands through Avon Energy's wholly-owned subsidiary for approximately $2.6 billion. Cinergy and GPU have each invested approximately $500 million in Avon Energy. Cinergy funded its investment through its credit facility. Avon Energy funded the remainder of the purchase price through the issuance of non-recourse debt (see Note 1(e)(i) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data"). In the fourth quarter of 1996, Cinergy and Trigen formed a joint venture, Trigen-Cinergy Solutions LLC (Trigen-Cinergy). Cinergy expects to invest up to $100 million and to provide guaranties of debt and other obligations in an aggregate amount not to exceed $250 million at any one time with respect to energy-related products and services, including those undertaken by Trigen- Cinergy. (See the "Competitive Pressures" section herein.) Cinergy Cinergy's net cash used in investing activities was $832 million in 1996, compared to $330 million and $528 million in 1995 and 1994, respectively. The increase in 1996 was primarily attributable to Cinergy's investment in Midlands. CG&E and ULH&P CG&E and its subsidiaries' net cash used in investing activities was $156 million in 1996 (including $19 million for ULH&P), compared to $147 million and $196 million in 1995 and 1994 (including $19 million and $20 million for ULH&P), respectively. The increase in 1996 was primarily attributable to an increase in the amount of DSM expenditures. PSI PSI's net cash used in investing activities was $163 million in 1996, compared to $203 million and $331 million in 1995 and 1994, respectively. The decrease in 1996 was primarily attributable to an increase in the amortization of DSM deferrals as a result of the September 1996 Order. OTHER COMMITMENTS Cinergy, CG&E, PSI, and ULH&P Securities Redemptions Mandatory redemptions of long-term debt total $492 million ($371 million for CG&E and its subsidiaries, including $20 million for ULH&P, and $121 million for PSI) during the period 1997 through 2001. Cinergy will continue to evaluate opportunities for the refinancing of outstanding securities beyond mandatory redemption requirements. Maintenance and replacement fund provisions contained in CG&E's, PSI's, and ULH&P's first mortgage bond indentures require cash payments, bond retirements, or pledges of unfunded property additions each year based on an amount related to the net revenues of the respective company. Cinergy and CG&E Preferred Stock Tender Offer During the third quarter of 1996, Cinergy commenced an offer to purchase any and all outstanding shares of preferred stock of CG&E. The total cost of the tender for these preferred shares ($194 million) was funded from short-term borrowings and the liquidation of certain short-term investments. Through the tender, approximately 90% of the outstanding preferred stock of CG&E was retired. At the same time, a restrictive covenant as to the amount of unsecured debt which could be issued by CG&E was eliminated. The resulting premium on the reacquisition of preferred stock of $18 million (including fees paid to tender agents) is shown as a reduction from net income for purposes of determining net income and earnings per share applicable to common stock. Cinergy, CG&E, PSI, and ULH&P Year 2000 Costs Cinergy, like most owners of computer software, will be required to modify significant portions of its software so that it will function properly in the year 2000. Preliminary estimates of the total costs to be incurred prior to 2000 range from $12 million to $17 million. Maintenance or modification costs will be expensed as incurred, while the costs of new software will be capitalized and amortized over the software's useful life. CAPITAL RESOURCES Cinergy, CG&E, PSI, and ULH&P Cinergy, CG&E and its subsidiaries (including ULH&P), and PSI forecast that their need for external funds during the 1997 through 2001 period will primarily be for the refinancing of existing securities. (This forecast reflects nominal dollars and assumptions as to the economy, capital markets, construction programs, legislative and regulatory actions, frequency and timing of rate increases, and other related factors, all or any of which may change significantly.) INTERNAL FUNDS Cinergy, CG&E, PSI, and ULH&P General Currently, the majority of Cinergy's revenues and corresponding cash flows are derived from cost-of-service regulated operations. As previously discussed in the "Competitive Pressures" section, Cinergy believes the generation component of the electric utility industry will ultimately be deregulated. However, the timing and nature of the deregulation and restructuring of the industry is uncertain. In the interim, revenues provided by cost-of-service regulated operations are anticipated to continue as the primary source of funds for Cinergy. As a result of its low-cost position and market strategy, over the long term, Cinergy believes it will be successful in a more competitive environment. However, as the industry becomes more competitive, future cash flows from Cinergy's operations could be subject to a higher degree of volatility than under the present regulatory structure. Cinergy For the year ended December 31, 1996, Cinergy's cash provided from operating activities was $816 million compared to $703 million in 1995 and $441 million in 1994. The increase in 1996 was primarily due to CG&E's and ULH&P's sales of accounts receivables during 1996. The increase was offset, in part, by PSI's payment of $80 million in accordance with a 1989 settlement agreement between PSI and Wabash Valley Power Association, Inc. (WVPA). (See Notes 6 and 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") CG&E and ULH&P For the year ended December 31, 1996, CG&E and its subsidiaries' cash provided from operating activities was $676 million (including $42 million for ULH&P) compared to $441 million in 1995 (including $37 million for ULH&P) and $447 million (including $33 million for ULH&P) in 1994. The increase in 1996 was primarily due to CG&E's and ULH&P's sales of accounts receivable during 1996. (See Note 6 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") PSI For the year ended December 31, 1996, PSI's cash provided from operating activities was $228 million compared to $257 million in 1995 and $42 million in 1994. The decrease in 1996 reflects PSI's payment of $80 million in accordance with a 1989 settlement agreement between PSI and WVPA. (See Note 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") PSI Contribution from Parent Company In December 1994, Cinergy publicly issued approximately 7.1 million shares of common stock. The net proceeds of approximately $160 million were contributed to the equity capital of PSI for general corporate purposes, including repayment of short-term indebtedness incurred for construction financing. Cinergy, CG&E, PSI, and ULH&P Merger Savings As previously discussed in the "Regulatory Matters" section, PSI and CG&E currently have regulatory orders in effect which provide mechanisms for the retention of a portion of net Non-fuel Merger Savings. COMMON STOCK Cinergy During 1996, 1995, and 1994, Cinergy issued 15 thousand, 2.6 million, and 2.8 million shares, respectively, of common stock pursuant to its dividend reinvestment and stock purchase plan and various stock-based employee plans. Cinergy purchased 1.2 million outstanding shares on the open market to satisfy substantially all of its 1996 obligations under these plans. Cinergy plans to continue using market purchases of common stock to satisfy all or at least a portion of its obligations under these plans. In October 1996, Cinergy increased the quarterly dividend by approximately 5% to 45 cents per share of common stock. LONG-TERM DEBT Cinergy, CG&E, PSI, and ULH&P As of December 31, 1996, CG&E, PSI, and ULH&P had state regulatory authority for long-term debt issuances of $250 million, $87 million, and $40 million, respectively. Regulatory approval to issue additional amounts of securities will be requested as needed. SHORT-TERM DEBT Cinergy, CG&E, PSI, and ULH&P Cinergy's subsidiaries had regulatory authority to borrow up to $838 million ($438 million for CG&E and its subsidiaries, including $35 million for ULH&P, and $400 million for PSI) as of December 31, 1996. In connection with this authority, unsecured lines of credit (Committed Lines) have been established which permit borrowings of up to $280 million ($80 million for CG&E and $200 million for PSI), of which $181 million ($65 million for CG&E and $116 million for PSI) remained unused at December 31, 1996. CG&E and PSI also have the capability to issue commercial paper which must be supported by Committed Lines of the respective company. Neither CG&E nor PSI issued commercial paper in 1996 and none remained outstanding as of December 31, 1996. Additionally, pursuant to this authority, additional short-term borrowings with various banks are arranged on an "as offered" basis. To better manage cash and working capital requirements, Cinergy's utility subsidiaries, including CG&E, PSI, and ULH&P, participate in a money pooling arrangement. Under this money pooling arrangement, Cinergy system companies with surplus short-term funds, whether from internal or external sources, provide short-term loans to other system companies at rates that reflect (1) the actual costs of the external borrowing and/or (2) the costs of the internal funds which are set at the 30-day Federal Reserve "AA" industrial commercial paper rate. The SEC's approval of the money pool, pursuant to the PUHCA, extends through May 31, 1997. In March 1997, Cinergy's utility subsidiaries, including CG&E, PSI, and ULH&P and other Cinergy system companies, which participate in the money pooling arrangement, filed an application with the SEC under the PUHCA requesting reauthorization of the money pool through December 31, 2002. Cinergy Cinergy has established a $600 million credit facility, which expires in May 2001, of which $91 million remained unused as of December 31, 1996. This new credit facility was established, in part, to fund the acquisition of Midlands through Avon Energy and its wholly-owned subsidiary ($500 million has been designated for this purpose) with the remaining portion available for general corporate purposes. The prior $100 million credit facility, which would have expired in September 1997, has been terminated. In addition, Cinergy U.K., a subsidiary of Investments, which holds Cinergy's 50% investment in Avon Energy, entered into a $40 million non-recourse credit agreement, of which $27 million is outstanding as of December 31, 1996. This new credit agreement was also used to fund the acquisition of Midlands. Cinergy has borrowed approximately $500 million under the two agreements to fund its equity investment in Avon Energy. Net cash used in financing activities totaled $110 thousand for 1996, as compared to $410 million for 1995 and a source of $147 million for 1994. The change in cash flow from financing activities for 1996 primarily resulted from Cinergy borrowing under its credit facility to fund the acquisition of Midlands. CG&E and ULH&P CG&E and its subsidiaries' net cash used in financing activities totaled $521 million (including $23 million for ULH&P) for 1996, as compared to $339 million (including $17 million for ULH&P) for 1995 and $203 million (including $14 million for ULH&P) for 1994. The change in cash flow from financing activities for 1996 was primarily attributable to CG&E's payments of common stock dividends to Cinergy during 1996. PSI PSI's net cash used in financing activities totaled $77 million for 1996, as compared to $45 million for 1995 and a source of $291 million for 1994. The change in cash flow from financing activities for 1996 was primarily attributable to PSI's payments of common stock dividends to Cinergy during 1996. SALE OF ACCOUNTS RECEIVABLE Cinergy, CG&E, PSI, and ULH&P In January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a revolving basis, undivided percentage interests in certain of their accounts receivable up to an aggregate maximum of $350 million, of which $246 million ($164 million by CG&E and its subsidiaries, including $23 million by ULH&P, and $82 million by PSI) has been sold as of December 31, 1996. PSI had a similar agreement, which expired in January 1996, to sell up to $90 million of its accounts receivable. FINANCIAL DERIVATIVES Cinergy, CG&E, PSI, and ULH&P As discussed in Notes 8(a) and 16(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data," Cinergy and its subsidiaries use forward foreign exchange contracts and currency swaps to hedge exposures to fluctuations in foreign currency exchange rates, and interest rate swap agreements to lower funding costs and reduce exposures to fluctuations in interest rates. POWER MARKETING AND TRADING Cinergy, CG&E, and PSI As discussed in the "Competitive Pressures" section, Cinergy has functionally reorganized its electric operations into three strategic business units, including an energy commodities business unit. The energy commodities business unit includes Cinergy's power marketing and trading function, which was formally established in 1995 and was the natural successor of CG&E's and PSI's existing bulk power operations. At present, the competitive electric power market is dominated by a small number of large participants (primarily utilities and a few power marketers), trading liquidity is limited, and pricing is not transparent. Similar to the development of natural gas markets, the market for trading electricity is expected to develop rapidly and Cinergy plans to be a major participant. At December 31, 1996, Cinergy's trading book principally consisted of physical contracts with fixed pricing. The majority of these physical contracts are fixed-price forward-purchase and sales contracts, which require settlement by physical delivery of electricity. During 1996, Cinergy also began entering into option contracts which, to the extent the options are exercised, are also settled with physical delivery of electricity. Contracts requiring settlement in cash were not significant during 1996. These transactions give rise to market risk, which represents the potential adverse impact of changes in the market value of a particular commitment. As Cinergy continues to develop its power marketing and trading business (and due to its substantial investment in generating assets), its potential exposure to movements in the price of electricity and other energy commodities will become greater. Credit risk represents to the risk of loss which would occur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. As the competitive electric power market expands, counterparties will increasingly include new market entrants, such as other power marketers, brokers, and commodities traders. This increased level of new market entrants, as well as competitive pressures on the utility market participants, could increase Cinergy's exposure to credit risk. As Cinergy expands its power marketing and trading business, in addition to increased exposure to market and credit risks, it will also be subject to increased earnings volatility. Cinergy has established a risk management function and is implementing risk management policies and procedures to manage its exposure to market and credit risks. ACCOUNTING CHANGES Cinergy, CG&E, PSI, and ULH&P The FASB has issued Statement of Financial Accounting Standards No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (Statement 125). Statement 125, which is effective for transactions occurring after December 31, 1996, provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Based on the terms of CG&E's, PSI's, and ULH&P's current securitization agreement with respect to their sales of accounts receivables, the application of the provisions of Statement 125 will not significantly affect the companies financial statements. Costs to service the receivables sold are not material. (See Note 6 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") INFLATION Cinergy, CG&E, PSI, and ULH&P Over the past several years, the rate of inflation has been relatively low. Cinergy believes that the recent inflation rates do not materially affect its results of operations or financial condition. However, under existing regulatory practice, only the historical cost of plant is recoverable from customers. As a result, cash flows designed to provide recovery of historical plant costs may not be adequate to replace plant in future years. DIVIDEND RESTRICTIONS Cinergy, CG&E, and PSI See Note 2(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "ITEM 8. Financial Statements and Supplementary Data." Index to Financial Statements and Financial Statement Schedules Page Number Financial Statements Cinergy, CG&E, PSI, and ULH&P Report of Independent Public Accountants. . . . . . . . XX Cinergy Consolidated Statements of Income for the three years ended December 31, 1996. . . . . . . . . XX Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . XX Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 1996. . . . . . . . . . . . . . . XX Consolidated Statements of Cash Flows for the three years ended December 31, 1996. . . . . XX Results of Operations. . . . . . . . . . . . . . . . . XX CG&E Consolidated Statements of Income for the three years ended December 31, 1996. . . . . . . . . XX Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . XX Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 1996. . . . . . . . . . . . . . . XX Consolidated Statements of Cash Flows for the three years ended December 31, 1996. . . . . XX Results of Operations. . . . . . . . . . . . . . . . . XX PSI Consolidated Statements of Income for the three years ended December 31, 1996. . . . . . . . . XX Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . XX Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 1996. . . . . . . . . . . . . . . XX Consolidated Statements of Cash Flows for the three years ended December 31, 1996. . . . . XX Results of Operations. . . . . . . . . . . . . . . . . XX ULH&P Statements of Income for the three years ended December 31, 1996. . . . . . . . . . . . . . . . . . XX Balance Sheets at December 31, 1996 and 1995 . . . . . XX Statements of Changes in Common Stock Equity for the three years ended December 31, 1996. . . . . XX Statements of Cash Flows for the three years ended December 31, 1996. . . . . . . . . . . . . . . XX Results of Operations. . . . . . . . . . . . . . . . . XX Notes to Financial Statements . . . . . . . . . . . . . . XX Index to Financial Statements and Financial Statement Schedules (cont.) Page Number Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts Cinergy . . . . . . . . . . . . . . . . . . . . . . XXX CG&E. . . . . . . . . . . . . . . . . . . . . . . . XXX PSI . . . . . . . . . . . . . . . . . . . . . . . . XXX ULH&P . . . . . . . . . . . . . . . . . . . . . . . XXX The information required to be submitted in schedules other than those indicated above has been included in the balance sheets, the statements of income, related schedules, the notes thereto, or omitted as not required by the Rules of Regulation S-X. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company: We have audited the financial statements of Cinergy Corp. (a Delaware Corporation), The Cincinnati Gas & Electric Company (an Ohio Corporation), PSI Energy, Inc. (an Indiana Corporation), and The Union Light, Heat and Power Company (a Kentucky Corporation), as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, as listed in the index on page 48. These financial statements and the schedules referred to below are the responsibility of management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental financial statement schedules listed in the index on page 49 pursuant to Item 14, are presented for purposes of complying with the Securities and Exchange Commission's Rules and Regulations under the Securities Exchange Act of 1934 and are not a required part of the basic financial statements. The supplemental financial statement schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Cincinnati, Ohio, January 29, 1997 CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME 1996 1995 1994 (in thousands, except per share amounts) Operating Revenues Electric $2 768 706 $2 612 579 $2 446 049 Gas 474 034 410 852 442 398 3 242 740 3 023 431 2 888 447 Operating Expenses Fuel used in electric production 713 250 716 754 712 993 Gas purchased 249 116 206 250 248 293 Purchased and exchanged power 158 838 47 632 49 082 Other operation 598 434 520 590 549 152 Maintenance 193 908 182 180 200 959 Depreciation 282 763 279 759 294 395 Amortization of phase-in deferrals 13 598 9 091 - Post-in-service deferred operating expenses - net (1 509) (2 500) (5 998) Phase-in deferred depreciation - - (2 161) Income taxes (Note 11) 218 269 221 429 154 494 Taxes other than income taxes 257 815 255 533 243 716 2 684 482 2 436 718 2 444 925 Operating Income 558 258 586 713 443 522 Other Income and Expenses - Net Allowance for equity funds used during construction 1 225 1 964 6 201 Post-in-service carrying costs 1 223 3 186 9 780 Phase-in deferred return 8 372 8 537 15 351 Equity in earnings of unconsolidated subsidiary (Note 1(e)) 25 430 - - Income taxes (Note 11) 19 536 7 358 12 922 Other - net (40 464) (3 051) (33 789) 15 322 17 994 10 465 Income Before Interest and Other Charges 573 580 604 707 453 987 Interest and Other Charges Interest on long-term debt 190 617 213 911 219 248 Other interest 31 169 20 826 20 370 Allowance for borrowed funds used during construction (6 183) (8 065) (12 332) Preferred dividend requirements of subsidiaries 23 180 30 853 35 559 238 783 257 525 262 845 Net Income $ 334 797 $ 347 182 $ 191 142 Costs of Reacquisition of Preferred Stock of Subsidiary (Note 3(b)) (18 391) - - _ Net Income Applicable to Common Stock $ 316 406 $ 347 182 $ 191 142 Average Common Shares Outstanding 157 678 156 620 147 426 Earnings Per Common Share Net income $2.12 $2.22 $1.30 Costs of reacquisition of preferred stock of subsidiary (Note 3(b)) (.12) - - _ Net income applicable to common stock $2.00 $2.22 $1.30 Dividends Declared Per Common Share $1.74 $1.72 $1.50 The accompanying notes are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED BALANCE SHEETS ASSETS December 31 1996 1995_ (dollars in thousands) Utility Plant - Original Cost In service Electric $8 809 786 $8 617 695 Gas 713 829 680 339 Common 185 255 183 422 9 708 870 9 481 456 Accumulated depreciation 3 591 858 3 367 401 6 117 012 6 114 055 Construction work in progress 172 614 135 852 Total utility plant 6 289 626 6 249 907 Current Assets Cash and temporary cash investments 19 327 35 052 Restricted deposits 1 721 2 336 Accounts receivable less accumulated provision for doubtful accounts of $10,618 in 1996 and $10,360 in 1995 (Note 6) 199 361 371 150 Materials, supplies, and fuel - at average cost Fuel for use in electric production 71 730 122 409 Gas stored for current use 32 951 21 493 Other materials and supplies 80 292 85 076 Property taxes applicable to subsequent year 123 580 116 822 Prepayments and other 37 049 32 347 566 011 786 685 Other Assets Regulatory assets (Note 1(f)) Amounts due from customers - income taxes 377 194 423 493 Post-in-service carrying costs and deferred operating expenses 186 396 187 190 Coal contract buyout costs 138 171 - Deferred demand-side management costs 134 742 129 400 Phase-in deferred return and depreciation 95 163 100 388 Deferred merger costs 93 999 56 824 Unamortized costs of reacquiring debt 70 518 73 904 Other 72 483 74 911 Investment in unconsolidated subsidiary (Note 1(e)) 592 660 - Other 231 551 137 362 1 992 877 1 183 472 $8 848 514 $8 220 064 The accompanying notes are an integral part of these consolidated financial statements.
CINERGY CORP. CAPITALIZATION AND LIABILITIES December 31 1996 1995_ (dollars in thousands) Common Stock Equity (Note 2) Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 157,679,129 in 1996 and 157,670,141 in 1995 $ 1 577 $ 1 577 Paid-in capital 1 590 735 1 597 050 Retained earnings 992 273 950 216 Cumulative foreign currency translation adjustment (131) - _ Total common stock equity 2 584 454 2 548 843 Cumulative Preferred Stock of Subsidiaries (Note 3) Not subject to mandatory redemption 194 232 227 897 Subject to mandatory redemption - 160 000 Long-term Debt (Note 4) 2 534 978 2 530 766 Total capitalization 5 313 664 5 467 506 Current Liabilities Long-term debt due within one year (Note 4) 140 000 201 900 Notes payable (Note 5) 713 617 165 800 Accounts payable 305 420 268 139 Litigation settlement (Note 12(e)) - 80 000 Accrued taxes 323 059 317 185 Accrued interest 55 590 55 995 Other 114 653 57 202 1 652 339 1 146 221 Other Liabilities Deferred income taxes (Note 11) 1 146 263 1 120 900 Unamortized investment tax credits 175 935 185 726 Accrued pension and other postretirement benefit costs (Notes 9 and 10) 263 319 171 771 Other 296 994 127 940 1 882 511 1 606 337 Commitments and Contingencies (Note 12) $8 848 514 $8 220 064
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY Cumulative Foreign Currency Common Paid-in Retained Translation Total Common Stock Capital Earnings Adjustment Stock Equity (dollars in thousands) Balance December 31, 1993 $1 453 $1 312 426 $ 907 802 $ - $2 221 681 Net income 191 142 191 142 Issuance of 9,830,042 shares of common stock 99 227 882 227 981 Common stock issuance expenses (5 225) (5 225) Dividends on common stock (see page 52 for per share amounts) (221 362) (221 362) Other 575 (521) 54 Balance December 31, 1994 1 552 1 535 658 877 061 2 414 271 Net income 347 182 - 347 182 Issuance of 2,472,103 shares of common stock - net 25 60 343 60 368 Common stock issuance expenses (229) (229) Dividends on common stock (see page 52 for per share amounts) (268 851) (268 851) Other 1 278 (5 176) (3 898) Balance December 31, 1995 1 577 1 597 050 950 216 - 2 548 843 Net income 334 797 334 797 Issuance of 8,988 shares of common stock - net 311 311 Dividends on common stock (see page 52 for per share amounts) (274 358) (274 358) Translation adjustments (131) (131) Costs of reacquisition of preferred stock of subsidiary (18 391) (18 391) Other (6 626) 9 ____ (6 617) Balance December 31, 1996 $1 577 $1 590 735 $ 992 273 $(131) $2 584 454 The accompanying notes are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS 1996 1995 1994 (in thousands) Operating Activities Net income $ 334 797 $ 347 182 $ 191 142 Items providing (using) cash currently: Depreciation 282 763 279 759 294 395 Deferred income taxes and investment tax credits - net 47 912 28 411 30 926 Allowance for equity funds used during construction (1 225) (1 964) (6 201) Regulatory assets - net 280 1 026 (58 165) Changes in current assets and current liabilities Restricted deposits (358) (1 035) 10 046 Accounts receivable, net of reserves on receivables sold 132 749 (71 641) 40 550 Materials, supplies, and fuel 44 005 51 214 (45 949) Accounts payable 37 281 1 672 (8 191) Advance under accounts receivable purchase agreement - - (49 940) Litigation settlement (80 000) - - Accrued taxes and interest 5 469 56 635 5 753 Other items - net 12 416 12 136 36 890 Net cash provided by operating activities 816 089 703 395 441 256 Financing Activities Issuance of common stock 311 60 139 222 756 Issuance of long-term debt 174 817 344 280 420 935 Funds on deposit from issuance of long-term debt 973 9 987 27 897 Retirement of preferred stock of subsidiaries (212 487) (93 466) (40 426) Redemption of long-term debt (237 183) (398 833) (313 682) Change in short-term debt 547 817 (63 100) 51 186 Dividends on common stock (274 358) (268 851) (221 362) Net cash provided by (used in) financing activities (110) (409 844) 147 304 Investing Activities Construction expenditures (less allowance for equity funds used during construction) (323 013) (324 905) (480 533) Deferred demand-side management costs - net (5 342) (25 273) (47 268) Investment in unconsolidated subsidiary (503 349) - - Equity investments in Argentine utilities - 19 799 - Net cash used in investing activities (831 704) (330 379) (527 801) Net increase (decrease) in cash and temporary cash investments (15 725) (36 828) 60 579 Cash and temporary cash investments at beginning of period 35 052 71 880 11 121 Cash and temporary cash investments at end of period $ 19 327 $ 35 052 $ 71 880 Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest (net of amount capitalized) $ 207 393 $ 218 357 $ 211 163 Income taxes 141 917 140 189 96 680 The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - CINERGY Kilowatt-Hour (kwh) Sales Cinergy's total kwh sales in 1996, as compared to 1995, increased 11.0% reflecting an increase in sales to all customer classes. Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale. The increase in retail sales which reflects a higher average number of residential and commercial customers was partially offset by the return to more normal weather in 1996. The increase in industrial sales was due to growth in the primary metals sector. As compared to 1994, total kwh sales in 1995 increased 4.1% reflecting higher sales to all retail customer classes. Contributing significantly to this increase were higher residential and commercial sales due to warmer weather during the 1995 summer cooling season and colder weather during the fourth quarter of 1995. Additionally, increased sales to industrial customers, reflecting growth in the primary metals and chemicals sectors, contributed to the increased kwh sales level. These increases were offset, in part, by a decline in non-firm power sales for resale. Total kwh sales increased 2.8% in 1994, as compared to 1993, due, in large part, to non-firm power sales for resale, reflecting third-party, short-term power sales to other utilities through PSI's system and direct power sales by PSI to other utilities. This increase was partially offset by CG&E's reduced power sales to other utilities in 1994. Also significantly contributing to the total kwh sales levels were increased sales to industrial customers. This increase reflected growth in the primary metals and transportation equipment sectors. Commercial sales increased due, in part, to new customers. A decrease in residential sales resulted from the milder weather experienced during the third and fourth quarters of 1994. Year-to-year changes in kwh sales for each major class of customers are shown below: Increase (Decrease) from Prior Year 1996 1995 1994_ Retail Residential 2.4% 5.8% (1.7)% Commercial 1.3 4.3 1.9 Industrial 3.3 4.6 4.6 Total retail 2.4 4.9 1.6 Sales for resale Firm power obligations 10.5 1.7 2.5 Non-firm power transactions 82.0 (1.3) 14.4 Total sales for resale 59.6 (.4) 10.5 Total sales 11.0 4.1 2.8 Cinergy currently forecasts a 2% annual compound growth rate in kwh sales over the 1997 through 2001 period. This forecast does not reflect the effects of DSM programs and excludes non-firm power sales for resale and any potential new off-system, long-term firm power sales. Thousand Cubic Feet (Mcf) Sales and Transportation Mcf gas sales and transportation volumes increased 8.4%, as compared to 1995. Colder weather in the first quarter of 1996 and cooler than normal weather early in the second quarter of 1996 led to increased gas sales to residential and commercial customers. Also contributing to the increase in total sales was an increase in the number of residential and commercial customers. Industrial sales decreased and gas transported increased as customers continued to purchase gas directly from suppliers using transportation services provided by CG&E. The increase in transportation volumes mainly reflects demand for gas transportation services in the primary metals sector. Total gas sales and transportation volumes increased 8.6% in 1995, as compared to 1994. Increased sales to residential customers, resulting from colder weather during the fourth quarter of 1995 and an increase in the number of customers, contributed to the higher sales levels. Additionally, increases in commercial and industrial transportation volumes, which resulted from customers electing to purchase gas directly from suppliers, more than offset declines in industrial and commercial sales. The increased transportation volumes mainly reflect industrial demand for gas transportation services in the primary metals, food products, and paper products sectors. The milder weather experienced in 1994 contributed to a decrease in residential and commercial gas sales volumes and led to the decrease in total Mcf sales and transportation of 1.2%, as compared to 1993. An increase in gas transportation volumes to industrial customers, mainly in the primary metals sector, partially offset this decrease. Year-to-year changes in Mcf sales for each major class of customers and Mcf transportation volumes are shown below: Increase (Decrease) from Prior Year 1996 1995 1994 _ Retail Residential 3.6% 10.5% (10.2)% Commercial 7.8 (2.0) (1.5) Industrial (13.3) (26.6) (9.9) Total sales 2.1 1.5 (6.7) Gas transported 19.8 24.4 13.9 Total gas sold and transported 8.4 8.6 (1.2) Operating Revenues ELECTRIC OPERATING REVENUES The $156 million (6.0%) increase in 1996 electric operating revenues, as compared to 1995, is due, in large part, to the increase in kwh sales as previously discussed. Also contributing to the increase was the effect of PSI's 7.6% retail rate increase approved in the September 1996 Order, as well as a full year's effect of PSI's 4.3% retail rate increase approved in the February 1995 Order and PSI's 1.9% increase for carrying costs on construction work in progress property which was approved by the IURC in March 1995. These rate increases were offset by the return of approximately $10 million to PSI's customers in accordance with the February 1995 Order, which requires all retail operating income above a certain level to be refunded to customers, the operation of CG&E's fuel adjustment clauses reflecting a lower average cost of fuel used in electric production, and a decrease in ULH&P's electric rates reflecting a reduction in the cost of electricity purchased from CG&E. Higher retail kwh sales, PSI's electric rate increases which became effective in February 1995 and March 1995, and a full year's effect of CG&E's electric rate increase which became effective in May 1994, significantly contributed to the $167 million (6.8%) increase in electric operating revenues for 1995, when compared to 1994. Electric operating revenues increased $82 million (3.5%) in 1994, as compared to 1993, as a result of CG&E's electric rate increases which became effective in May 1993, August 1993, and May 1994, PSI's increased kwh sales, and the effects of PSI's $31 million refund to retail customers accrued in June 1993 as a result of the settlement of an April 1990 IURC order. An analysis of electric operating revenues for the past three years is shown below: 1996 1995 1994_ (dollars in millions) Previous year's electric operating revenues $2 613 $2 446 $2 364 Increase (Decrease) due to change in: Price per kwh Retail (1) 54 32 Sales for resale Firm power obligations (4) (1) 1 Non-firm power transactions - 4 - Total change in price per kwh (5) 57 33 Kwh sales Retail 56 109 34 Sales for resale Firm power obligations 9 1 2 Non-firm power transactions 94 (1) 14 Total change in kwh sales 159 109 50 Other 2 1 (1) Current year's electric operating revenues $2 769 $2 613 $2 446 GAS OPERATING REVENUES The increasing trend of industrial customers purchasing gas directly from producers and utilizing CG&E facilities to transport the gas (see the "Mcf Sales and Transportation" section) continues to put downward pressure on gas operating revenues. When Cinergy sells gas, the sales price reflects the cost of gas purchased by Cinergy to support the sale plus the costs to deliver the gas. When gas is transported, Cinergy does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues increased $63 million (15.4%), as compared to 1995. This increase is attributable to the increase in gas sales and transportation volumes. Also contributing to the increase was the operation of fuel adjustment clauses reflecting a higher cost of gas purchased. In 1995, gas operating revenues declined $32 million (7.1%), as compared to 1994, as a result of the aforementioned trend toward increased transportation services and the operation of fuel adjustment clauses reflecting a lower average cost of gas purchased. Gas operating revenues decreased $27 million (5.7%) in 1994, as compared to 1993, due to the operation of fuel adjustment clauses which reflected a lower average cost of gas purchased during the latter part of 1994 and a reduction in total volumes sold and transported. Operating Expenses FUEL Fuel Used in Electric Production Electric fuel costs, Cinergy's largest operating expense, remained relatively constant in 1996, showing less than a 1% decrease when compared to 1995. An analysis of fuel costs for the past three years is shown below: 1996 1995 1994 (dollars in millions) Previous year's fuel expense $717 $713 $733 Increase (Decrease) due to change in: Price of fuel (6) (25) (39) Kwh generation 2 29 19 Current year's fuel expense $713 $717 $713 Gas Purchased Gas purchased increased $43 million (20.8%), as compared to 1995 due to an increase in volumes purchased and a higher average cost per Mcf of gas purchased, as previously discussed. In 1995, gas purchased expense decreased $42 million (16.9%), as compared to 1994, primarily reflecting a decline in the average cost per Mcf of gas purchased. A reduction in the average cost per Mcf of gas purchased and lower volumes purchased contributed to the decline in gas purchased expense of $33 million (11.6%) in 1994, as compared to 1993. PURCHASED AND EXCHANGED POWER Purchased and exchanged power increased $111 million, as compared to 1995. The increase primarily reflects increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. The increase in purchased and exchanged power of $13 million (35.6%) in 1994, as compared to 1993, reflected an increase in third-party, short-term power sales to other utilities through PSI's system and increased purchases of other non-firm power by PSI primarily to serve its own load. OTHER OPERATION Other operation increased $78 million (15.0%) in 1996, as compared to 1995. This increase is due to a number of factors, including increased administrative and general expenses reflecting, in part, charges of $35 million for voluntary early retirement and severance programs and charges totaling $6 million related to the December 1996 Order. In addition, an increase of $7 million in production expenses associated with the operations of the Clean Coal Project contributed to the increase. In 1995, other operation expenses decreased $29 million (5.2%), as compared to 1994. Charges of $62 million in 1994 for Merger Costs and other expenditures which cannot be recovered from customers under the merger savings sharing mechanisms authorized by regulators significantly contributed to the decrease. In addition, emphasis on achieving merger savings and other cost reductions led to lower operating costs for 1995. These decreases were partially offset by the recognition of postretirement benefit costs on an accrual basis, an increase in the ongoing level of DSM expenses, and the amortization of deferred postretirement benefit costs, deferred Merger Costs, and deferred DSM costs, all of which are being recovered in revenues pursuant to the February 1995 Order. Other operation expenses increased $105 million (23.7%) in 1994, as compared to 1993, due to a number of factors including the previously discussed charges of $62 million, fuel litigation expenses of $8 million incurred by PSI, and increased electric production and distribution expenses. MAINTENANCE An increase of $12 million (6.4%) in maintenance costs, as compared to 1995, is primarily attributable to increased maintenance associated with the Clean Coal Project which began commercial operation in November 1995. Increased transmission and distribution expenses also contributed to the higher level of maintenance expense. Maintenance costs decreased $19 million (9.3%) in 1995, as compared to 1994, primarily due to improved scheduling of routine maintenance on electric generating units. Lower maintenance costs on gas and electric distribution facilities also contributed to this decrease. Increased maintenance on a number of PSI's generating stations and the initial costs of PSI's new distribution line clearing program resulted in increased maintenance expenses of $8 million (4.2%) in 1994, as compared to 1993. DEPRECIATION In 1995, depreciation expense decreased $15 million (5.0%), when compared to 1994, due in large part to the adoption of lower depreciation rates for PSI effective in March 1995. This decrease was partially offset by the effect of additions to utility plant. Depreciation expense increased $16 million (5.6%) in 1994, as compared to 1993, primarily as a result of additions to electric utility plant. POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET Post-in-service deferred operating expenses - net reflect various deferrals of depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes on certain generating units and other utility plant from the in-service date until the related plant is reflected in retail rates, net of amortization of these deferrals as they are recovered through retail rates. (See Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") PHASE-IN DEFERRED DEPRECIATION AND RETURN AND AMORTIZATION OF PHASE-IN DEFERRALS Phase-in deferred depreciation, phase-in deferred return, and amortization of phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer. (See Note 1(k) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") TAXES OTHER THAN INCOME TAXES Taxes other than income taxes increased $12 million (4.8%) in 1995 and $15 million (6.5%) in 1994, primarily due to increased property taxes resulting from a greater investment in taxable property and higher property tax rates. Other Income and Expenses - Net POST-IN-SERVICE CARRYING COSTS Post-in-service carrying costs reflect the deferral of carrying costs on certain generating units and other utility plant from the in-service date until the related plant is reflected in retail rates. (See Note 1(h) of the Notes to Consolidated Financial Statements). OTHER - NET The change in other - net of $37 million, as compared to 1995, is due to a number of factors including $4 million of interest received in 1995 on an income tax refund related to prior years, charges totaling $14 million associated with the December 1996 Order, expenses associated with CG&E's and ULH&P's sales of accounts receivables in 1996, and the effect of a $10 million gain in 1995 on the sale of Cinergy's investment in an Argentine utility. The $31 million change in other - net in 1995, as compared to 1994, is due in part to interest on the income tax refund and the $10 million gain discussed above and charges of $17 million in 1994 for merger-related and other expenditures which cannot be recovered from customers. In 1994, other - net increased $9 million, as compared to 1993, primarily as a result of the write-off during 1993 of $22 million related to the defense against the IPALCO Enterprises, Inc. hostile takeover attempt. The increase was offset, in part, by the charges in 1994 of $17 million previously discussed. Interest and Other Charges INTEREST ON LONG-TERM DEBT Interest on long-term debt decreased $23 million (10.9%), as compared to 1995, due to the refinancing and redemptions of long-term debt by CG&E, PSI, and ULH&P during 1995 and 1996. OTHER INTEREST Other interest increased $10 million (49.7%), as compared to 1995, primarily reflecting increased interest expense on short-term borrowings used to fund Cinergy's investment in Avon Energy. PREFERRED DIVIDEND REQUIREMENTS OF SUBSIDIARIES Preferred dividend requirements of subsidiaries decreased $8 million (24.9%), as compared to 1995. The decrease was primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer (see Note 3(b) of the Notes to Financial Statements). The Cincinnati Gas & Electric Company and subsidiaries
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME 1996 1995 1994 (in thousands) Operating Revenues Electric Non-affiliated companies $1 458 828 $1 407 119 $1 341 120 Affiliated companies 43 180 30 104 4 667 Gas Non-affiliated companies 474 034 410 852 442 398 Affiliated companies 7 - - _ Total operating revenues 1 976 049 1 848 075 1 788 185 Operating Expenses Fuel used in electric production 349 197 327 353 325 470 Gas purchased 249 116 206 250 248 293 Purchased and exchanged power Non-affiliated companies 46 333 13 870 12 349 Affiliated companies 21 921 42 575 8 583 Other operation 330 169 291 874 336 030 Maintenance 96 205 94 688 106 810 Depreciation 160 951 158 986 156 676 Amortization of phase-in deferrals 13 598 9 091 - Post-in-service deferred operating expenses - net 3 290 3 290 3 290 Phase-in deferred depreciation - - (2 161) Income taxes (Note 11) 145 075 136 386 104 128 Taxes other than income taxes 207 904 203 680 197 381 1 623 759 1 488 043 1 496 849 Operating Income 352 290 360 032 291 336 Other Income and Expenses - Net Allowance for equity funds used during construction 1 225 1 790 1 971 Phase-in deferred return 8 372 8 537 15 351 Income taxes (Note 11) 9 139 4 587 6 619 Other - net (21 296) 4 221 (6 726) (2 560) 19 135 17 215 Income Before Interest 349 730 379 167 308 551 Interest Interest on long-term debt 123 616 143 334 150 386 Other interest 2 793 3 486 2 831 Allowance for borrowed funds used during construction (3 859) (3 854) (2 977) 122 550 142 966 150 240 Net Income 227 180 236 201 158 311 Preferred Dividend Requirement 10 643 17 673 22 377 Costs of Reacquisition of Preferred Stock (Note 3(b)) 18 391 - -___ Net Income Applicable to Common Stock $ 198 146 $ 218 528 $ 135 934 The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS ASSETS December 31 1996 1995 (dollars in thousands) Utility Plant - Original Cost In service Electric $4 631 605 $4 564 711 Gas 713 829 680 339 Common 185 255 183 422 5 530 689 5 428 472 Accumulated depreciation 1 868 579 1 730 232 3 662 110 3 698 240 Construction work in progress 95 984 77 661 Total utility plant 3 758 094 3 775 901 Current Assets Cash and temporary cash investments 5 120 6 612 Restricted deposits 1 171 1 144 Notes receivable from affiliated companies 31 740 24 715 Accounts receivable less accumulated provision for doubtful accounts of $9,178 in 1996 and $9,615 in 1995 (Note 6) 117 912 292 493 Accounts receivable from affiliated companies 2 453 17 162 Materials, supplies, and fuel - at average cost Fuel for use in electric production 29 865 40 395 Gas stored for current use 32 951 21 493 Other materials and supplies 52 023 55 388 Property taxes applicable to subsequent year 123 580 116 822 Prepayments and other 32 433 30 572 429 248 606 796 Other Assets Regulatory assets (Note 1(f)) Amounts due from customers - income taxes 344 126 397 155 Post-in-service carrying costs and deferred operating expenses 141 492 148 316 Phase-in deferred return and depreciation 95 163 100 388 Deferred demand-side management costs 33 534 19 158 Deferred merger costs 17 709 14 538 Unamortized costs of reacquiring debt 38 439 39 428 Other 19 545 41 025 Other 89 908 54 691 779 916 814 699 $4 967 258 $5 197 396 The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CAPITALIZATION AND LIABILITIES December 31 1996 1995 (dollars in thousands) Common Stock Equity (Note 2) Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 in 1996 and 1995 $ 762 136 $ 762 136 Paid-in capital 536 276 339 101 Retained earnings 247 403 427 226 Total common stock equity 1 545 815 1 528 463 Cumulative Preferred Stock (Note 3) Not subject to mandatory redemption 21 146 40 000 Subject to mandatory redemption - 160 000 Long-term Debt (Note 4) 1 565 108 1 702 650 Total capitalization 3 132 069 3 431 113 Current Liabilities Long-term debt due within one year (Note 4) 130 000 151 500 Notes payable (Note 5) 30 488 - Notes payable to affiliated companies 103 - Accounts payable 166 064 138 735 Accounts payable to affiliated companies 12 726 20 468 Accrued taxes 267 841 250 189 Accrued interest 30 570 31 299 Other 32 191 40 409 669 983 632 600 Other Liabilities Deferred income taxes (Note 11) 767 085 795 385 Unamortized investment tax credits 123 185 129 372 Accrued pension and other postretirement benefit costs (Notes 9 and 10) 165 282 117 641 Other 109 654 91 285 1 165 206 1 133 683 Commitments and Contingencies (Note 12) $4 967 258 $5 197 396
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY Common Paid-in Retained Total Common Stock Capital Earnings Stock Equity (dollars in thousands) Balance December 31, 1993 $748 528 $314 218 $ 456 511 $1 519 257 Net income 158 311 158 311 Issuance of 1,601,003 shares of common stock 13 608 23 142 36 750 Common stock issuance expenses (39) (39) Dividends on preferred stock (22 377) (22 377) Dividends on common stock (158 970) (158 970) Other 553 (513) 40 Balance December 31, 1994 762 136 337 874 432 962 1 532 972 Net income 236 201 236 201 Dividends on preferred stock (17 673) (17 673) Dividends on common stock (219 550) (219 550) Other 1 227 (4 714) (3 487) Balance December 31, 1995 762 136 339 101 427 226 1 528 463 Net income 227 180 227 180 Dividends on preferred stock (10 643) (10 643) Dividends on common stock (377 969) (377 969) Contribution from parent company 197 207 197 207 Costs of reacquisition of preferred stock (18 391) (18 391) Other (32) (32) Balance December 31, 1996 $762 136 $536 276 $ 247 403 $1 545 815 The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS 1996 1995 1994 (in thousands) Operating Activities Net income $ 227 180 $ 236 201 $ 158 311 Items providing (using) cash currently Depreciation 160 951 158 986 156 676 Deferred income taxes and investment tax credits - net 18 929 26 938 13 680 Allowance for equity funds used during construction (1 225) (1 790) (1 971) Regulatory assets - net 34 761 16 654 (21 248) Changes in current assets and current liabilities Restricted deposits (27) (1 046) 22 Accounts and notes receivable, net of reserves on receivables sold 156 182 (65 350) 43 145 Materials, supplies, and fuel 2 437 14 039 21 202 Accounts payable 19 587 38 386 (8 093) Accrued taxes and interest 16 923 21 935 8 211 Other items - net 39 843 (4 105) 77 462 Net cash provided by operating activities 675 541 440 848 447 397 Financing Activities Issuance of common stock - - 36 711 Issuance of long-term debt - 344 280 311 957 Retirement of preferred stock - (93 450) (40 400) Redemption of long-term debt (162 583) (338 378) (313 522) Change in short-term debt 30 591 (14 500) (16 500) Dividends on preferred stock (10 643) (17 673) (22 377) Dividends on common stock (377 969) (219 550) (158 970) Net cash used in financing activities (520 604) (339 271) (203 101) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (142 053) (138 325) (189 954) Deferred demand-side management costs - net (14 376) (9 156) (6 396) Net cash used in investing activities (156 429) (147 481) (196 350) Net increase (decrease) in cash and temporary cash investments (1 492) (45 904) 47 946 Cash and temporary cash investments at beginning of period 6 612 52 516 4 570 Cash and temporary cash investments at end of period $ 5 120 $ 6 612 $ 52 516 Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest (net of amount capitalized) $ 117 848 $ 137 892 $ 142 380 Income taxes 109 034 79 769 88 639 The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - CG&E Kwh Sales CG&E's total kwh sales increased 10.6% in 1996, as compared to 1995, reflecting an increase in sales to all customer classes. The increase to retail sales which reflects a higher average number of residential and commercial customers was partially offset by the return to more normal weather in 1996. The increase in industrial sales was due to growth in the primary metals sector. Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale. Kwh sales for 1995 increased 15.3% over 1994, reflecting increased sales to all customer classes. Significantly contributing to this increase were higher non-firm power sales for resale primarily due to increased sales to PSI, as a result of the coordination of CG&E's and PSI's electric dispatch systems. Higher residential and commercial sales resulted primarily from warmer weather during the 1995 summer cooling season and colder weather during the fourth quarter of 1995. Additionally, increased sales to industrial customers were mainly attributable to growth in the primary metals and chemicals sectors. CG&E's total kwh sales in 1994, as compared to 1993, decreased 1.2%, due in large part to reduced power sales to other utilities in 1994 and decreased residential sales resulting from milder weather experienced during the third and fourth quarters of 1994. This decrease was partially offset by increased kwh sales to industrial customers reflecting growth in the primary metals and machinery sectors. Year-to-year changes in kwh sales for each major class of customers are shown below: Increase (Decrease) from Prior Year 1996 1995 1994 Retail Residential 4.7% 3.8% (2.0)% Commercial 2.3 3.4 2.3 Industrial 3.4 3.9 4.3 Total retail 3.3 3.8 1.1 Sales for resale Firm power obligations 3.7 6.3 1.7 Non-firm power transactions 51.7 211.8 (29.3) Total sales for resale 48.1 172.6 (24.9) Total sales 10.6 15.3 (1.2) CG&E currently forecasts a 2% annual compound growth rate in kwh sales over the 1997 through 2001 period. This forecast does not reflect the effects of DSM programs and excludes non-firm power sales for resale and any potential new off-system, long-term firm power sales. Mcf Sales and Transportation Mcf gas sales and transportation volumes increased 8.4%, as compared to 1995. Colder weather in the first quarter of 1996 and cooler than normal weather early in the second quarter of 1996 led to increased gas sales to residential and commercial customers. Also contributing to the increase in total sales was an increase in the number of residential and commercial customers. Industrial sales decreased and gas transported increased as customers continued to purchase gas directly from suppliers using transportation services provided by CG&E. The increase in transportation volumes mainly reflects demand for gas transportation services in the primary metals sector. Total gas sales and transportation volumes increased 8.6% in 1995, as compared to 1994. Increased sales to residential customers, resulting from colder weather during the fourth quarter of 1995 and an increase in the number of customers, contributed to the higher sales levels. Additionally, increases in commercial and industrial transportation volumes, which resulted from customers electing to purchase gas directly from suppliers, more than offset declines in industrial and commercial sales. The increased transportation volumes mainly reflect industrial demand for gas transportation services in the primary metals, food products, and paper products sectors. The milder weather experienced in 1994 contributed to a decrease in residential and commercial gas sales volumes and led to the decrease in total Mcf sales and transportation of 1.2%, as compared to 1993. An increase in gas transportation volumes to industrial customers, mainly in the primary metals sector, partially offset this decrease. Year-to-year changes in Mcf sales for each major class of customers and Mcf transportation volumes are shown below: Increase (Decrease) from Prior Year 1996 1995 1994 Retail Residential 3.6 % 10.5 % (10.2)% Commercial 7.8 (2.0) (1.5) Industrial (13.3) (26.6) (9.9) Total sales 2.1 1.5 (6.7) Gas transported 19.8 24.4 13.9 Total gas sold and transported 8.4 8.6 (1.2) Operating Revenues ELECTRIC OPERATING REVENUES The $65 million (4.5%) increase in 1996 electric operating revenues, as compared to 1995, is due, in large part, to the increase in kwh sales as previously discussed. This increase was partially offset by the operation of fuel adjustment clauses reflecting a lower average cost of fuel used in electric production. Electric operating revenues increased $91 million (6.8%) in 1995, as compared to 1994. This increase reflects the higher kwh sales, as previously discussed and a full year's effect of CG&E's electric rate increase which became effective in May 1994. This increase was partially offset by the operation of fuel adjustment clauses reflecting a lower average cost of fuel used in electric production. CG&E's electric rate increases which became effective in May 1993, August 1993, and May 1994 substantially contributed to the increase in electric operating revenues of $63 million (4.9%) in 1994, as compared to 1993. An analysis of electric operating revenues for the past three years is shown below: 1996 1995 1994_ (in millions) Previous year's electric operating revenues $1 437 $1 346 $1 282 Increase (Decrease) due to change in: Price per kwh Retail (13) (10) 55 Sales for resale Firm power obligations - 1 - Non-firm power transactions (10) (9) 3 Total change in price per kwh (23) (18) 58 Kwh sales Retail 44 49 14 Sales for resale Firm power obligations 1 1 - Non-firm power transactions 41 60 (9) Total change in kwh sales 86 110 5 Other 2 (1) 1 Current year's electric operating revenues $1 502 $1 437 $1 346 GAS OPERATING REVENUES The increasing trend of industrial customers purchasing gas directly from producers and utilizing CG&E facilities to transport the gas (see the "Mcf Sales and Transportation" section) continues to put downward pressure on gas operating revenues. When CG&E sells gas, the sales price reflects the cost of gas purchased by CG&E to support the sale plus the costs to deliver the gas. When gas is transported, CG&E does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues increased $63 million (15.4%)as compared to 1995. This increase is attributable to the increase in gas sales and transportation volumes. Also contributing to the increase was the operation of fuel adjustment clauses reflecting a higher cost of gas purchased. In 1995, gas operating revenues declined $32 million (7.1%), as compared to 1994, as a result of the aforementioned trend toward increased transportation services and the operation of fuel adjustment clauses reflecting a lower average cost of gas purchased. Gas operating revenues decreased $27 million (5.7%)in 1994, as compared to 1993, due to the operation of fuel adjustment clauses which reflected a lower average cost of gas purchased during the latter part of 1994 and a reduction in total volumes sold and transported. Operating Expenses FUEL Fuel Used in Electric Production Electric fuel costs increased $22 million (6.7%) in 1996, when compared to 1995. An analysis of fuel costs for the past three years is shown below: 1996 1995 1994 (in millions) Previous year's fuel expense $327 $325 $333 Increase (Decrease) due to change in: Price of fuel (4) (20) (9) Kwh generation 26 22 1 Current year's fuel expense $349 $327 $325 Gas Purchased Gas purchased increased $43 million (20.8%), as compared to 1995, due to an increase in volumes purchased and a higher average cost per Mcf of gas purchased, as previously discussed. In 1995, gas purchased expense decreased $42 million (16.9%), as compared to 1994, primarily reflecting a decline in the average cost per Mcf of gas purchased. A reduction in the average cost per Mcf of gas purchased and lower volumes purchased contributed to the decline in gas purchased expense of $33 million (11.6%) in 1994, as compared to 1993. PURCHASED AND EXCHANGED POWER Purchased and exchanged power increased $12 million (20.9%), as compared to 1995. The increase primarily reflects increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Purchased and exchanged power costs increased $36 million in 1995, as compared to 1994, reflecting increased purchases from PSI resulting from the coordination of PSI's and CG&E's electric dispatch systems. These increases were partially offset by a decline in third-party, short-term power sales to other utilities. OTHER OPERATION Other operation increased $38 million (13.1%) in 1996, as compared to 1995. This increase is attributable to higher administrative and general expenses reflecting, in part, charges of $30 million for voluntary early retirement and severance programs and charges totaling $6 million related to the December 1996 Order. The increase is partially offset by a decrease in electric distribution expenses. In 1995, other operation expenses decreased $44 million (13.1%), as compared to 1994. Charges of $52 million in 1994 for Merger Costs and other expenditures which cannot be recovered from customers under the merger savings sharing mechanism authorized by the PUCO significantly contributed to the decrease. In addition, emphasis on achieving merger savings and other cost reductions led to lower operating costs for 1995. The decrease was partially offset by the write-off of obsolete inventory in December 1995. Other operation expenses increased $79 million (30.5%) in 1994, as compared to 1993, due to a number of factors including the previously discussed charges of $52 million and increased electric production and distribution expenses. MAINTENANCE The decrease in maintenance expense of $12 million (11.3%) in 1995, as compared to 1994, was primarily attributable to improved scheduling of routine maintenance on electric generating units. Lower maintenance costs on gas and electric distribution facilities also contributed to the decline. POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET Post-in-service deferred operating expenses - net reflect various deferrals of depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes on certain generating units and other utility plant from the in-service date until the related plant is reflected in retail rates, net of amortization of these deferrals as they are recovered through retail rates. (See Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") PHASE-IN DEFERRED DEPRECIATION AND RETURN AND AMORTIZATION OF PHASE-IN DEFERRALS Phase-in deferred depreciation, phase-in deferred return, and amortization of phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer. (See Note 1(k) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") TAXES OTHER THAN INCOME TAXES Taxes other than income taxes increased $6 million (3.2%) in 1995, and $14 million (7.6%) in 1994, primarily due to increased property taxes resulting from a greater investment in taxable property and higher property tax rates. Other Income and Expenses - Net OTHER - NET The change in other - net of $26 million in 1996, as compared to 1995, is due to a number of factors including $4 million of interest received in 1995 on an income tax refund related to prior years, charges totaling $14 million associated with the December 1996 Order, and expenses associated with CG&E's and ULH&P's sales of accounts receivables in 1996. The increase in other - net of $11 million in 1995, as compared to 1994, is due in part to interest on the income tax refund discussed above and charges of $12 million in 1994 for merger-related and other expenditures which cannot be recovered from customers. Interest and Other Charges Interest on Long-term Debt Interest on long-term debt decreased $20 million (13.8%), as compared to 1995, due to the refinancing and redemptions of long-term debt in 1996 and 1995. PREFERRED DIVIDEND REQUIREMENT Preferred dividend requirements decreased $7 million (39.8%), as compared to 1995. The decrease was primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer (see Note 3(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data"). CG&E's preferred dividend requirement decreased $5 million (21.0%) for 1995, as compared to 1994. The decrease was attributable to the early redemption of 400,000 shares of $100 par value, 9.28% Series Cumulative Preferred Stock in April 1994, along with the early redemption of 400,000 and 500,000 shares of $100 par value Cumulative Preferred Stock, 7.44% Series and 9.15% Series, respectively, on July 1, 1995. PSI Energy, Inc. and Subsidiaries
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME 1996 1995 1994 (in thousands) Operating Revenues Non-affiliated companies $1 309 878 $1 205 460 $1 104 929 Affiliated companies 22 084 42 575 8 583 1 331 962 1 248 035 1 113 512 Operating Expenses Fuel 364 053 389 401 387 523 Purchased and exchanged power Non-affiliated companies 112 505 33 762 36 733 Affiliated companies 43 343 30 104 4 667 Other operation 268 478 228 508 213 122 Maintenance 97 703 87 492 94 149 Depreciation 121 812 120 773 137 719 Post-in-service deferred operating expenses - net (4 799) (5 790) (9 288) Income taxes (Note 11) 73 194 85 043 50 366 Taxes other than income taxes 49 911 51 853 46 335 1 126 200 1 021 146 961 326 Operating Income 205 762 226 889 152 186 Other Income and Expenses - Net Allowance for equity funds used during construction - 174 4 230 Post-in-service carrying costs 1 223 3 186 9 780 Income taxes (Note 11) (3 997) 941 (1 312) Other - net 1 878 (3 188) (7 893) (896) 1 113 4 805 Income Before Interest 204 866 228 002 156 991 Interest Interest on long-term debt 67 001 70 577 68 862 Other interest 14 511 15 821 15 292 Allowance for borrowed funds used during construction (2 324) (4 211) (9 355) 79 188 82 187 74 799 Net Income 125 678 145 815 82 192 Preferred Dividend Requirement 12 537 13 180 13 182 Net Income Applicable to Common Stock $ 113 141 $ 132 635 $ 69 010 The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS ASSETS December 31 1996 1995 (dollars in thousands) Electric Utility Plant - Original Cost In service $4 178 181 $4 052 984 Accumulated depreciation 1 723 279 1 637 169 2 454 902 2 415 815 Construction work in progress 76 630 58 191 Total electric utility plant 2 531 532 2 474 006 Current Assets Cash and temporary cash investments 2 911 15 522 Restricted deposits 550 1 187 Notes receivable from affiliated companies 3 - Accounts receivable less accumulated provision for doubtful accounts of $1,269 in 1996 and $468 in 1995 (Note 6) 74 289 73 419 Accounts receivable from affiliated companies 4 016 20 568 Materials, supplies, and fuel - at average cost Fuel 41 865 82 014 Other materials and supplies 28 268 29 462 Prepayments and other 3 184 1 234 155 086 223 406 Other Assets Regulatory assets (Note 1(f)) Amounts due from customers - income taxes 33 068 26 338 Post-in-service carrying costs and deferred operating expenses 44 904 38 874 Coal contract buyout costs 138 171 - Deferred demand-side management costs 101 208 110 242 Deferred merger costs 76 290 42 286 Unamortized costs of reacquiring debt 32 079 34 476 Other 52 938 33 886 Other 129 667 92 056 608 325 378 158 $3 294 943 $3 075 570 The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CAPITALIZATION AND LIABILITIES December 31 1996 1995 (dollars in thousands) Common Stock Equity (Note 2) Common stock - without par value; $.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 in 1996 and 1995 $ 539 $ 539 Paid-in capital 402 947 403 253 Retained earnings 626 089 625 275 Total common stock equity 1 029 575 1 029 067 Cumulative Preferred Stock (Note 3) Not subject to mandatory redemption 173 086 187 897 Long-term Debt (Note 4) 969 870 828 116 Total capitalization 2 172 531 2 045 080 Current Liabilities Long-term debt due within one year (Note 4) 10 000 50 400 Notes payable (Note 5) 147 129 165 800 Notes payable to affiliated companies 13 186 32 731 Accounts payable 114 330 116 817 Accounts payable to affiliated companies 12 850 - Litigation settlement (Note 12(e)) - 80 000 Accrued taxes 73 206 65 851 Accrued interest 24 045 24 696 Other 17 107 16 000 411 853 552 295 Other Liabilities Deferred income taxes (Note 11) 372 997 331 876 Unamortized investment tax credits 52 750 56 354 Accrued pension and other postretirement benefit costs (Notes 9 and 10) 98 037 54 130 Other 186 775 35 835 710 559 478 195 Commitments and Contingencies (Note 12) $3 294 943 $3 075 570
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY Common Paid-in Retained Total Common Stock Capital Earnings Stock Equity (dollars in thousands) Balance December 31, 1993 $539 $229 288 $483 242 $ 713 069 Net income 82 192 82 192 Dividends on preferred stock (13 182) (13 182) Dividends on common stock (59 142) (59 142) Contribution from parent company 159 999 159 999 Other 22 (7) 15 Balance December 31, 1994 539 389 309 493 103 882 951 Net income 145 815 145 815 Dividends on preferred stock (13 181) (13 181) Contribution from parent company 13 926 13 926 Other 18 (462) (444) Balance December 31, 1995 539 403 253 625 275 1 029 067 Net income 125 678 125 678 Dividends on preferred stock (12 629) (12 629) Dividends on common stock (112 076) (112 076) Other (306) (159) (465) Balance December 31, 1996 $539 $402 947 $626 089 $1 029 575 The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 1996 1995 1994 (in thousands) Operating Activities Net income $125 678 $ 145 815 $ 82 192 Items providing (using) cash currently: Depreciation 121 812 120 773 137 719 Deferred income taxes and investment tax credits - net 29 925 5 201 24 127 Allowance for equity funds used during construction - (174) (4 230) Regulatory assets - net (34 481) (15 628) (36 917) Changes in current assets and current liabilities Restricted deposits (336) 16 10 024 Accounts receivable 2 722 (57 926) (7 404) Income tax refunds - - 28 900 Materials, supplies, and fuel 41 343 31 748 (66 697) Accounts payable 10 363 (25 958) (1 318) Advance under accounts receivable purchase agreement - - (49 940) Litigation settlement (80 000) - - Accrued taxes and interest 6 704 34 078 (2 928) Other items - net 3 813 18 714 (71 554) Net cash provided by operating activities 227 543 256 659 41 974 Financing Activities Issuance of long-term debt 174 817 - 108 978 Funds on deposit from issuance of long-term debt 973 9 987 27 897 Retirement of preferred stock (15 116) (16) (26) Redemption of long-term debt (74 600) (60 455) (160) Change in short-term debt (38 216) 4 958 66 872 Dividends on preferred stock (12 629) (13 181) (13 182) Dividends on common stock (112 076) - (59 142) Capital contribution from parent company - 13 926 159 999 Net cash provided by (used in) financing activities (76 847) (44 781) 291 236 Investing Activities Construction expenditures (less allowance for equity funds used during construction) (172 341) (186 580) (290 579) Deferred demand-side management costs - net 9 034 (16 117) (40 872) Net cash used in investing activities (163 307) (202 697) (331 451) Net increase (decrease) in cash and temporary cash investments (12 611) 9 181 1 759 Cash and temporary cash investments at beginning of period 15 522 6 341 4 582 Cash and temporary cash investments at end of period $ 2 911 $ 15 522 $ 6 341 Supplemental Disclosure Of Cash Flow Information Cash paid during the year for: Interest (net of amount capitalized) $ 76 655 $ 80 465 $ 67 150 Income taxes 37 048 60 148 8 162 The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - PSI Kwh Sales PSI's total kwh sales increased 11.0% in 1996, as compared to 1995. Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale. The increase in retail sales which reflects a higher average number of residential and industrial customers was partially offset by the return to more normal weather in 1996. The increase in industrial sales was due to growth in the primary metals and transportation equipment sectors. As compared to 1994, total kwh sales in 1995 increased 6.3%, reflecting increased sales to all customer classes. Contributing significantly to this increase were higher residential and commercial sales due to warmer weather during the 1995 summer cooling season, colder weather during the fourth quarter of 1995, and an increase in the number of residential and commercial customers. Increased sales to industrial customers, reflecting growth in the primary metals, chemicals, and food products sectors, also contributed to the increased kwh sales level. This increase also reflects higher non-firm power sales for resale resulting from an increase in sales to CG&E reflecting the coordination of PSI's and CG&E's electric dispatch systems. Total kwh sales increased 6.3% in 1994, as compared to 1993, due, in large part, to non-firm power sales for resale, reflecting third party, short-term power sales to other utilities through PSI's system and direct power sales by PSI to other utilities. Also contributing to the total kwh sales levels were increased sales to industrial customers. This increase reflected growth in the primary metals and transportation equipment sectors. A decrease in residential sales resulted from the milder weather experienced during the third and fourth quarters of 1994. Year-to-year changes in kwh sales for each major class of customers are shown below: Increase (Decrease) from Prior Year 1996 1995 1994 Retail Residential - % 7.9% (1.4)% Commercial 0.4 5.2 1.4 Industrial 3.3 5.1 4.9 Total retail 1.5 6.0 2.0 Sales for resale Firm power obligations 11.4 1.1 2.6 Non-firm power transactions 51.6 10.2 33.5 Total sales for resale 40.2 7.4 22.4 Total sales 11.0 6.3 6.3 PSI currently forecasts a 2% annual compound growth rate in kwh sales over the 1997 through 2001 period. This forecast does not reflect the effects of DSM programs and excludes non-firm power sales for resale and any potential new off-system, long-term firm power sales. Operating Revenues Operating revenues increased $84 million (6.7%) in 1996, as compared to 1995, due, in large part, to the increase in kwh sales as previously discussed. Also contributing to the increase was the effect of a 7.6% retail rate increase approved in the September 1996 Order, as well as a full year's effect of a 4.3% retail rate increase approved in the February 1995 Order and a 1.9% increase for carrying costs on construction work in progress (CWIP) property which was approved by the IURC in March 1995. Partially offsetting these increases was the return of approximately $10 million to customers in accordance with the February 1995 Order, which requires all retail operating income above a certain level to be refunded to customers. Higher kwh sales and electric rate increases which became effective in February 1995 and March 1995 significantly contributed to the $135 million (12.1%) increase in operating revenues for 1995, when compared to 1994. Operating revenues increased $21 million (1.9%) in 1994, as compared to 1993, as a result of increased kwh sales, the effects of a $31 million refund to retail customers accrued in June 1993 as a result of the settlement of an April 1990 IURC order, and increased fuel costs. Partially offsetting these increases were the 1.5% retail rate reduction resulting from a December 1993 IURC order and the return of approximately $9 million to customers in connection with certain provisions of Indiana law which limit the level of retail operating income as determined in quarterly fuel adjustment clause proceedings. An analysis of operating revenues for the past three years is shown below: 1996 1995 1994 (in millions) Previous year's operating revenues $1 248 $1 114 $1 092 Increase (Decrease) due to change in: Price per kwh Retail 8 68 (23) Sales for resale Firm power obligations (3) (1) 2 Non-firm power transactions - 1 -_ _ Total change in price per kwh 5 68 (21) Kwh sales Retail 16 55 18 Sales for resale Firm power obligations 8 1 2 Non-firm power transactions 55 9 23 Total change in kwh sales 79 65 43 Other - 1 - __ Current year's operating revenues $1 332 $1 248 $1 114 Operating Expenses FUEL Fuel costs, PSI's largest operating expense, decreased approximately $25 million (6.5%) in 1996, when compared to 1995. An analysis of fuel costs for the past three years is shown below: 1996 1995 1994 (in millions) Previous year's fuel expense $389 $387 $400 Increase (Decrease) due to change in: Price of fuel (2) (5) (30) Kwh generation (23) 7 17 Current year's fuel expense $364 $389 $387 PURCHASED AND EXCHANGED POWER Purchased and exchanged power increased $92 million in 1996, as compared to 1995. This increase primarily reflects increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations and increased purchases from CG&E as a result of the coordination of PSI's and CG&E's electric dispatch systems. Purchased and exchanged power increased $22 million (54.3%) in 1995, as compared to 1994, reflecting increased purchases from CG&E as a result of the coordination of PSI's and CG&E's electric dispatch systems. These increases were partially offset by a decline in third party, short-term power sales to other utilities. Purchased and exchanged power increased $17 million (70.6%) in 1994, as compared to 1993, reflecting an increase in third party, short-term power sales to other utilities through PSI's system and increased purchases of other non-firm power by PSI primarily to serve its own load. OTHER OPERATION Other operation expenses increased approximately $40 million (17.5%) in 1996, as compared to 1995. This increase was due to a number of factors, including an increase related to the ongoing level and amortization of DSM expenses and an increase in production expenses associated with the operations of the Clean Coal Project, all of which are being recovered in revenues pursuant to the February 1995 and September 1996 Orders. Charges related to voluntary early retirement and severance programs and increased transmission costs also contributed to the higher level of other operation expenses. In 1995, other operation expenses increased $15 million (7.2%), as compared to 1994. This increase was due to a number of factors, including the recognition of postretirement benefit costs on an accrual basis, an increase in the ongoing level of DSM expenses, and the amortization of deferred postretirement benefit costs, deferred Merger Costs, and deferred DSM costs, all of which are being recovered in revenues pursuant to the February 1995 Order. These increases were partially offset by charges of $10 million in 1994 for severance benefits to former officers of PSI which cannot be recovered from customers under the merger savings sharing mechanisms authorized by the IURC. In addition, emphasis on achieving merger savings and other cost reductions also partially offset the increase in other operation expenses. Other operation expenses increased $26 million (14.2%) in 1994, as compared to 1993, due to a number of factors including the previously discussed charges of $10 million and fuel litigation expenses of $8 million. MAINTENANCE An increase of $10 million (11.7%) in maintenance costs as compared to 1995 is primarily attributable to increased maintenance associated with the Clean Coal Project which began commercial operation in November 1995. Increased transmission and distribution costs also contributed to the higher level of maintenance expenses. Maintenance costs decreased $7 million (7.1%) in 1995, as compared to 1994, primarily due to improved scheduling of routine maintenance on generating units and lower maintenance costs on transmission and distribution facilities. Increased maintenance on a number of PSI's generating stations and the initial costs of a new distribution line clearing program resulted in increased maintenance expenses of $10 million (12.1%) in 1994 when compared to 1993. DEPRECIATION In 1995, depreciation expense decreased $17 million (12.3%), when compared to 1994, due in large part to the adoption of lower depreciation rates effective in March 1995. This decrease was partially offset by the effect of additions to utility plant. Additions to electric utility plant led to increases in depreciation expense of $11 million (8.6%) in 1994 as compared to 1993. POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET Post-in-service deferred operating expenses - net reflect the deferral of depreciation on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates, net of amortization of these deferrals as they are recovered. (See Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") TAXES OTHER THAN INCOME TAXES Taxes other than income taxes increased $6 million (11.9%) in 1995, as compared to 1994, primarily due to increased property taxes resulting from a greater investment in taxable property. Other Income and Expenses - Net ALLOWANCE FOR EQUITY FUNDS USED DURING CONSTRUCTION In 1995, allowance for equity funds used during construction decreased $4 million (95.9%), as compared to 1994, primarily due to a decrease in the average balance of CWIP. A decrease of $7 million (62.1%) in allowance for equity funds used during construction in 1994, as compared to 1993, was due to an increase in borrowings of short-term debt which resulted in a decrease in the equity rate. POST-IN-SERVICE CARRYING COSTS Post-in-service carrying costs reflect the deferral of carrying costs on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates. (See Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.") Interest INTEREST ON LONG-TERM DEBT Interest on long-term debt decreased $4 million (5.1%) in 1996, as compared to 1995, due to the redemption of $135 million of long-term debt during the period from August 1995 through December 1996. ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION Allowance for borrowed funds used during construction decreased $2 million (44.8%) in 1996, as compared to 1995. This decrease is primarily attributable to a decrease in the average balance of CWIP resulting from the Clean Coal Project being completed at the end of 1995. Allowance for borrowed funds used during construction decreased $5 million (55.0%) in 1995, as compared to 1994, primarily as a result of a decrease in the average balance of CWIP which was partially offset by an increase in the debt component of the AFUDC rate. The Union Light, Heat and Power Company
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME 1996 1995 1994 (in thousands) Operating Revenues Electric $190 900 $187 180 $177 564 Gas 76 868 70 288 71 971 267 768 257 468 249 535 Operating Expenses Electricity purchased from parent company for resale 143 839 142 308 134 887 Gas purchased 41 185 36 745 40 508 Other operation 30 934 30 712 32 289 Maintenance 4 997 4 580 5 473 Depreciation 11 909 11 438 10 644 Income taxes (Note 11) 9 834 7 887 5 342 Taxes other than income taxes 4 036 3 968 4 002 246 734 237 638 233 145 Operating Income 21 034 19 830 16 390 Other Income and Expenses - Net Allowance for equity funds used during construction (8) 71 78 Income taxes (Note 11) (352) (44) 56 Other - net (1 417) 6 236 (1 777) 33 370 Income Before Interest 19 257 19 863 16 760 Interest Interest on long-term debt 4 016 7 161 8 161 Other interest 703 728 395 Allowance for borrowed funds used during construction (58) (198) (183) 4 661 7 691 8 373 Net Income $ 14 596 $ 12 172 $ 8 387 The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS ASSETS December 31 1996 1995 (dollars in thousands) Utility Plant - Original Cost In service Electric $195 053 $188 508 Gas 148 203 140 604 Common 19 285 19 068 362 541 348 180 Accumulated depreciation 122 310 112 812 240 231 235 368 Construction work in progress 9 050 7 863 Total utility plant 249 281 243 231 Current Assets Cash and temporary cash investments 1 197 1 750 Notes receivable from affiliated companies 100 - Accounts receivable less accumulated provision for doubtful accounts of $1,024 in 1996 and $1,035 in 1995 (Note 6) 12 763 37 895 Accounts receivable from affiliated companies 620 - Materials, supplies, and fuel - at average cost Gas stored for current use 6 351 4 513 Other materials and supplies 716 1 215 Property taxes applicable to subsequent year 2 600 2 350 Prepayments and other 370 485 24 717 48 208 Other Assets Regulatory assets (Note 1(f)) Deferred merger costs 5 218 1 785 Unamortized costs of reacquiring debt 3 764 2 526 Other 2 357 2 548 Other 5 146 1 499 16 485 8 358 $290 483 $299 797 The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY CAPITALIZATION AND LIABILITIES December 31 1996 1995 (dollars in thousands) Common Stock Equity (Note 2) Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 in 1996 and 1995 $ 8 780 $ 8 780 Paid-in capital 18 839 18 839 Retained earnings 92 484 82 863 Total common stock equity 120 103 110 482 Long-term Debt (Note 4) 44 617 54 377 Total capitalization 164 720 164 859 Current Liabilities Long-term debt due within one year (Note 4) - 15 000 Notes payable to affiliated companies 30 649 23 043 Accounts payable 12 018 11 814 Accounts payable to affiliated companies 16 771 21 665 Accrued taxes 1 014 1 993 Accrued interest 1 284 1 549 Other 5 248 4 748 66 984 79 812 Other Liabilities Deferred income taxes (Note 11) 33 463 23 728 Unamortized investment tax credits 4 797 5 079 Accrued pension and other postretirement benefit costs (Notes 9 and 10) 12 983 12 202 Income taxes refundable through rates 5 121 4 717 Other 2 415 9 400 58 779 55 126 Commitments and Contingencies (Note 12) $290 483 $299 797
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CHANGES IN COMMON STOCK EQUITY Common Paid-in Retained Total Common Stock Capital Earnings Stock Equity (dollars in thousands) Balance December 31, 1993 $8 780 $18 839 $69 327 $ 96 946 Net income 8 387 8 387 Dividends on common stock (3 511) (3 511) Balance December 31, 1994 8 780 18 839 74 203 101 822 Net income 12 172 12 172 Dividends on common stock (3 512) (3 512) Balance December 31, 1995 8 780 18 839 82 863 110 482 Net income 14 596 14 596 Dividends on common stock (4 975) (4 975) Balance December 31, 1996 $8 780 $18 839 $92 484 $120 103 The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS 1996 1995 1994 (in thousands) Operating Activities Net income $ 14 596 $ 12 172 $ 8 387 Items providing (using) cash currently: Depreciation 11 909 11 438 10 644 Deferred income taxes and investment tax credits - net 9 857 652 2 042 Allowance for equity funds used during construction 8 (71) (78) Regulatory assets (1 500) 170 (1 615) Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 20 758 (4 003) 8 801 Materials, supplies, and fuel (1 339) 1 894 1 043 Accounts payable (4 690) 11 824 (2 377) Accrued taxes and interest (1 244) (1 457) 3 307 Other items - net (6 804) 4 262 2 780 Net cash provided by operating activities 41 551 36 881 32 934 Financing Activities Issuance of long-term debt - 14 704 - Redemption of long-term debt (26 083) (37 036) - Change in short-term debt 7 606 8 543 (10 500) Dividends on common stock (4 975) (3 512) (3 511) Net cash used in financing activities (23 452) (17 301) (14 011) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (18 652) (18 901) (20 329) Net cash used in investing activities (18 652) (18 901) (20 329) Net increase (decrease) in cash and temporary cash investments (553) 679 (1 406) Cash and temporary cash investments at beginning of period 1 750 1 071 2 477 Cash and temporary cash investments at end of period $ 1 197 $ 1 750 $ 1 071 Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest (net of amount capitalized) $ 4 667 $ 8 121 $ 8 281 Income taxes 1 240 7 727 4 714 The accompanying notes are an integral part of these financial statements.
RESULTS OF OPERATIONS - ULH&P Kwh Sales In 1996, ULH&P's total kwh sales increased 5.8% as compared to 1995, reflecting increased sales to all customer classes. The increase in retail sales, which reflects a higher average number of residential and commercial customers, was partially offset by the return to more normal weather in 1996. The increased industrial sales primarily reflect growth in the food products sector. ULH&P's total kwh sales in 1995, as compared to 1994, increased 7.2% reflecting increased sales to all customer classes. The increase in residential and commercial kwh sales was due to warmer weather during the 1995 summer cooling season and colder weather during the fourth quarter of 1995 and an increase in the average number of customers. The increased industrial sales primarily reflect growth in the primary metals sector. Total kwh sales increased 2.8% in 1994, as compared to 1993, primarily due to increased retail sales to commercial and industrial customers. Industrial sales reflected a higher level of economic activity, including growth in the primary metals, industrial machinery, food products, and rubber and plastic products sectors. The increase in commercial sales was due, in part, to new customers. A decrease in residential sales resulted from the milder weather experienced during the third and fourth quarters of 1994. ULH&P currently forecasts a 3% annual compound growth rate in kwh sales over the 1997 through 2001 period. This forecast does not reflect the effects of DSM programs and excludes any potential new off-system, long-term firm power sales. Mcf Sales and Transportation Mcf gas sales and transportation volumes increased 6.6%, as compared to 1995. Colder weather in the first quarter of 1996, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to increased sales to residential and commercial customers. This increase was partially offset by a decrease in industrial sales as customers continued to purchase gas directly from suppliers using transportation services provided by ULH&P. The increase in transportation volumes mainly reflects demand for gas transportation services in the chemicals and primary metals sectors. Total gas sales and transportation volumes increased 8.6% in 1995, as compared to 1994. The colder weather during the fourth quarter of 1995 primarily attributed to the increase in residential and commercial sales. These increases were partially offset by a decline in industrial sales resulting from customers electing to purchase directly from suppliers, creating additional demand for transportation services. The increased transportation volumes mainly reflect industrial demand for gas transportation services in the paper products sector. The milder weather experienced in 1994 contributed to a decrease in residential gas sales volumes and led to the decrease in total Mcf sales and transportation of 4.3%, as compared to 1993. The increase in gas transportation more than offset the decrease in industrial sales volumes and was attributable to additional demand for gas transportation services by industrial customers mainly in the primary metals, paper products, and food products sectors. Operating Revenues ELECTRIC OPERATING REVENUES Electric operating revenues increased $3.7 million (2.0%) in 1996, $9.6 million (5.4%) in 1995, and $1.9 million (1.1%) in 1994. These increases reflect higher kwh sales, as previously discussed. Partially offsetting the 1996 increase was a lower average cost of electricity purchased due, in part, to an order issued by the Kentucky Public Service Commission (KPSC) on July 3, 1996 (July 1996 Order). The July 1996 Order authorized a decrease in electric rates, retroactive to July 3, 1995, reflecting a reduction in the cost of electricity purchased from CG&E. GAS OPERATING REVENUES The increasing trend of industrial customers purchasing gas directly from producers and utilizing ULH&P facilities to transport the gas (see the "Mcf Sales and Transportation" section) continues to put downward pressure on gas operating revenues. When ULH&P sells gas, the sales price reflects the cost of gas purchased by ULH&P to support the sale plus the costs to deliver the gas. When gas is transported, ULH&P does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues increased $6.6 million (9.4%) in 1996, as compared to 1995. The increase was primarily attributable to the operation of the fuel adjustment clause reflecting an increase in the cost of gas purchased and an increase in total volumes sold and transported. In 1995, gas operating revenues declined $1.7 million (2.3%), as compared to 1994 as a result of the aforementioned trend toward increased transportation services and the operation of fuel adjustment clauses reflecting a lower average cost of gas purchased. Gas operating revenues decreased $3.8 million (5.0%) in 1994, as compared to 1993, primarily as a result of a decline in total volumes sold and transported of 4.3%. This decrease was partially offset by the effect of a gas rate increase which became effective in mid-1993. Operating Expenses ELECTRICITY PURCHASED FROM PARENT COMPANY FOR RESALE Electricity purchased increased $7.4 million (5.5%) in 1995, as compared to 1994, due to an increase in volumes purchased. GAS PURCHASED Gas purchased increased $4.4 million (12.1%) in 1996, as compared to 1995, due to an increase in volumes purchased and a higher average cost per Mcf of gas purchased, as previously discussed. In 1995, gas purchased expense decreased $3.8 million (9.3%) from 1994 primarily due to a 13.7% decrease in the average cost per Mcf of gas purchased. Gas purchased expense in 1994 decreased $2.9 million (6.6%) due to a 5.2% decrease in volumes purchased. OTHER OPERATION In 1995, other operation expense decreased $1.6 million (4.9%), as compared to 1994, due, in part, to decreased gas and electric distribution expenses and decreased gas production expenses. Other operation expense in 1994 increased $1.9 million (6.2%), as compared to 1993, due primarily to increased gas and electric distribution expenses and increased wages and benefits. MAINTENANCE Maintenance expenses increased $.4 million (9.1%) as compared to 1995, primarily as a result of increased transmission and distribution costs. Maintenance expense decreased $.9 million (16.3%) and $.8 million (12.7%) in 1995 and 1994, respectively, primarily as a result of reduced maintenance costs on gas and electric distribution facilities. DEPRECIATION Depreciation expense increased $.8 million (7.5%) in 1995, as compared to 1994, primarily due to additions to electric and gas plant in service. The increase in 1994 of $.8 million (8.5%) was due to increases in depreciable plant in service and a full year's effect of the adoption of higher depreciation rates on gas and common plant in accordance with a KPSC rate order issued in 1993. OTHER INCOME AND EXPENSES - NET Other - Net The decrease in other - net of $1.4 million in 1996, as compared to 1995, is primarily attributable to expenses associated with the sales of accounts receivables in 1996. INTEREST AND OTHER CHARGES Interest on Long-term Debt Interest on long-term debt decreased $3.1 million (43.9%) as compared to 1995 due to the redemption of $25 million and $35 million of long-term debt in 1996 and 1995, respectively. 1996 1995 1994 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Number Price Number Price Number Price Outstanding, beginning of year 3 652 956 $22.47 2 409 453 $19.74 1 047 528 $15.45 Granted 220 000 29.75 1 672 500 24.91 1 387 500 22.88 Exercised (604 706) 18.87 (403 997) 16.16 (25 575) 13.96 Forfeited - - (25 000) 24.31 ____- - Outstanding, end of year 3 268 250 $23.93 3 652 956 22.47 2 409 453 $19.74 Exercisable, end of year 897 750 $20.93 895 456 $17.47 1 021 953 $15.48 Weighted average fair value of options granted during the year $3.07 $2.41 $1.94 The fair values of options granted were estimated as of the date of grant using a Black-Scholes option pricing model. The weighted averages for the assumptions used in determining the fair values of options granted were as follows: 1996 1995 1994 Risk-free interest rate 6.3% 7.3% 7.5% Expected dividend yield 5.8% 6.9% 7.4% Expected lives 6.5 yrs. 6.5 yrs. 6.5 yrs. Expected common stock variance 1.8% 1.8% 1.7% Price ranges, along with certain other information, for options outstanding under the Stock Option Plan at December 31, 1996, are as follows: Outstanding Exercisable Weighted Weighted Weighted Average Average Average Exercise Exercise Contractual Exercise Price Range Number Price Life Number Price $13.14 - $17.35 313 650 $15.36 2.9 yrs. 313 650 $15.36 $22.88 - $25.19 2 519 600 $23.69 8.0 yrs. 291 751 $22.87 $28.44 - $31.56 435 000 $29.29 9.0 yrs. 292 349 $24.99 (ii) Performance Shares Plan Cinergy's Performance Shares Plan is a long- term incentive plan developed to reward officers and other key employees for achieving corporate and individual goals. Under the Performance Shares Plan, participants are granted contingent shares of common stock. A percentage of these contingent shares is earned with respect to each participant based on the level of goal attainment at the completion of a performance cycle. Performance cycles consist of overlapping four-year periods, beginning every two years. Previous performance cycles of Resources became performance cycles under the Cinergy Performance Shares Plan. Awards earned under the Performance Shares Plan are paid in two installments: one-half of the award is paid in the year immediately following the end of the performance cycle and one-half of the award is paid in the subsequent year. The most recently commenced four-year performance cycle under the Performance Shares Plan began January 1, 1996, and was scheduled to end December 31, 1999. As previously discussed, Cinergy implemented the 1996 Long-term Incentive Compensation Plan effective January 1, 1997, and ceased accrual of incentive compensation under the Performance Shares Plan as of December 31, 1996. The total number of shares of common stock available under this plan may not exceed 800,000 shares. The following table provides certain information regarding contingent shares granted under the Performance Shares Plan for the performance cycle which began January 1, 1996: 1996_ Number of contingent shares granted 166 280 Fair value at date of grant (dollars in thousands) $3 508 Weighted average per share amounts $24.47 The fair values of contingent shares and weighted average per share amounts are measured at the market price of a share of common stock as if it were vested and issued on the date of grant, adjusted for expected forfeitures and the estimated present value of dividends foregone during the related performance cycle. (iii) Employee Stock Purchase and Savings Plan Cinergy's Employee Stock Purchase and Savings Plan allows essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. Under the Employee Stock Purchase and Savings Plan, after-tax funds are withheld from a participant's compensation during a 26-month offering period and are deposited in an interest-bearing account. At the end of the offering period, participants may apply amounts deposited in the account, plus interest, toward the purchase of shares of common stock at a purchase price equal to the fair market value of a share of common stock on the first date of the offering period, less five percent. Any funds not applied toward the purchase of shares are returned to the participant. A participant may elect to terminate participation in the plan at any time. Participation also will terminate if the participant's employment with Cinergy ceases. Upon termination of participation, all funds, including interest, are returned to the participant without penalty. The most recently completed offering period ended December 31, 1996. The purchase price under this offering was $21.7312. A new offering period began January 1, 1997, and will end February 28, 1999. The purchase price under this offering is $31.825. The total number of shares of common stock available under the Employee Stock Purchase and Savings Plan may not exceed 2,000,000. Employee Stock Purchase and Savings Plan activity for 1996, 1995, and 1994 is summarized as follows:
1996 1995 1994_______ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Number Price Number Price Number Price Outstanding, beginning of year 490 787 $21.73 217 604 $21.73 175 299 $17.64 Granted - - 328 362 21.73 219 335 21.73 Exercised (414 284) 21.73 (1 010) 21.73 (140 039) 17.65 Forfeited (76 503) 21.73 (54 169) 21.73 (36 991) 17.83 Outstanding, end of year - $ - 490 787 $21.73 217 604 $21.73 Weighted average fair value of options granted during the year $ - $2.42 $1.97
The fair values of options granted were estimated as of the date of grant using a Black-Scholes option pricing model. The weighted averages for the assumptions used in determining the fair values of options granted were as follows: 1995 1994 Risk-free interest rate 7.7% 6.8% Expected dividend yield 7.3% 7.4% Expected lives 2.0 yrs. 2.2 yrs. Expected common stock variance 1.7% 1.7% (iv) 1996 Long-term Incentive Compensation Plan In 1996, Cinergy adopted and shareholders approved a new incentive compensation plan, the 1996 Long- term Incentive Compensation Plan. Under the 1996 Long-term Incentive Compensation Plan, certain key employees may be granted stock options, SARs, restricted stock, cash awards, performance shares, performance awards, dividend equivalents, and other stock-based awards. As previously mentioned, no stock-based awards were made under the 1996 Long-term Incentive Compensation Plan as of December 31, 1996; however, in January 1997, 348,056 performance-based restricted shares subject to specified target performance objectives and 330,100 stock options at an option price of $33.50 per share were granted to certain key employees. Stock options awarded under the 1996 Long-term Incentive Compensation Plan are granted at the fair market value of the shares on the date of grant and may not have a purchase term of more than 10 years from the date of grant. The number of shares of common stock to be awarded under the 1996 Long-term Incentive Compensation Plan is limited in the aggregate to 7,000,000 shares. 3. Preferred Stock of Subsidiaries Cinergy, CG&E, and PSI (a) Schedule of Cumulative Preferred Stock
December 31 CG&E 1996 1995 Authorized 6,000,000 shares (dollars in thousands) Not subject to mandatory redemption Par value $100 per share - outstanding 4% Series 169,835 shares in 1996 and 270,000 shares in 1995 $ 16 984 $ 27 000 4 3/4% Series 41,621 shares in 1996 and 130,000 shares in 1995 4 162 13 000 Total 21 146 40 000 Subject to mandatory redemption Par value $100 per share - outstanding 7 7/8% Series 800,000 shares in 1995 - 80 000 7 3/8% Series 800,000 shares in 1995 ____-___ 80 000 Total - 160 000 PSI Not subject to mandatory redemption Par value $25 per share - authorized 5,000,000 shares - outstanding 4.32% Series 169,162 shares in 1996 and 1995 4 229 4 229 4.16% Series 148,763 shares in 1996 and 1995 3 719 3 719 7.44% Series 3,408,712 shares in 1996 and 4,000,000 shares in 1995 85 218 100 000 Par value $100 per share - authorized 5,000,000 shares - outstanding 3 1/2% Series 40,567 shares in 1996 and 40,843 shares in 1995 4 056 4 085 6 7/8% Series 600,000 shares in 1996 and 1995 60 000 60 000 7.15% Series 158,640 shares in 1996 and 1995 15 864 15 864 Total 173 086 187 897 Total - Cinergy Total not subject to mandatory redemption $194 232 $227 897 Total subject to mandatory redemption $ - $160 000
Cinergy, CG&E, and PSI (b) Changes in Cumulative Preferred Stock Outstanding Changes in cumulative preferred stock outstanding during 1996, 1995, and 1994, were as follows: Shares Par Retired Value_ (dollars in thousands) 1996 Not subject to mandatory redemption Par value $100 per share CG&E 4% Series 100 165 $10 016 4 3/4% Series 88 379 8 838 PSI 3 1/2% Series 276 29 Par value $25 per share PSI 7.44% Series 591 288 14 782 Subject to mandatory redemption Par value $100 per share CG&E 7 7/8% Series 800 000 80 000 7 3/8% Series 800 000 80 000 1995 Not subject to mandatory redemption Par value $100 per share CG&E 7.44 % Series 400 000 $40 000 PSI 3 1/2% Series 329 32 Subject to mandatory redemption Par value $100 per share CG&E 9.15 % Series 500 000 50 000 1994 Not subject to mandatory redemption Par value $100 per share CG&E 9.28 % Series 400 000 $40 000 PSI 3 1/2% Series 598 60 Cinergy and CG&E During the third quarter of 1996, Cinergy commenced an offer to purchase any and all outstanding shares of preferred stock of CG&E. Cinergy purchased 1,788,544 shares of preferred stock and made a capital contribution to CG&E of all the shares it acquired and CG&E canceled the shares. The cost of reacquiring the preferred stock, totaling $18 million, represents the difference between the par value of the preferred stock purchased and the price paid (including fees paid to tender agents) and is reflected as a charge to "Retained Earnings" in the Consolidated Statements of Changes in Common Stock Equity and as a deduction from "Net Income" in the Consolidated Statements of Income for purposes of determining net income and earnings per share applicable to common stock for Cinergy. The 4 3/4% Series no longer meets listing requirements of the New York Stock Exchange (NYSE) and has been delisted. Cinergy, CG&E, PSI, and ULH&P 4. Long-term Debt (a) Schedule of Long-term Debt (excluding amounts due within one year)
December 31 1996 1995 CG&E and Subsidiaries (dollars in thousands) CG&E First Mortgage Bonds 5 7/8% Series due July 1, 1997 $ - $ 30 000 6 1/4% Series due September 1, 1997 - 100 000 5.80% Series due February 15, 1999 110 000 110 000 7 3/8% Series due May 1, 1999 50 000 50 000 7 3/8% Series due November 1, 2001 60 000 60 000 7 1/4% Series due September 1, 2002 100 000 100 000 8 1/8% Series due August 1, 2003 60 000 60 000 6.45% Series due February 15, 2004 110 000 110 000 8.95% Series due December 15, 2021 100 000 100 000 8 1/2% Series due September 1, 2022 100 000 100 000 7.20% Series due October 1, 2023 300 000 300 000 5.45% Series due January 1, 2024 (Pollution Control) 46 700 46 700 5 1/2% Series due January 1, 2024 (Pollution Control) 48 000 48 000 Total first mortgage bonds 1 084 700 1 214 700 Pollution Control Notes Variable rate due August 1, 2013 and December 1, 2015 100 000 100 000 Variable rate due September 1, 2030 84 000 84 000 6.50% due November 15, 2022 12 721 12 721 Total pollution control notes 196 721 196 721 Other Long-term Debt 6.90% Debentures due June 1, 2025 (Redeemable at the option of the holders on June 1, 2005) 150 000 150 000 8.28% Junior subordinated debentures due July 1, 2025 100 000 100 000 Total other long-term debt 250 000 250 000 Unamortized Premium and Discount - Net (12 130) (14 348) Total - CG&E 1 519 291 1 647 073 ULH&P First Mortgage Bonds 6 1/2% Series due August 1, 1999 20 000 20 000 8% Series due October 1, 2003 10 000 10 000 9 1/2% Series due December 1, 2008 - 10 000 Total first mortgage bonds 30 000 40 000 Other Long-term Debt 7.65% Debentures due July 15, 2025 15 000 15 000 Unamortized Premium and Discount - Net (383) (623) Total - ULH&P 44 617 54 377 Lawrenceburg Gas Company (Lawrenceburg) First Mortgage Bonds 9 3/4% Series due October 1, 2001 1 200 1 200 Total - CG&E and subsidiaries $1 565 108 $1 702 650 PSI First Mortgage Bonds Series S, 7%, due January 1, 2002 $ 26 429 $ 26 429 Series Y, 7 5/8%, due January 1, 2007 24 140 24 140 Series BB, 6 5/8%, due March 1, 2004 (Pollution Control) - 5 000 Series NN, 7.60%, due March 15, 2012 (Pollution Control) 35 000 35 000 Series QQ, 8 1/4%, due June 15, 2013 (Pollution Control) 23 000 23 000 Series TT, 7 3/8%, due March 15, 2012 (Pollution Control) 10 000 10 000 Series UU, 7 1/2%, due March 15, 2015 (Pollution Control) 14 250 14 250 Series YY, 5.60%, due February 15, 2023 (Pollution Control) 29 945 29 945 Series ZZ, 5 3/4%, due February 15, 2028 (Pollution Control) 50 000 50 000 Series AAA, 7 1/8%, due February 1, 2024 50 000 50 000 Total first mortgage bonds 262 764 267 764 Secured Medium-term Notes Series A, 6.65% to 8.88%, due January 3, 1997 to June 1, 2022 290 000 300 000 Series B, 5.22% to 8.26%, due September 17, 1998 to August 22, 2022 230 000 230 000 (Series A and B, 7.66% weighted average interest rate and 15 year weighted average remaining life) Total secured medium-term notes 520 000 530 000 Pollution Control Notes 5 3/4%, due December 15, 1997 to December 15, 2003 - 19 200 Variable rate due January 1, 2014 and March 1, 2019 24 600 -___ Total pollution control notes 24 600 19 200 Other Long-term Debt Series 1994A Promissory Note, non-interest bearing, due January 3, 2001 19 825 19 825 6.25%, due December 15, 2005 (Notes are callable and/or putable on December 15, 1998) 50 000 - 6.35% Debentures due November 15, 2006 (Redeemable in whole or in part at the option of the holders on November 15, 2000) 100 000 -___ Total other long-term debt 169 825 19 825 Unamortized Premium and Discount - Net (7 319) (8 673) Total - PSI $ 969 870 $ 828 116 Total - Cinergy First Mortgage Bonds $1 378 664 $1 523 664 Secured Medium-term Notes 520 000 530 000 Pollution Control Notes 221 321 215 921 Other Long-term Debt 434 825 284 825 Unamortized Premium and Discount - Net (19 832) (23 644) Total long-term debt $2 534 978 $2 530 766
(b) Mandatory Redemption and Other Requirements Long-term debt maturities for the next five years are as follows: Cinergy and CG&E and Subsidiaries Subsidiaries PSI ULH&P (in millions) 1997 $140 $130 $ 10 $ - 1998 35 - 35 - 1999 186 180 6 20 2000 31 - 31 - 2001 100 61 39 - $492 $371 $121 $20 Maintenance and replacement fund provisions contained in CG&E's, PSI's, and ULH&P's first mortgage bond indentures require cash payments, bond retirements, or pledges of unfunded property additions each year based on an amount related to the net revenues of the respective company. 5. Notes Payable Cinergy, CG&E, PSI, and ULH&P Cinergy's subsidiaries had regulatory authority to borrow up to $838 million ($438 million for CG&E and its subsidiaries, including $35 million for ULH&P, and $400 million for PSI) as of December 31, 1996. In connection with this authority, unsecured lines of credit (Committed Lines) have been established which permit borrowings of up to $280 million ($80 million for CG&E and $200 million for PSI), of which $181 million ($65 million for CG&E and $116 million for PSI) remained unused at December 31, 1996. CG&E and PSI also have the capability to issue commercial paper which must be supported by Committed Lines of the respective company. Neither CG&E nor PSI issued commercial paper in 1996 and none remained outstanding as of December 31, 1996. Additionally, pursuant to this authority, additional short-term borrowings with various banks are arranged on an "as offered" basis (Uncommitted Lines). Amounts outstanding under the Committed Lines would become immediately due upon an event of default which includes non-payment, default under other agreements governing company indebtedness, bankruptcy, or insolvency. Certain of the Uncommitted Lines have similar default provisions. The Committed Lines are maintained by commitment fees. Commitment fees for the Committed Lines were immaterial during the 1994 through 1996 period. To better manage cash and working capital requirements, Cinergy's utility subsidiaries, including CG&E, PSI, and ULH&P, participate in a money pooling arrangement. Under this money pooling arrangement, Cinergy system companies with surplus short-term funds, whether from internal or external sources, provide short-term loans to other system companies at rates that reflect (1) the actual costs of the external borrowing and/or (2) the costs of the internal funds which are set at the 30-day Federal Reserve "AA" industrial commercial paper rate. The SEC's approval of the money pool, pursuant to the PUHCA, extends through May 31, 1997. (See Note 16 for an event subsequent to the date of the auditor's report.) Additionally, Cinergy has established a $600 million credit facility, which expires in May 2001, of which $91 million remained unused as of December 31, 1996. This new credit facility was established, in part, to fund the acquisition of Midlands through Avon Energy and its wholly-owned subsidiary ($500 million has been designated for this purpose) with the remaining portion available for general corporate purposes. The prior $100 million credit facility, which would have expired in September 1997, has been terminated. In addition, Cinergy U.K., a subsidiary of Investments, which holds Cinergy's 50% investment in Avon Energy, entered into a $40 million non-recourse credit agreement, of which $27 million is outstanding as of December 31, 1996. This new credit agreement was also used to fund the acquisition of Midlands. The weighted average interest rates on short-term borrowings outstanding at December 31, 1996 and 1995, were as follows: 1996 1995_ Cinergy and subsidiaries 5.96% 5.97% CG&E 5.98 - PSI 5.97 5.97 Cinergy, CG&E, PSI, and ULH&P 6. Sale of Accounts Receivable In January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a revolving basis, undivided percentage interests in certain of their accounts receivable up to an aggregate maximum of $350 million, of which $246 million has been sold as of December 31, 1996. Of this amount, $164 million, has been sold by CG&E, including $23 million sold by ULH&P, and $82 million has been sold by PSI. Accounts receivable on the Consolidated Balance Sheets of Cinergy, CG&E, and PSI and the Balance Sheet of ULH&P are net of the amounts sold at December 31, 1996. PSI had a similar agreement, which expired in January 1996, to sell up to $90 million of its accounts receivable. Accounts receivable on the Consolidated Balance Sheets of Cinergy and PSI are net of $90 million sold at December 31, 1995. 7. Leases Cinergy, CG&E, PSI, and ULH&P (a) Operating Leases Cinergy and its subsidiaries have entered into operating lease agreements covering various facilities and properties, including office space and computer, communications, and transportation equipment. Total rental payments on operating leases for each of the past three years were as follows: 1996 1995 1994 (in millions) Cinergy and subsidiaries $31 $36 $36 CG&E and subsidiaries 18 22 22 PSI 13 14 14 ULH&P 2 5 5 Future minimum lease payments required under operating leases with remaining, non-cancelable lease terms in excess of one year as of December 31, 1996, are as follows: Cinergy and CG&E and Subsidiaries Subsidiaries PSI ULH&P* (in millions, ULH&P in thousands) 1997 $ 31 $12 $11 $24 1998 23 7 8 12 1999 16 6 5 - 2000 10 5 3 - 2001 7 4 2 - After 2001 19 18 1 - $106 $52 $30 $36 * Excludes amounts applicable to CG&E's non-cancelable leases allocated to ULH&P. Cinergy and CG&E (b) Capital Lease In November 1996, CG&E entered into a sale-leaseback agreement for certain equipment at Woodsdale. The lease is a capital lease with an initial lease term of five years. At the end of the initial lease term, the lease may be renewed at mutually agreed upon terms or the equipment may be repurchased by CG&E at the original sale amount. The monthly lease payment, comprised of interest only, is based on the applicable London Interbank Offered Rate (LIBOR) and, therefore, the capital lease obligation will not be amortized over the initial lease term. The property under the capital lease is depreciated at the same rate as if the property were still owned by CG&E. CG&E recorded a capital lease obligation of $22 million, which represented the net book value of the equipment at the beginning of the lease. 8. Financial Instruments Cinergy, CG&E, and PSI (a) Financial Derivatives Cinergy has entered into financial derivative contracts for the purposes described below. (i) Forward Exchange Hedging Activity Cinergy has hedged its pound sterling denominated investment in Midlands through forward exchange contracts. Translation losses on these contracts have been recorded in the cumulative foreign currency translation adjustment which is reported as a separate component of common stock equity in the Consolidated Financial Statements. The contract existing at December 31, 1996, required Cinergy to exchange 330 million pounds sterling for $500 million. The estimated fair value ($65 million) of this contract, which is based on the cost that would have been incurred to terminate the contract at December 31, 1996, has been reflected in "Current Liabilities - Other" in the Consolidated Balance Sheets. (See Note 16 for an event subsequent to the date of the auditor's report.) (ii) Interest Rate Risk Management Cinergy and its subsidiaries enter into interest rate swaps to lower funding costs and reduce exposures to fluctuations in interest rates. Under these interest rate swaps, Cinergy and its subsidiaries agree with counterparties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed notional principal amount. At December 31, 1996, PSI had two interest rate swap agreements outstanding with notional amounts of $100 million each. One contract, with a four-year term beginning in November 1996, requires PSI to pay a floating rate and receive a fixed rate. The second contract, with a six-month term beginning in May 1997, requires PSI to pay a fixed rate and receive a floating rate. In each case the floating rate is based on the applicable LIBOR. The interest differential paid or received is recognized in the Consolidated Statements of Income as a component of interest expense. The fair values of the interest rate swap agreements at December 31, 1996, were not significant. Cinergy, CG&E, PSI, and ULH&P (b) Fair Value of Other Financial Instruments The estimated fair values of Cinergy's and its subsidiaries' other financial instruments were as follows (this information does not purport to be a valuation of the companies as a whole): December 31 December 31 1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value_ (in millions; ULH&P in thousands) Financial Instruments Cinergy and Subsidiaries First mortgage bonds and other long-term debt (includes amounts due within one year) $ 2 675 $ 2 676 $ 2 733 $ 2 837 Cumulative preferred stock of subsidiary - subject to mandatory redemption - - 160 163 CG&E and Subsidiaries First mortgage bonds and other long-term debt (includes amounts due within one year) $ 1 695 $ 1 688 $ 1 855 $ 1 912 Cumulative preferred stock - subject to mandatory redemption - - 160 163 PSI First mortgage bonds and other long-term debt (includes amounts due within one year) $ 980 $ 988 $ 878 $ 925 ULH&P First mortgage bonds and other long-term debt (includes amounts due within one year) $44 617 $44 668 $69 377 $72 804 The following methods and assumptions were used to estimate the fair values of each major class of financial instruments: Cash and temporary cash investments, restricted deposits, and notes payable Due to the short period to maturity, the carrying amounts reflected on the Balance Sheets approximate fair values. First mortgage bonds and other long-term debt The fair values of long-term debt issues were estimated based on the latest quoted market prices or, if not listed on the NYSE, on the present value of future cash flows. The discount rates used approximate the incremental borrowing costs for similar instruments. Cumulative preferred stock - subject to mandatory redemption The aggregate fair value of preferred stock subject to mandatory redemption was based on the latest closing prices quoted on the NYSE for each series or, if no trades occurred during the period, on the present value of future cash flows using discount rates that approximate the incremental borrowing costs for similar instruments. Cinergy, CG&E, PSI, and ULH&P (c) Concentrations of Credit Risk Credit risk represents the risk of loss which would occur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations with the Company. Concentrations of credit risk relate to significant customers or counterparties, or groups of customers or counterparties, possessing similar economic or industry characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not have a significant loss exposure to any individual customer or counterparty. Concentration of credit risk with respect to Cinergy's trade accounts receivable from electric and gas retail customers is limited due to Cinergy's large number of customers and diversified customer base of residential, commercial, and industrial customers. Sales for resale customers on Cinergy's electric system include traditional electric cooperatives and municipalities with which CG&E and PSI have long-standing relationships. Contracts for sales of electricity for resale outside of Cinergy's system are principally with other investor owned utilities, electric cooperatives, municipalities, and a few large power marketers. The majority of these contracts are for terms of one year or less. While no significant exposure to any one counterparty exists at December 31, 1996, as discussed in the "Power Marketing and Trading" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," Cinergy's exposure to credit risk could increase as the competitive market for electricity expands. Potential exposure to credit risk also exists from Cinergy's use of financial derivatives such as forward foreign exchange contracts, currency swaps, and interest rate swaps. Because these financial instruments are transacted only with highly rated financial institutions, Cinergy does not anticipate nonperformance by any of the counterparties. 9. Pension Plans Cinergy, CG&E, PSI, and ULH&P The defined benefit pension plans of Cinergy's subsidiaries cover substantially all employees meeting certain minimum age and service requirements. Plan benefits are determined under a final average pay formula with consideration of years of participation, age at retirement, and the applicable average Social Security wage base or benefit amount. The funding policies of the operating subsidiaries are to contribute annually to the plans an amount which is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes. Contributions applicable to the 1996, 1995, and 1994 plan years were $7 million, $18 million, and $4 million, respectively. Of these amounts, CG&E and its subsidiaries contributed $7 million for each of the 1996 and 1995 plan years. There were no contributions made for the 1994 plan year by CG&E and its subsidiaries. PSI's contributions were $11 million and $4 million, for the 1995 and 1994 plan years, respectively. There were no contributions made for the 1996 plan year by PSI. The plans' assets consist of investments in equity and fixed income securities. Cinergy Cinergy's pension cost for 1996, 1995, and 1994 included the following components: 1996 1995 1994 (in millions) Benefits earned during the period $ 21.2 $ 18.5 $ 19.4 Interest accrued on projected benefit obligations 61.6 61.4 54.9 Actual (return) loss on plans' assets (75.6) (119.3) 8.0 Net amortization and deferral 17.3 61.1 (66.3) Net periodic pension cost $ 24.5 $ 21.7 $ 16.0 CG&E and ULH&P CG&E's and its subsidiaries' (including ULH&P's) pension cost for 1996, 1995, and 1994 included the following components: 1996 1995 1994 (in millions) Benefits earned during the period $ 11.2 $ 9.8 $ 10.7 Interest accrued on projected benefit obligations 38.6 38.8 35.1 Actual (return) loss on plans' assets (53.8) (71.9) 5.6 Net amortization and deferral 19.3 35.5 (43.2) Net periodic pension cost $ 15.3 $ 12.2 $ 8.2 PSI PSI's pension cost for 1996, 1995, and 1994 included the following components: 1996 1995 1994 (in millions) Benefits earned during the period $ 10.0 $ 8.7 $ 8.7 Interest accrued on projected benefit obligation 23.0 22.6 19.8 Actual (return) loss on plan assets (21.8) (47.4) 2.4 Net amortization and deferral (2.0) 25.6 (23.1) Net periodic pension cost $ 9.2 $ 9.5 $ 7.8 Cinergy, CG&E, PSI, and ULH&P During 1996 and 1994, CG&E and its subsidiaries (including ULH&P) recognized an additional $31 million and $16 million, respectively, of accrued pension cost in accordance with Statement of Financial Accounting Standards No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (Statement 88). Additionally, during 1996, PSI recognized an additional $30 million of accrued pension cost in accordance with Statement 88. These amounts represent the costs associated with additional benefits extended in connection with voluntary workforce reduction programs (see Note 1(l)). 1996 1995 1994 Actuarial Assumptions: For determination of projected benefit obligations Discount rate 8.00% 7.50% 8.50% Rate of increase in future compensation PSI 5.00 4.50 5.50 CG&E and subsidiaries 5.00 4.50 5.50 For determination of pension cost Rate of return on plans' assets PSI 9.00 9.00 9.00 CG&E and subsidiaries 9.00 9.50 9.50 Cinergy The following table reconciles the plans' funded status with amounts recorded in the Consolidated Financial Statements. Under the provisions of Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions (Statement 87), certain assets and obligations of the plans are deferred and recognized in the Consolidated Financial Statements in subsequent periods.
1996 1995 Plans' Plan's Plans' Plan's Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets (in millions) Actuarial present value of benefits Vested benefits $(423.1) $(241.6) $(376.9) $(227.3) Non-vested benefits (33.5) (10.1) (35.1) (16.0) Accumulated benefit obligations (456.6) (251.7) (412.0) (243.3) Effect of future compensation increases (121.7) (53.3) (120.3) (53.2) Projected benefit obligations (578.3) (305.0) (532.3) (296.5) Plans' assets at fair value 531.6 234.1 500.6 220.0 Projected benefit obligations in excess of plans' assets (46.7) (70.9) (31.7) (76.5) Remaining balance of plans' net assets existing at date of initial application of Statement 87 to be recognized as a reduction of pension cost in future periods (6.7) (3.1) (7.7) (3.4) Unrecognized net gain resulting from experience different from that assumed and effects of changes in assumptions (48.4) (28.1) (14.1) (1.3) Prior service cost not yet recognized in net periodic pension cost 33.6 23.2 35.2 16.8 Accrued pension cost at December 31 $ (68.2) $ (78.9) $ (18.3) $ (64.4)
CG&E and ULH&P The following table reconciles the plans' funded status with amounts recorded in the Consolidated Financial Statements of CG&E. Under the provisions of Statement 87, certain assets and obligations of the plans are deferred and recognized in the Financial Statements in subsequent periods.
1996 1995 Plan's Plan's Plan's Plan's Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets (in millions) Actuarial present value of benefits Vested benefits $(160.3) $(241.6) $(138.3) $(227.3) Non-vested benefits (17.0) (10.1) (25.5) (16.0) Accumulated benefit obligations (177.3) (251.7) (163.8) (243.3) Effect of future compensation increases (53.2) (53.3) (54.8) (53.2) Projected benefit obligations (230.5) (305.0) (218.6) (296.5) Plans' assets at fair value 223.3 234.1 209.3 220.0 Projected benefit obligations in excess of plans' assets (7.2) (70.9) (9.3) (76.5) Remaining balance of plans' net assets existing at date of initial application of Statement 87 to be recognized as a reduction of pension cost in future periods (2.4) (3.1) (2.7) (3.4) Unrecognized net gain resulting from experience different from that assumed and effects of changes in assumptions (40.1) (28.1) (18.9) (1.3) Prior service cost not yet recognized in net periodic pension cost 16.1 23.2 19.5 16.8 Accrued pension cost at December 31 $ (33.6) $ (78.9) $ (11.4) $ (64.4)
PSI The following table reconciles the plan's funded status with amounts recorded in the Consolidated Financial Statements of PSI. Under the provisions of Statement 87, certain assets and obligations of the plan are deferred and recognized in the Consolidated Financial Statements in subsequent periods. 1996 1995 (in millions) Actuarial present value of benefits Vested benefits $(262.8) $(238.6) Non-vested benefits (16.5) (9.6) Accumulated benefit obligation (279.3) (248.2) Effect of future compensation increases (68.5) (65.5) Projected benefit obligation (347.8) (313.7) Plan's assets at fair value 308.3 291.3 Projected benefit obligation in excess of plan's assets (39.5) (22.4) Remaining balance of plan's net assets existing at date of initial application of Statement 87 to be recognized as a reduction of pension cost in future periods (4.3) (5.0) Unrecognized net (gain) loss resulting from experience different from that assumed and effects of changes in assumptions (8.3) 4.8 Prior service cost not yet recognized in net periodic pension cost 17.5 15.7 Accrued pension cost at December 31 $ (34.6) $ (6.9) 10. Other Postretirement Benefits Cinergy, CG&E, PSI, and ULH&P Cinergy provides certain health care and life insurance benefits to retired employees and their eligible dependents. The health care benefits include medical coverage, dental coverage, and prescription drugs. The health care benefits provided are subject to certain limitations, such as deductibles and co-payments. Additionally, all employees must meet minimum age and service requirements to be eligible for these postretirement benefits. Prior to January 1, 1997, CG&E and PSI employees were covered under separate plans. Effective January 1, 1997, all Cinergy active employees are eligible to receive essentially the same postretirement health care benefits. Certain classes of employees, based on age, as well as all retirees, have been grandfathered under benefit provisions in place prior to January 1, 1997. Neither CG&E and its subsidiaries nor PSI currently pre-fund their obligations for these postretirement benefits; however, PSI, in connection with the settlement which resulted in the February 1995 Order, agreed to begin pre- funding. Implementation of pre-funding is subject to the outcome of negotiations with The Office of the Utility Consumer Counselor and approval by the IURC. Postretirement benefit cost for 1996, 1995, and 1994 included the following components: Cinergy Health Life Care Insurance Total (in millions) 1996 Benefits earned during the period $ 5.7 $ .1 $ 5.8 Interest accrued on Accumulated Post- retirement Benefit Obligation (APBO) 16.5 2.2 18.7 Net amortization and deferral .3 - .3 Amortization of transition obligations 8.1 .3 8.4 Net periodic postretirement benefit cost $30.6 $2.6 $33.2 1995 Benefits earned during the period $ 4.4 $ .1 $ 4.5 Interest accrued on APBO 15.6 2.2 17.8 Amortization of transition obligations 8.1 .3 8.4 Net periodic postretirement benefit cost $28.1 $2.6 $30.7 1994 Benefits earned during the period $ 5.2 $ .2 $ 5.4 Interest accrued on APBO 13.8 2.2 16.0 Net amortization and deferral .1 - .1 Amortization of transition obligations 8.1 .3 8.4 Net periodic postretirement benefit cost $27.2 $2.7 $29.9 CG&E and ULH&P Health Life Care Insurance Total (in millions) 1996 Benefits earned during the period $ .7 $ .1 $ .8 Interest accrued on APBO 4.9 2.0 6.9 Amortization of transition obligation 2.6 .4 3.0 Net periodic postretirement benefit cost $8.2 $2.5 $10.7 1995 Benefits earned during the period $ .4 $ .1 $ .5 Interest accrued on APBO 4.5 2.0 6.5 Amortization of transition obligation 2.6 .4 3.0 Net periodic postretirement benefit cost $7.5 $2.5 $10.0 1994 Benefits earned during the period $ .9 $ .1 $ 1.0 Interest accrued on APBO 3.9 2.0 5.9 Amortization of transition obligation 2.6 .4 3.0 Net periodic postretirement benefit cost $7.4 $2.5 $ 9.9 PSI Health Life Care Insurance Total (in millions) 1996 Benefits earned during the period $ 5.0 $ - $ 5.0 Interest accrued on APBO 11.6 .2 11.8 Net amortization and deferral .3 - .3 Amortization of transition obligation 5.5 (.1) 5.4 Net periodic postretirement benefit cost $22.4 $ .1 $22.5 1995 Benefits earned during the period $ 4.0 $ - $ 4.0 Interest accrued on APBO 11.1 .2 11.3 Amortization of transition obligation 5.5 (.1) 5.4 Net periodic postretirement benefit cost $20.6 $ .1 $20.7 1994 Benefits earned during the period $ 4.3 $ .1 $ 4.4 Interest accrued on APBO 9.9 .2 10.1 Net amortization and deferral .1 - .1 Amortization of transition obligation 5.5 (.1) 5.4 Net periodic postretirement benefit cost $19.8 $ .2 $20.0 Cinergy, CG&E, PSI, and ULH&P The following table reconciles the APBO of the health care and life insurance plans with amounts recorded in the Financial Statements. Under the provisions of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions certain obligations of the plans are deferred and recognized in the Financial Statements in subsequent periods. Cinergy Health Life Care Insurance Total_ (in millions) 1996 Actuarial present value of benefits Fully eligible active plan participants $ (13.7) $ (1.6) $ (15.3) Other active plan participants (49.8) (1.5) (51.3) Retirees and beneficiaries (118.0) (26.4) (144.4) Projected APBO (181.5) (29.5) (211.0) Unamortized transition obligations 75.4 .4 75.8 Unrecognized net loss (gain) resulting from experience different from that assumed and effects of changes in assumptions 19.5 (.5) 19.0 Accrued postretirement benefit obligations at December 31, 1996 $ (86.6) $(29.6) $(116.2) 1995 Actuarial present value of benefits Fully eligible active plan participants $ (11.7) $ (1.1) $ (12.8) Other active plan participants (112.0) (2.7) (114.7) Retirees and beneficiaries (99.2) (26.4) (125.6) Projected APBO (222.9) (30.2) (253.1) Unamortized transition obligations 137.1 .7 137.8 Unrecognized prior service cost (.3) - (.3) Unrecognized net loss resulting from experience different from that assumed and effects of changes in assumptions 26.1 .5 26.6 Accrued postretirement benefit obligations at December 31, 1995 $ (60.0) $(29.0) $ (89.0) Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $21 million and $37 million for 1996 and 1995, respectively, and the aggregate of the service and interest cost components of the postretirement benefit cost for each of 1996, 1995, and 1994 by approximately $4 million, $3 million, and $4 million, respectively. CG&E and ULH&P Health Life Care Insurance Total_ (in millions) 1996 Actuarial present value of benefits Fully eligible active plan participants $ (10.8) $ (1.6) $ (12.4) Other active plan participants (24.2) (1.3) (25.5) Retirees and beneficiaries (28.7) (23.6) (52.3) Projected APBO (63.7) (26.5) (90.2) Unamortized transition obligation 24.5 2.5 27.0 Unrecognized prior service cost - .3 .3 Unrecognized net loss (gain) resulting from experience different from that assumed and effects of changes in assumptions 11.5 (1.4) 10.1 Accrued postretirement benefit obligation at December 31, 1996 $ (27.7) $(25.1) $ (52.8) 1995 Actuarial present value of benefits Fully eligible active plan participants $ (2.7) $ (.9) $ (3.6) Other active plan participants (32.0) (2.0) (34.0) Retirees and beneficiaries (30.5) (24.5) (55.0) Projected APBO (65.2) (27.4) (92.6) Unamortized transition obligation 43.4 2.9 46.3 Unrecognized net loss resulting from experience different from that assumed and effects of changes in assumptions 4.4 .1 4.5 Accrued postretirement benefit obligation at December 31, 1995 $ (17.4) $(24.4) $ (41.8) Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $7 million and $13 million for 1996 and 1995 respectively, and the aggregate of the service and interest cost components of the postretirement benefit cost by approximately $1 million for 1996, 1995, and 1994. PSI Health Life Care Insurance _Total_ (in millions) 1996 Actuarial present value of benefits Fully eligible active plan participants $ (2.9) $ - $ (2.9) Other active plan participants (25.6) (.2) (25.8) Retirees and beneficiaries (89.3) (2.8) (92.1) Projected APBO (117.8) (3.0) (120.8) Unamortized transition obligation 50.9 (2.1) 48.8 Unrecognized prior service cost - (.3) (.3) Unrecognized net loss resulting from experience different from that assumed and effects of changes in assumptions 8.0 .9 8.9 Accrued postretirement benefit obligation at December 31, 1996 $ (58.9) $ (4.5) $ (63.4) 1995 Actuarial present value of benefits Fully eligible active plan participants $ (9.0) $ (.2) $ (9.2) Other active plan participants (80.0) (.7) (80.7) Retirees and beneficiaries (68.7) (1.9) (70.6) Projected APBO (157.7) (2.8) (160.5) Unamortized transition obligation 93.7 (2.2) 91.5 Unrecognized prior service cost (.3) - (.3) Unrecognized net loss resulting from experience different from that assumed and effects of changes in assumptions 21.7 .4 22.1 Accrued postretirement benefit obligation at December 31, 1995 $ (42.6) $ (4.6) $ (47.2) Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $14 million and $24 million for 1996 and 1995, respectively, and the aggregate of the service and interest cost components of the postretirement benefit cost for each of 1996, 1995, and 1994 by approximately $3 million, $2 million, and $3 million, respectively. Cinergy, CG&E, PSI, and ULH&P The following assumptions were used to determine the APBO: 1996 1995 1994___ Discount rate 8.00% 7.50% 8.50% Health care cost trend rate, gradually declining to 5% CG&E and subsidiaries 7.00-9.00% 8.00-11.00% 9.00-12.00% PSI 7.00-9.00 8.00-10.00 8.00-12.00 Year ultimate trend rates achieved CG&E and subsidiaries 2004 2002 2002 PSI 2004 2007 2007 11. Income Taxes Cinergy Cinergy complies with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Statement 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. The significant components of Cinergy's net deferred income tax liability at December 31, 1996, and 1995, are as follows: 1996 1995__ (in millions) Deferred Income Tax Liability Utility plant $1 042.1 $ 981.8 Unamortized costs of reacquiring debt 23.5 28.8 Deferred operating expenses and carrying costs 86.2 86.6 Amounts due from customers - income taxes 129.5 143.4 Deferred DSM costs 43.5 47.3 Investment in unconsolidated subsidiary 13.5 - Other 46.2 36.4 Total deferred income tax liability 1 384.5 1 324.3 Deferred Income Tax Asset Unamortized investment tax credits 63.9 67.5 Litigation settlement - 29.8 Deferred fuel costs 12.0 13.0 Accrued pension and other benefit costs 60.4 43.3 Other 101.9 49.8 Total deferred income tax asset 238.2 203.4 Net Deferred Income Tax Liability $1 146.3 $1 120.9 CG&E CG&E and its subsidiaries comply with the provisions of Statement 109. Statement 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. The significant components of CG&E's net deferred income tax liability at December 31, 1996, and 1995, are as follows: 1996 1995 (in millions) Deferred Income Tax Liability Utility plant $671.6 $663.8 Unamortized costs of reacquiring debt 11.2 14.2 Deferred operating expenses and carrying costs 73.5 76.2 Amounts due from customers - income taxes 120.7 139.8 Deferred DSM costs 6.0 5.6 Other 40.9 25.5 Total deferred income tax liability 923.9 925.1 Deferred Income Tax Asset Unamortized investment tax credits 43.9 46.1 Deferred fuel costs 5.8 8.1 Accrued pension and other benefit costs 31.4 28.7 Other 75.7 46.8 Total deferred income tax asset 156.8 129.7 Net Deferred Income Tax Liability $767.1 $795.4 PSI PSI and its subsidiaries comply with the provisions of Statement 109. Statement 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. The significant components of PSI's net deferred income tax liability at December 31, 1996, and 1995, are as follows: 1996 1995_ (in millions) Deferred Income Tax Liability Electric utility plant $370.5 $315.7 Unamortized costs of reacquiring debt 12.3 14.6 Amounts due from customers - income taxes 8.8 3.6 Deferred operating expenses and accrued carrying costs 12.7 12.5 Deferred DSM costs 37.5 41.7 Other 4.9 9.4 Total deferred income tax liability 446.7 397.5 Deferred Income Tax Asset Unamortized investment tax credits 20.0 21.4 Litigation settlement - 29.8 Accrued pension and other benefit costs 29.0 15.6 Deferred fuel costs 6.2 4.9 Other 18.5 (6.1) Total deferred income tax asset 73.7 65.6 Net Deferred Income Tax Liability $373.0 $331.9 ULH&P ULH&P complies with the provisions of Statement of Statement 109. Statement 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. The significant components of ULH&P's net deferred income tax liability at December 31, 1996, and 1995, are as follows: 1996 1995 (in thousands) Deferred Income Tax Liability Utility plant $33 872 $32 104 Unamortized costs of reacquiring debt 996 1 034 Deferred fuel costs 5 459 - Other 3 732 2 817 Total deferred income tax liability 44 059 35 955 Deferred Income Tax Asset Unamortized investment tax credits 1 946 2 060 Amounts due to customers - income taxes 2 067 1 904 Deferred fuel costs - 1 822 Accrued pension and other benefit costs 2 482 2 365 Other 4 101 4 076 Total deferred income tax asset 10 596 12 227 Net Deferred Income Tax Liability $33 463 $23 728 Cinergy, CG&E, PSI, and ULH&P Cinergy and its subsidiaries will participate in the filing of a consolidated Federal income tax return for the year ended December 31, 1996. The current tax liability is allocated among the members of the group pursuant to a tax sharing agreement consistent with Rule 45(c) of the PUHCA. A summary of Federal and state income taxes charged (credited) to income and the allocation of such amounts is as follows: Cinergy 1996 1995 1994_ (in millions) Current Income Taxes Federal $143.4 $175.3 $104.1 State 7.5 10.4 6.5 Total current income taxes 150.9 185.7 110.6 Deferred Income Taxes Federal Depreciation and other utility plant- related items 61.6 53.8 62.2 Property taxes - - (13.3) DSM costs (1.9) 12.0 14.5 Pension and other benefit costs (28.2) (21.8) (12.4) Litigation settlement 26.2 - - Fuel costs 8.8 .3 (.7) Other items - net (15.4) (7.5) (11.6) Total deferred Federal income taxes 51.1 36.8 38.7 State 6.5 1.7 2.7 Total deferred income taxes 57.6 38.5 41.4 Investment Tax Credits - Net (9.8) (10.1) (10.4) Total Income Taxes $198.7 $214.1 $141.6 Allocated to: Operating income $218.2 $221.4 $154.5 Other income and expenses - net (19.5) (7.3) (12.9) $198.7 $214.1 $141.6 CG&E 1996 1995 1994_ (in millions) Current Income Taxes Federal $115.5 $102.4 $ 82.3 State 1.5 2.5 1.5 Total current income taxes 117.0 104.9 83.8 Deferred Income Taxes Federal Depreciation and other utility plant- related items 36.6 33.9 42.9 Property taxes - - (11.3) Pension and other benefit costs (17.0) (10.7) (8.4) Fuel costs 10.8 6.3 (1.4) Other items - net (7.5) (2.6) (2.6) Total deferred Federal income taxes 22.9 32.1 19.2 State 2.2 .8 .6 Total deferred income taxes 25.1 32.9 19.8 Investment Tax Credits - Net (6.2) (6.0) (6.1) Total Income Taxes $135.9 $131.8 $ 97.5 Allocated to: Operating income 145.0 $136.4 $104.1 Other income and expenses - net (9.1) (4.6) (6.6) $135.9 $131.8 $ 97.5 PSI 1996 1995 1994 (in millions) Current Income Taxes Federal $41.3 $71.4 $22.0 State 6.0 7.5 5.5 Total current income taxes 47.3 78.9 27.5 Deferred Income Taxes Federal Depreciation and other electric utility plant-related items 25.0 19.9 19.2 DSM costs (2.5) 8.4 12.6 Pension and other benefit costs (11.2) (11.1) (1.8) Litigation settlement 26.2 - - Fuel costs (2.0) (6.0) .7 Other items - net (6.3) (3.0) (4.4) Total deferred Federal income taxes 29.2 8.2 26.3 State 4.3 1.1 2.2 Total deferred income taxes 33.5 9.3 28.5 Investment Tax Credits - Net (3.6) (4.1) (4.3) Total Income Taxes $77.2 $84.1 $51.7 Allocated to: Operating income $73.2 $85.0 $50.4 Other income and expenses - net 4.0 (.9) 1.3 $77.2 $84.1 $51.7 ULH&P 1996 1995 1994_ (in thousands) Current Income Taxes Federal $ 416 $5 955 $2 746 State (87) 1 324 498 Total current income taxes 329 7 279 3 244 Deferred Income Taxes Federal Depreciation and other utility plant- related items 1 506 1 382 1 727 Pension and other benefit costs (277) (381) (349) Fuel costs 6 111 (534) 23 Uncollectible accounts - net (119) (16) 300 Unamortized costs of reacquiring debt 458 808 - Other items - net 410 (540) (20) Total deferred Federal income taxes $ 8 089 719 1 681 State Depreciation and other utility plant- related items 425 390 656 Fuel costs 1 570 (137) - Other items - net 55 (35) (8) Total deferred state income taxes 2 050 218 648 Total deferred income taxes 10 139 937 2 329 Investment Tax Credits - Net (282) (285) (287) Total Income Taxes $10 186 $7 931 $5 286 Allocated to: Operating income $ 9 834 $7 887 $5 342 Other income and expenses - net 352 44 (56) $10 186 $7 931 $5 286 Cinergy, CG&E, PSI, and ULH&P Federal income taxes, computed by applying the statutory Federal income tax rate to book income before Federal income tax, are reconciled to Federal income tax expense reported in the Statements of Income for each registrant as follows: Cinergy 1996 1995 1994_ (in millions) Statutory Federal income tax provision $181.8 $192.2 $113.2 Increases (Reductions) in taxes resulting from: Amortization of investment tax credits (9.8) (10.1) (10.4) Depreciation and other utility plant- related differences 14.1 9.0 13.5 Preferred dividend requirements of subsidiaries 8.5 10.8 12.4 Foreign tax credit (11.1) - - Other - net 1.2 .1 3.7 Federal income tax expense $184.7 $202.0 $132.4 CG&E Statutory Federal income tax provision $125.8 $127.6 $88.8 Increases (Reductions) in taxes resulting from: Amortization of investment tax credits (6.2) (6.0) (6.1) Depreciation and other utility plant- related differences 11.7 9.0 8.2 Preferred dividends - 6.2 7.8 Other - net .9 (8.3) (3.3) Federal income tax expense $132.2 $128.5 $95.4 PSI 1996 1995 1994 (in millions) Statutory Federal income tax provision $ 67.4 $ 77.5 $ 44.2 Increases (Reductions) in taxes resulting from: Amortization of investment tax credits (3.6) (4.1) (4.3) Other - net 3.1 2.1 4.1 Federal income tax expense $ 66.9 $ 75.5 $ 44.0 ULH&P 1996 1995 1994_ (in thousands) Statutory Federal income tax provision $7 987 $6 496 $4 385 Increases (Reductions) in taxes resulting from: Amortization of investment tax credits (283) (285) (287) Depreciation and other utility plant- related differences 358 219 138 Other - net 161 (41) (96) Federal income tax expense $8 223 $6 389 $4 140 12. Commitments and Contingencies (a) Construction Cinergy, CG&E, PSI, and ULH&P Cinergy will have commitments in connection with its forecasted construction programs. Aggregate expenditures for Cinergy's construction program for the 1997 through 2001 period are currently forecasted to be $1.7 billion. Of these projected expenditures, approximately $817 million relates to CG&E and its subsidiaries, including $111 million for ULH&P, and $908 million relates to PSI. (b) Manufactured Gas Plant (MGP) Sites Cinergy, CG&E, PSI, and ULH&P (i) General 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 (ii) PSI Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including, but not limited to, Shelbyville and Lafayette, two sites previously owned by PSI. PSI has identified at least 21 MGP sites which it or its predecessors previously owned, including 19 it sold in 1945 to Indiana Gas and Water Company, Inc. (now Indiana Gas Company, Inc. (IGC)), including the Shelbyville and Lafayette sites. IGC has informed PSI of the basis for its claim that PSI, as a Potentially Responsible Party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), should contribute to IGC's response costs related to investigating and remediating contamination at 18 of the 19 MGP sites which PSI sold to IGC (excluding the Shelbyville site). The Shelbyville site has been the subject of an investigation and cleanup enforcement action by the Indiana Department of Environmental Management (IDEM) against IGC and PSI. Without admitting liability, PSI and IGC have conducted an investigation and remediation activities at the Shelbyville site. Recently, PSI and IGC submitted a proposed agreed order to IDEM relative to the Shelbyville site, which, if accepted by IDEM, will result in a determination of whether the activities previously undertaken at the site are sufficient to adequately protect human health and the environment. PSI and IGC are sharing the costs of the Shelbyville site, and based upon environmental investigations and remediation completed to date, PSI believes that any further required investigation and remediation for this site will not have a material adverse effect on its financial condition or results of operations. In 1992, the IDEM issued an order to IGC, naming IGC as a PRP as defined in the CERCLA, which requires investigation and remediation of the Lafayette MGP site. IGC entered into an agreed order with the IDEM for the removal of MGP contamination at that site. During 1995, PSI received notification from Northern Indiana Public Service Company (NIPSCO) alleging PSI is a PRP under the CERCLA with respect to contamination associated with MGP sites previously owned and/or operated by both PSI and NIPSCO (or their predecessors). The notification included seven sites, five of which PSI acquired from NIPSCO and subsequently sold to IGC. The other two sites are located in Goshen and Warsaw, Indiana. Recently, NIPSCO demanded that PSI reimburse NIPSCO for its costs incurred to date (approximately $400,000) for investigating the Goshen MGP site as well as costs to be incurred by NIPSCO for remediation of that site, estimated by NIPSCO to be as high as $3 million. PSI is investigating this claim. PSI has placed its insurance carriers on notice of IGC's and NIPSCO's claims. IGC and PSI have entered into negotiations regarding IGC's claim; however, it is premature, at this time, to predict the nature, extent, and ultimate costs of, or PSI's responsibility for, environmental investigations and remediations at MGP sites owned or previously owned by PSI. Information available to PSI regarding the current status of investigation and/or remediation at the sites identified in IGC's claim indicates PSI's potential exposure to probable and reasonably estimable liabilities associated with these MGP sites would not be material to its financial condition or results of operations. However, further investigation and remediation activities at these sites and the additional sites identified in NIPSCO's claim may indicate that the potential liability for MGP sites could be material. In May 1995, the IURC denied IGC's request for recovery of costs incurred in complying with Federal, state, and local environmental regulations related to MGP sites in which IGC has an interest, including sites acquired from PSI. IGC appealed this decision, which IGC contended was contrary to decisions made by other state utility commissions with respect to this issue. In January 1997, the Indiana Court of Appeals (Court of Appeals) affirmed the IURC's decision denying IGC's request for recovery of MGP costs. IGC has petitioned the Indiana Supreme Court to review the Court of Appeals decision. The IURC granted PSI's motion establishing a sub-docket to PSI's last retail rate proceeding, in which the IURC issued an order in September 1996, to consider its request for rate recovery of any MGP site-related costs it may incur. PSI is unable to predict the extent to which it will be able to recover through rates any MGP site investigation and remediation costs ultimately incurred. Cinergy, CG&E, and ULH&P (iii) CG&E and its Utility Subsidiaries Lawrenceburg, a wholly-owned subsidiary of CG&E, also has a MGP site. In May 1995, Lawrenceburg and the IDEM reached an agreement to include the Lawrenceburg MGP site in the IDEM's voluntary cleanup program. Lawrenceburg implemented a remediation plan, and, on September 20, 1996, received a certificate of completion on the cleanup from the IDEM. The total costs incurred for the cleanup program in 1995 and 1996 and expected to be incurred in 1997, are approximately $280,000. CG&E and its utility subsidiaries are aware of other potential sites where MGP activities may have occurred at some time in the past. None of these sites is known to present a risk to the environment. Except for the Lawrenceburg site, neither CG&E nor its utility subsidiaries have undertaken responsibility for investigating other potential MGP sites. Cinergy and CG&E (c) United Scrap Lead Site The United States Environmental Protection Agency (EPA) alleges that CG&E is a PRP under the CERCLA liable for cleanup of the United Scrap Lead site in Troy, Ohio. CG&E was one of approximately 200 companies so named. CG&E believes it is not a PRP and should not be responsible for cleanup of the site. Under the CERCLA, CG&E could be jointly and severally liable for costs incurred in cleaning up the site, estimated by the EPA to be $27 million, of which CG&E estimates its portion to be immaterial to its financial condition or results of operations. Cinergy, CG&E, and PSI (d) Enertech Associates, Inc. (Enertech) Litigation On October 25, 1995, a suit was filed in the Federal District Court for the Southern District of Ohio by three former employees of Enertech, formerly named Power International, Inc., a subsidiary of Investments, naming as defendants Enertech, Cinergy, Investments, CG&E, PSI, James E. Rogers, and William J. Grealis. (Mr. Rogers and/or Mr. Grealis are officers and/or directors of the foregoing companies.) The lawsuit, which stems from the termination of employment of the three former employees, alleges that they entered into employment contracts with Enertech based on the opportunity to participate in potential profits from future investments in energy projects in central and eastern Europe. The suit alleges causes of action based upon, among other theories, breach of contract related to the events surrounding the termination of their employment and fraud and misrepresentation related to the level of financial support for future projects. The suit alleges compensatory damages of $154 million based upon assumed future success of potential future investments and punitive damages of three times that amount. All defendants are vigorously defending against the charges based upon meritorious defenses. Cinergy, CG&E, and PSI are currently unable to predict the outcome of this litigation. Cinergy and PSI (e) Wabash Valley Power Association, Inc. (WVPA) In February 1989, PSI and WVPA entered into a settlement agreement to resolve all claims related to Marble Hill, a nuclear project canceled in 1984. Implementation of the settlement agreement was contingent upon a number of events, including the conclusion of WVPA's bankruptcy proceeding and certain regulatory approvals. In December 1996, following the resolution of issues associated with WVPA's bankruptcy proceeding, PSI, on behalf of itself and its officers, paid $80 million on behalf of WVPA to the Rural Utilities Service (RUS) and the National Rural Utilities Cooperative Finance Corporation (CFC). The $80 million obligation, net of insurance proceeds, other credits, and applicable income tax effects, was charged to income in 1988. On January 2, 1997, an order dismissing the WVPA litigation against PSI and its officers with prejudice was entered by the United States District Court for the Southern District of Indiana. In accordance with the terms of the settlement agreement, PSI will enter into a take-or-pay power supply agreement for the sale of firm power to WVPA. The difference between revenues received from WVPA and costs of the power supplied under the power supply agreement (the Margin) will be paid annually to the RUS and CFC to satisfy a $90 million obligation. To the extent the Margin is insufficient to satisfy the obligation, the deficiency would be recognized as a loss by PSI. Implementation of the take-or-pay power supply agreement is subject to completion of negotiations with the RUS regarding the rate of interest and other payment terms and approval by the FERC of the power supply agreement. Cinergy, CG&E, and ULH&P (f) Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of CG&E's gas operations may be required. In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of the gas operations for a period of three years. In June 1995, the SEC endorsed recommendations for reform/repeal of the PUHCA, including allowing registered holding companies to own combination electric and gas utility companies, provided the affected states agree. It is expected that legislation addressing repeal of the PUHCA and industry restructuring will be introduced in Congress during 1997. Regardless of the outcome of the proposals to reform/repeal the PUHCA, Cinergy believes it has a justifiable basis for retention of its gas operations and will continue its pursuit of SEC approval. If divestiture is ultimately required, the SEC has historically allowed companies sufficient time to accomplish divestitures in a manner that protects shareholder value. (See Note 15 for financial information by business segment.) Cinergy (g) Windfall Profits Levy As of December 31, 1996, a contingency involving Midlands, which existed as of the date of its acquisition by Avon Energy, remains unresolved. Certain members of the British Parliament are calling for a windfall profits levy against businesses which had previously been owned and operated by the government. The manner in which this levy would be calculated and paid, as well as which privatized companies would be included in such a levy remain unclear, although it is almost certain that companies such as Midlands would be included. Because of the uncertainty surrounding this issue, as of December 31, 1996, no liability for the levy has been recorded by either Midlands or Avon Energy. General elections in Great Britain are required to be held no later than May 1997. If those individuals calling for the windfall profits levy gain control of government in the general elections, it is probable that Midlands and Avon Energy will have sufficient information to determine the form of the levy, quantify the amount, and determine the appropriate accounting treatment during the second quarter of 1997. Although the total amount to be raised by such a levy has not been quantified by those suggesting it, estimates of the amount made by members of the British press and financial community have ranged from 3 billion to 5 billion pounds sterling (approximately $5 billion to $9 billion). These same estimates have indicated Midlands' apportionment to be in the range of 60 million to 210 million pounds sterling (approximately $100 million to $350 million), depending on the manner in which the levy is calculated and which companies are included in the levy. Cinergy, CG&E, and PSI 13. Jointly Owned Plant PSI is a joint owner of Gibson Unit 5 with WVPA and the Indiana Municipal Power Agency (IMPA). Additionally, PSI is a co-owner with WVPA and IMPA of certain transmission property and local facilities. These facilities constitute part of the integrated transmission and distribution systems which are operated and maintained by PSI. CG&E, Columbus Southern Power Company, and The Dayton Power and Light Company have constructed electric generating units and related transmission facilities on varying common ownership bases. The Consolidated Statements of Income reflect PSI's and CG&E's portions of all operating costs associated with the commonly owned facilities. PSI's and CG&E's investments in jointly owned plant are as follows:
1996 Utility Plant Accumulated Construction Share in Service Depreciation Work in Progress (dollars in millions) PSI Production Gibson (Unit 5) 50.05% $ 206 $ 92 $ 1 Transmission and local facilities 94.22 1 824 635 43 CG&E Production Miami Fort Station (Units 7 and 8) 64 208 111 1 W.C. Beckjord Station (Unit 6) 37.5 41 24 - J.M. Stuart Station 39 269 11 4 Conesville Station (Unit 4) 40 72 35 2 Zimmer 46.5 1 215 204 2 East Bend Station 69 331 157 1 Killen Station 33 186 81 - Transmission Various 62 30 -
14. Quarterly Financial Data (unaudited) Cinergy Operating Operating Net Earnings Quarter Ended Revenues Income Income Per Share (in millions, except per share amounts) 1996 March 31 $ 884 $169 $110 $ .70 June 30 717 113 56(a) .35(a) September 30 766 150 98 .51(b) December 31 876 126 71(a) .44(a) Total $3 243 $558 $335(a) $2.00(a)(b) 1995 March 31 $ 808 $163 $102 $ .65 June 30 666 120 60 .39 September 30 765 169 109 .69 December 31 784 135 76 .49 Total $3 023 $587 $347 $2.22 (a) In 1996, Cinergy recognized charges to earnings of approximately $55 million ($38 million, net of taxes or 24 cents per share) primarily for charges related to voluntary early retirement and severance programs and disallowances associated with the PUCO's December 1996 Order in CG&E's gas rate proceeding. Of these charges, approximately $11 million, net of taxes or 7 cents per share, was recognized in the second quarter, and approximately $27 million, net of taxes or 17 cents per share, was recognized in the fourth quarter. Of the total $55 million charge, $41 million is reflected in "Operating Expenses - Other operation" and $14 million is reflected in "Other Income and Expenses - Net." (b) In the third quarter of 1996, Cinergy incurred costs of $18 million or 12 cents per share related to the reacquisition of 90% of CG&E's preferred stock through a tender offer. (See Note 3(b).) CG&E Operating Operating Net Quarter Ended Revenues Income Income (in millions) 1996 March 31 $ 575 $120 $ 92 June 30 437 69(a) 39(a) September 30 431 90 62 December 31 533 73(a) 34(a) Total $1 976 $352 $227 1995 March 31 $ 525 $109 $ 77 June 30 393 71 40 September 30 435 98 69 December 31 495 82 50 Total $1 848 $360 $236 (a) In 1996, CG&E recognized charges to earnings of approximately $50 million ($35 million, net of taxes) primarily for charges related to voluntary early retirement and severance programs and disallowances associated with the PUCO's December 1996 Order in CG&E's gas rate proceeding. Of these charges, approximately $10 million, net of taxes, was recognized in the second quarter, and approximately $25 million, net of taxes, was recognized in the fourth quarter. Of the total $50 million charge, $36 million is reflected in "Operating Expenses - Other operation" and $14 million is reflected in "Other Income and Expenses - Net." PSI Operating Operating Net Quarter Ended Revenues Income Income (in millions) 1996 March 31 $ 328 $ 50 $ 27 June 30 290 44(a) 25(a) September 30 348 61 43 December 31 366 51(a) 31(a) Total $1 332 $206 $126 1995 March 31 $ 299 $ 53 $ 33 June 30 290 49 29 September 30 343 70 50 December 31 316 55 34 Total $1 248 $227 $146 (a) In 1996, PSI recognized charges to earnings of approximately $5 million ($3 million, net of taxes) primarily for charges related to voluntary early retirement and severance programs. Of these charges, approximately $1 million, net of taxes, was recognized in the second quarter, and approximately $2 million, net of taxes, was recognized in the fourth quarter. The $5 million charge is reflected in "Operating Expenses - Other operation." 15. Financial Information by Business Segment Cinergy Operating Operating Operating Income Provision for Construction Year Ended Revenues Income Taxes Depreciation Expenditures (in millions) 1996 Electric $2 769 $520 $204 $260 $276 Gas 474 38 14 23 32 Total $3 243 $558 $218 $283 $308 1995 Electric $2 612 $548 $209 $258 $286 Gas 411 39 12 22 36 Total $3 023 $587 $221 $280 $322 1994 Electric $2 446 $416 $146 $274 $432 Gas 442 28 8 20 42 Total $2 888 $444 $154 $294 $474 December 31 1996 1995 1994_ (in millions) Property, Plant, and Equipment - net Electric $5 737 $5 718 $5 680 Gas 553 532 519 6 290 6 250 6 199 Other Corporate Assets 2 559 1 970 1 951 Total Assets $8 849 $8 220 $8 150 For a discussion of the potential divestiture of CG&E's, including ULH&P's, gas operations, see Note 12(f). CG&E Operating Operating Operating Income Provision for Construction Year Ended Revenues Income Taxes Depreciation Expenditures (in millions) 1996 Electric $1 502 $314 $131 $138 $109 Gas 474 38 14 23 32 Total $1 976 $352 $145 $161 $141 1995 Electric $1 437 $321 $124 $137 $101 Gas 411 39 12 22 36 Total $1 848 $360 $136 $159 $137 1994 Electric $1 346 $263 $ 96 $137 $138 Gas 442 28 8 20 42 Total $1 788 $291 $104 $157 $180 CG&E Continued December 31 1996 1995 1994_ (in millions) Property, Plant, and Equipment - net Electric $3 205 $3 244 $3 277 Gas 553 532 519 3 758 3 776 3 796 Other Corporate Assets 1 209 1 421 1 386 Total Assets $4 967 $5 197 $5 182 For a discussion of the potential divestiture of CG&E's, including ULH&P's, gas operations, see Note 12(f). ULH&P Operating Operating Operating Income Provision for Construction Year Ended Revenues Income Taxes Depreciation Expenditures (in thousands) 1996 Electric $190 900 $12 558 $5 644 $ 6 935 $ 9 571 Gas 76 868 8 476 4 190 4 974 9 073 Total $267 768 $21 034 $9 834 $11 909 $18 644 1995 Electric $187 180 $11 425 $4 500 $ 6 679 $10 909 Gas 70 288 8 405 3 387 4 759 8 063 Total $257 468 $19 830 $7 887 $11 438 $18 972 1994 Electric $177 564 $ 9 736 $3 007 $ 6 213 $12 127 Gas 71 971 6 654 2 335 4 431 8 277 Total $249 535 $16 390 $5 342 $10 644 $20 404 December 31 1996 1995 1994 (in thousands) Property, Plant, and Equipment - net Electric $142 490 $138 482 $134 508 Gas 106 791 104 749 102 340 249 281 243 231 236 848 Other Corporate Assets 41 202 56 566 50 280 Total Assets $290 483 $299 797 $287 128 For a discussion of the potential divestiture of ULH&P's gas operations, see Note 12(f). 16. Subsequent Events (unaudited) (a) Money Pool In March 1997, Cinergy's utility subsidiaries, including CG&E, PSI, and ULH&P and other Cinergy system companies, which participate in the money pooling arrangement, filed an application with the SEC under the PUHCA requesting reauthorization of the money pool through December 31, 2002. (See Note 5.) (b) Forward Exchange Hedging Activity In February 1997, Cinergy entered into a five year currency swap for the purpose of hedging its pound sterling denominated investment in Midlands. This transaction closed out the forward exchange contract in existence at December 31, 1996. (See Note 8(a)(i).) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Cinergy, CG&E, PSI, and ULH&P None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Board of Directors Cinergy Reference is made to Cinergy Corp.'s, a Delaware corporation (Cinergy or Company) 1997 Proxy Statement with respect to identification of directors and their current principal occupations. CG&E The directors of The Cincinnati Gas & Electric Company (CG&E) at February 28, 1997, included: Jackson H. Randolph Mr. Randolph, age 66, is Chairman of CG&E. He has served as a director of CG&E since 1983, and his current term as director expires April 16, 1997. James E. Rogers Mr. Rogers, age 49, is Vice Chairman and Chief Executive Officer of CG&E. He has served as a director of CG&E since October 24, 1994, and his current term as director expires April 16, 1997. William J. Grealis Mr. Grealis, age 51, is President of CG&E. He has served as a director of CG&E since September 1, 1995, and his current term expires April 16, 1997. PSI Reference is made to PSI Energy, Inc.'s (PSI) 1997 Information Statement with respect to identification of directors and their current principal occupations. ULH&P Omitted pursuant to Instruction I(2)(c). Executive Officers Cinergy, CG&E, and PSI The information included in Part I of this report on pages 17 through 19 under the caption "Executive Officers of the Registrants" is referenced in reliance upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. ULH&P Omitted pursuant to Instruction I(2)(c). ITEM 11. EXECUTIVE COMPENSATION Cinergy Reference is made to Cinergy's 1997 Proxy Statement with respect to executive compensation. CG&E Reference is made to Cinergy's 1997 Proxy Statement with respect to executive compensation, except as to information pertaining to the compensation of directors and to the performance graph, which information is set forth below. Compensation of Directors Directors who are not employees (the "non-employee directors") receive an annual retainer fee of $8,000 plus a fee of $1,000 for each CG&E board of directors' meeting attended; however, any non-employee director of CG&E who also serves as a non-employee director of Cinergy or any of its affiliates shall neither receive such annual retainer fee, nor any compensation for attendance at any CG&E board meeting that is held concurrently or consecutively with a meeting of the board of directors of Cinergy. Directors who are also employees of Cinergy or any of its subsidiaries (Messrs. Randolph, Rogers, and Grealis) will receive no remuneration for their services as directors. Under Cinergy's Directors' Deferred Compensation Plan, each non-employee director of Cinergy or any of its subsidiaries may defer fees and have them accrued either in cash or in units representing shares of Cinergy common stock. If deferred in such units, the stock will be distributed to the director at the time of retirement from the appropriate board. Amounts deferred in cash will be paid at the same time. Under Cinergy's Retirement Plan for Directors, non-employee directors with five or more years of service will receive annual retirement compensation in an amount equal to the annual Cinergy board retainer fee in effect at the time of termination of service as a director, plus the product of the fee paid for attendance at a Cinergy board meeting multiplied by five. Retirement compensation is paid for as many years as the director served on the Cinergy board. This plan covers non-employee directors serving on the boards of directors of Cinergy, Services, CG&E, or PSI. Prior service by non-employee directors of CG&E, PSI, or Resources is credited under this plan. Performance Graph The following line graph compares the cumulative total shareholder return of the common stock of CG&E with the cumulative total returns during the same time period of the Standard & Poor's (S&P) Electric Utilities Index and the S&P 500 Stock Index. The graph tracks performance from January 1, 1992, through October 24, 1994, the final trading date of CG&E's common stock. The graph assumes a $100 investment on January 1, 1992, and reinvestment of all dividends. [Omitted is a line graph illustrating the following data.] 1/1/92 1/1/93 1/1/94 10/24/94 CG&E Common Stock $100.00 $ 99.50 $117.20 $103.10 S&P Electric Utilities Index $100.00 $105.90 $119.20 $ 98.40 S&P 500 Stock Index $100.00 $107.60 $118.40 $119.50 PSI Reference is made to PSI's 1997 Information Statement with respect to executive compensation. ULH&P Omitted pursuant to Instruction I(2)(c). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Cinergy Reference is made to Cinergy's 1997 Proxy Statement with respect to security ownership of certain beneficial owners and management. CG&E Cinergy owns all the outstanding shares of common stock of CG&E. Pursuant to Section 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by management of CG&E to be the beneficial owner of more than 5% of CG&E's class of cumulative preferred stock as of December 31, 1996. CG&E's directors and executive officers did not beneficially own any shares of any series of the class of CG&E's cumulative preferred stock as of December 31, 1996. The beneficial ownership of Cinergy's common stock held by each director and named executive officer as of December 31, 1996 is set forth in the following table. Amount and Nature Name of Beneficial Owner(1) of Beneficial Ownership (2) William J. Grealis 22,710 shares J. Wayne Leonard 96,651 shares Jackson H. Randolph 129,893 shares James E. Rogers 218,171 shares Larry E. Thomas 88,441 shares All directors and executive 736,563 shares (2) officers as a group (representing 0.47% of the class) (1) No individual listed beneficially owned more than 0.14% of the outstanding shares of Cinergy common stock. (2) Includes shares which there is a right to acquire within 60 days pursuant to the exercise of stock options in the following amounts: Mr. Grealis - 15,887; Mr. Leonard - 77,611; Mr. Randolph - 50,000; Mr. Rogers - 95,629; Mr. Thomas - 54,104; and all directors and executive officers as a group - 414,861. PSI Reference is made to PSI's 1997 Information Statement with respect to security ownership of certain beneficial owners and management. ULH&P Omitted pursuant to Instruction I(2)(c). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Cinergy, CG&E, and PSI None. ULH&P Omitted pursuant to Instruction I(2)(c). PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules. Cinergy, CG&E, PSI, and ULH&P Refer to the page captioned "Index to Financial Statements and Financial Statement Schedules", pages 48 and 49 of this report, for an index of the financial statements and financial statement schedules included in this report. (b) Reports on Form 8-K. Cinergy, CG&E, PSI, and ULH&P None Copies of the documents listed below which are identified with an asterisk (*) have heretofore been filed with the SEC and are incorporated herein by reference and made a part hereof. 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 *Certificate of Incorporation of Cinergy Corp., a Delaware corporation (Cinergy or Company). (Exhibit to Cinergy's 1993 Form 10-K in File No. 1-11377.) 3-b *By-laws of Cinergy as amended January 25, 1996. (Exhibit to Cinergy's Form U-1 Declaration filed February 23, 1996, in File No. 70-8807.) Exhibit Designation Nature of Exhibit_______________ CG&E 3-c *Amended Articles of Incorporation of The Cincinnati Gas & Electric Company (CG&E) effective October 23, 1996. (Exhibit to CG&E's September 30, 1996, Form 10-Q in File No. 1-1232.) 3-d *Regulations of CG&E as amended, adopted April 25, 1996. (Exhibit to CG&E's March 31, 1996, Form 10-Q in File No. 1-1232.) PSI 3-e *Amended Articles of Consolidation of PSI Energy, Inc. (PSI), as amended to April 20, 1995. (Exhibit to PSI's June 30, 1995, Form 10-Q in File No. 1-3543.) 3-f *By-laws of PSI, as amended October 22, 1996. (Exhibit to PSI's September 30, 1996, Form 10-Q in File No. 1-3543.) ULH&P 3-g *Restated Articles of Incorporation made effective May 7, 1976. (Exhibit to The Union Light, Heat and Power Company's (ULH&P) Form 8-K, May 1976.) 3-h *By-laws of ULH&P as amended, adopted May 8, 1996. (Exhibit to ULH&P's March 31, 1996, 1997. Form 10-Q in File No. 2-7793.) Cinergy and PSI 4-a *Original Indenture (First Mortgage Bonds) dated September 1, 1939, between PSI and The First National Bank of Chicago, as Trustee (Exhibit A- Part 3 in File No. 70-258), and LaSalle National Bank as Successor Trustee (Supplemental Indenture dated March 30, 1984). 4-b *Nineteenth Supplemental Indenture between PSI and The First National Bank of Chicago dated January 1, 1972. (Exhibit to File No. 2-42545.) 4-c *Twenty-third Supplemental Indenture between PSI and The First National Bank of Chicago dated January 1, 1977. (Exhibit to File No. 2-57828.) Exhibit Designation Nature of Exhibit_______________ 4-d *Twenty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated September 1, 1978. (Exhibit to File No. 2-62543.) 4-e *Twenty-seventh Supplemental Indenture between PSI and The First National Bank of Chicago dated March 1, 1979. (Exhibit to File No. 2-63753.) 4-f *Thirty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated March 30, 1984. (Exhibit to PSI's 1984 Form 10-K in File No. 1-3543.) 4-g *Thirty-ninth Supplemental Indenture between PSI and The First National Bank of Chicago dated March 15, 1987. (Exhibit to PSI's 1987 Form 10-K in File No. 1-3543.) 4-h *Forty-first Supplemental Indenture between PSI and The First National Bank of Chicago dated June 15, 1988. (Exhibit to PSI's 1988 Form 10-K in File No. 1-3543.) 4-i *Forty-second Supplemental Indenture between PSI and The First National Bank of Chicago dated August 1, 1988. (Exhibit to PSI's 1988 Form 10-K in File No. 1-3543.) 4-j *Forty-fourth Supplemental Indenture between PSI and The First National Bank of Chicago dated March 15, 1990. (Exhibit to PSI's 1990 Form 10-K in File No. 1-3543.) 4-k *Forty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated March 15, 1990. (Exhibit to PSI's 1990 Form 10-K in File No. 1-3543.) 4-l *Forty-sixth Supplemental Indenture between PSI and The First National Bank of Chicago dated June 1, 1990. (Exhibit to PSI's 1991 Form 10-K in File No. 1-3543.) 4-m *Forty-seventh Supplemental Indenture between PSI and The First National Bank of Chicago dated July 15, 1991. (Exhibit to PSI's 1991 Form 10-K in File No. 1-3543.) 4-n *Forty-eighth Supplemental Indenture between PSI and The First National Bank of Chicago dated July 15, 1992. (Exhibit to PSI's 1992 Form 10-K in File No. 1-3543.) Exhibit Designation Nature of Exhibit_______________ 4-o *Forty-ninth Supplemental Indenture between PSI and The First National Bank of Chicago dated February 15, 1993. (Exhibit to PSI's 1992 Form 10-K in File No. 1-3543.) 4-p *Fiftieth Supplemental Indenture between PSI and The First National Bank of Chicago dated February 15, 1993. (Exhibit to PSI's 1992 Form 10-K in File No. 1-3543.) 4-q *Fifty-first Supplemental Indenture between PSI and The First National Bank of Chicago dated February 1, 1994. (Exhibit to PSI's 1993 Form 10-K in File No. 1-3543.) 4-r *Indenture (Secured Medium-term Notes, Series A), dated July 15, 1991, between PSI and The First National Bank of Chicago, as Trustee. (Exhibit to PSI's Form 10-K/A, Amendment No. 2, dated July 15, 1993, in File No. 1-3543.) 4-s *Indenture (Secured Medium-term Notes, Series B), dated July 15, 1992, between PSI and The First National Bank of Chicago, as Trustee. (Exhibit to PSI's Form 10-K/A, Amendment No. 2, dated July 15, 1993, in File No. 1-3543.) 4-t *Loan Agreement between PSI and the City of Princeton, Indiana dated as of November 7, 1996. (Exhibit to PSI's September 30, 1996, Form 10-Q in File No. 1-3543.) 4-u #Loan Agreement between PSI and the City of Princeton, Indiana dated as of February 1, 1997. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) 4-v #Indenture dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) 4-w #First Supplemental Indenture (6.35% due 2006) dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) 4-x #Second Supplemental Indenture (6.25% due 2005) dated December 15, 1996, between PSI and The Fifth Third Bank, as Trustee. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) Exhibit Designation Nature of Exhibit_______________ 4-y *Original Indenture (First Mortgage Bonds) between CG&E and The Bank of New York (as Trustee) dated as of August 1, 1936. (Exhibit to CG&E's Registration Statement No. 2-2374.) 4-z *Tenth Supplemental Indenture between CG&E and The Bank of New York dated as of July 1, 1967. (Exhibit to CG&E's Registration Statement No. 2- 26549.) 4-aa *Eleventh Supplemental Indenture between CG&E and The Bank of New York dated as of May 1, 1969. (Exhibit to CG&E's Registration Statement No. 2- 32063.) 4-bb *Thirteenth Supplemental Indenture between CG&E and The Bank of New York dated as of November 1, 1971. (Exhibit to CG&E's Registration Statement No. 2-41974.) 4-cc *Fourteenth Supplemental Indenture between CG&E and The Bank of New York dated as of November 2, 1972. (Exhibit to CG&E's Registration Statement No. 2-60961.) 4-dd *Fifteenth Supplemental Indenture between CG&E and The Bank of New York dated as of August 1, 1973. (Exhibit to CG&E's Registration Statement No. 2-60961.) 4-ee *Thirty-second Supplemental Indenture between CG&E and The Bank of New York dated as of December 15, 1991. (Exhibit to CG&E's Registration Statement No. 33-45115.) 4-ff *Thirty-third Supplemental Indenture between CG&E and The Bank of New York dated as of September 1, 1992. (Exhibit to CG&E's Registration Statement No. 33-53578.) 4-gg *Thirty-fourth Supplemental Indenture between CG&E and The Bank of New York dated as of October 1, 1993. (Exhibit to CG&E's September 30, 1993, Form 10-Q in File No. 1-1232.) Exhibit Designation Nature of Exhibit_______________ 4-hh *Thirty-fifth Supplemental Indenture between CG&E and The Bank of New York dated as of January 1, 1994. (Exhibit to CG&E's Registration Statement No. 33-52335.) 4-ii *Thirty-sixth Supplemental Indenture between CG&E and The Bank of New York dated as of February 15, 1994. (Exhibit to CG&E's Registration Statement No. 33-52335.) 4-jj #Thirty-seventy Supplemental Indenture between CG&E and The Bank of New York dated as of October 4, 1996. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) 4-kk *Loan Agreement between CG&E and County of Boone, Kentucky dated as of February 1, 1985. (Exhibit to CG&E's 1984 Form 10-K in File No. 1- 1232.) 4-ll *Loan Agreement between CG&E and State of Ohio Air Quality Development Authority dated as of December 1, 1985. (Exhibit to CG&E's 1985 Form 10-K in File No. 1-1232.) 4-mm *Loan Agreement between CG&E and State of Ohio Air Quality Development Authority dated as of December 1, 1985. (Exhibit to CG&E's 1985 Form 10-K in File No. 1-1232.) 4-nn *Repayment Agreement between CG&E and The Dayton Power and Light Company dated as of December 23, 1992. (Exhibit to CG&E's 1992 Form 10-K in File No. 1-1232.) 4-oo *Loan Agreement between CG&E and State of Ohio Water Development Authority dated as of January 1, 1994. (Exhibit to CG&E's 1993 Form 10-K in File No. 1-1232.) 4-pp *Loan Agreement between CG&E and State of Ohio Air Quality Development Authority dated as of January 1, 1994. (Exhibit to CG&E's 1993 Form 10- K in File No. 1-1232.) 4-qq *Loan Agreement between CG&E and County of Boone, Kentucky dated as of January 1, 1994. (Exhibit to CG&E's 1993 Form 10-K in File No. 1- 1232.) Exhibit Designation Nature of Exhibit_______________ 4-rr *Original Indenture (Unsecured Debt Securities) between CG&E and The Fifth Third Bank dated as of May 15, 1995. (Exhibit to CG&E's Form 8-A dated July 24, 1995, in File No. 1-1232.) 4-ss *First Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 1, 1995. (Exhibit to CG&E's June 30, 1995, Form 10-Q in File No. 1-1232.) 4-tt *Second Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 30, 1995. (Exhibit to CG&E's Form 8-A dated July 24, 1995, in File No. 1-1232.) 4-uu *Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of September 13, 1995. (Exhibit to CG&E's September 30, 1995, Form 10-Q in File No. 1-1232.) 4-vv *Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of September 13, 1995. (Exhibit to CG&E's September 30, 1995, Form 10-Q in File No. 1-1232.) Cinergy, CG&E, and ULH&P 4-ww *Original Indenture (First Mortgage Bonds) between ULH&P and The Bank of New York dated as of February 1, 1949. (Exhibit to ULH&P's Registration Statement No. 2-7793.) 4-xx *Fifth Supplemental Indenture between ULH&P and The Bank of New York dated as of January 1, 1967. (Exhibit to CG&E's Registration Statement No. 2- 60961.) 4-yy *Seventh Supplemental Indenture between ULH&P xand The Bank of New York dated as of October 1, 1973. (Exhibit to CG&E's Registration Statement No. 2-60961.) 4-zz *Eighth Supplemental Indenture between ULH&P and The Bank of New York dated as of December 1, 1978. (Exhibit to CG&E's Registration Statement No. 2- 63591.) Exhibit Designation Nature of Exhibit_______________ 4-aaa *Thirteenth Supplemental Indenture between ULH&P and The Bank of New York dated as of August 1, 1992. (Exhibit to ULH&P's 1992 Form 10-K in File No. 2-7793.) 4-bbb *Original Indenture (Unsecured Debt Securities) between ULH&P and the Fifth Third Bank dated as of July 1, 1995. (Exhibit to ULH&P's June 30, 1995, Form 10-Q in File No. 2- 7793) 4-ccc *First Supplemental Indenture between ULH&P and The Fifth Third Bank dated as of July 15, (Exhibit to ULH&P's June 30, 1995, Form 10-Q in File No. 2-7793.) Cinergy, CG&E, and PSI 10-a *+Amended and Restated Employment Agreement dated October 24, 1994, among CG&E, Cinergy Corp. (an Ohio corporation), Cinergy (a Delaware corporation), PSI Resources, Inc., PSI, and Jackson H. Randolph. (Exhibit to Cinergy's 1994 Form 10-K in File No. 1-11377.) 10-b *+Amended and Restated Employment Agreement dated July 2, 1993, among PSI Resources, Inc., PSI, CG&E, Cinergy, Cinergy Sub, Inc., and James E. Rogers, Jr. (Exhibit to Cinergy's Amendment No. 3 to Form S-4, filed October 8, 1993.) 10-c *+First Amendment to Amended and Restated Employment Agreement dated December 12, 1995, retroactively effective to October 24, 1994, amended and restated July 2, 1993, among Cinergy, Cinergy Services, Inc. (Services), CG&E, PSI, and James E. Rogers. (Exhibit to Cinergy's, 1995 Form 10-K in File No. 1-11377.) 10-d *+Employment Agreement dated January 1, 1995, among Cinergy, CG&E, Services, Investments, PSI, and William J. Grealis. (Exhibit to Cinergy's 1994 Form 10-K in File No. 1-11377.) 10-e *+Employment Agreement dated October 24, 1994, among Cinergy, Services, CG&E, PSI, and Larry E. Thomas. (Exhibit to Cinergy's 1995 Form 10-K in File No. 1-11377.) Exhibit Designation Nature of Exhibit_______________ 10-f *+First Amendment to Employment Agreement dated October 24, 1994, among Cinergy, Services, CG&E, PSI, and Larry E. Thomas. (Exhibit to Cinergy's 1995 Form 10-K in File No. 1-11377.) 10-g *+Employment Agreement dated October 24, 1994, among Cinergy, Services, CG&E, PSI, and J. Wayne Leonard. (Exhibit to Cinergy's 1995 Form 10-K in File No. 1-11377.) 10-h *+First Amendment to Employment Agreement dated October 24, 1994, among Cinergy, Services, CG&E, PSI, and J. Wayne Leonard. (Exhibit to Cinergy's 1995 Form 10-K in File No. 1-11377.) 10-I *+Employment Agreement dated October 24, 1994, among Cinergy, Services, CG&E, PSI, and Cheryl M. Foley. (Exhibit to Cinergy's, 1995 Form 10-K in File No. 1-11377.) 10-j *+First Amendment to Employment Agreement dated October 24, 1994, among Cinergy, Services, CG&E, PSI, and Cheryl M. Foley. (Exhibit to Cinergy's 1995 Form 10-K in File No. 1-11377.) 10-k #+Employment Agreement dated June 1, 1996, among Cinergy, Services, CG&E, PSI, and Elizabeth K. Lanier. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) Cinergy and PSI 10-l #PSI Union Employees' 401(k) Savings Plan, amended and restated December 17, 1996, with various effective dates. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) 10-m #PSI Employees' 401(k) Savings Plan, amended and restated December 17, 1996, with various effective dates. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) 10-n *+First Amendment to the PSI Union Employees' 401(k) Savings Plan, dated December 31, 1995. (Exhibit to Cinergy's 1995 Form 10-K in File No. 1-11377.) Exhibit Designation Nature of Exhibit_______________ 10-o *+First Amendment to the PSI Employees' 401(k) Savings Plan, dated December 31, 1995. (Exhibit to Cinergy's 1995 Form 10-K in File No. 1-11377.) 10-p *+Employment Agreement dated October 4, 1993, among Cinergy, PSI, and John M. Mutz. (Exhibit to PSI Resources, Inc.'s September 30, 1993, Form 10- Q, File No. 1-9941.) 10-q +First Amendment to Employment Agreement dated August 30, 1996, among Cinergy, PSI, and John M. Mutz. 10-r *+Deferred Compensation Agreement, effective as of January 1, 1992, between Cinergy and James E. Rogers, Jr. (Exhibit to PSI's Form 10-K/A in File No. 1-3543, Amendment No. 1, dated April 29, 1993.) 10-s *+Split Dollar Life Insurance Agreement, effective as of January 1, 1992, between Cinergy and James E. Rogers, Jr. (Exhibit to PSI's Form 10-K/A in File No. 1-3543, Amendment No. 1, dated April 29, 1993.) 10-t *+First Amendment to Split Dollar Life Insurance Agreement between Cinergy and James E. Rogers, Jr. dated December 11, 1992. (Exhibit to PSI's Form 10-K/A in File No. 1-3543, Amendment No. 1, dated April 29, 1993.) 10-u *+PSI Supplemental Retirement Plan amended and restated December 16, 1992, retroactively effective January 1, 1989. (Exhibit to PSI's 1992 Form 10-K in File No. 1-3543.) 10-v *+PSI Excess Benefit Plan, formerly named the Supplemental Pension Plan, amended and restated December 16, 1992, retroactively effective January 1, 1989. (Exhibit to PSI's 1992 Form 10-K in File No. 1-3543.) Cinergy and CG&E 10-w #CG&E Deferred Compensation and Investment Plan, as amended, retroactively effective January 1, 1995. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) Exhibit Designation Nature of Exhibit_______________ 10-x #CG&E Savings Incentive Plan, amended, retroactively effective January 1, 1995. (Exhibit to Cinergy's 1996 Form 10-K in File No. 1-11377.) 10-y *+Deferred Compensation Agreement between Jackson H. Randolph and Cinergy dated January 1, 1992. (Exhibit to CG&E's 1992 Form 10-K in File No. 1-1232.) 10-z *+Supplemental Executive Retirement Income Plan between CG&E and certain executive officers. (Exhibit to CG&E's 1988 Form 10-K in File No. 1- 1232.) 10-aa *+Amendment to Supplemental Executive Retirement Income Plan between CG&E and certain executive officers. (Exhibit to CG&E's 1992 Form 10-K in File No 1-1232.) 10-bb *+Amended and Restated Supplemental Retirement Income Plan between CG&E and Jackson H. Randolph. (Exhibit to Cinergy's, 1995 Form 10-K in File No. 1-11377.) 10-cc *+Amendment to Executive Severance Agreement between CG&E and certain executive officers. (Exhibit to CG&E's 1992 Form 10-K in File No. 1- 1232.) 10-dd *+Executive Severance Agreement between CG&E and certain executive officers. (Exhibit to CG&E's 1989 Form 10-K in File No. 1-1232.) Cinergy 10-ee *+Cinergy Stock Option Plan, amended October 22, 1996, effective November 1, 1996. (Exhibit to Cinergy's September 30, 1996, Form 10-Q in File No. 1-11377.) 10-ff *+Cinergy Performance Shares Plan, amended October 22, 1996, effective November 1, 1996. (Exhibit to Cinergy's September 30, 1996, Form 10- Q in File No. 1-11377.) 10-gg +Cinergy Annual Incentive Plan, amended January 25, 1996, effective January 1, 1996. Exhibit Designation Nature of Exhibit_______________ 10-hh *Cinergy Employee Stock Purchase and Savings Plan, adopted October 18, 1994, effective October 24, 1994. (Exhibit to Cinergy's Form S-8, filed October 19, 1994.) 10-ii *Amendment to Cinergy's Employee Stock Purchase and Savings Plan, adopted April 26, 1996. (Exhibit to Cinergy's June 30, 1996 Form 10-Q in File No. 1-11377.) 10-jj *Amendment to Cinergy's Employee Stock Purchase and Savings Plan, adopted October 22, 1996. (Exhibit to Cinergy's September 30, 1996, Form 10- Q in File No. 1-11377.) 10-kk *+Cinergy Directors' Deferred Compensation Plan, adopted October 18, 1994, effective October 24, 1994. (Exhibit to Cinergy's Form S-8, filed October 19, 1994.) 10-ll *+Amendment to Cinergy's Directors' Deferred Compensation Plan, adopted October 22, 1996. (Exhibit to Cinergy's September 30, 1996, Form 10-Q in File No. 1-11377.) 10-mm *+Cinergy Retirement Plan for Directors, adopted October 18, 1994, effective October 24, 1994. (Exhibit to Cinergy's 1994 Form 10-K in File No. 1-11377.) 10-nn *+Cinergy Executive Supplemental Life Insurance Program adopted October 18, 1994, effective October 24, 1994, consisting of Defined Benefit Deferred Compensation Agreement, Executive Supplemental Life Insurance Program Split Dollar Agreement I, and Executive Supplemental Life Insurance Program Split Dollar Agreement II. (Exhibit to Cinergy's 1994 Form 10-K in File No. 1-11377.) 10-oo *+Split Dollar Insurance Agreement, effective as of May 1, 1993, between Cinergy and Jackson H. Randolph. (Exhibit to Cinergy's 1994 Form 10-K in File No. 1-11377.) 10-pp *+Cinergy's 1996 Long-Term Incentive Compensation Plan, adopted April 26, 1996. (Exhibit to Cinergy's Schedule 14A Definitive Proxy Statement filed March 13, 1996, in File No. 1-11377.) Exhibit Designation Nature of Exhibit_______________ 10-qq *+Amendment to Cinergy's 1996 Long-Term Incentive Compensation Plan, adopted October 22, 1996, (Exhibit to Cinergy's September 30, 1996, Form 10-Q in File No. 1-11377.) 10-rr +Cinergy's 401(k)Excess Plan, adopted December 17, 1996. 10-ss +Cinergy's Nonqualified Deferred Incentive Compensation Plan, adopted December 17, 1996. Cinergy 21 Subsidiaries of Cinergy Cinergy, CG&E, PSI, and ULH&P 23 Consent of Independent Public Accountants. 24 Power of Attorney. 27 Financial Data Schedules (included in electronic submission only). + Management contract, compensation plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
CINERGY CORP. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1996 Col. A Col. B Col. C Col. D Col. E _ Additions Deductions For Purposes Balance at Charged For Which Balance at Beginning Charged to to Other Reserves Were Close of Description of Period Income Accounts Created Other Period _ (in thousands) Accumulated Provisions Deducted from Applicable Assets Allowance for Doubtful Accounts 1996 $94 409 $22 341 $ 9 503 $115 635 $ - $10 618 1995 $90 547 $33 921 $(8 489) $ 21 570 $ - $94 409 1/ 1994 $93 735 $31 145 $15 010 $ 49 343 $ - $90 547 2/ 1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." 2/ Includes $80,832 for the WVPA Marble Hill receivable. See Note 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
THE CINCINNATI GAS AND ELECTRIC COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1996 Col. A Col. B Col. C Col. D Col. E _ Additions Deductions For Purposes Balance at Charged For Which Balance at Beginning Charged to to Other Reserves Were Close of Description of Period Income Accounts Created Other Period _ (in thousands) Accumulated Provisions Deducted from Applicable Assets Allowance for Doubtful Accounts 1996 $9 615 $17 297 $ 6 669 $24 403 $ - $9 178 1995 $8 999 $27 623 $(8 496) $18 511 $ - $9 615 1994 $14 906 $25 598 $15 010 $46 515 $ - $8 999
PSI ENERGY, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1996 Col. A Col. B Col. C Col. D Col. E Additions _ Deductions _ _ For Purposes Balance at Charged For Which Balance at Beginning Charged to to Other Reserves Were Close of Description of Period Income Accounts Created Other Period _ (in thousands) Accumulated Provisions Deducted from Applicable Assets Allowance for Doubtful Accounts 1996 $84 517 $5 041 $2 834 $91 123 $ - $ 1 269 1995 $81 272 $6 100 $ 7 $ 2 862 $ - $84 517 1/ 1994 $78 567 $5 495 $ - $ 2 790 $ - $81 272 2/ 1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data." 2/ Includes $80,832 for the WVPA Marble Hill receivable. See Note 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
THE UNION LIGHT, HEAT AND POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1996 Col. A Col. B Col. C Col. D Col. E Additions Deductions For Purposes Balance at Charged For Which Balance at Beginning Charged to to Other Reserves Were Close of Description of Period Income Accounts Created Other Period _ (in thousands) Accumulated Provisions Deducted from Applicable Assets Allowance for Doubtful Accounts 1996 $1 035 $1 862 $1 577 $3 450 $ - $1 024 1995 $ 457 $3 010 $ - $2 432 $ - $1 035 1994 $1 609 $2 502 $ 11 $3 665 $ - $ 457
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company have each duly caused this report to be signed on its 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 Dated: March 27, 1997 By James E. Rogers Vice Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrants and in the capacities and on the dates indicated. Signature Title Date Cinergy, CG&E, PSI, and ULH&P Jackson H. Randolph Chairman Cinergy Neil A. Armstrong Director Phillip R. Cox Director Kenneth M. Duberstein Director George C. Juilfs Director Melvin Perelman Director Thomas E. Petry Director John J. Schiff, Jr. Director Philip R. Sharp Director Dudley S. Taft Director Oliver W. Waddell Director Cinergy and PSI James K. Baker Director Michael G. Browning Director John A. Hillenbrand II Director Van P. Smith Director CG&E and ULH&P William J. Grealis President and Director PSI John M. Mutz President and Director ULH&P Cheryl M. Foley Vice President, General Counsel, Secretary, and Director Larry E. Thomas Group Vice President and Director Cinergy, CG&E, PSI, and ULH&P James E. Rogers Vice Chairman, Chief March 27, 1997 Attorney-in-fact for all Executive Officer, and Director the foregoing persons President of Cinergy (Principal Executive Officer) J. Wayne Leonard Group Vice President and March 27, 1997 Chief Financial Officer Director of ULH&P (Principal Financial Officer) Charles J. Winger Comptroller March 27, 1997 (Principal Accounting Officer) EX-4.U 2 LOAN AGREEMENT between CITY OF PRINCETON, INDIANA and PSI ENERGY, INC. _______________________________ $35,000,000 City of Princeton, Indiana Pollution Control Revenue Refunding Bonds, 1997 Series (PSI Energy, Inc. Project) _______________________________ Dated as of February 1, 1997 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section 1.1. Use of Defined Terms 2 Section 1.2. Definitions 2 Section 1.3. Interpretation 7 Section 1.4. Captions and Headings 8 ARTICLE II REPRESENTATIONS 9 Section 2.1. Representations of the Issuer 9 Section 2.2. No Warranty by Issuer of Condition or Suitability of the Project 9 Section 2.3. Representations and Covenants of the Company 9 ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS 13 Section 3.1. Acquisition, Construction and Installation 13 Section 3.2. Project Description 13 Section 3.3. Issuance of the Bonds; Application of Proceeds 13 Section 3.4. Investment of Fund Moneys 14 Section 3.5. Rebate Fund 14 ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY 15 Section 4.1. Loan Repayment 15 Section 4.2. Additional Payments 15 Section 4.3. Place of Payments 16 Section 4.4. Obligations Unconditional 16 Section 4.5. Assignment of Revenues and Agreement 16 Section 4.6. Credit Facility; Alternate Credit Facility; Cancellation 16 Section 4.7. Company's Option to Elect Rate Period 17 Section 4.8. Company's Obligation to Purchase Bonds 17 ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS 18 Section 5.1. Right of Inspection 18 Section 5.2. Maintenance 18 Section 5.3. Removal of Portions of the Project Facilities 18 Section 5.4. Operation of Project Facilities 18 Section 5.5. Insurance 19 Section 5.6. Workers' Compensation Coverage 19 Section 5.7. Damage; Destruction and Eminent Domain 19 Section 5.8. Company to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted 19 Section 5.9. Indemnification 20 Section 5.10. Company Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For Federal Income Tax Purposes 21 Section 5.11. Use of Project Facilities 21 Section 5.12. Assignment by Company 21 ARTICLE VI REDEMPTION 23 Section 6.1. Optional Redemption 23 Section 6.2. Extraordinary Optional Redemption 23 Section 6.3. Mandatory Redemption 24 Section 6.4. Notice of Redemption 25 Section 6.5. Actions by Issuer 25 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES 26 Section 7.1. Events of Default 26 Section 7.2. Remedies on Default 27 Section 7.3. No Remedy Exclusive 28 Section 7.4. Agreement to Pay Attorneys' Fees and Expenses 28 Section 7.5. No Waiver 28 Section 7.6. Notice of Default 28 ARTICLE VIII MISCELLANEOUS 29 Section 8.1. Term of Agreement 29 Section 8.2. Amounts Remaining in Funds 29 Section 8.3. Notices 29 Section 8.4. Extent of Covenants of the Issuer; No Personal Liability 29 Section 8.5. Binding Effect 30 Section 8.6. Amendments and Supplements 30 Section 8.7. References to Credit Facility 30 Section 8.8. Execution Counterparts 30 Section 8.9. Severability 30 Section 8.10. Governing Law 30 LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into as of February 1, 1997 between the CITY OF PRINCETON, INDIANA (the "Issuer"), a municipal corporation organized and existing under the laws of the State of Indiana, and PSI ENERGY, INC. (the "Company"), a public utility and corporation duly organized and validly existing under the laws of the State of Indiana. Capitalized terms used in the following recitals are used as defined in Article I of this Agreement. Pursuant to Indiana Code, Title 36, Article 7, Chapters 11.9 and 12, and Indiana Code, Title 5, Article 1, Chapter 5 (collectively, the "Act"), the Issuer has determined to issue, sell and deliver the Bonds, and to lend the proceeds derived from the sale thereof to the Company to assist in the refunding of the Refunded Bonds as defined below. The Refunded Bonds were issued to refund a portion of the Series 1982 Bonds, as defined below, which were originally issued to provide funds to make a loan to the Company to assist in the financing of its portion of the costs of the Project as defined below. The Company and the Issuer each have full right and lawful authority to enter into this Agreement and to perform and observe the provisions hereof on their respective parts to be performed and observed. NOW THEREFORE, in consideration of the premises and the mutual representations and agreements hereinafter contained, the Issuer and the Company agree as follows (provided that any obligation of the Issuer or the State created by or arising out of this Agreement shall never constitute a general debt of the Issuer or the State or give rise to any pecuniary liability of the Issuer or the State but shall be payable solely out of Revenues, including the Loan Payments made pursuant hereto and moneys drawn under any Credit Facility): ARTICLE I DEFINITIONS Section I.1. Use of Defined Terms. In addition to the words and terms defined elsewhere in this Agreement or by reference to another document, the words and terms set forth in Section 1.2 hereof shall have the meanings set forth therein unless the context or use clearly indicates another meaning or intent. Such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms defined therein. Section I.2. Definitions. As used herein: "Act" means, collectively, Indiana Code, Title 36, Article 7, Chapters 11.9 and 12, and Title 5, Article 1, Chapter 5 as amended. "Additional Payments" means the amounts required to be paid by the Company pursuant to the provisions of Section 4.2 hereof. "Administration Expenses" means the compensation (which compensation shall not be greater than that typically charged in similar circumstances) and reimbursement of reasonable expenses and advances payable to the Trustee, the Registrar, the Remarketing Agent, any Paying Agent and any Authenticating Agent. "Agreement" means this Loan Agreement, as amended or supplemented from time to time. "Alternate Credit Facility" means an Alternate Credit Facility as defined in the Indenture. "Authenticating Agent" means the Authenticating Agent as defined in the Indenture. "Bank" means the Bank as defined in the Indenture. "Bond Fund" means the Bond Fund created in the Indenture. "Bond Purchase Fund" means the Bond Purchase Fund as defined in the Indenture. "Bond Resolution" means the ordinance of the Issuer providing for the issuance of the Bonds and approving this Agreement, the Indenture and related matters, as amended or supplemented from time to time. "Bond Service Charges" means, for any period or time, the principal of, premium, if any, and interest due on the Bonds for that period or payable at that time whether due at maturity or upon acceleration or redemption or otherwise. "Bonds" means the $35,000,000 Pollution Control Revenue Refunding Bonds, 1997 Series (PSI Energy, Inc. Project), issued by the Issuer pursuant to the Bond Resolution and the Indenture. "Bonds Outstanding" or "Outstanding Bonds" means Outstanding Bonds as defined in the Indenture. "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to the Code and Sections of the Code include relevant applicable regulations and proposed regulations thereunder and under the Internal Revenue Code of 1954, as amended, and any successor provisions to those Sections, regulations or proposed regulations and, in addition, all applicable official rulings and judicial determinations under the foregoing applicable to the Bonds. "Conversion Date" means the Conversion Date as defined in the Indenture. "Credit Facility" means a Credit Facility as defined in the Indenture. "Credit Facility Account" means the Credit Facility Account as defined in the Indenture. "Credit Facility Issuer" means a Credit Facility Issuer as defined in the Indenture. "Eligible Investments" means Eligible Investments as defined in the Indenture. "Engineer" means an engineer (who may be an employee of the Company) or engineering firm qualified to practice the profession of engineering under the laws of the State and who or which is acceptable to the Trustee. "EPA" means the Department of Environmental Management of the State and any successor body, agency, commission or department. "Event of Default" means any of the events described as an Event of Default in Section 7.1 hereof. "Force Majeure" means any of the causes, circumstances or events described as constituting Force Majeure in Section 7.1 hereof. "Government Obligations" means Government Obligations as defined in the Indenture. "Holder" or "Holder of a Bond" means the Person in whose name a Bond is registered on the Register. "Indenture" means the Trust Indenture, dated as of the same date as this Agreement, between the Issuer and the Trustee, as amended or supplemented from time to time. "Interest Rate for Advances" means the interest rate per year payable on the Bonds. "Letter of Credit" means the Letter of Credit as defined in the Indenture. "Loan" means the loan by the Issuer to the Company of the proceeds received from the sale of the Bonds. "Loan Payment Date" means any date on which any Bond Service Charges are due and payable. "Loan Payments" means the amounts required to be paid by the Company in repayment of the Loan pursuant to Section 4.1 hereof. "1954 Code" means the Internal Revenue Code of 1954 as amended from time to time through the date of enactment of the Code. References to the 1954 Code and Sections of the 1954 Code include relevant applicable regulations (including temporary regulations) and proposed regulations thereunder and any successor provisions to those Sections, regulations or proposed regulations. "Notice Address" means: (a) As to the Issuer: City of Princeton, Indiana City Building Princeton, Indiana 47670 Attention: Mayor (b) As to the Company: PSI Energy, Inc. 1000 East Main Street Plainfield, Indiana 46168 Attention: Treasurer with a copy to: PSI Energy, Inc. 139 East Fourth Street Cincinnati, Ohio 45202 Attention: Treasurer (c) As to the Trustee: The Fifth Third Bank of Central Indiana Fifth Third Center 38 Fountain Square Cincinnati, Ohio 45263 Attention: Corporate Trust Administration or such additional or different address, notice of which is given under Section 8.3 hereof. "Opinion of Bond Counsel" means a written opinion of nationally recognized bond counsel selected by the Company and acceptable to the Trustee who is experienced in matters relating to the exclusion from gross income for federal income tax purposes of interest on obligations issued by states and their political subdivisions. Bond Counsel may be counsel to the Trustee or the Company. "Original Purchaser" means the Original Purchaser as defined in the Indenture. "Paying Agent" means the Paying Agent as defined in the Indenture. "Person" or words importing persons mean firms, associations, partnerships (including without limitation, general and limited partnerships), limited liability entities, joint ventures, societies, estates, trusts, corporations, public or governmental bodies, other legal entities and natural persons. "Plant" means the Gibson Generating Station. "Pollution Control Facility" or "Pollution Control Facilities" means those facilities which are pollution control facilities as defined in Section 9 of Chapter 11.9 of the Act. "Project" or "Project Facilities" means the real, personal or real and personal property, including undivided or other interests therein, identified in the Project Description, originally financed with the proceeds of the Series 1982 Bonds and refinanced with the proceeds of the Refunded Bonds. "Project Description" means collectively the description of the Project Facilities originally financed with the proceeds of the Series 1982 Bonds and refinanced with the proceeds of the Refunded Bonds, attached hereto as Exhibit A, as the same may be amended in accordance with this Agreement. "Project Purposes" means the purposes of Pollution Control Facilities as described in the Act and as particularly described in Exhibit A hereto. "Project Site" means the Gibson Generating Station in Princeton, Indiana. "Rate Period" means a Rate Period as defined in the Indenture. "Rebate Fund" means the Rebate Fund created in the Indenture. "Refunded Bonds" means the $35,000,000 City of Princeton, Indiana 7.60% Pollution Control Refunding Revenue Bonds 1987 Series (Public Service Company of Indiana, Inc. Project C) issued on March 31, 1987. "Refunded Bonds Indenture" means the Trust Indenture dated as of March 15, 1987 between Bank One, Indianapolis, National Association (as successor to American Fletcher National Bank and Trust Company) and the City of Princeton, Indiana. "Refunded Bonds Loan Agreement" means the Loan Agreement dated as of March 15, 1987 between the City of Princeton, Indiana and Public Service Company of Indiana, Inc. "Refunded Bonds Trustee" means Bank One, Indianapolis, National Association (as successor to American Fletcher National Bank and Trust Company), as trustee under the Refunded Bonds Indenture. "Refunding Fund" means the Refunding Fund created in the Indenture. "Register" means the books kept and maintained for the registration and transfer of Bonds pursuant to Section 3.05 of the Indenture. "Registrar" means the Registrar as defined in the Indenture. "Reimbursement Agreement" means the Reimbursement Agreement as defined in the Indenture. "Remarketing Agent" means the Remarketing Agent as defined in the Indenture. "Revenues" means (a) the Loan Payments, (b) all other moneys received or to be received by the Issuer (excluding the Issuer Fee) or the Trustee in respect of repayment of the Loan, including without limitation, all moneys and investments in the Bond Fund, (c) any moneys and investments in the Refunding Fund, and (d) all income and profit from the investment of the foregoing moneys. The term "Revenues" does not include any moneys or investments in the Rebate Fund or the Bond Purchase Fund. "Series 1982 Bonds" means the $45,000,000 City of Princeton, Indiana Pollution Control Revenue Bonds 1982 Series A and B (Public Service Company of Indiana, Inc. Project C) issued on April 21, 1982. "Series 1982 B Bonds" means the $35,000,000 1982 Series B portion of the Series 1982 Bonds which was refunded by the Refunded Bonds. "Series 1982 Indenture" means the Trust Indenture dated as of April 1, 1982 between Bank One, Indianapolis, National Association (as successor to American Fletcher National Bank and Trust Company) and the City of Princeton, Indiana. "Series 1982 Loan Agreement" means the Loan Agreement dated as of April 1, 1982 between the City of Princeton, Indiana and Public Service Company of Indiana, Inc. "State" means the State of Indiana. "Term Rate Period" means a Term Rate Period as defined in the Indenture. "Trustee" means The Fifth Third Bank of Central Indiana located in Indianapolis, Indiana, a corporation duly organized and validly existing under the laws of the State, until a successor Trustee shall have become such pursuant to the applicable provisions of the Indenture, and thereafter "Trustee" shall mean the successor Trustee. "Principal Office" of the Trustee shall mean the principal corporate trust office of the Trustee, which office at the date of issuance of the Bonds is located at its Notice Address. "Unassigned Issuer Rights" means all of the rights of the Issuer to receive Additional Payments under Section 4.2 hereof, to inspection pursuant to Section 5.1 hereof, to be held harmless and indemnified under Section 5.9 hereof, to be reimbursed for attorney's fees and expenses under Section 7.4 hereof and to give or withhold consent to amendments, changes, modifications, alterations and termination of this Agreement under Section 8.6 hereof and its right to enforce such rights. "Variable Rate" means a Variable Rate as defined in the Indenture. Section I.3. Interpretation. Any reference herein to the State, to the Issuer or to any member or officer of either includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions. Any reference to a section or provision of the Constitution of the State or the Act, or to a section, provision or chapter of the Indiana Code, or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time; provided, that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way an impairment of the rights or obligations of the Issuer, the State, the Holders, the Trustee, the Registrar, an Authenticating Agent, a Paying Agent, the Credit Facility Issuer, the Remarketing Agent, or the Company under this Agreement, the Indenture or the Bonds. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Agreement; and the term "hereafter" means after, and the term "heretofore" means before, the date of delivery of the Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. Section I.4. Captions and Headings. The captions and headings in this Agreement are used solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs or subparagraphs or clauses hereof. (End of Article I) ARTICLE II REPRESENTATIONS Section II.1. Representations of the Issuer. The Issuer represents that: (a) it is a municipal corporation duly organized and validly existing under the laws of the State; (b) it has duly accomplished all conditions necessary to be accomplished by it prior to the issuance and delivery of the Bonds and the execution and delivery of this Agreement and the Indenture; (c) it is not in violation of or in conflict with any provisions of the laws of the State which would impair its ability to carry out its obligations contained in this Agreement or the Indenture; (d) it is empowered to enter into the transactions contemplated by this Agreement and the Indenture; (e) it has duly authorized the execution, delivery and performance of this Agreement and the Indenture; (f) it will do all things in its power in order to maintain its existence or assure the assumption of its obligations under this Agreement and the Indenture by any successor municipal corporation; and (g) following reasonable notice, a public hearing was held on February 18, 1997 with respect to the issuance of the Bonds as required by Section 147(f) of the Code. Section II.2. No Warranty by Issuer of Condition or Suitability of the Project. The Issuer makes no warranty, either express or implied, as to the suitability or utilization of the Project for the Project Purposes, or as to the condition of the Project Facilities or that the Project Facilities are or will be suitable for the Company's purposes or needs. Section II.3. Representations and Covenants of the Company. The Company represents that: (a) The Company has been duly incorporated and is validly existing as a corporation under the laws of the State, with power and authority (corporate and other) to own its properties and conduct its business, to execute and deliver this Agreement and to perform its obligations under this Agreement. (b) This Agreement has been duly authorized, executed and delivered by the Company and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (c) The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of law or regulation applicable to the Company, or of any writ or decree of any court or governmental instrumentality, or of the Amended Articles of Consolidation, as amended, or the By-laws of the Company, or of any mortgage, indenture, contract, agreement or other undertaking to which the Company is a party or which purports to be binding upon the Company or upon any of its assets. (d) Substantially all (at least 90%) of the proceeds of the Series 1982 Bonds were used to provide "solid waste disposal facilities" within the meaning of Section 103(b)(4)(E) of the 1954 Code and "pollution control facilities" within the meaning of Section 103(b)(4)(F) of the 1954 Code, the original use of which facilities commenced with the Company on October 1, 1982, and which facilities were described in an inducement resolution adopted by the Issuer on October 16, 1978. Construction of such facilities financed with the proceeds of the Series 1982 Bonds was not commenced prior to October 16, 1978. All of the proceeds of the Series 1982 Bonds have been spent for the Project pursuant to the Series 1982 Loan Agreement or to pay costs of issuance of the Series 1982 Bonds. The proceeds of the Refunded Bonds (other than any accrued interest thereon) were used exclusively to refund the Series 1982 B Bonds; any investment earnings on such proceeds of the Refunded Bonds were used to pay principal, premium or interest on the Series 1982 B Bonds; and none of the proceeds of the Refunded Bonds was used to pay for any costs of issuance of the Refunded Bonds. The Series 1982 B Bonds were issued prior to August 16, 1986. The principal amount of the Refunded Bonds did not exceed the then outstanding principal amount of the Series 1982 B Bonds. The proceeds of the Refunded Bonds were used to retire the Series 1982 B Bonds not later than 90 days after the date of issuance of the Refunded Bonds. The proceeds of the Bonds (other than any accrued interest thereon) will be used exclusively to refund the Refunded Bonds; any investment earnings on such proceeds of the Bonds will be used to pay principal, premium or interest on the Refunded Bonds; and none of the proceeds of the Bonds will be used to pay for any costs of issuance of the Bonds. The Refunded Bonds are part of a series of refundings of which the Series 1982 B Bonds are the original bonds. The principal amount of the Bonds does not exceed the outstanding principal amount of the Refunded Bonds. The proceeds of the Bonds will be used to retire the Refunded Bonds not later than 90 days after the date of issuance of the Bonds. (e) It has caused the Project to be substantially completed. The Project constitutes Pollution Control Facilities under the Act and is consistent with the purposes of the Act. The Project is being, and the Company will cause the Project to be, operated and maintained in such manner to conform with all applicable zoning, planning, building, environmental and other applicable governmental regulations and all permits, variances and orders issued or granted pursuant thereto, including the permit-to-install for the Project, which permits, variances and orders have not been withdrawn or otherwise suspended, and to be consistent with the Act. (f) It has used or operated or has caused to be used or operated, and presently intends to use or operate or cause to be used or operated the Project Facilities in a manner consistent with the Project Purposes until the date on which the Bonds have been fully paid and knows of no reason why the Project Facilities will not be so operated. The Company does not intend to sell or otherwise dispose of the Project or any portion thereof. (g) None of the proceeds of the Series 1982 Bonds or the Refunded Bonds were used and none of the proceeds of the Bonds will be used to provide any airplane, skybox or other private luxury box, or health club facility, any facility primarily used for gambling or any store the principal business of which is the sale of alcoholic beverages for consumption off premises. (h) Less than 25% of the proceeds of the Series 1982 Bonds and less than 25% of the proceeds of the Refunded Bonds have been used and less than 25% of the proceeds of the Bonds will be used directly or indirectly to acquire land or any interest therein, and none of such proceeds has been or will be used to provide land which is to be used for farming purposes. (i) No portion of the proceeds of the Series 1982 Bonds or the Refunded Bonds has been used and no portion of the proceeds of the Bonds will be used to acquire existing property or any interest therein unless the first use of such property was by the Company and was pursuant to and followed such acquisition. (j) After the expiration of any applicable temporary period under Section 148(d)(3) of the Code, at no time during any bond year will the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments (within the meaning of Section 148(b) of the Code) exceed 150 percent of the debt service on the Bonds for such bond year and the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments, if any, will be promptly and appropriately reduced as the outstanding amount of the Bonds is reduced, provided however that the foregoing shall not require the sale or disposition of any investments in higher yielding investments if such sale or disposition would result in a loss which exceeds the amount which would be paid to the United States (but for such sale or disposition) at the time of such sale or disposition if a payment were due at such time. At no time will any funds constituting gross proceeds of the Bonds be used in a manner as would constitute failure of compliance with Section 148 of the Code. The terms "bond year", "gross proceeds", "higher yielding investments", "yield", and "debt service" have the meanings assigned to them for purposes of Section 148 of the Code. (k) The Series 1982 Bonds and the Refunded Bonds were not, and the Bonds will not be, "federally guaranteed" within the meaning of Section 149(b) of the Code. (l) It is not anticipated that as of the date hereof, there will be created any "replacement proceeds", within the meaning of Section 1.148-1(c) of the Treasury Regulations, with respect to the Bonds; however, in the event that any such replacement proceeds are deemed to have been created, such amounts will be invested in compliance with Section 148 of the Code. (m) On the date of issuance and delivery of the Series 1982 Bonds, the Company reasonably expected that at least 85% of the spendable proceeds of the Series 1982 Bonds would be expended to carry out the governmental purpose of such issue within the 3-year period beginning on the issue date of such issue. All of the spendable proceeds of the Series 1982 Bonds were expended as of the date of issuance of the Refunded Bonds. None of the proceeds of the Series 1982 Bonds were invested in nonpurpose investments having a substantially guaranteed yield for four years or more. (n) The weighted average maturity of the Bonds does not exceed 120% of the average reasonably expected economic life of the Project Facilities financed by the proceeds of the Series 1982 Bonds and refinanced by the proceeds of the Refunded Bonds (determined under Section 147(b) of the Code). (o) The information furnished by the Company and used by the Issuer in preparing the certifications and statements pursuant to Sections 148 and 149(e) of the Code or their statutory predecessors with respect to the Series 1982 Bonds and the Refunded Bonds was accurate and complete as of the respective dates of issuance of the Series 1982 Bonds and the Refunded Bonds, and the information furnished by the Company and used by the Issuer in preparing the certification pursuant to Section 148 of the Code and in preparing the information statement pursuant to Section 149(e) of the Code, both referred to in the Bond Resolution, will be accurate and complete as of the date of issuance of the Bonds. (p) The Project Facilities do not include any office except for offices (i) located on the Project Site and (ii) not more than a de minimis amount of the functions to be performed at which is not directly related to the day-to-day operations of the Project Facilities. (End of Article II) ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS Section III.1. Acquisition, Construction and Installation. The Company represents that it has caused the Project Facilities to be acquired, constructed and installed on the Project Site, substantially in accordance with the Project Description and in conformance with all applicable zoning, planning, building and other similar regulations of all governmental authorities having jurisdiction over the Project and all permits, variances and orders issued in respect of the Project by EPA, and that the proceeds derived from the Series 1982 Bonds and Refunded Bonds, respectively, including any investment thereof, were expended in accordance with the Series 1982 Indenture and Refunded Bonds Indenture, respectively, and the Series 1982 Loan Agreement and Refunded Bonds Loan Agreement, respectively. Section III.2. Project Description. The Project Description may be changed from time to time by, or with the consent of, the Company provided that any such change shall also be filed with the Issuer and provided further that no change in the Project Description shall materially change the function of the Project Facilities unless the Trustee shall have received (i) an Engineer's certificate that such changes will not impair the significance or character of the Project Facilities as Pollution Control Facilities and (ii) an Opinion of Bond Counsel or ruling of the Internal Revenue Service to the effect that such amendment will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. Section III.3. Issuance of the Bonds; Application of Proceeds. To provide funds to make the Loan to the Company to assist the Company in the refunding of the Refunded Bonds, the Issuer will issue, sell and deliver the Bonds to the Original Purchaser. The Bonds will be issued pursuant to the Indenture in the aggregate principal amount, will bear interest, will mature and will be subject to redemption as set forth therein. The Company hereby approves the terms and conditions of the Indenture and the Bonds, and the terms and conditions under which the Bonds will be issued, sold and delivered. The Company hereby requests that the Issuer notify the Refunded Bonds Trustee (unless the Refunded Bonds Trustee has already received such notice), pursuant to the Refunded Bonds Indenture, that the entire outstanding principal amount of the Refunded Bonds is to be redeemed on March 28, 1997 at a redemption price of 102% of the principal amount thereof plus accrued interest to that redemption date. The proceeds from the sale of the Bonds (other than any accrued interest) shall be loaned to the Company to assist the Company in refunding the Refunded Bonds in order to reduce the interest cost payable by the Company; those proceeds shall be deposited in the Refunding Fund. On March 28, 1997 all moneys on deposit in the Refunding Fund shall be disbursed by the Trustee as provided in Section 5.02 of the Indenture to the Refunded Bonds Trustee for deposit in the Bond Fund created in the Refunded Bonds Indenture and applied by the Refunded Bonds Trustee to the payment of principal of and interest on the Refunded Bonds on their redemption on March 28, 1997. The Company shall pay to the Refunded Bonds Trustee such additional amounts as shall be required to pay in full on such date the entire amount of principal of, premium and interest due on the Refunded Bonds. Pending disbursement pursuant to this Section, the proceeds so deposited in the Refunding Fund, together with any investment earnings thereon, shall constitute a part of the Revenues assigned by the Issuer to the Trustee for the payment of Bond Service Charges. Any accrued interest shall be deposited in the Bond Fund. Section III.4. Investment of Fund Moneys. At the oral (confirmed promptly in writing) or written request of the Company, any moneys held as part of the Bond Fund, the Refunding Fund or the Rebate Fund shall be invested or reinvested by the Trustee in Eligible Investments; provided, that such moneys shall be invested or reinvested by the Trustee only in Eligible Investments which shall mature, or which shall be subject to redemption by the holder thereof at the option of such holder, not later than the date upon which the moneys so invested are needed to make payments from those Funds. The Issuer (to the extent it retained or retains direction or control) and the Company each hereby represents that the investment and reinvestment and the use of the proceeds of the Series 1982 Bonds and of the Refunded Bonds were restricted in such manner and to such extent as was necessary so that the Series 1982 Bonds and the Refunded Bonds would not constitute arbitrage bonds under Section 148 of the Code or its statutory predecessor and each hereby covenants that it will restrict that investment and reinvestment and the use of the proceeds of the Bonds in such manner and to such extent, if any, as may be necessary so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code. The Company shall provide the Issuer with, and the Issuer may base its certificate and statement, each as authorized by the Bond Resolution, on a certificate of an appropriate officer, employee or agent of or consultant to the Company for inclusion in the transcript of proceedings for the Bonds, setting forth the reasonable expectations of the Company on the date of delivery of and payment for the Bonds regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which those expectations are based. Section III.5. Rebate Fund. To the extent required by Section 5.08 of the Indenture, within five days after the end of the fifth Bond Year (as defined in the Indenture) and every fifth Bond Year thereafter, and within five days after payment in full of all outstanding Bonds, the Company shall calculate the amount of Excess Earnings (as defined in the Indenture) as of the end of that Bond Year or the date of such payment and shall notify the Trustee of that amount. If the amount then on deposit in the Rebate Fund created under the Indenture is less than the amount of Excess Earnings (computed by taking into account the amount or amounts, if any, previously paid to the United States pursuant to Section 5.08 of the Indenture and this Section), the Company shall, within five days after the date of the aforesaid calculation, pay to the Trustee for deposit in the Rebate Fund an amount sufficient to cause the Rebate Fund to contain an amount equal to the Excess Earnings. The obligation of the Company to make such payments shall remain in effect and be binding upon the Company notwithstanding the release and discharge of the Indenture. The Company shall obtain and keep such records of the computations made pursuant to this Section as are required under Section 148(f) of the Code. (End of Article III) ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY Section IV.1. Loan Repayment. Upon the terms and conditions of this Agreement, the Issuer agrees to make the Loan to the Company. The proceeds of the Loan shall be deposited with the Trustee pursuant to Section 3.3 hereof. In consideration of and in repayment of the Loan, the Company shall make, as Loan Payments, to the Trustee for the account of the Issuer, payments which correspond, as to time, and are equal in amount as of the Loan Payment Date, to the corresponding Bond Service Charges payable on the Bonds. All Loan Payments received by the Trustee shall be held and disbursed in accordance with the provisions of the Indenture and this Agreement for application to the payment of Bond Service Charges. The Company shall be entitled to a credit against the Loan Payments required to be made on any Loan Payment Date to the extent that the balance of the Bond Fund is then in excess of amounts required (a) for the payment of Bonds theretofore matured or theretofore called for redemption, or to be called for redemption pursuant to Section 6.1 hereof (b) for the payment of interest for which checks or drafts have been drawn and mailed by the Trustee or Paying Agent, and (c) to be deposited in the Bond Fund by the Indenture for use other than for the payment of Bond Service Charges due on that Loan Payment Date. The Company's obligation to make Loan Payments shall be reduced to the extent of any payments made by any Credit Facility Issuer to the Trustee in respect of the principal of, premium, if any, or interest on the Bonds when due pursuant to any Credit Facility, provided, that the Credit Facility Issuer has been reimbursed for such payments in accordance with the terms of the Reimbursement Agreement. Except for such interest of the Company as may hereafter arise pursuant to Section 8.2 hereof or Sections 5.06 or 5.07 of the Indenture, the Company and the Issuer each acknowledge that neither the Company, the State nor the Issuer has any interest in the Bond Fund or the Bond Purchase Fund, and any moneys deposited therein shall be in the custody of and held by the Trustee in trust for the benefit of the Holders. Section IV.2. Additional Payments. The Company shall pay to the Issuer, as Additional Payments hereunder, any and all costs and expenses incurred or to be paid by the Issuer in connection with the issuance and delivery of the Bonds or otherwise related to actions taken by the Issuer under this Agreement or the Indenture. The Company shall pay the Administration Expenses to the Trustee, the Registrar, the Remarketing Agent, and any Paying Agent or Authenticating Agent, as appropriate, as Additional Payments hereunder. The Company may, without creating a default hereunder, contest in good faith the reasonableness of any such cost or expense incurred or to be paid by the Issuer and any Administration Expenses claimed to be due to the Trustee, the Registrar, the Remarketing Agent, any Paying Agent or any Authenticating Agent. In the event the Company should fail to pay any Loan Payments, Additional Payments or Administration Expenses when due, the payment in default shall continue as an obligation of the Company until the amount in default shall have been fully paid together with interest thereon during the default period at the Interest Rate for Advances. Section IV.3. Place of Payments. The Company shall make all Loan Payments directly to the Trustee at its Principal Office. Additional Payments shall be made directly to the person or entity to whom or to which they are due. Section IV.4. Obligations Unconditional. The obligations of the Company to make Loan Payments, Additional Payments and any payments required of the Company under Section 5.09 of the Indenture shall be absolute and unconditional, and the Company shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim which the Company may have or assert against the Issuer, the Trustee, the Registrar, the Remarketing Agent or any other Person. Section IV.5. Assignment of Revenues and Agreement. To secure the payment of Bond Service Charges, the Issuer shall, by the Indenture, (a) absolutely and irrevocably assign to the Trustee, its successors in trust and its and their assigns forever, (1) all right, title and interest of the Issuer in and to all moneys and investments (including, without limitation, the proceeds of the Credit Facility) in the Bond Fund and (2) all of the Issuer's rights and remedies under this Agreement (except for the Unassigned Issuer Rights), and (b) grant a security interest to the Trustee, its successors in trust and its and their assigns forever, in all of its rights to and interest in the Revenues including, without limitation, all Loan Payments and other amounts receivable by or on behalf of the Issuer under the Agreement in respect of repayment of the Loan (other than the Credit Facility Account, all moneys and investments therein and the proceeds of the Credit Facility). The Company hereby agrees and consents to those assignments and that grant of a security interest. Section IV.6. Credit Facility; Alternate Credit Facility; Cancellation. (a) The Company agrees to provide for the payment of the principal of and interest on the Bonds and for payment of the purchase price of Bonds delivered to the Trustee or Paying Agent pursuant to the Indenture by causing the Letter of Credit to be delivered to the Trustee on the date of the delivery of the Bonds. The Company hereby authorizes and directs the Trustee to draw moneys under the Letter of Credit, in accordance with its terms and the terms of the Indenture, to the extent necessary to pay the principal of and interest on the Bonds when due and to pay the purchase price of Bonds as provided in the Indenture. The Company may, at its election and with the consent of the Bank, provide for one or more extensions of the Letter of Credit beyond its then stated date of expiration. (b) Upon satisfaction of the requirements contained in Section 14.03 of the Indenture, the Company may provide for the delivery of an Alternate Credit Facility. (c) Upon satisfaction of the conditions contained in Section 14.02 of the Indenture, the Company may cancel any Credit Facility in effect at such time and direct the Trustee in writing to surrender such Credit Facility to the Credit Facility Issuer by which it was issued in accordance with the Indenture; provided, that no such cancellation shall become effective and no such surrender shall take place until all Bonds subject to purchase pursuant to Section 4.07(d) of the Indenture have been so purchased or redeemed with the proceeds of such Credit Facility. Section .1. Company's Option to Elect Rate Period. The Company shall have, and is hereby granted, the option to elect to convert on any Conversion Date the interest rate borne by the Bonds to another Variable Rate to be effective for a Rate Period pursuant to the provisions of Article II of the Indenture and subject to the terms and conditions set forth therein. To exercise such options, the Company shall give the written notice required by the Indenture. Section .2. Company's Obligation to Purchase Bonds. The Company hereby agrees to pay or cause to be paid to the Trustee or the Paying Agent, on or before each day on which Bonds may be or are required to be tendered for purchase, amounts equal to the amounts to be paid by the Trustee or the Paying Agent with respect to the Bonds tendered for purchase on such dates pursuant to Article IV of the Indenture; provided, however, that the obligation of the Company to make any such payment under this Section shall be reduced by the amount of (A) moneys paid by the Remarketing Agent as proceeds of the remarketing of such Bonds by the Remarketing Agent, (B) moneys drawn under any Credit Facility, for the purpose of paying such purchase price and (C) other moneys made available by the Company, as set forth in Section 4.08(b)(ii) of the Indenture. (End of Article IV) ARTICLE I ADDITIONAL AGREEMENTS AND COVENANTS Section I.1. Right of Inspection. The Company agrees that, subject to reasonable security and safety regulations and to reasonable requirements as to notice, the Issuer and the Trustee and their or any of their respective duly authorized agents shall have the right at all reasonable times to enter upon the Project Site to examine and inspect the Projects. Section I.2. Maintenance. The Company shall use its best efforts to keep and maintain the Project Facilities, including all appurtenances thereto and any personal property therein or thereon, in good repair and good operating condition so that the Project Facilities will continue to constitute Pollution Control Facilities, for the purposes of the operation thereof as required by Section 5.4 hereof. So long as such shall not be in violation of the Act or impair the character of the Project Facilities as Pollution Control Facilities, and provided there is continued compliance with applicable laws and regulations of governmental entities having jurisdiction thereof, the Company shall have the right to remodel the Project Facilities or make additions, modifications and improvements thereto, from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, the cost of which remodeling, additions, modifications and improvements shall be paid by the Company and the same shall, when made, become a part of the Project Facilities. Section I.3. Removal of Portions of the Project Facilities. The Company shall not be under any obligation to renew, repair or replace any inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary portions of the Project Facilities, except that, subject to Section 5.4 hereof, it will use its best efforts to ensure the continued character of the Project Facilities as Pollution Control Facilities. The Company shall have the right from time to time to substitute personal property or fixtures for any portions of the Project Facilities, provided that the personal property or fixtures so substituted shall not impair the character of the Project Facilities as Pollution Control Facilities. Any such substituted property or fixtures shall, when so substituted, become a part of the Project Facilities. The Company shall also have the right to remove any portion of the Project Facilities, without substitution therefor; provided, that the Company shall deliver to the Trustee a certificate signed by an Engineer describing said portion of the Project Facilities and stating that the removal of such property or fixtures will not impair the character of the Project Facilities as Pollution Control Facilities. Section I.4. Operation of Project Facilities. The Company will, subject to its obligations and rights to maintain, repair or remove portions of the Project Facilities, as provided in Sections 5.2 and 5.3 hereof, use its best efforts to continue operation of the Project Facilities so long as and to the extent that operation thereof is required to comply with laws or regulations of governmental entities having jurisdiction thereof or unless the Issuer shall have approved the discontinuance of such operation (which approval shall not be unreasonably withheld). The Company agrees that it will, within the design capacities thereof, use its best efforts to operate and maintain the Project Facilities in accordance with all applicable, valid and enforceable rules and regulations of governmental entities having jurisdiction thereof; provided, that the Company reserves the right to contest in good faith any such laws or regulations. Nothing in this Agreement shall prevent or restrict the Company, in its sole discretion, at any time, from discontinuing or suspending either permanently or temporarily its use of any facility of the Company served by the Project Facilities and in the event such discontinuance or suspension shall render unnecessary the continued operation of the Project Facilities, the Company shall have the right to discontinue the operation of the Project Facilities during the period of any such discontinuance or suspension. Section I.5. Insurance. The Company shall cause the Project Facilities to be kept insured against fire or other casualty to the extent that property of similar character is usually so insured by companies similarly situated and operating like properties, to a reasonable amount by reputable insurance companies or, in lieu of or supplementing such insurance in whole or in part, adopt some other method or plan of protection against loss by fire or other casualty at least equal in protection to the method or plan of protection against loss by fire or other casualty of companies similarly situated and operating properties subject to similar or greater fire or other hazards or on which properties an equal or higher primary fire or other casualty insurance rate has been set by reputable insurance companies. Section I.6. Workers' Compensation Coverage. Throughout the term of this Agreement, the Company shall comply, or cause compliance, with applicable workers' compensation laws of the State. Section I.7. Damage; Destruction and Eminent Domain. If, during the term of this Agreement, the Project Facilities or any portion thereof is destroyed or damaged in whole or in part by fire or other casualty, or title to, or the temporary use of, the Project Facilities or any portion thereof shall have been taken by the exercise of the power of eminent domain, the Company (unless it shall have exercised its option to prepay the Loan Payments pursuant to Section 6.2 hereof) shall promptly repair, rebuild or restore the portion of the Project Facilities so damaged, destroyed or taken with such changes, alterations and modifications (including the substitution and addition of other property) as may be necessary or desirable for the administration and operation of the Project Facilities as Pollution Control Facilities and as shall not impair the character or significance of the Project Facilities as furthering the purposes of the Act. Section I.8. Company to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted. The Company agrees that, during the term of this Agreement, it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided that the Company may, without violating its agreement contained in this Section, consolidate with or merge into another corporation, or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, provided the surviving, resulting or transferee corporation, as the case may be (if other than the Company), is a corporation organized and existing under the laws of one of the states of the United States, and assumes in writing all of the obligations of the Company herein, and, if not an Indiana corporation, is qualified to do business in the State. If consolidation, merger or sale or other transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. Section I.9. Indemnification. The Company releases the Issuer from, agrees that the Issuer shall not be liable for, and indemnifies the Issuer against, all liabilities, claims, costs and expenses imposed upon or asserted against the Issuer on account of: (a) any loss or damage to property or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to the construction, maintenance, operation and use of the Project Facilities; (b) any breach or default on the part of the Company in the performance of any covenant or agreement of the Company under this Agreement or any related document, or arising from any act or failure to act by the Company, or any of its agents, contractors, servants, employees or licensees; (c) the authorization, issuance and sale of the Bonds, and the provision of any information furnished in connection therewith concerning the Project Facilities or the Company (including, without limitation, any information furnished by the Company for inclusion in any certifications made by the Issuer under Section 3.4 hereof or for inclusion in, or as a basis for preparation of, the Form 8038 information statement to be filed by the Issuer); and (d) any claim or action or proceeding with respect to the matters set forth in (a), (b) and (c) above brought thereon. The Company agrees to indemnify the Trustee, the Paying Agent, the Remarketing Agent and the Registrar (each hereinafter referred to in this section as an "indemnified party") for and to hold each of them harmless against all liabilities, claims, costs and expenses incurred without negligence or willful misconduct on the part of the indemnified party, on account of any action taken or omitted to be taken by the indemnified party in accordance with the terms of this Agreement, the Bonds or the Indenture or any action taken at the request of or with the consent of the Company, including the costs and expenses of the indemnified party in defending itself against any such claim, action or proceeding brought in connection with the exercise or performance of any of its powers or duties under this Agreement, the Bonds or the Indenture. In case any action or proceeding is brought against the Issuer or an indemnified party in respect of which indemnity may be sought hereunder, the party seeking indemnity promptly shall give notice of that action or proceeding to the Company, and the Company upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided, that failure of a party to give that notice shall not relieve the Company from any of its obligations under this Section unless that failure prejudices the defense of the action or proceeding by the Company. At its own expense, an indemnified party may employ separate counsel and participate in the defense; provided, however, where it is ethically inappropriate for one firm to represent the interests of the Issuer and any other indemnified party or parties, the Company shall pay the Issuer's legal expenses in connection with the Issuer's retention of separate counsel. The Company shall not be liable for any settlement made without its consent. The indemnification set forth above is intended to and shall include the indemnification of all affected officials, directors, officers and employees of the Issuer, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively. That indemnification is intended to and shall be enforceable by the Issuer, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively, to the full extent permitted by law. Section I.10. Company Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For Federal Income Tax Purposes. The Company hereby covenants and represents that it has taken and caused to be taken and shall take and cause to be taken all actions that may be required of it for the interest on the Bonds to be and remain excluded from the gross income of the Holders for federal income tax purposes, and that it has not taken or permitted to be taken on its behalf, and covenants that it will not take, or permit to be taken on its behalf, any action which, if taken, would adversely affect that exclusion under the provisions of the Code. Section I.11. Use of Project Facilities. The Issuer agrees that it will not take any action, or cause any action to be taken on its behalf, to interfere with the Company's ownership interest in the Project or to prevent the Company from having possession, custody, use and enjoyment of the Project other than pursuant to Article VII of this Agreement or Article VII of the Indenture. Section I.12. Assignment by Company. This Agreement may be assigned in whole or in part by the Company without the necessity of obtaining the consent of either the Issuer or the Trustee, subject, however, to each of the following conditions: (a) No assignment (other than pursuant to Section 5.8 hereof) shall relieve the Company from primary liability for any of its obligations hereunder, and in the event of any such assignment the Company shall continue to remain primarily liable for the payment of the Loan Payments and Additional Payments and for performance and observance of the agreements on its part herein provided to be performed and observed by it. (b) Any assignment by the Company must retain for the Company such rights and interests as will permit it to perform its obligations under this Agreement, and any assignee from the Company shall assume the obligations of the Company hereunder to the extent of the interest assigned. (c) The Company shall, within 30 days after execution thereof, furnish or cause to be furnished to the Issuer and the Trustee a true and complete copy of each such assignment together with any instrument of assumption. (d) Any assignment from the Company shall not materially impair fulfillment of the Project Purposes to be accomplished by operation of the Project as herein provided. (End of Article V) ARTICLE II REDEMPTION Section II.1. Optional Redemption. Provided no Event of Default shall have occurred and be subsisting, at any time and from time to time, the Company may deliver moneys to the Trustee in addition to Loan Payments or Additional Payments required to be made and direct the Trustee to use the moneys so delivered for the purpose of calling Bonds for optional redemption in accordance with the applicable provisions of the Indenture providing for optional redemption at the redemption price stated in the Indenture. Pending application for those purposes, any moneys so delivered shall be held by the Trustee in a special account in the Bond Fund and delivery of those moneys shall not, except as set forth in Section 4.1 hereof, operate to abate or postpone Loan Payments or Additional Payments otherwise becoming due or to alter or suspend any other obligations of the Company under this Agreement. Section II.2. Extraordinary Optional Redemption. The Company shall have, subject to the conditions hereinafter imposed, the option during a Term Rate Period to direct the redemption of the Bonds in whole in accordance with the applicable provisions of the Indenture upon the occurrence of any of the following events: (a) The Project or the Plant shall have been damaged or destroyed to such an extent that (1) the Project or the Plant cannot reasonably be expected to be restored, within a period of six consecutive months, to the condition thereof immediately preceding such damage or destruction or (2) the Company is reasonably expected to be prevented from carrying on its normal use and operation of the Project or the Plant for a period of six consecutive months. (b) Title to, or the temporary use of, all or a significant part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain to such an extent (1) that the Project or the Plant cannot reasonably be expected to be restored within a period of six consecutive months to a condition of usefulness comparable to that existing prior to the taking or (2) the Company is reasonably expected to be prevented from carrying on its normal use and operation of the Project or the Plant for a period of six consecutive months. (c) As a result of any changes in the Constitution of the State, the Constitution of the United States of America or any state or federal laws or as a result of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after any contest thereof by the Issuer or the Company in good faith, this Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed in this Agreement. (d) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Company with respect to the Project or the Plant or the operation thereof, including, without limitation, the imposition of federal, state or other ad valorem, property, income or other taxes other than ad valorem taxes at the rates presently levied upon privately owned property used for the same general purpose as the Project or the Plant. (e) Changes in the economic availability of raw materials, operating supplies, energy sources or supplies or facilities (including, but not limited to, facilities in connection with the disposal of industrial wastes) necessary for the operation of the Project or the Plant for the Project Purposes occur or technological or other changes occur which the Company cannot reasonably overcome or control and which in the Company's reasonable judgment render the Project or the Plant uneconomic or obsolete for the Project Purposes. (f) Any court or administrative body shall enter a judgment, order or decree, or shall take administrative action, requiring the Company to cease all or any substantial part of its operations served by the Project or the Plant to such extent that the Company is or will be prevented from carrying on its normal operations at the Project or the Plant for a period of six consecutive months. (g) The termination by the Company of operations at the Plant. The amount payable by the Company in the event of its exercise of the option granted in this Section shall be the sum of the following: (i) An amount of money which, when added to the moneys and investments held to the credit of the Bond Fund, will be sufficient pursuant to the provisions of the Indenture to pay, at 100% of the principal amount thereof plus accrued interest to the redemption date, and discharge, all Outstanding Bonds on the earliest applicable redemption date, that amount to be paid to the Trustee, plus (ii) An amount of money equal to the Additional Payments relating to those Bonds accrued and to accrue until actual final payment and redemption of those Bonds, that amount or applicable portions thereof to be paid to the Trustee or to the Persons to whom those Additional Payments are or will be due. The requirement of (ii) above with respect to Additional Payments to accrue may be met if provisions satisfactory to the Trustee and the Issuer are made for paying those amounts as they accrue. The rights and options granted to the Company in this Section may be exercised whether or not the Company is in default hereunder; provided, that such default will not relieve the Company from performing those actions which are necessary to exercise any such right or option granted hereunder. Section II.3. Mandatory Redemption. The Company shall deliver to the Trustee the moneys needed to redeem the Bonds in accordance with any mandatory redemption provisions relating thereto as may be set forth in Sections 4.01(b) of the Indenture. Section II.4. Notice of Redemption. In order to exercise an option granted in, or to consummate a redemption required by, this Article VI, the Company shall, within 180 days following the event authorizing the exercise of such option, or at any time during the continuation of the condition referred to in paragraphs (c), (d) or (e) of Section 6.2 hereof, or at any time that optional redemption of the Bonds is permitted under the Indenture as provided in Section 6.1 hereof, or promptly upon the occurrence of a Determination of Taxability (as defined in the Indenture), give written notice to the Issuer and the Trustee that it is exercising its option to direct the redemption of Bonds, or that the redemption thereof is required by Section 4.01(b) of the Indenture due to the occurrence of a Determination of Taxability, as the case may be, in accordance with the Agreement and the Indenture, and shall specify therein the date on which such redemption is to be made, which date shall not be more than 180 days from the date such notice is mailed. The Company shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption to the Holders of the Bonds, in which arrangements the Issuer shall cooperate. Section II.5. Actions by Issuer. At the request of the Company or the Trustee, the Issuer shall take all steps required of it under the applicable provisions of the Indenture or the Bonds to effect the redemption of all or a portion of the Bonds pursuant to this Article VI. (End of Article VI) ARTICLE III EVENTS OF DEFAULT AND REMEDIES Section III.1. Events of Default. Each of the following shall be an Event of Default: (a) The occurrence of an event of default as defined in Section 7.01 (a), (b), (c) or (d) of the Indenture; (b) The Company shall fail to observe and perform any other agreement, term or condition contained in this Agreement, other than such failure as will have resulted in an event of default described in (a) above and the continuation of that failure for a period of 90 days after notice thereof shall have been given to the Company by the Issuer or the Trustee, or for such longer period as the Issuer and the Trustee may agree to in writing; provided, that failure shall not constitute an Event of Default so long as the Company institutes curative action within the applicable period and diligently pursues that action to completion within 150 days after the expiration of initial cure period as determined above, or within such longer period as the Issuer and the Trustee may agree to in writing; and (c) By decree of a court of competent jurisdiction the Company shall be adjudicated a bankrupt, or an order shall be made approving a petition or answer filed seeking reorganization or readjustment of the Company under the federal bankruptcy laws or other law or statute of the United States of America or of the state of incorporation of the Company or of any other state, or, by order of such a court, a trustee in bankruptcy, a receiver or receivers shall be appointed of all or substantially all of the property of the Company, and any such decree or order shall have continued unstayed on appeal or otherwise and in effect for a period of sixty (60) days; and (d) The Company shall file a petition in voluntary bankruptcy or shall make an assignment for the benefit of creditors or shall consent to the appointment of a receiver or receivers of all or any part of its property, or shall file a petition seeking reorganization or readjustment under the Federal bankruptcy laws or other law or statute of the United States of America or any state thereof, or shall file a petition to take advantage of any debtors' act. Notwithstanding the foregoing, if, by reason of Force Majeure, the Company is unable to perform or observe any agreement, term or condition hereof which would give rise to an Event of Default under subsection (b) hereof, the Company shall not be deemed in default during the continuance of such inability. However, the Company shall promptly give notice to the Trustee and the Issuer of the existence of an event of Force Majeure and shall use its best efforts to remove the effects thereof; provided that the settlement of strikes or other industrial disturbances shall be entirely within its discretion. The term Force Majeure shall mean the following: (i) acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the State or any of their departments, agencies, political subdivisions or officials, or any civil or military authority; insurrections; civil disturbances; riots; epidemics; landslides; lightning; earthquakes; fires; hurricanes; tornados; storms; droughts; floods; arrests; restraint of government and people; explosions; breakage, nuclear accidents or other malfunction or accident to facilities, machinery, transmission pipes or canals; partial or entire failure of a utility serving the Project; shortages of labor, materials, supplies or transportation; or (ii) any cause, circumstance or event not reasonably within the control of the Company. The exercise of remedies hereunder shall be subject to any applicable limitations of federal bankruptcy law affecting or precluding that declaration or exercise during the pendency of or immediately following any bankruptcy, liquidation or reorganization proceedings. Section III.2. Remedies on Default. Whenever an Event of Default shall have happened and be subsisting, either or both of the following remedial steps may be taken: (a) The Issuer or the Trustee may have access to, inspect, examine and make copies of the books, records, accounts and financial data of the Company, only, however, insofar as they pertain to the Project; or (b) The Issuer or the Trustee may pursue all remedies now or hereafter existing at law or in equity to recover all amounts, including all Loan Payments and Additional Payments and under Section 4.8 hereof the purchase price of Bonds tendered for purchase, then due and thereafter to become due under this Agreement, or to enforce the performance and observance of any other obligation or agreement of the Company under this Agreement. Notwithstanding the foregoing, the Issuer shall not be obligated to take any step which in its opinion will or might cause it to expend time or money or otherwise incur liability unless and until a satisfactory indemnity bond has been furnished to the Issuer at no cost or expense to the Issuer. Any amounts collected as Loan Payments or applicable to Loan Payments and any other amounts which would be applicable to payment of Bond Service Charges collected pursuant to action taken under this Section shall be paid into the Bond Fund and applied in accordance with the provisions of the Indenture or, if the outstanding Bonds have been paid and discharged in accordance with the provisions of the Indenture, shall be paid as provided in Section 5.07 of the Indenture for transfers of remaining amounts in the Bond Fund. The provisions of this Section are subject to the further limitation that the rescission and annulment by the Trustee of its declaration that all of the Bonds are immediately due and payable also shall constitute a rescission and annulment of any corresponding declaration made pursuant to this Section and a rescission and annulment of the consequences of that declaration and of the Event of Default with respect to which that declaration has been made, provided that no such rescission and annulment shall extend to or affect any subsequent or other default or impair any right consequent thereon. Section III.3. No Remedy Exclusive. No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, or now or hereafter existing at law, in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair that right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than any notice required by law or for which express provision is made herein. Section III.4. Agreement to Pay Attorneys' Fees and Expenses. If an Event of Default should occur and the Issuer or the Trustee should incur expenses, including attorneys' fees, in connection with the enforcement of this Agreement or the collection of sums due hereunder, the Company shall be required, to the extent permitted by law, to reimburse the Issuer and the Trustee, as applicable, for the expenses so incurred upon demand. Section III.5. No Waiver. No failure by the Issuer or the Trustee to insist upon the strict performance by the Company of any provision hereof shall constitute a waiver of their right to strict performance and no express waiver shall be deemed to apply to any other existing or subsequent right to remedy the failure by the Company to observe or comply with any provision hereof. Section III.6. Notice of Default. The Company shall notify the Trustee immediately if it becomes aware of the occurrence of any Event of Default hereunder or of any fact, condition or event which, with the giving of notice or passage of time or both, would become an Event of Default. (End of Article VII) ARTICLE IV MISCELLANEOUS Section IV.1. Term of Agreement. This Agreement shall be and remain in full force and effect from the date of delivery of the Bonds to the Original Purchaser until such time as (i) all of the Bonds shall have been fully paid (or provision made for such payment) and the Indenture has been released pursuant to Section 9.01 thereof and (ii) all other sums payable by the Company under this Agreement shall have been paid. Section IV.2. Amounts Remaining in Funds. Any amounts in the Bond Fund remaining unclaimed by the Holders of Bonds for four years after the due date thereof (whether at stated maturity, by redemption, upon acceleration or otherwise), at the option of the Company, shall be deemed to belong to and shall be paid, subject to Section 5.06 of the Indenture, at the written request of the Company, to the Company by the Trustee. With respect to that principal of and any premium and interest on the Bonds to be paid from moneys paid to the Company pursuant to the preceding sentence, the Holders of the Bonds entitled to those moneys shall look solely to the Company for the payment of those moneys. Further, any amounts remaining in the Bond Fund and any other special funds or accounts created under this Agreement or the Indenture, except the Rebate Fund, after all of the Bonds shall be deemed to have been paid and discharged under the provisions of the Indenture and all other amounts required to be paid under this Agreement and the Indenture have been paid, shall be paid to the Company to the extent that those moneys are in excess of the amounts necessary to effect the payment and discharge of the Outstanding Bonds. Section IV.3. Notices. All notices, certificates, requests or other communications hereunder shall be in writing, except as provided in Section 3.4 hereof, and shall be deemed to be sufficiently given when mailed by registered or certified mail, postage prepaid, and addressed to the appropriate Notice Address. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Company, any Credit Facility Issuer or the Trustee shall also be given to the others. The Company, the Issuer, any Credit Facility Issuer and the Trustee, by notice given hereunder, may designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section IV.4. Extent of Covenants of the Issuer; No Personal Liability. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any present or future member, officer, agent or employee of the Issuer in other than his official capacity, and neither the members of the Issuer nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture. Section IV.5. Binding Effect. This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Issuer, the Company and their respective permitted successors and assigns provided that this Agreement may not be assigned by the Company (except as permitted under Sections 5.8 or 5.12 hereof) and may not be assigned by the Issuer except to (i) the Trustee pursuant to the Indenture or as otherwise may be necessary to enforce or secure payment of Bond Service Charges or (ii) any successor public body to the Issuer. Section IV.6. Amendments and Supplements. Except as otherwise expressly provided in this Agreement or the Indenture, subsequent to the issuance of the Bonds and prior to all conditions provided for in the Indenture for release of the Indenture having been met, this Agreement may not be effectively amended, changed, modified, altered or terminated by the parties hereto except with the consents required by, and in accordance with, the provisions of Article XI of the Indenture, as applicable. Section IV.7. References to Credit Facility. During such time or times as no Credit Facility is in effect, and during the continuation of any event of default under the Indenture due to a failure by the Credit Facility Issuer to honor a drawing by the Trustee under the Credit Facility then in effect in accordance with the terms thereof, references herein to the Credit Facility Issuer shall be ineffective. Section IV.8. Execution Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument. Section IV.9. Severability. If any provision of this Agreement, or any covenant, obligation or agreement contained herein is determined by a judicial or administrative authority to be invalid or unenforceable, that determination shall not affect any other provision, covenant, obligation or agreement, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. That invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each such provision, covenant, obligation or agreement shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. Section IV.10. Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State. (End of Article VIII) IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be duly executed in their respective names, all as of the date hereinbefore written. CITY OF PRINCETON, INDIANA By: /s/ George Taylor Mayor Attest: /s/ Shirley Robb Clerk-Treasurer PSI ENERGY, INC. By: /s/ William L. Sheafer Treasurer Exhibit A DESCRIPTION OF POLLUTION CONTROL FACILITIES AT GIBSON GENERATING STATION FINANCED IN PART BY SERIES 1982 BONDS The Company's undivided 50.05% ownership interest in: 1. Flue Gas Desulfurization and Sludge Fixation System for Unit 5 Generating Station, consists of a system designed to remove sulfur dioxide from the flue gases emitted from Unit 5. The primary components of the facility include four booster fans and motors, four scrubber modules and mist eliminators, four scrubber pumps, a slurry recycle system, two sludge thickener tanks and four underflow pumps, one thickener overflow tank and two overflow pumps, inlet ductwork, four inlet and four outlet isolation dampers, a reactant preparation system consisting of facilities for limestone unloading and transport, lime unloading and transport, a ball mill, a reactant preparation building, a slurry mix tank, three slurry transfer pumps and a dolomitic lime day bin, support steel, foundations, piping, wiring, instrumentation and controls, but excluding certain bypass gas ductwork, outlet ductwork, air reheater and certain electrical components which are not entirely dedicated to support the FGD system. The sludge treatment system consists of a system to treat the FGD sludge from Unit 5 in a stabilization process. The primary components of the stabilization facility include fly ash and FGD sludge transport systems to the stabilization area, a sludge surge tank, a fly ash surge silo, a lime silo, a sludge holding pond, an external loading hopper, a fixation process building, four vacuum filters, one pug mill, material handling conveyors, pumps, an external radial stacking conveyor, foundations, structural steel, wiring, instrumentation and controls. 2. Electrostatic Precipitator for Unit 5 Generating Station, consists of a system to remove fly ash from the gases emitted from Unit 5. The primary components of the facility include two electrostatic precipitators and hoppers, certain inlet and outlet ductwork thereto and therefrom, certain pneumatic fly ash transport piping and hydroveyor. 3. Off-Road Solid Waste Transport and Disposal Equipment and Solid Waste Disposal Site Improvement, consists of a road dedicated exclusively to travel to and from an 86 acre landfill site, four 50 ton rear dump trucks, one tractor shovel, three low ground pressure tractors, and one soil vibrator-compactor. EX-4.V 3 PSI ENERGY, INC. AND THE FIFTH THIRD BANK, Trustee Indenture Dated as of November 15, 1996 TRUST INDENTURE ACT SECTION INDENTURE SECTION Section 310(a)(1) 609 (a)(2) 609 (a)(3) Not Applicable (a)(4) Not Applicable (b) 608 610 Section 311(a) 613 (b) 613 Section 312(a) 701 702 (b) 702 (c) 702 Section 313(a) 703 (b) 703 (c) 703 (d) 703 Section 314(a) 704 (a)(4) 101 1004 (b) Not Applicable (c)(1) 102 (c)(2) 102 (c)(3) Not Applicable (d) Not Applicable (e) 102 Section 315(a) 601 (b) 602 (c) 601 (d) 601 (e) 514 Section 316(a) 101 (a)(1)(A) 502 512 (a)(1)(B) 513 (a)(2) Not Applicable (b) 508 (c) 104 Section 317(a)(1) 503 (a)(2) 504 (b) 1003 Section 318(a) 107 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture PSI ENERGY, INC. Indenture Dated as of November 15, 1996 TABLE OF CONTENTS Parties 8 Recitals of the Company 8 ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions: Act 9 Affiliate; control 9 Authenticating Agent 9 Board of Directors 9 Board Resolution 9 Business Day 9 Commission 9 Company 9 Company Request; Company Order 10 Corporate Trust Office 10 corporation 10 Covenant Defeasance 10 Defaulted Interest 10 Defeasance 10 Depositary 10 Event of Default 10 Exchange Act 10 Expiration Date 10 Global Security 10 Holder 10 Indenture 10 interest 11 Interest Payment Date 11 Investment Company Act 11 Junior Subordinated Securities 11 Maturity 11 Notice of Default 11 Officers' Certificate 11 Opinion of Counsel 11 Original Issue Discount Security 11 Outstanding 11 Paying Agent 12 Person 13 Place of Payment 13 Predecessor Security 13 Redemption Date 13 Redemption Price 13 Regular Record Date 13 Responsible Officer 13 Securities 13 Securities Act 13 Security Register; Security Registrar 13 Senior Debt 14 Special Record Date 14 Stated Maturity 14 Subsidiary 14 Trust Indenture Act 14 Trustee 14 U.S. Government Obligation 14 Vice President 15 Section 102. Compliance Certificates and Opinions 15 Section 103. Form of Documents Delivered to Trustee 15 Section 104. Acts of Holders; Record Dates 16 Section 105. Notices, Etc., to Trustee and Company 18 Section 106. Notice to Holders; Waiver 19 Section 107. Conflict with Trust Indenture Act 19 Section 108. Effect of Headings and Table of Contents 19 Section 109. Successors and Assigns 19 Section 110. Separability Clause 20 Section 111. Benefits of Indenture 20 Section 112. Governing Law 20 Section 113. Legal Holidays 20 Section 114. Certain Matters Relating to Currencies 20 Section 115. Immunity of Incorporators, Stockholders, Officers and Directors 21 Section 116. Counterparts 21 Section 117. Assignment to Subsidiary 21 ARTICLE TWO 0Security Forms Section 201. Forms Generally 22 Section 202. Form of Face of Security 22 Section 203. Form of Reverse of Security 25 Section 204. Form of Legend for Global Securities 29 Section 205. Form of Trustee's Certificate of Authentication 29 ARTICLE THREE The Securities Section 301. Amount Unlimited; Issuable in Series 30 Section 302. Denominations 33 Section 303. Execution, Authentication, Delivery and Dating 33 Section 304. Temporary Securities 35 Section 305. Registration, Registration of Transfer and Exchange 35 Section 306. Mutilated, Destroyed, Lost and Stolen Securities 37 Section 307. Payment of Interest; Interest Rights Preserved 38 Section 308. Persons Deemed Owners 39 Section 309. Cancellation 40 Section 310. Computation of Interest 40 Section 311. CUSIP Number 40 ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture 41 Section 402. Application of Trust Money 42 ARTICLE FIVE Remedies Section 501. Events of Default 42 Section 502. Acceleration of Maturity; Rescission and Annulment 43 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee 44 Section 504. Trustee May File Proofs of Claim 45 Section 505. Trustee May Enforce Claims Without Possession of Securities 46 Section 506. Application of Money Collected 46 Section 507. Limitation on Suits 46 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest 47 Section 509. Restoration of Rights and Remedies 47 Section 510. Rights and Remedies Cumulative 48 Section 511. Delay or Omission Not Waiver 48 Section 512. Control by Holders 48 Section 513. Waiver of Past Defaults 48 Section 514. Undertaking for Costs 49 Section 515. Waiver of Usury, Stay or Extension Laws 49 ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities 50 Section 602. Notice of Defaults 50 Section 603. Certain Rights of Trustee 50 Section 604. Not Responsible for Recitals or Issuance of Securities 51 Section 605. May Hold Securities 52 Section 606. Money Held in Trust 52 Section 607. Compensation and Reimbursement 52 Section 608. Conflicting Interests 53 Section 609. Corporate Trustee Required; Eligibility 53 Section 610. Resignation and Removal; Appointment of Successor 53 Section 611. Acceptance of Appointment by Successor 55 Section 612. Merger, Conversion, Consolidation or Succession to Business. 56 Section 613. Preferential Collection of Claims Against Company 57 Section 614. Appointment of Authenticating Agent 57 Section 615. Indemnification 59 ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders 59 Section 702. Preservation of Information; Communications to Holders 60 Section 703. Reports by Trustee 60 Section 704. Reports by Company 61 ARTICLE EIGHT Consolidation, Merger and Sale Section 801. Consolidation and Mergers Permitted. 61 Section 802. Rights and Duties of Successor Company 61 Section 803. Opinion of Counsel 62 ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Holders 62 Section 902. Supplemental Indentures With Consent of Holders 64 Section 903. Execution of Supplemental Indentures 65 Section 904. Effect of Supplemental Indentures 66 Section 905. Conformity with Trust Indenture Act 66 Section 906. Reference in Securities to Supplemental Indentures 66 ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest 66 Section 1002. Maintenance of Office or Agency 66 Section 1003. Money for Securities Payments to Be Held in Trust 67 Section 1004. Statement by Officers as to Default 68 Section 1005. Maintenance of Properties 68 Section 1006. Payment of Taxes and Other Claims 69 Section 1007. Waiver of Certain Covenants 69 Section 1008. Calculation of Original Issue Discount 69 ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article 70 Section 1102. Election to Redeem; Notice to Trustee 70 Section 1103. Selection by Trustee of Securities to Be Redeemed 70 Section 1104. Notice of Redemption 71 Section 1105. Deposit of Redemption Price 72 Section 1106. Securities Payable on Redemption Date 72 Section 1107. Securities Redeemed in Part 72 ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article 73 Section 1202. Satisfaction of Sinking Fund Payments with Securities 73 Section 1203. Redemption of Securities for Sinking Fund 74 ARTICLE THIRTEEN Defeasance and Covenant Defeasance Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance 74 Section 1302. Defeasance and Discharge 74 Section 1303. Covenant Defeasance 75 Section 1304. Conditions to Defeasance or Covenant Defeasance 75 Section 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions 78 Section 1306. Reinstatement 79 ARTICLE FOURTEEN Junior Subordinated Securities Section 1401. Certain Securities Subordinate to Senior Debt 79 Section 1402. Payment Over of Proceeds Upon Default 80 Section 1403. Payment Over of Proceeds Upon Dissolution, Etc 80 Section 1404. Subrogation to Rights of Holders of Senior Debt 81 Section 1405. Trustee to Effectuate Subordination 83 Section 1406. Notice to Trustee 83 Section 1407. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights 84 Section 1408. No Waiver of Subordination Provisions 84 Testimonium 85 Signatures 85 INDENTURE, dated as of November 15, 1996, between PSI Energy, Inc., a corporation duly organized and existing under the laws of the State of Indiana (herein called the "Company"), having its principal office at 1000 East Main Street, Plainfield, Indiana 46168, and The Fifth Third Bank, an Ohio banking corporation, as Trustee (herein called the "Trustee"). Recitals of the Company The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. Now, Therefore, This Indenture Witnesseth: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, subject to Article Fourteen, if applicable, for the equal and proportionate benefit of the Holders of the Securities of each series thereof, as follows: ARTICLE ONE Definitions and Other Provisions of General Application Section 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 generally accepted accounting principles; (4) unless the context otherwise requires, any reference to fan "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Indenture; and (5) 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. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means the board of directors of the Company, or any duly authorized committee of that board, or any Person duly authorized to act on behalf of that board. "Board Resolution" means a copy of a resolution or resolutions certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close. "Commission" means the Securities and Exchange Commission, 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 or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee, or (ii) any two Persons designated in a Board Resolution, or in a Company Order previously delivered to the Trustee signed by any two of the foregoing, and delivered to the Trustee. "Corporate Trust Office" means the office of the Trustee for Securities of any series at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at 38 Fountain Square Plaza, Cincinnati, Ohio. "corporation" means a corporation, association, company, joint-stock company or business trust. "Covenant Defeasance" has the meaning specified in Section 1303. "Defaulted Interest" has the meaning specified in Section 307. "Defeasance" has the meaning specified in Section 1302. "Depositary" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 301. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. "Expiration Date" has the meaning specified in Section 104. "Global Security" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 204 (or such legend as may be specified as contemplated by Section 301 for such Securities). "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed and 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. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 301. "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time. "Junior Subordinated Securities" shall have the meaning specified in Section 1401. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 501(4). "Officers' Certificate" means a certificate signed in the same manner and by Persons as provided for in a Company Requestor a Company Order, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel for the Company. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (1) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (2) Securities 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 Securities; provided that, if such Securities 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; (3) Securities as to which Defeasance has been effected pursuant to Section 1302; and (4) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 502, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 301, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by Section 301, of the principal amount of such Security (or, in the case of a Security described in Clause (A) or (B) above, of the amount determined as provided in such Clause), and (D) Securities owned by the Company or any other obligor upon the Securities 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, waiver or other action, only Securities which the Trustee actually knows to be so owned shall be so disregarded. Securities 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 Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means, if not the Company, then any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Responsible Officer", when used with respect to the Trustee, means any vice president, any assistant vice-president, any trust officer or assistant trust officer of the Trustee assigned to the Trustee's corporate trust department and customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Securities Act" means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Debt" of the Company means the principal of, premium, if any, interest on and any other payment due pursuant to any of the following, whether outstanding at the date of execution of this Indenture or thereafter incurred, created or assumed: (a) all indebtedness of the Company evidenced by notes, debentures, bonds or other securities sold by the Company for money, excluding Junior Subordinated Securities, but including all first mortgage bonds of the Company outstanding from time to time; (b) all indebtedness of others of the kinds described in the preceding clause (a) assumed by or guaranteed in any manner by the Company, including through an agreement to purchase, contingent or otherwise; and (c) all renewals, extensions or refundings of indebtedness of the kinds described in any of the preceding clauses (a) and (b); unless, in the case of any particular indebtedness, renewal, extension or refunding, the instrument creating or evidencing the same or the assumption or guarantee of the same expressly provides that such indebtedness, renewal, extension or refunding is not superior in right of payment to or is pari passu with the Junior Subordinated Securities. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or 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, except as provided in Section 905. "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 or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "U.S. Government Obligation" has the meaning specified in Section 1304. "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 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 requirements 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, he has made such examination or investigation as is necessary to enable him 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 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 Dates. 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. 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. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security 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 Security. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take 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 of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. With respect to any record date set pursuant to this Section, the party hereto which sets such record date may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 106, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Section 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. 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, to each Holder affected by such event, at his address as it appears in the Security 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 conclusively deemed 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 Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act which 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 which 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 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 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 Clause. In case any provision in this Indenture or in the Securities 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 Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto, their successors hereunder, the Holders, and the holders of any Senior Debt, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 112. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the law of the State of New York, without regard to conflicts of laws principles thereof. Section 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of any Security which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, and 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, to such next succeeding Business Day. Section 114. Certain Matters Relating to Currencies. Whenever any action or Act is to be taken hereunder by the Holders of Securities denominated in different currencies or currency units, then for purposes of determining the principal amount of Securities held by such Holders, the aggregate principal amount of the Securities 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 Securities. 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 Directors. No recourse shall be had for the payment of the principal of (and premium, if any), or the interest, if any, on any Securities 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 Securities 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 Securities 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 Securities of each series. Section 116. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 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 Security Forms Section 201. Forms Generally. The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 202. Form of Face of Security. [Insert any legend required by the Internal Revenue Code and the regulations thereunder.] PSI ENERGY, INC. ................................................................. .... No. ......... $ ............. CUSIP NO. _______ PSI Energy, Inc., a corporation duly organized and existing under the laws of the state of Indiana (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to .............................................., or registered assigns, the principal sum of ...................................... Dollars on ........................................................ [if the Security is to bear interest prior to Maturity, insert: , and to pay interest thereon from ............. or from the most recent Interest Payment Date to which interest has been paid or duly provided for, ................... on ............ and ............ in each year, commencing ........., at the rate of ....% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ....... or ....... (whether or not a Business Day), as the case may be, next 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 Security (or one or more Predecessor Securities) 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 Securities 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 Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert: The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal and any overdue premium shall bear interest at the rate of ....% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment. Interest on any overdue principal or premium shall be payable on demand. Any such interest on overdue principal or premium which is not paid on demand shall bear interest at the rate of ......% per annum (to the extent that the payment of such interest on interest shall be legally enforceable), from the date of such demand until the amount so demanded is paid or made available for payment. Interest on any overdue interest shall be payable on demand.] Payment of the principal of (and premium, if any) and [if applicable, insert: any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in ............, 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 [if applicable, insert: ;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 Security Register]. Any payment on this Security due on any day which is not a Business Day in the City of New York 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. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, [if subordinated, insert: including, without limitation, provisions subordinating the payment of the principal hereof and any premium and interest hereon to the payment in full of all Senior Debt as defined in the Indenture] which such further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security 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. PSI ENERGY, INC. By............................................... Section 203. Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of , 1996 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The 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 Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [if applicable, insert: , limited in aggregate principal amount to $...........]. [If applicable, insert: The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, [if applicable, insert: (1) on ........... in any year commencing with the year ...... and ending with the year ...... through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [if applicable, insert: on or after .........., 19..], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [if applicable, insert: on or before ..............., ...%, and if redeemed] during the 12-month period beginning ............. of the years indicated, Redemption Redemption Year Price Year Price and thereafter at a Redemption Price equal to .....% of the principal amount, together in the case of any such redemption [if applicable, insert: (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert: The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (1) on ............ in any year commencing with the year .... and ending with the year .... through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [if applicable, insert: on or after ............], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ............ of the years indicated, Redemption Price For Redemption Price For Redemption Through Redemption Otherwise Than Operation of the Through Operation of the Year Sinking Fund Sinking Fund and thereafter at a Redemption Price equal to .....% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert: Notwithstanding the foregoing, the Company may not, prior to ............., redeem any Securities of this series as contemplated by [if applicable, insert: Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than .....% per annum.] [If applicable, insert: The sinking fund for this series provides for the redemption on ............ in each year beginning with the year ....... and ending with the year ...... of [if applicable, insert: not less than $.......... ("mandatory sinking fund") and not more than] $......... aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through [if applicable, insert: mandatory] sinking fund payments may be credited against subsequent [if applicable, insert: mandatory] sinking fund payments otherwise required to be made [if applicable, insert: , in the inverse order in which they become due].] [If the Security is subject to redemption of any kind, insert: In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If subordinated, insert: The indebtedness evidenced by the Securities of this series is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Debt of the Company (as defined in the Indenture) whether outstanding at the date of the Indenture or thereafter incurred, and this Security is issued subject to the provisions of the Indenture with respect to such subordination. Each holder and owner of this Security, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee in his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney-in-fact for such purpose.] [If applicable, insert: The Indenture contains provisions for defeasance at any time of [the entire indebtedness of this Security] [or] [certain restrictive covenants and Events of Default with respect to this Security] [, in each case] upon compliance with certain conditions set forth in the Indenture.] [If the Security is not an Original Issue Discount Security, insert: If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert: If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to insert: formula for determining the amount. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal, premium and interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and premium and interest, if any, on the Securities of this series shall terminate.] 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 Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, 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 Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security 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 Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security 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 Securities of this series, the Holders of not less than 35% in principal amount of the Securities of this series 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 indemnity reasonably satisfactory to the Trustee, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series 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 Security 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 Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security 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 Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $....... and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. 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 Security 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 Security is registered as the owner hereof for all purposes, whether or not this Security 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 Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. Section 204. Form of Legend for Global Securities. Unless otherwise specified as contemplated by Section 301 for the Securities evidenced thereby, every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form (or such other form as a securities exchange or Depositary may request or require): This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be registered, in the name of any Person other than such Depositary or a nominee thereof, except in the limited circumstances described in the Indenture. Section 205. Form of Trustee's Certificate of Authentication. The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE FIFTH THIRD BANK, As Trustee By......................................... Authorized Signatory ARTICLE THREE The Securities Section 301. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder); (3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of any Securities of the series is payable; (5) the rate or rates at which any Securities of the series shall bear interest, if any, the date or dates from which any such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable, the manner of determination of such Interest Payment Dates and the Regular Record Date for any such interest payable on any Interest Payment Date; (6) the right, if any, to extend the interest payment periods and the duration of such extension; (7) the place or places where the principal of and any premium and interest on any Securities of the series shall be payable; (8) the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series may be redeemed, in whole or in part, at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced; (9) the obligation, if any, of the Company to redeem or purchase any Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (10) the denominations in which any Securities of the series shall be issuable; (11) if the amount of principal of or any premium or interest on any Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined; (12) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on any Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States of America for any purpose, including for purposes of the definition of "Outstanding" in Section 101; (13) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than that or those in which such Securities are stated to be payable, the currency, currencies or currency units in which the principal of or any premium or interest on such Securities as to which such election is made shall be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount shall be determined); (14) if other than the entire principal amount thereof, the portion of the principal amount of any Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; (15) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); (16) if applicable, that the Securities of the series, in whole or any specified part, shall be defeasible pursuant to Section 1302 or Section 1303 or both such Sections; (17) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 204 and any circumstances in addition to or in lieu of those set forth in Clause (2) of the last paragraph of Section 305 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (18) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 502; (19) any addition to or change in the covenants set forth in Article Ten which applies to Securities of the series; (20) the applicability of, or any addition to or change in, Article Fourteen with respect to the Securities of a series; (21) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture. All Securities of any one series shall be substantially identical except as to date and principal amount and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 303) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. Section 302. Denominations. The Securities of each series shall be issuable only in registered form without coupons and only in such denominations as shall be specified as contemplated by Section 301. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. Section 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman, its President, one of its Vice Presidents, or its Treasurer. The signature of any of these officers on the Securities may be manual or facsimile. Securities 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 Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to a Board Resolution as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights to general equity principles and to such other matters as such counsel shall set forth therein. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents (with appropriate variations to reflect such future issuance) are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. Section 304. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. Section 305. Registration, Registration of Transfer and Exchange. 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 of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of a series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, 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 Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. If the Securities of any series (or of any series and specified tenor) are to be redeemed in part, the Company shall not be required (A) to issue, register the transfer of or exchange any Securities of that series (or of that series and specified tenor, as the case may be) during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (B) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 301. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. Section 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and 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 Security and (ii) such security 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 Security 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 Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security 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 Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security 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 Securities of that series 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 Securities. Section 307. Payment of Interest; Interest Rights Preserved. Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security 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 Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series 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 Securities of such series (or their respective Predecessor Securities) 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 Security of such series 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 as 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 given to each Holder of Securities of such series in the manner set forth in Section 106, 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 Securities of such series (or their respective Predecessor Securities) 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 on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities 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 Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 308. Persons Deemed Owners. Prior to due presentment of a Security 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 Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 307) any interest on such Security and for all other purposes whatsoever, whether or not such Security 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. None of the Company, the Trustee, any Paying Agent (if not the Company) or the Security Registrar shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Section 309. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of as directed by a Company Order; provided, however, that the Trustee shall not be required to destroy such cancelled Securities. Section 310. Computation of Interest. Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. Section 311. CUSIP Numbers. The Company in issuing the Securities 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 Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities 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 Securities 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, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose, money in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, 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, the obligations of the Company to any Authenticating Agent under Section 614 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. Subject to the provisions of the last paragraph of Section 1003 and to Article Fourteen, if applicable, 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 Securities 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 any premium and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE Remedies Section 501. Events of Default. "Event of Default", wherever used herein with respect to Securities of any series, 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 Security of that series 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 or any premium on any Security of that series at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 35% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or (6) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or state law, or the consent by it to the filing of such petition or to the appointment of, or taking possession of the Company or of any substantial part of its property by, a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official or the making by the Company of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (7) any other Event of Default established pursuant to Section 301 with respect to Securities of that series. Section 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(5) or 501(6)) with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 35% in principal amount of the Outstanding Securities of that series may declare the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) 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 amount (or specified amount) shall become immediately due and payable. If an Event of Default specified in Section 501(5) or 501(6) with respect to Securities of any series at the time Outstanding occurs, the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series 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 Securities of that series, 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 Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities, (C) 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 (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series 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 Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security 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 (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest and 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 Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series 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 Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), 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 Securities 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 Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities 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, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article, subject to Article Fourteen, if applicable, 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 or any premium or interest, upon presentation of the Securities 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 and any premium and interest on the Securities 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 Securities for principal and any premium and interest, respectively Third: The balance, if any, to the Company. Section 507. Limitation on Suits. No Holder of any Security of any series 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 with respect to the Securities of that series; (2) the Holders of not less than 35% in principal amount of the Outstanding Securities of that series 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 indemnity reasonably satisfactory to the Trustee 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 Securities of that series; it being understood and intended that no one or more of such 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 of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (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. 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. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities 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 Waiver. No delay or omission of the Trustee or of any Holder of any Securities 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 Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series 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, with respect to the Securities of such series, 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. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of or any premium or interest on any Security of such series, 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 Security of such series 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. 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, suffered 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 such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided that this Section shall not apply to any suit instituted by the Trustee or to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of Outstanding Securities (of any series), or to any suit instituted by a Holder for the enforcement of the payment of the principal of or any premium or interest on any Security on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date). Section 515. Waiver of Usury, 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 usury, 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 The Trustee 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. If a default occurs hereunder with respect to Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act, unless such default shall have been cured or waived; provided, however, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, 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 with respect to Securities of such series. Section 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (1) 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; (2) 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 shall be sufficiently evidenced by a Board Resolution; (3) 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; (4) the Trustee may consult with counsel of its selection and the 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; (5) 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 security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) 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. (7) 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. Section 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities 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, Authenticating Agent, Paying Agent, Security Registrar or such other agent. 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 Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such compensation as shall be agreed to in writing between the Company and the Trustee 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 the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 607, except with respect to funds held in trust for the benefit of the Holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(5) or Section 501(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture. Section 608. 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. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series. Section 609. Corporate Trustee Required; Eligibility. There shall at all times be one (and only one) Trustee hereunder with respect to the Securities of each series, which may be Trustee hereunder for Securities of one or more other series. Each Trustee 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 any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, 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 with respect to the Securities of any series 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. 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 in accordance with the applicable requirements of Sectionr 611. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 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 with respect to the Securities of such series. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. 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 Security 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, (A) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (B) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. 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, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series 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 with respect to the Securities of such series. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. Section 611. Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed 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 the 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. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each 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 with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. 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 referred to in the first or second preceding paragraph, as the case may be. 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 Succession 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 Securities 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 Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. 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 Securities), 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. Section 614. Appointment of Authenticating Agent. From time to time the Trustee may appoint one or more Authenticating Agents with respect to one or more series of Securities, which may include the Company or any of its Affiliates, with power to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent 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 Authenticating Agent 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 an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE FIFTH THIRD BANK As Trustee By......................................, As Authenticating Agent By....................................... Authorized Officer Section 615. Indemnification. The Company agrees to indemnify the Trustee for, and hold it harmless against, any loss, liability or expense incurred by it, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder or the performance of its duties hereunder or under any related document, including the reasonable costs and expenses of defending itself against or investigating any claim or liability with respect to the Securities, except to the extent that any such loss, liability or expense was due to its own negligence or bad faith. The Company need not pay for any settlement made without its consent. The obligations of the Company to the Trustee under this Section shall survive the satisfaction and discharge of this Indenture and payment in full and/or retirement of the Securities. ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (1) on each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of each series as of such Regular Record Date, and (2) 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; provided, however, that if and so long as the Trustee shall be the Security Registrar, no such list need be furnished. Section 702. Preservation of Information; Communications to Holders. 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 as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. Every Holder of Securities, 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. 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. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15 following the date of this Indenture deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). 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 any Securities are listed, with the Commission and with the 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. ARTICLE EIGHT Consolidation, Merger and Sale Section 801. Consolidations and Mergers Permitted. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property of the Company or its successor or successors as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company or its successor or successors) authorized to acquire and operate the same; provided, however, the Company hereby covenants and agrees that, upon any such consolidation, merger, sale, conveyance, transfer or other disposition, the due and punctual payment of the principal of (premium, if any) and interest on all of the Securities of all series in accordance with the terms of each series, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture with respect to each series or established with respect to such series 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 property. Section 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 Securities of all series outstanding and the due and punctual performance of all of the covenants and conditions of this Indenture or established with respect to each series of the Securities to be performed by the Company with respect to each series, 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 Securities. 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 Securities, any or all of the Securities 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 Securities which previously shall have been signed and delivered by the officers of the predecessor Company to the Trustee for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. Nothing contained in this Indenture or in any of the Securities 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 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 Supplemental Indentures Section 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 to the assumption by any such successor of the covenants of the Company herein and in the Securities pursuant to Article Eight or Section 117; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; provided, however, that in respect of any such additional covenant, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of the Securities of such series to waive such default; (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or (5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or (6) to secure the Securities; or (7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by one or more successor Trustees, pursuant to the requirements of Section 611; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this Clause (9) shall not adversely affect the interests of the Holders of Securities of any series 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 Securities at the time outstanding, notwithstanding any of the provisions of Section 902. Section 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 Securities of each series affected by such supplemental indenture, 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 of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security or any other Security which would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, affect the applicability of Article Fourteen to any Security, 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 Securities of any series, 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 1007, 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 Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 1007, or the deletion of this proviso, in accordance with the requirements of Sections 611 and 901(8). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series; provided that no such supplemental indenture shall modify any provision of this Indenture so as to adversely affect the rights of any holder of outstanding Senior Debt to the benefits of Article Fourteen. 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 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, 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 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 Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 906. Reference in Securities to Supplemental Indentures. Securities of any series 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 Securities of any series 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 Securities of such series. ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. Section 1002. Maintenance of Office or Agency. The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will 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 Securities of one or more series 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 each Place of Payment for Securities of any series for such purposes. The Company will 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 Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any Securities of that series, 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 will cause each Paying Agent for any series of Securities 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 (1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. 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 any premium or interest on any Security of any series 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 Security 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 Borough of Manhattan, The City of New York, 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 will be repaid to the Company. Section 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. 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 1006. 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 1007. Waiver of Certain Covenants. Except as otherwise specified as contemplated by Section 301 for Securities of such series, the Company may, with respect to the Securities of any series, omit in any particular instance to comply with any term, provision or condition set forth in any covenant provided pursuant to Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision 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 term, provision or condition shall remain in full force and effect. Section 1008. Calculation of Original Issue Discount. The Company shall file with the Trustee promptly at the end of each calendar year a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year. ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for such Securities) in accordance with this Article. Section 1102. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. In case of any redemption at the election of the Company the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. Section 1103. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities 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 Security of such series, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption as aforesaid and, in case of any Securities 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 Security, whether such Security 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 Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. Section 1104. Notice of the Redemption. Notice of redemption shall be given by mail not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all the Outstanding Securities of any series consisting of more than a single Security are to be redeemed, the identification (and, in the case of partial redemption of any such Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series consisting of a single Security are to be redeemed, the principal amount of the particular Security to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (5) the place or places where each such Security is to be surrendered for payment of the Redemption Price, and (6) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and 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 Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Section 1105. 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 Securities which are to be redeemed on that date. Section 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities 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 Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. Section 1107. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (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 Security without service charge, a new Security or Securities of the same series 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 Security so surrendered; provided, however, that a Depositary need not surrender a Global Security for a partial redemption and may be authorized to make a notation on such Global Security of such partial redemption. In the case of a partial redemption of a Global Security, the Depositary, and in turn, the participants in the Depositary, shall have the responsibility to select any Securities to be redeemed by random lot. ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 301 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of such Securities is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities as provided for by the terms of such Securities. Section 1202. Satisfaction of Sinking Fund Payments with Securities. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to any Securities of such series required to be made pursuant to the terms of such Securities as and to the extent provided for by the terms of such Securities; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the Redemption Price, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. Section 1203. Redemption of Securities for Sinking Fund. Not less than 45 days prior to each sinking fund payment date for any Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered. Not less than 30 days prior to each such sinking fund payment date, the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN Defeasance and Covenant Defeasance Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may elect, at its option at any time, to have Section 1302 or Section 1303 applied to any Securities or any series of Securities, as the case may be, designated pursuant to Section 301 as being defeasible pursuant to such Section 1302 or 1303, in accordance with any applicable requirements provided pursuant to Section 301 and upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. Section 1302. Defeasance and Discharge. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, the Company shall be deemed to have been discharged from its obligations with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 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 such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities 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 Securities to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities when payments are due, (2) the Company's obligations with respect to such Securities 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 any Securities notwithstanding the prior exercise of its option (if any) to have Section 1303 applied to such Securities. Section 1303. Covenant Defeasance. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, (1) the Company shall be released from its obligations under Section 801(3), Sections 1005 through 1006, inclusive, and any covenants provided pursuant to Section 301(19), 901(2) or 901(7) for the benefit of the Holders of such Securities and (2) the occurrence of any event specified in Sections 501(4) (with respect to any of Section 801(3), Sections 1005 through 1006, inclusive, and any such covenants provided pursuant to Section 301(19), 901(2) or 901(7)), and 501(7) shall be deemed not to be or result in an Event of Default in each case with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that, with respect to such Securities, 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(4)) or Article Fourteen, whether directly or indirectly by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. Section 1304. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to the application of Section 1302 or Section 1303 to any Securities or any series of Securities, as the case may be: (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 benefit of the Holders of such Securities, (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 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 and any premium and interest on such Securities on the respective Stated Maturities, in accordance with the terms of this Indenture and such Securities. 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 1302 apply to any Securities or any series of Securities, as the case may be, 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 Securities 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 Securities 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 1303 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities 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 Securities 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 Officers' Certificate to the effect that neither such Securities nor any other Securities of the same series, if then listed on any securities exchange, will 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 Securities or any other Securities 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 (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 Securities 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 it 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) At the time of such deposit, (A) no default in the payment of any principal of or premium or interest on any Senior Debt shall have occurred and be continuing, (B) no event of default with respect to any Senior Debt shall have resulted in such Senior Debt becoming, and continuing to be, due and payable prior to the date on which it would otherwise have become due and payable (unless payment of such Senior Debt has been made or duly provided for), and (C) no other event of default with respect to any Senior Debt shall have occurred and be continuing permitting (after notice or lapse of time or both) the holders of such Senior Debt (or a trustee on behalf of such holders) to declare such Senior Debt due and payable prior to the date on which it would otherwise have become due and payable. (10) The Company shall have delivered to the Trustee an Officers' 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 1305. 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 1306, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 1304 in respect of any Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities 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 Securities, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. Money and U.S. Government Obligations so held in trust shall not be subject to the provisions of Article Fourteen. 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 1304 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 Securities. 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 1304 with respect to any Securities which, in the opinion of a 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 Securities. Section 1306. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to any Securities 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 Securities from which the Company has been discharged or released pursuant to Section 1302 or 1303 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 1305 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust. ARTICLE FOURTEEN Junior Subordinated Securities Section 1401. Certain Securities Subordinate to Senior Debt. As provided pursuant to Section 301 or in a supplemental indenture, the Company may issue one or more series of Securities subject to the provisions of this Article Fourteen, and each Holder of a Security of a series so issued ("Junior Subordinated Securities"), whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and interest on all Junior Subordinated Securities issued with respect to which this Article Fourteen applies shall, to the extent and in the manner hereinafter set forth, be subordinate and subject in right of payment to the prior payment in full of all Senior Debt, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article Fourteen shall prevent the occurrence of any default or Event of Default hereunder. Section 1402. Payment Over of Proceeds Upon Default. In the event and during the continuation of any default in the payment of principal, premium, interest or any other payment due on any Senior Debt continuing beyond the period of grace, if any, specified in the instrument evidencing such Senior Debt, unless and until such default shall have been cured or waived or shall have ceased to exist, or in the event that the maturity of any Senior Debt has been accelerated because of a default, then no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, or premium, if any, or interest on the Junior Subordinated Securities. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any holder when such payment is prohibited by the preceding paragraph of this Section 1402, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Debt (or their representative or representatives or a trustee) notify the Trustee within 90 days of such payment of the amounts then due and owing on the Senior Debt and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Debt. Section 1403. Payment Over of Proceeds Upon Dissolution, Etc. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Debt shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made on account of the principal (and premium, if any) or interest on the Junior Subordinated Securities; and upon any such dissolution or winding-up or liquidation or reorganization any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Junior Subordinated Securities or the Trustee would be entitled, except for the provisions of this Article Fourteen, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holders of the Junior Subordinated Securities or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Debt in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt, before any payment or distribution is made to the holders of Junior Subordinated Securities or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee or the holders of the Junior Subordinated Securities before all Senior Debt is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Debt or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Debt may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt. For purposes of this Article Fourteen, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Fourteen with respect to the Junior Subordinated Securities to the payment of all Senior Debt which may at the time be outstanding; provided that (i) the Senior Debt is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of the Senior Debt are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article Eight hereof shall not be deemed a dissolution, winding-up, liquidation or reorganization for the proposes of this Section 1403 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Eight hereof. Nothing in Section 1402 or in this Section 1403 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. Section 1404. Subrogation to Rights of Holders of Senior Debt. Subject to the payment in full of all Senior Debt, the rights of the holders of the Junior Subordinated Securities shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt; and, for the purposes of such subrogation, no payment or distributions to the holders of the Senior Debt of any cash, property or securities to which the holders of the Junior Subordinated Securities or the Trustee would be entitled except for the provisions of this Article Fourteen, and no payment over pursuant to the provisions of this Article Fourteen, to or for the benefit of the holders of Senior Debt by holders of the Junior Subordinated Securities or the Trustee, shall, as between the Company, its creditors other than holders of Senior Debt, and the Holders of the Junior Subordinated Securities, be deemed to be a payment by the Company to or on account of the Senior Debt. It is understood that the provisions of this Article Fourteen are and are intended solely for the purposes of defining the relative rights of the holders of the Junior Subordinated Securities, on the one hand, and the holders of the Senior Debt on the other hand. Nothing contained in this Article Fourteen or elsewhere in this Indenture or in the Junior Subordinated Securities is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Debt, and the holders of the Junior Subordinated Securities, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Junior Subordinated Securities the principal of (and premium, if any) and interest on the Junior Subordinated Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Junior Subordinated Securities and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Trustee or the holder of any Junior Subordinated Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Fourteen of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article Fourteen, the Trustee, subject to the provision of Article Six, and the Holders of the Junior Subordinated Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Junior Subordinated Securities, for the purposes of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount hereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Fourteen. Section 1405. Trustee to Effectuate Subordination. Each Holder of a Junior Subordinated Security by his acceptance thereof authorizes and directs the Trustee in his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Fourteen and appoints the Trustee his attorney-in-fact for any and all such purposes. Section 1406. Notice to Trustee. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee in respect of the Junior Subordinated Securities pursuant to the provisions of this Article Fourteen. Notwithstanding the provisions of this Article Fourteen or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Junior Subordinated Securities pursuant to the provisions of this Article Fourteen, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Principal Office of the Trustee from the Company or a holder or holders of Senior Debt or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article Six, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 1406 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Junior Subordinated Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Article Six, shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Debt (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of Senior Debt or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Fourteen, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article Fourteen, and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment. Section 1407. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Fourteen in respect of any Senior Debt at any time held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article Fourteen shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. Section 1408. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the holders of the Junior Subordinated Securities, without incurring responsibility to the holders of the Junior Subordinated Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the holders of the Junior Subordinated Securities to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any person liable in any manner for the collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other person. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. In Witness Whereof, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. PSI ENERGY, INC. By /s/ William L. Sheafer William L. Sheafer Treasurer THE FIFTH THIRD BANK as Trustee By /s/ Kerry R. Burne Kerry R. Byrne Vice President EX-4.W 4 ================================================================= == PSI ENERGY, INC. AND THE FIFTH THIRD BANK, Trustee ________________ First Supplemental Indenture Dated as of November 15, 1996 To Indenture Dated as of November 15, 1996 ________________ 6.35% Debentures Due 2006 ================================================================= == FIRST SUPPLEMENTAL INDENTURE, dated as of November 15, 1996, between PSI Energy, Inc., a corporation duly organized and existing under the laws of the State of Indiana (herein called the "Company"), having its principal office at 1000 East Main Street, Plainfield, Indiana 46168, and The Fifth Third Bank, an Ohio banking corporation, as Trustee (herein called the "Trustee") under the Indenture dated as of November 15, 1996 between the Company and the Trustee (the "Indenture"). Recitals of the Company The Company has executed and delivered the Indenture to the Trustee to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (the "Securities"), to be issued in one or more series as in the Indenture provided. Pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its 6.35% Debentures Due 2006 (herein called the "Debentures"), in this First Supplemental Indenture. All things necessary to make this First Supplemental Indenture a valid agreement of the Company have been done. Now, Therefore, This First Supplemental 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 Terms of the Debentures Section 101. There is hereby authorized a series of Securities designated the "6.35% Debentures Due 2006", limited in aggregate principal amount to $100,000,000 (except as provided in Section 301(2) of the Indenture). The Debentures shall mature and the principal shall be due and payable together with all accrued and unpaid interest thereon on November 15, 2006 and shall be issued in the form of a registered Global Security without coupons, registered in the name of Cede & Co. Section 102. The provisions of Section 305 of the Indenture applicable to Global Securities shall apply to the Debentures. Section 103. Interest on each of the Debentures shall be payable semiannually on May 15 and November 15 in each year (each an "Interest Payment Date"), commencing on May 15, 1997, at the rate per annum specified in the designation of the Debentures from November 15, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the Person in whose name such Debenture (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the May 1 or November 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Section 104. Subject to agreements with or the rules of The Depository Trust Company or any successor book-entry security system or similar system with respect to Global Securities, payments of interest will be made by check mailed to the Holder of each Debenture at the address shown in the Security Register, and payments of the principal amount of each Debenture will be made at maturity by check against presentation of the Debenture at the office or agency of the Trustee. Section 105. The Debentures shall be issued in denominations of $1,000 or any integral multiple of $1,000. Section 106. Principal and interest on the Debentures shall be payable in the coin or currency of the United States of America, which, at the time of payment, is legal tender for public and private debts. Section 107. The Debentures shall be subject to defeasance, at the Company's option, as provided for in Sections 1302 and 1303 of the Indenture. Section 108. The Debentures will not be redeemable at the option of the Company prior to maturity and will not be subject to any sinking fund. Section 109. Each Holder shall have the right, at such Holder's option, exercisable on September 15, 2000 and thereafter until October 15, 2000, to require the Company to redeem, and upon the exercise of such right in the manner set forth hereinafter the Company shall redeem, all or any part of such Holder's Debentures that is $1,000 or any integral multiple thereof, on November 15, 2000 (the "Redemption Date") at a redemption price in cash equal to 100% of the principal amount of such Debenture (the "Redemption Price"), together with accrued and unpaid interest to the Redemption Date. To exercise a redemption right, a Holder of the Debentures shall deliver (i) to the Company and to the Trustee irrevocable written notice of the Holder's election to exercise such right (the "Holder's Notice") which shall set forth the name of the Holder, the amount of Debentures to be redeemed and a statement that an election to exercise the redemption right is being made thereby, and (ii) to the Trustee the Debentures with respect to which the redemption right is being exercised, duly endorsed for transfer to the Company if required by the Trustee or the Company. The Debentures held by a securities depositary may be delivered in such other manner as may be agreed to by such securities depositary and the Company and the Trustee. Such written notice shall be irrevocable. The Debentures as to which the redemption right has been so exercised shall, on the Redemption Date, become due and payable at the Redemption Price, together with accrued and unpaid interest to the Redemption Date. On or before the Redemption Date, the Company shall deposit with the Trustee 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. If any Debentures surrendered for redemption shall not be so paid on the Redemption Date, such Debenture shall, until paid, continue to bear interest from the Redemption Date at the same rate as the rate borne by such Debenture. The Company shall pay to the Holder of such Debenture the additional amounts of interest arising from this paragraph at the same time that it pays the Redemption Price. If any Debenture which is to be redeemed only in part shall be surrendered at any office or agency of the Company (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), the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Debenture, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unredeemed portion of the Debenture so surrendered. ARTICLE TWO Form of the Debentures Section 201. The Debentures are to be substantially in the following form and shall include substantially the legend shown so long as the Debentures are Global Securities: (FORM OF FACE OF DEBENTURE) No. R-1 $100,000,000 CUSIP No. 693627AB7 PSI ENERGY, INC. 6.35% DEBENTURE DUE 2006 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC") to 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. PSI ENERGY, INC., a corporation duly organized and existing under the laws of the State of Indiana (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 One Hundred Million and No/100 Dollars ($100,000,000) on November 15, 2006, and to pay interest thereon from November 15, 1996 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on May 15 and November 15 in each year, commencing May 15, 1997, at the rate of 6.35% 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 Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the May 1 or November 1 (whether or not a Business Day), as the case may be, next 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 Security (or one or more Predecessor Securities) 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 Securities 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 Securities 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. Payment of the principal of (and premium, if any) and interest on this Security 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 Security Register. Any payment on this Security due on any day which is not a Business Day in the City of New York 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. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security 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. PSI ENERGY, INC. By.............................. CERTIFICATE OF AUTHENTICATION Dated: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE FIFTH THIRD BANK, as Trustee By............................. Authorized Signatory (FORM OF REVERSE OF DEBENTURE) This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of November 15, 1996 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The 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 Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $100,000,000. The Securities will not be redeemable at the option of the Company prior to maturity and will not be subject to any sinking fund. The Holder of this Security shall have the right, at such Holder's option, exercisable on September 15, 2000 and thereafter until October 15, 2000, to require the Company to redeem, and upon the exercise of such right in the manner set forth hereinafter the Company shall redeem, all or any part of this Security that is $1,000 or any integral multiple thereof, on November 15, 2000 (the "Redemption Date") at a redemption price in cash equal to 100% of the principal amount of this Security (the "Redemption Price"), together with accrued and unpaid interest to the Redemption Date. To exercise this redemption right, the Holder hereof shall deliver (i) to the Company and to the Trustee irrevocable written notice of the Holder's election to exercise such right (the "Holder's Notice") which shall set forth the name of the Holder, the amount hereof to be redeemed and a statement that an election to exercise the redemption right is being made thereby and (ii) to the Trustee this Security duly endorsed for transfer to the Company if required by the Trustee or the Company. Securities held by a securities depositary may be delivered in such other manner as may be agreed to by such securities depositary and the Company and the Trustee. Such written notice shall be irrevocable. If this Security is so surrendered for redemption it shall, on the Redemption Date, become due and payable at the Redemption Price, together with accrued and unpaid interest to the Redemption Date. If this Security is to be so redeemed only in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder hereof without service charge, a new Security of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unredeemed portion hereof so surrendered. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security upon compliance with certain conditions set forth in the Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series 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 Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, 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 Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security 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 Securities of this series, the Holders of not less than 35% in principal amount of the Securities of this series 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 Securities of this series 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 Security 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 Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security 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 Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. 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 Security 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 Security is registered as the owner hereof for all purposes, whether or not this Security 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 Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ARTICLE THREE Original Issue of Debentures Section 301. Debentures in the aggregate principal amount of $100,000,000, may, upon execution of this First Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures upon a Company Order without any further action by the Company. ARTICLE FOUR Paying Agent and Security Registrar Section 401. The Fifth Third Bank will be the Paying Agent and Security Registrar for the Debentures. ARTICLE FIVE Sundry Provisions Section 501. Except as otherwise expressly provided in this First Supplemental Indenture or in the form of Debenture or otherwise clearly required by the context hereof or thereof, all terms used herein or in said form of Debenture that are defined in the Indenture shall have the several meanings respectively assigned to them thereby. Section 502. The Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. __________________ This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. In Witness Whereof, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. PSI ENERGY, INC. By /s/ William L. Sheafer William L. Sheafer Treasurer THE FIFTH THIRD BANK, as Trustee By /s/ Kerry R. Byrne Kerry R. Byrne Vice President EX-4.X 5 PSI ENERGY, INC. AND THE FIFTH THIRD BANK, Trustee Second Supplemental Indenture Dated as of December 15, 1996 To Indenture Dated as of November 15, 1996 6.25% Notes Due 2005 SECOND SUPPLEMENTAL INDENTURE, dated as of December 15, 1996, between PSI Energy, Inc., a corporation duly organized and existing under the laws of the State of Indiana (herein called the "Company"), having its principal office at 1000 East Main Street, Plainfield, Indiana 46168, and The Fifth Third Bank, an Ohio banking corporation, as Trustee (herein called the "Trustee") under the Indenture dated as of November 15, 1996 between the Company and the Trustee (the "Indenture"). Recitals of the Company The Company has executed and delivered the Indenture to the Trustee to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (the "Securities"), to be issued in one or more series as in the Indenture provided. Pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its 6.25% Notes Due 2005 (herein called the "Notes"), in this Second Supplemental Indenture. All things necessary to make this Second Supplemental Indenture a valid agreement of the Company have been done. Now, Therefore, This Second Supplemental Indenture Witnesseth: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE ONE Terms of the Notes Section 101. There is hereby authorized a series of Securities designated the "6.25% Notes Due 2005", limited in aggregate principal amount to $50,000,000 (except as provided in Section 301(2) of the Indenture). Subject to the provisions in Section 110 hereof, the Notes shall mature and the principal shall be due and payable together with all accrued and unpaid interest thereon on December 15, 2005 and initially shall be issued in certificated form registered to the holder thereof. Section 102. Upon the request of holders of not less than 66-2/3% in aggregate principal amount of the Notes, the Notes will be represented by one or more Global Securities deposited with, or on behalf of, The Depository Trust Company ("DTC"). The provisions of Section 305 of the Indenture applicable to Global Securities shall then apply to the Notes. Section 103. Interest on each of the Notes shall be payable semi-annually on December 15 and June 15 in each year (each an "Interest Payment Date"), commencing on June 15, 1997, at the rate per annum specified in the designation of the Notes from December 15, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, until December 15, 1998. The interest rate on the Notes will be reset as provided in Section 106 hereof effective from December 15, 1998 until the principal amount of each Note is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the Person in whose name such Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the day (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Section 104. Subject to agreements with or the rules of DTC or any successor book-entry security system or similar system with respect to Global Securities, payments of interest will be made by wire transfer or by check mailed to the Holder of each Note at the address shown in the Security Register, and payments of the principal amount of each Note will be made at maturity by wire transfer or by check against presentation of the Note at the office or agency of the Trustee. Section 105. The Notes shall be issued in denominations of $100,000 or any integral multiple of $100,000. Section 106. The interest rate on the Notes shall be reset, effective from December 15, 1998, as provided in the Calculation Agency Agreement, dated as of December 20, 1996, among the Company, UBS Securities LLC, a limited liability company organized under the laws of the State of New York and Union Bank of Switzerland, London branch, which is incorporated herein by this reference. Section 107. Principal and interest on the Notes shall be payable in the coin or currency of the United States of America, which, at the time of payment, is legal tender for public and private debts. Section 108. The Notes shall be subject to defeasance, at the Company's option, as provided for in Section 1302 of the Indenture. Section 109. The Notes will not be redeemable at the option of the Company prior to maturity and will not be subject to any sinking fund, (it being understood, however, that the Company, in connection with the issuance of the Notes, has purchased from Union Bank of Switzerland, London branch, a call option, dated December 20, 1996, pursuant to which the Company, under terms as stated therein, can repurchase the Notes). Section 110. Each Holder shall have the right, at such Holder's option, exercisable on December 15, 1998, to require the Company to redeem, and upon the exercise of such right in the manner set forth hereinafter, the Company shall redeem in whole, but not in part, all of such Holder's Notes on December 15, 1998 (the "Redemption Date") at a redemption price in cash equal to 100% of the principal amount of such Note (the "Redemption Price"), together with accrued and unpaid interest to the Redemption Date. To exercise a redemption right, a Holder of the Notes shall deliver at least one day but not more than 15 days prior to the Redemption Date (i) to the Company and to the Trustee irrevocable written notice of the Holder's election to exercise such right (the "Holder's Notice") which shall set forth the name of the Holder and a statement that an election to exercise the redemption right is being made thereby, and (ii) to the Trustee the Notes with respect to which the redemption right is being exercised, duly endorsed for transfer to the Company if required by the Trustee or the Company. The Notes held by a securities depositary may be delivered in such other manner as may be agreed to by such securities depositary, the Company and the Trustee. Such written notice shall be irrevocable. The Notes as to which the redemption right has been so exercised shall, on the Redemption Date, become due and payable at the Redemption Price, together with accrued and unpaid interest to the Redemption Date. On or before the Redemption Date, the Company shall deposit with the Trustee 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 Notes which are to be redeemed on that date. If any Notes surrendered for redemption shall not be so paid on the Redemption Date, such Note shall, until paid, continue to bear interest from the Redemption Date at the same rate as the rate borne by such Note. The Company shall pay to the Holder of such Note the additional amounts of interest arising from this paragraph at the same time that it pays the Redemption Price. ARTICLE TWO Form of the Notes Section 201. The Notes are to be substantially in the following form and all certificates evidencing Notes initially issued hereunder shall bear legends as specified in this Section 201 to be applied to such Notes, and any such required legend, or part thereof, shall not be removed unless the Company shall have delivered to the Trustee written notice that the certificates evidencing the Notes may be issued without such legend, or part thereof, as the case may be If a legend has been removed from a certificate evidencing a Note as provided above, no other certificates evidencing any Note issued in exchange for all or any part of such Note shall bear such legend, unless the Company has reasonable cause to believe that such legend, or any part thereof, is required by law to be applied to such other Note and instructs the Trustee in writing to cause such legend, or part thereof, as the case may be, to appear thereon. (FORM OF FACE OF NOTE) No. R-l $50,000,000 CUSIP No. 693627AC5 PSI ENERGY, INC. 6.25% NOTE DUE 2005 [Upon the issuance of any global security pursuant to Section 102 hereof, insert -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO 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.] THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE TRUSTEE AND THE COMPANY, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE TRUSTEE AND THE COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THIS NOTE IS SUBJECT TO DEPARTMENT OF TREASURY REGULATIONS SECTION 1.1275-4(b) (THE "CONTINGENT PAYMENT REGULATIONS") AND IS THEREFORE ISSUED WITH ORIGINAL ISSUE DISCOUNT. THE ISSUE PRICE OF THE NOTE IS $50,701,500, AND THE ISSUE DATE OF THE NOTE IS DECEMBER 20, 1996. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $27,668,500. THE YIELD TO MATURITY OF THE NOTE AND THE COMPARABLE YIELD PURSUANT TO THE CONTINGENT PAYMENT REGULATIONS ARE 6.096%. THE PROJECTED PAYMENT SCHEDULE PROVIDES FOR A NON-CONTINGENT PAYMENT OF $1,562,500 PER INTEREST ACCRUAL PERIOD PRIOR TO THE INTEREST RESET DATE AND A NON-CONTINGENT PAYMENT OF $1,580,000 AND A CONTINGENT PAYMENT OF $0 PER INTEREST ACCRUAL PERIOD THEREAFTER. PSI ENERGY, INC., a corporation duly organized and existing under the laws of the State of Indiana (herein called the "Company", which term includes any successor Person under the Indenture hereafter referred to), for value received, hereby promises to pay to ___________________________________, or registered assigns, the principal sum of Fifty Million and No/100 Dollars ($50,000,000) on December 15, 2005, and to pay interest thereon from December 15, 1996 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on December 15 and June 15 in each year, commencing June 15, 1997, at the rate of 6.25% per annum, until December 15, 1998. The interest rate on the Notes will be reset as provided in the Indenture, effective from December 15, 1998 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 Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the day (whether or not a Business Day), as the case may be, next 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 Security (or one or more Predecessor Securities) 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 Securities 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 Securities 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. Payment of the principal of (and premium, if any) and interest on this Security 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 wire transfer or by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Any payment on this Security due on any day which is not a Business Day in the City of New York 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. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security 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. PSI ENERGY INC. By CERTIFICATE OF AUTHENTICATION Dated: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE FIFTH THIRD BANK, as Trustee By Authorized Signatory (FORM OF REVERSE OF NOTE) This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of November 15, 1996 as supplemented by the second supplement to the Indenture dated December 15, 1996 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument, as supplemented), between the Company and The 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 Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $50,000,000. The Securities will not be redeemable at the option of the Company prior to maturity and will not be subject to any sinking fund, (it being understood, however, that the Company, in connection with the issuance of the Notes, has purchased from Union Bank of Switzerland, London branch, a call option, dated December 20, 1996, pursuant to which the Company, under terms as stated therein, can repurchase the Notes). The Holder of this Security shall have the right, at such Holder's option, exercisable on December 15, 1998, to require the Company to redeem, and upon the exercise of such right in the manner set forth hereinafter, the Company shall redeem in whole, but not in part, the principal amount of this Security on December 15, 1998 (the "Redemption Date") at a redemption price in cash equal to 100% of the principal amount of this Security (the "Redemption Price"), together with accrued and unpaid interest to the Redemption Date. To exercise this redemption right, the Holder hereof shall deliver at least one day but not more than 15 days prior to the Redemption Date (i) to the Company and to the Trustee irrevocable written notice of the Holder's election to exercise such right (the "Holder's Notice") which shall set forth the name of the Holder and a statement that an election to exercise the redemption right is being made thereby and (ii) to the Trustee this Security duly endorsed for transfer to the Company if required by the Trustee or the Company. Securities held by a securities depositary may be delivered in such other manner as may be agreed to by such securities depositary, the Company and the Trustee. Such written notice shall be irrevocable. If this Security is so surrendered for redemption it shall, on the Redemption Date, become due and payable at the Redemption Price, together with accrued and unpaid interest to the Redemption Date. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security upon compliance with certain conditions set forth in the Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series 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 Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, 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 Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security 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 Securities of this series, the Holders of not less than 35% in principal amount of the Securities of this series 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 Securities of this series 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 Security 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 Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security 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 Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $100,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. 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 Security 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 Security is registered as the owner hereof for all purposes, whether or not this Security 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 Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ARTICLE THREE Original Issue of Notes Section 301. Notes in the aggregate principal amount of $50,000,000, may, upon execution of this Second Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes upon a Company Order without any further action by the Company. ARTICLE FOUR Paying Agent and Security Registrar Section 401. The Fifth Third Bank will be the Paying Agent and Security Registrar for the Notes. ARTICLE FIVE Sundry Provisions Section 501. Except as otherwise expressly provided in this Second Supplemental Indenture or in the form of Note or otherwise clearly required by the context hereof or thereof, all terms used herein or in said form of Note that are defined in the Indenture shall have the several meanings respectively assigned to them thereby. Section 502. The Indenture, as supplemented by this Second Supplemental Indenture, is in all respects ratified and confirmed, and this Second Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. In Witness Whereof, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the day and year first above written. PSI ENERGY, INC. By /s/ William L. Sheafer William L. Sheafer Treasurer THE FIFTH THIRD BANK, as Trustee By /s/ Kerry R. Byrne Kerry R. Byrne Vice President SUPPIN4.PSI EX-4.JJ 6 THE CINCINNATI GAS & ELECTRIC COMPANY and THE BANK OF NEW YORK, Trustee _________ Thirty-seventh Supplemental Indenture Dated as of October 14, 1996 __________________________________________ THIRTY-SEVENTH SUPPLEMENTAL INDENTURE, dated as of October 14, 1996, between The Cincinnati Gas & Electric Company, a corporation of the State of Ohio (the Company), and The Bank of New York, a corporation of the State of New York, as Trustee (the Trustee). WHEREAS, the Company has executed and delivered to the Trustee a certain Indenture, dated as of August 1, 1936 (the First Mortgage), to secure the payment of the principal of and interest on an issue of bonds of the Company, unlimited in aggregate principal amount (the Bonds); WHEREAS, the Company and the Trustee have amended and supplemented the First Mortgage by means of thirty-six supplemental indentures (the First Mortgage as amended); WHEREAS, Article Eighteen of the First Mortgage as amended provides that the Company and the Trustee may from time to time enter into one or more indentures supplemental to the First Mortgage for the purpose of curing any ambiguity or of curing or correcting any defective provisions contained in the First Mortgage or in any supplemental indenture; WHEREAS, the Company has requested the Trustee, pursuant to Section 1 of Article Eighteen of the First Mortgage as amended, to enter into this Thirty-seventh Supplemental Indenture for the purpose of curing an ambiguity or of curing or correcting a defective provision in Section 3 of Article Eleven of the First Mortgage as amended. ARTICLE ONE RESTATEMENT OF A PART OF SECTION 3 OF ARTICLE ELEVEN SECTION 1. That part of the first paragraph of Section 3 of Article Eleven of the First Mortgage as amended which precedes subdivision (1) of said Section is hereby restated so as to read as follows: "So long as the Company is not in default under any of the provisions of this Indenture, the Company may obtain the release of any of the mortgaged and pledged property, including, without limiting the generality of the foregoing, the Company's gas property substantially as an entirety (provided, however, that the electric property of the Company shall not in any event be released substantially as an entirety and, further, that prior lien bonds deposited with the Trustee shall not be released except as provided in Article Nine hereof), and the Trustee shall release the same from the lien hereof upon the application of the Company and receipt by the Trustee of" ARTICLE TWO MISCELLANEOUS SECTION 1. The provisions of this Thirty-seventh Supplemental Indenture shall become effective immediately upon the execution and delivery hereof. From and after such time this Thirty-seventh Supplemental Indenture shall form a part of the First Mortgage as amended and all the terms and conditions hereof shall be deemed to be part of the terms of the First Mortgage as amended, as fully and with the same effect as if they had been set forth in the First Mortgage as originally executed. Except as modified or amended by this Thirty-seventh Supplemental Indenture, the First Mortgage as amended shall remain and continue in full force and effect in accordance with the terms and provisions thereof, and all the covenants, conditions, terms and provisions of the First Mortgage as amended with respect to the Trustee shall remain in full force and effect and be applicable to the Trustee under this Thirty-seventh Supplemental Indenture in the same manner as though set out herein at length. All representations and recitals contained in this Thirty- seventh Supplemental Indenture are made by and on behalf of the Company, and the Trustee is in no way responsible therefor or for any statement therein contained. SECTION 2. The terms defined in Article One of the First Mortgage as amended, when used in this Thirty-seventh Supplemental Indenture shall, respectively, have the meanings set forth in such Article. SECTION 3. This Thirty-seventh Supplemental Indenture may be executed in several counterparts and each counterpart shall be an original instrument. IN WITNESS WHEREOF, THE CINCINNATI GAS & ELECTRIC COMPANY has caused this instrument to be signed on its behalf by its Treasurer and its corporate seal to be hereunto affixed and attested by an Assistant Secretary, and THE BANK OF NEW YORK has caused this instrument to be signed on its behalf by a Vice President and its corporate seal to be hereunto affixed and attested by an Assistant Treasurer, as of the day and year first above written. THE CINCINNATI GAS & ELECTRIC COMPANY, By ___________________________________ Treasurer (Seal) Attest: _______________________ Assistant Secretary Signed and acknowledged in our presence on behalf of THE CINCINNATI GAS & ELECTRIC COMPANY ______________________________________ ______________________________________ THE BANK OF NEW YORK, By______________________________ Vice President (Seal) Attest: _______________________ Assistant Vice President Signed and acknowledged in our presence on behalf of THE BANK OF NEW YORK ______________________________________ ______________________________________ STATE OF OHIO ) ) ss.: COUNTY OF HAMILTON ) On this 14th day of October, 1996, WILLIAM L. SHEAFER and JEROME A. VENNEMANN came before me and acknowledged that they signed and sealed this instrument as Treasurer and Assistant Secretary, respectively, of THE CINCINNATI GAS & ELECTRIC COMPANY and that the same were free acts; and such Treasurer, being duly sworn, said that he resides in Hamilton County, Ohio, that he is the Treasurer of the corporation and that the seal affixed hereto is its corporate seal. IN WITNESS WHEREOF I have signed my name and affixed my official seal. (Seal) ________________________________ STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this _____ day of ____________, 1996, MARY JANE MORRISSEY and LUCILLE FIRRINCIELI came before me and acknowledged that they signed and sealed this instrument as Vice President and Assistant Vice President, respectively, of THE BANK OF NEW YORK and that the same were free acts; and such Vice President, being duly sworn, said that she resides in Point Pleasant, New Jersey, that she is a Vice President of THE BANK OF NEW YORK and that the seal affixed hereto is its corporate seal. IN WITNESS WHEREOF I have signed my name and affixed my official seal. (Seal) __________________________________________ This instrument was prepared by _________________________________________ Jerome A. Vennemann, Esq. P. O. Box 960 Cincinnati, OH 45201 EX-10.K 7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made and entered into as of the 1st day of June, 1996, 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 Elizabeth K. Lanier (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Employment Agreement collectively as the "Corporation". WHEREAS, the Corporation desires that the Executive become an employee in accordance with this Employment Agreement; WHEREAS, the Executive is willing to commit herself to the employ of the Corporation and any successor thereto, on the terms and conditions set forth in this Employment Agreement and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this Employment 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 Corporation agrees to employ the Executive, and the Executive agrees to be employed, in accordance with the terms and provisions of this Employment 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 June 1, 1996 (the "Effective Date") and shall continue until May 31, 2001, which term may be renewed for an additional period upon the mutual written agreement of the parties. 2. Duties and Powers of Executive. a. Position. The Executive shall serve the Corporation 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 capacities, 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 or the Chief Operating Officer of Cinergy that are consistent with such capacities, responsibilities, duties and authority. Upon the Effective Date of this Employment Agreement, the Executive shall initially serve as Vice President and Chief of Staff for the Corporation, 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 Corporation, 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 Corporation 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 Corporation. 3. Compensation. The Executive shall receive the following compensation for her services under this Employment 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 $220,000. 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 Corporation under this Employment Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all executive management personnel of Cinergy, Cinergy Services, PSI and 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 Corporation, the Executive shall be eligible, and the Corporation 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 Corporation, including but not limited to Cinergy's Annual Incentive Plan, Cinergy's Performance Shares Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Stock Option Plan, PSI's Employees' 401(k) Savings Plan, PSI's Pension Plan, PSI's Supplemental Retirement Plan and PSI's Excess Benefit 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. c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Corporation, the Executive shall be entitled to the following additional fringe benefits: (i) The Corporation shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs, (ii) The Corporation shall reimburse the initiation fee and shall pay 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 Corporation shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Corporation's policy), and (iv) The Corporation 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 Corporation from time to time in effect, commensurate with her position and at least comparable to those received by other senior executives of the Corporation. d. Expenses. The Corporation 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 Employment 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 Corporation 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 Corporation (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, and the Executive fails to substantially perform the Executive's duties to the satisfaction of the Board within sixty (60) days of receipt of the Board's written demand for substantial performance; or (ii) The breach by the Executive of the confidentiality provisions set forth in Section 8 of this Employment 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 Corporation. 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 Corporation. Notwithstanding the above definition of "Cause", the Corporation may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Corporation 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 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 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 Corporation 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 Employment Agreement. d. Notice of Termination. Any termination by the Corporation for cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Employment Agreement given in accordance with Section 10(b) of this Employment Agreement. For purposes of this Employment Agreement, a "Notice of Termination" means a written notice which: (i) Indicates the specific termination provision in this Employment 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 Corporation 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 Corporation under this Employment Agreement or preclude the Executive or the Corporation from asserting such fact or circumstances in enforcing the Executive's or the Corporation's rights under this Employment Agreement. e. Date of Termination. "Date of Termination" means: (i) If the Executive's employment is terminated by the Corporation 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 Corporation other than for Cause, the date on which the Corporation 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 corporation, person, other entity or group becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than fifty percent (50%) of the then outstanding voting stock of Cinergy otherwise than through a transaction arranged by, or consummated with, the prior approval of the Board; (ii) The shareholders of Cinergy approve a definite agreement to merge or consolidate with or into another corporation in a transaction in which neither Cinergy nor any of its subsidiaries or affiliates will be the surviving corporation, or to sell or otherwise dispose of all or substantially all of Cinergy's assets to any person or group other than Cinergy or any of its subsidiaries or affiliates, other than a merger or a sale which will result in the voting securities of Cinergy outstanding prior to the merger or sale continuing to represent at least fifty percent (50%) of the combined voting power of the voting securities of the corporation surviving the merger or purchasing the assets; (iii) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Cinergy (and any new director whose election by the Board of Directors of Cinergy or whose nomination for election by Cinergy's stockholders was approved 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 such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of Cinergy's Board of Directors; or (iv) James E. Rogers ceases to be Cinergy's Chief Executive Officer. g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) The Corporation 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 Corporation. 5. Obligations of the Corporation Upon Termination. a. Certain Terminations. During the Employment Period, if the Corporation 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 Corporation 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) an amount equal to her vested accrued benefit under the Cinergy Performance Shares Plan, and (4) 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), (3) and (4) shall be referred to in this Employment 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 Corporation 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 Corporation 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 Corporation until the end of the Employment Period, each, where applicable, at the rate of the Annual Base Salary, and using the same goals and factors, in effect at the time Notice of Termination is given, under the Cinergy Performance Shares Plan and the Cinergy Executive Supplemental Life Insurance Program minus the present value (discounted at the Prime Rate) of the benefits to which she is actually entitled under the above mentioned plans and programs; (3) the Corporation shall pay the value of all deferred compensation amounts and all executive life insurance benefits whether or not then vested or payable; and (4) the Corporation 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 Corporation as in effect and applicable generally to other senior executives of the Corporation 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 Employment Agreement: (1) The Corporation 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 Employment 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 Corporation, 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 Corporation 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 Corporation 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 Corporation 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 PSI's Pension Plan, PSI's Supplemental Retirement Plan, and PSI's Excess Benefit Plan, or any successor thereto, the Executive shall be eligible to participate in any supplemental executive retirement plan (commonly referred to as a "SERP") sponsored by the Corporation. 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 Corporation 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 Corporation, any Person whose actions result in a Change in Control or any Person affiliated with the Corporation 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 Corporation'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 Corporation'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 Corporation, 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 Corporation 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 Corporation 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 Corporation 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 Employment 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 Corporation 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 Corporation 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 date hereof with the Corporation. 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 Corporation 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 Employment Agreement. 7. Full Settlement: Mitigation. Except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Employment Agreement, the Corporation's obligation to make the payments provided for in this Employment Agreement and otherwise to perform its obligations under this Employment Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation 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 Employment 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 Corporation, 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 Employment Agreement, the Corporation agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute. 8. 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 Corporation 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 Employment Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Corporation 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 Corporation 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 Corporation in law and equity, this Employment Agreement is subject to termination by the Corporation for Cause under Section 4(b) in the event the Executive violates any provision of this Section 8. 9. Successors. a. This Employment Agreement is personal to the Executive and, without the prior written consent of the Corporation, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Employment Agreement shall insure to the benefits 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 Corporation, and its successors and assigns. c. The Corporation 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 Corporation to assume expressly and agree to perform this Employment Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. 10. Miscellaneous. a. This Employment 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 Employment Agreement are not part of the provisions hereof and shall have no force or effect. This Employment 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 Corporation to agree to amend, modify, repeal, waive, extend or discharge any provision of this Employment 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: Elizabeth K. Lanier 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 Employment Agreement. All notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Employment Agreement shall not affect the validity or enforceability of any other provision of this Employment Agreement. d. The Corporation may withhold from any amounts payable under this Employment 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 Corporation's failure to insist upon strict compliance with any provision of this Employment Agreement or the failure to assert any right the Executive or the Corporation may have under this Employment Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Employment Agreement, or the right of the Corporation to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Employment Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Employment Agreement. f. This instrument contains the entire agreement of the Executive and the Corporation with respect to the subject matter hereof; and all promises, representations, understandings, arrangements and prior agreements are merged into this Employment Agreement and accordingly superseded. g. This Employment 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 Corporation and the Executive agree that Cinergy shall be authorized to act for the Corporation with respect to all aspects pertaining to the administration and interpretation of this Employment Agreement. IN WITNESS WHEREOF, the Executive and the Corporation 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: JAMES E. ROGERS James E. Rogers Vice Chairman and Chief Executive Officer EXECUTIVE ELIZABETH K. LANIER Elizabeth K. Lanier EX-10.L 8 Adopted by the PSI Energy, Inc. Board of Directors on December 17, 1996 AMENDMENT TO THE PSI ENERGY, INC. UNION EMPLOYEES' 401(k) SAVINGS PLAN The PSI Energy, Inc. Union Employees' 401(k) Savings Plan, as amended and restated effective January 1, 1992, and as amended effective January 1, 1992, is hereby further amended pursuant to Article 16 thereof. Amendments with respect to the modification of Sections 3.1, 5.5, 7.6(a)(4), and 7.6(b)(4) are effective January 1, 1996. Amendments with respect to the modification of Sections 14.1, 14.2(b), and 14.2(h) are effective April 1, 1996. Amendments with respect to the modification of Sections 1.13, 1.79, 5.1(a), and 5.1(c) are effective July 1, 1996. (1) Explanation of Amendments Section 3.1 is amended, effective January 1, 1996, by deleting the requirement that an employee must be an employee for at least nine months before he or she is eligible to participate in the Plan. Thus, with the amendment each new employee is eligible to enroll immediately in the Plan. Section 5.5 is amended, effective January 1, 1996, to provide that there are no limitations as to the number of times during a calendar year that a participant may reduce or increase his or her before-tax or after-tax contributions. Sections 7.6(a)(4) and 7.6(b)(4) are amended, effective January 1, 1996, to lower to age 50 the age at which participants in the Plan may reallocate balances held in the Stock Fund whenever the Plan is on a monthly or daily accounting basis, respectively. Sections 14.1, 14.2(b), and 14.2(h) are amended, effective April 1, 1996. Each of these sections pertains to loans from a participant's accounts. Section 14.1 is amended to allow loan applications to be made in any manner prescribed by PSI's Comptroller. This amendment will allow loan applications to be made in writing or orally by telephone. Section 14.2(b) removes the former $1,000 minimum loan requirement and allows the participant's rollover account to be considered in determining the maximum available loan. Section 14.2(h) provides that proceeds equal to the amount of a loan shall be transferred pro rata from a participant's account and repaid proportionately into the participant's accounts in accordance with the investment directive in effect when the loan was made. Section 1.12 is amended, effective July 1, 1996, to include overtime pay as compensation subject to deferral into the Plan. However, overtime pay will not be considered when calculating the company matching contributions. Section 1.78, the definition of "overtime pay" is added, effective July 1, 1996. Sections 5.1(a) and 5.1(c) are amended, effective July 1, 1996, to provide that the maximum before-tax and/or after-tax contribution that can be made annually by a participant is 15% of the participant's eligible compensation. (2) Amendments Effective January 1, 1996 (a) Section 3.1 as Amended Section 3.1, as hereby amended, reads as follows: "3.1 Eligibility Requirements for Participation. Each Union Employee on January 1, 1996, who was participating in the Plan as of December 31, 1995, shall continue as a Participant in the Plan as of January 1, 1996. Each other Employee may become a Participant on the first Entry Date following the date on which he meets all of the following requirements: (a) The Employee has attained age 21; (b) The Employee is a Union Employee; and (c) The Employee has elected to enroll in the Plan pursuant to Section 3.2 (Entry Dates for Participation). No Employee shall become a Participant prior to the Plan's effective date. An Employee who meets the requirement of Items (a), and (b), but who does not elect to enroll in the Plan pursuant to Section 3.2 (Entry Dates for Participation), shall be considered an `Eligible Employee.'" (b) Section 5.5 as Amended Section 5.5, as hereby amended, reads as follows: "5.5 Modification of Deferred Compensation Contribution and After-Tax Contribution. (a) A Participant who desires to reduce or increase the amount of his Deferred Compensation Contribution may elect to do so, in writing, on a form prescribed by PSI's Comptroller. There shall be no limitation on the total number of reductions, increases, or combination of reductions and increases, including any discontinuances or resumptions of Deferred Compensation Contributions, effected by a Participant during any Plan Year. If a Participant elects to discontinue his Deferred Compensation Contributions, then he shall not be able to resume having any contributions made until the first full Payroll Period of any calendar quarter which quarter begins at least 90 days after the last day of the last Payroll Period with respect to which Deferred Compensation Contributions were previously elected. Any election to resume Deferred Compensation Contributions shall be made by the Participant in the manner described in this Subsection with respect to reducing or increasing contributions. (b) A Participant who desires to reduce or increase the amount of his After-Tax Contribution may elect to do so, in writing, on a form prescribed by PSI's Comptroller. There will be no limitation on the total number of reductions, increases, or combination of reductions and increases, including any discontinuances or resumptions of After-Tax Contributions, effected by a Participant during any Plan Year. If a Participant elects to discontinue his After-Tax Contributions, then he shall not be able to resume having contributions made until the first full Payroll Period of any calendar quarter which quarter begins at least 90 days after the last day of the last Payroll Period with respect to which After-Tax Contributions were previously elected. Any election to resume After- Tax Contributions shall be made by the Participant in the manner described in this Subsection with respect to reducing or increasing the contributions. A Participant's election to reduce or increase either his Deferred Compensation Contribution or his After-Tax Contribution shall become effective as of the first day of the Participant's first Payroll Period following by 15 days (or any shorter period of time as may be designated by PSI's Comptroller) the date on which PSI's Manager, Payroll-Benefits receives the Participant's written modification election." (c) Section 7.6(a)(4) as Amended Section 7.6(a)(4), as hereby amended, reads as follows: "(4) A Participant may not reallocate the Fund balances of his Employer Matching Account or his Incentive Matching Account with regard to Employer Matching Contributions or Incentive Matching Contributions made on or after January 1, 1992. Instead, these amounts must remain invested in the Stock Fund until the Participant attains age 55 (age 50 effective January 1, 1996) at which time the Fund balances may be reallocated, at least once during any calendar quarter, in multiples of five percent, among the Fund options upon the receipt by PSI's Manager, Payroll-Benefits of a written reallocation on a form prescribed by PSI's Comptroller. A reallocation shall become effective as of the first day of the first calendar quarter of a Plan Year (or as of any other day or days of a Plan Year as designated by PSI's Comptroller) that follows by 15 days (or any shorter period of time as designated by PSI's Comptroller) receipt of the proper form by PSI's Manager, Payroll-Benefits." (d) Section 7.6(b)(4) as Amended Article 7.6(b)(4), as hereby amended, reads as follows: "(4) A Participant may not reallocate the Fund balances of his Employer Matching Account or his Incentive Matching Amount with regard to Employer Matching Contributions made on or after January 1, 1992. Instead, these amounts must remain invested in the Stock Fund until the Participant attains age 55 (age 50 effective January 1, 1996) at which time the Fund balances may be reallocated, at least once during any calendar quarter, in multiples of five percent, among the Fund options upon the receipt by PSI's Manager, Payroll- Benefits of a written reallocation on a form prescribed by PSI's Comptroller. A reallocation shall become effective as of the first day of the first calendar quarter of a Plan Year (or as of any other day or days of a Plan Year as designated by PSI's Comptroller) that follows by 15 days (or any shorter period of time as designated by PSI's Comptroller) receipt of the proper form by PSI's Manager, Payroll-Benefits." (3) Amendments Effective April 1, 1996 (a) Section 14.1 as Amended Section 14.1, as hereby amended, reads as follows: "14.1 Effective Date Upon proper application by a Participant, in a manner prescribed by PSI's Comptroller and delivered to PSI's Manager, Payroll-Benefits, who shall administer the Plan's loan program, PSI may direct the Trustee to make a loan to a Participant subject to the requirements of this Article and any other rules as PSI may prescribe. In deciding whether to approve or deny any written request for a loan, PSI's Manager, Payroll-Benefits shall take into consideration the factors applied by commercial banks in making loan decisions, including the Participant's creditworthiness and the available security for the loan. PSI shall apply the eligibility requirements and rules for a loan uniformly to all Participants. For purposes of this Article, the term `Participant' includes Employees and former Employees and Beneficiaries who are `parties in interest,' as defined in ERISA Section 3(14)." (b) Section 14.2(b) as Amended Section 14.2(b), as hereby amended, reads as follows: "(b) There is no minimum principal amount requirement for a loan. The principal amount of any loan to be made plus the principal amount of all loans to a Participant outstanding at the time the loan is to be made shall not exceed the lesser of (1) 50% of the balance of the Participant's Deferred Compensation Account, ESOP Transfer Account, and Rollover Account, and (2) $50,000 reduced by the excess of the highest outstanding balance of loans to the Participant from the Plan during the period beginning one year and one day before the day the loan is to be made over the outstanding balance of loans from the Plan on the date on which the loan is to be made. A Participant may have no more than two loans outstanding at any time. A loan shall be made within 30 days after the loan is approved by PSI or as soon thereafter as administratively feasible. All charges, including all expenses and fees incurred in connection with the processing, record keeping, or refinancing of any loan are, to the extent administratively feasible, charged to the Participant who received the loan, except to the extent paid by the Employers." (c) Section 14.2(h) as Amended Section 14.2(h), as hereby amended, reads as follows: "(h) Amounts equal to any loans shall be transferred pro rata from the Participant's subaccounts under his Deferred Compensation Account, ESOP Transfer Account, and Rollover Account in proportion to the principal amount of the loan. PSI's Comptroller shall establish, operate, and maintain a loan subaccount or otherwise account for the receipt of amounts transferred from the Participant's Fund subaccounts. Appropriate accounting entries reflecting transfers shall be concurrent with the disbursement to the Participant of amounts borrowed. Interest received by the Trustee in respect of amounts borrowed by a Participant shall be credited to the Participant's loan subaccount or otherwise properly credited at the end of each month. Interest so allocated to a Participant shall then be allocated proportionately among the Participant's Fund subaccounts in accordance with the Participant's investment directions in effect when the loan was made. A repayment of principal by a Participant shall be invested among the Funds and credited proportionately to the Participant's appropriate Fund subaccounts in accordance with the Participant's investment directions in effect when the loan was made. If contributions on behalf of the Participant have been suspended or discontinued for any other reason at the time of any interest payment or principal repayment, the payments or repayments shall be invested in accordance with the investment direction in effect when the loan was made." (4) Amendments Effective July 1, 1996 (a) Section 1.12 as Amended Section 1.12, as hereby amended, reads as follows: "1.12 `Compensation' means, effective July 1, 1996, with respect to an Employee for any period of reference, the sum of the Employee's (1) Base Wage, (2) Ratification Pay, (3) Overtime Pay, and (4) Pre-Paid Sick-Time, plus (5) Deferred Compensation Contributions made on behalf of the Employee for the Plan Year and other elective contributions made by the Employer on behalf of the Employee during the Plan Year that are not includible in gross income under Code Section 125, Paragraph 402(a)(8), Subsection 402(h), or Subsection 403(b), provided, however, that annual Compensation taken into account under the Plan for any Plan Year beginning on or after January 1, 1989, shall not exceed the limitation specified in Code Paragraph 401(a)(17) (as adjusted for increases in the limitation pursuant to Code Subparagraph 401(a)(17)(B)). For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation specified in Code Paragraph 401(a)(17) shall mean the OBRA '93 Annual Compensation Limit. In determining an Employee's Compensation, the rules of Code Paragraph 414(q)(6) shall apply, except that in applying those rules, the term `family' shall include only the Employee's spouse and lineal descendants who have not attained age 19 before the close of the Plan Year. Notwithstanding anything in this Subsection to the contrary, with respect to any Employee, the term `Compensation' shall not include Overtime Pay for purposes of Article 6 (Employer Contributions)." (b) Section 1.78 as Added Section 1.78, as hereby added, reads as follows: "1.78 `Overtime Pay' means, with respect to an Employee, the pay received at one-half times the Employee's regular rate of pay as remuneration for hours worked in a work day or a work week in excess of 8 hours or 40 hours, respectively, for the relevant period." (c) Section 5.1(a) as Amended Section 5.1(a), as hereby amended, reads as follows: "(a) Deferred Compensation Contributions. Subject to the limitations set forth in Section 5.6 (Deferred Compensation Contribution Limitation), each Employer shall contribute to the Trust Fund, on behalf of each Participant employed by the Employer as a Deferred Compensation Contribution an amount elected by the Participant equal to not less than one percent nor more than 15 percent (expressed as a whole percentage) of the Participant's Compensation for the first full Payroll Period of the month for which the Participant's election to defer Compensation is to become effective and shall continue for each subsequent Payroll Period that the election is in effect. However, if a Participant receives a hardship withdrawal under Section 12.1 (Hardship Withdrawals) of the Plan or under Section 12.1 (Hardship Withdrawals) of the PSI Energy, Inc. Employees' 401(k) Savings Plan, the Participant's Deferred Compensation Contributions shall be suspended for a period of 12 months after the receipt of the hardship withdrawal. An election shall be made by the Participant filing with PSI's Manager, Payroll-Benefits the written form prescribed by PSI's Comptroller at least 15 days (or such shorter period of time as may be designated by PSI's Comptroller) before the first day of the month during which the election is to be effective. The total sum of Deferred Compensation Contributions made under this Plan when combined with the amount of elective deferrals made under any other Employer plan established and maintained by any Employer or Affiliate under Code Subsection 401(k) for a Participant's taxable year, shall not exceed the excess deferral limitation set forth in Code Paragraph 402(g)(1), as adjusted pursuant to Code Paragraph 402(g)(5). However, if a Participant receives a hardship withdrawal under Section 12.1 (Hardship Withdrawals) of the Plan or under Section 12.1 (Hardship Withdrawals) of the PSI Energy, Inc. Employees' 401(k) Savings Plan, the Participant may not make Deferred Compensation Contributions for the Participant's taxable year immediately following the taxable year of the hardship withdrawal in excess of the applicable limit under Code Subsection 402(g) for the next taxable year less the amount of the Participant's Deferred Compensation Contributions for the taxable year of the hardship withdrawal. The Deferred Compensation Contribution attributed to each Participant shall be allocated to the Participant's Deferred Compensation Account." (d) Section 5.1(c) as Amended Section 5.1(c), as hereby amended, reads as follows: "(c) After-Tax Contributions. A Participant may also elect to make an After-Tax Contribution of his Compensation to the Trust Fund on his behalf in an amount (expressed as a whole percentage) which together with his Deferred Compensation Contributions, shall not exceed 15 percent of his Compensation (1) for the first full Payroll Period of the month for which the Participant's election (as described in this Paragraph) to make After-Tax Contributions is to become effective and shall continue for each subsequent Payroll Period that the election is in effect (payroll deduction). In the alternative, a Participant may elect to make once per Plan Year an After-Tax Contribution in lump sum payment by a check or money order by the Participant payable to the Trustee and submitted to PSI's Manager, Payroll-Benefits. However, the amount of a Participant's After-Tax Contributions for a Plan Year shall not cause the Participant's Annual Addition to exceed his Maximum Permissible Amount. If a Participant receives a hardship withdrawal under Section 12.1 (Hardship Withdrawals) of the Plan or under Section 12.1 (Hardship Withdrawals) of the PSI Energy, Inc. Employees' 401(k) Savings Plan, the Participant's After-Tax Contributions shall be suspended for a period of 12 months after the receipt of the hardship withdrawal. If a Participant receives a withdrawal under Section 12.2 (Withdrawals from After-Tax Contribution Account) of the Plan, the Participant's After-Tax Contributions shall be suspended for a period of 12 months after the receipt of the withdrawal. The After-Tax Contribution attributed to each Participant shall be allocated to the Participant's After-Tax Contribution Account. Any election described in this Subsection shall be made by the Participant in the same manner described in Subsection 5.1(a) with respect to Deferred Compensation Contributions." This Amendment is executed and approved by the duly authorized officers of PSI Energy, Inc., effective as of the dates set forth herein. PSI ENERGY, INC. By: JAMES E. ROGERS James E. Rogers Vice Chairman and Chief Executive Officer Dated: December 30, 1996 APPROVED: By: CHERYL M. FOLEY Cheryl M. Foley Vice President, General Counsel and Corporate Secretary Dated: December 30, 1996 EX-10.MM 9 Adopted by the PSI Energy, Inc. Board of Directors on December 17, 1996 AMENDMENT TO THE PSI ENERGY, INC. EMPLOYEES' 401(k) SAVINGS PLAN The PSI Energy, Inc. Employees' 401(k) Savings Plan, as amended and restated effective January 1, 1992, and as amended effective January 1, 1992, is hereby further amended pursuant to Article 16 thereof. Amendments with respect to the modification of Sections 3.1, 5.5, 7.6(a)(4), and 7.6(b)(4) are effective January 1, 1996. Amendments with respect to the modification of Sections 14.1, 14.2(b), and 14.2(h) are effective April 1, 1996. Amendments with respect to the modification of Sections 1.13, 1.79, 5.1(a), and 5.1(c) are effective July 1, 1996. (1) Explanation of Amendments Section 3.1 is amended, effective January 1, 1996, by deleting the requirement that an employee must be an employee for at least nine months before he or she is eligible to participate in the Plan. Thus, with the amendment each new employee is eligible to enroll immediately in the Plan. Section 5.5 is amended, effective January 1, 1996, to provide that there are no limitations as to the number of times during a calendar year that a participant may reduce or increase his or her before-tax or after-tax contributions. Sections 7.6(a)(4) and 7.6(b)(4) are amended, effective January 1, 1996, to lower to age 50 the age at which participants in the Plan may reallocate balances held in the Stock Fund whenever the Plan is on a monthly or daily accounting basis, respectively. Sections 14.1, 14.2(b), and 14.2(h) are amended, effective April 1, 1996. Each of these sections pertains to loans from a participant's accounts. Section 14.1 is amended to allow loan applications to be made in any manner prescribed by PSI's Comptroller. This amendment will allow loan applications to be made in writing or orally by telephone. Section 14.2(b) removes the former $1,000 minimum loan requirement and allows the participant's rollover account to be considered in determining the maximum available loan. Section 14.2(h) provides that proceeds equal to the amount of a loan shall be transferred pro rata from a participant's account and repaid proportionately into the participant's accounts in accordance with the investment directive in effect when the loan was made. Section 1.13 is amended, effective July 1, 1996, to include overtime pay as compensation subject to deferral into the Plan. However, overtime pay will not be considered when calculating the company matching contributions. Section 1.79, the definition of "overtime pay" is added, effective July 1, 1996. Sections 5.1(a) and 5.1(c) are amended, effective July 1, 1996, to provide that the maximum before-tax and/or after-tax contribution that can be made annually by a participant is 15% of the participant's eligible compensation. (2) Amendments Effective January 1, 1996 (a) Section 3.1 as Amended Section 3.1, as hereby amended, reads as follows: "3.1 Eligibility Requirements for Participation. Each Exempt Employee and Non-Exempt Employee on January 1, 1996, who was participating in the Plan as of December 31, 1995, shall continue as a Participant in the Plan as of January 1, 1996. Each other Employee may become a Participant on the first Entry Date following the date on which he meets all of the following requirements: (a) The Employee has attained age 21; (b) The Employee is an Exempt Employee or a Non- Exempt Employee; and (c) The Employee has elected to enroll in the Plan pursuant to Section 3.2 (Entry Dates for Participation). No Employee shall become a Participant prior to the Plan's effective date. An Employee who meets the requirement of Items (a), and (b), but who does not elect to enroll in the Plan pursuant to Section 3.2 (Entry Dates for Participation), shall be considered an `Eligible Employee.'" (b) Section 5.5 as Amended Section 5.5, as hereby amended, reads as follows: "5.5 Modification of Deferred Compensation Contribution and After-Tax Contribution. (a) A Participant who desires to reduce or increase the amount of his Deferred Compensation Contribution may elect to do so, in writing, on a form prescribed by PSI's Comptroller. There shall be no limitation on the total number of reductions, increases, or combination of reductions and increases, including any discontinuances or resumptions of Deferred Compensation Contributions, effected by a Participant during any Plan Year. If a Participant elects to discontinue his Deferred Compensation Contributions, then he shall not be able to resume having any contributions made until the first full Payroll Period of any calendar quarter which quarter begins at least 90 days after the last day of the last Payroll Period with respect to which Deferred Compensation Contributions were previously elected. Any election to resume Deferred Compensation Contributions shall be made by the Participant in the manner described in this Subsection with respect to reducing or increasing contributions. (b) A Participant who desires to reduce or increase the amount of his After-Tax Contribution may elect to do so, in writing, on a form prescribed by PSI's Comptroller. There will be no limitation on the total number of reductions, increases, or combination of reductions and increases, including any discontinuances or resumptions of After-Tax Contributions, effected by a Participant during any Plan Year. If a Participant elects to discontinue his After-Tax Contributions, then he shall not be able to resume having contributions made until the first full Payroll Period of any calendar quarter which quarter begins at least 90 days after the last day of the last Payroll Period with respect to which After-Tax Contributions were previously elected. Any election to resume After- Tax Contributions shall be made by the Participant in the manner described in this Subsection with respect to reducing or increasing the contributions. A Participant's election to reduce or increase either his Deferred Compensation Contribution or his After-Tax Contribution shall become effective as of the first day of the Participant's first Payroll Period following by 15 days (or any shorter period of time as may be designated by PSI's Comptroller) the date on which PSI's Manager, Payroll-Benefits receives the Participant's written modification election." (c) Section 7.6(a)(4) as Amended Section 7.6(a)(4), as hereby amended, reads as follows: "(4) A Participant may not reallocate the Fund balances of his Employer Matching Account or his Incentive Matching Account with regard to Employer Matching Contributions or Incentive Matching Contributions made on or after January 1, 1992. Instead, these amounts must remain invested in the Stock Fund until the Participant attains age 55 (age 50 effective January 1, 1996) at which time the Fund balances may be reallocated, at least once during any calendar quarter, in multiples of five percent, among the Fund options upon the receipt by PSI's Manager, Payroll-Benefits of a written reallocation on a form prescribed by PSI's Comptroller. A reallocation shall become effective as of the first day of the first calendar quarter of a Plan Year (or as of any other day or days of a Plan Year as designated by PSI's Comptroller) that follows by 15 days (or any shorter period of time as designated by PSI's Comptroller) receipt of the proper form by PSI's Manager, Payroll-Benefits." (d) Section 7.6(b)(4) as Amended Article 7.6(b)(4), as hereby amended, reads as follows: "(4) A Participant may not reallocate the Fund balances of his Employer Matching Account or his Incentive Matching Amount with regard to Employer Matching Contributions made on or after January 1, 1992. Instead, these amounts must remain invested in the Stock Fund until the Participant attains age 55 (age 50 effective January 1, 1996) at which time the Fund balances may be reallocated, at least once during any calendar quarter, in multiples of five percent, among the Fund options upon the receipt by PSI's Manager, Payroll- Benefits of a written reallocation on a form prescribed by PSI's Comptroller. A reallocation shall become effective as of the first day of the first calendar quarter of a Plan Year (or as of any other day or days of a Plan Year as designated by PSI's Comptroller) that follows by 15 days (or any shorter period of time as designated by PSI's Comptroller) receipt of the proper form by PSI's Manager, Payroll-Benefits." (3) Amendments Effective April 1, 1996 (a) Section 14.1 as Amended Section 14.1, as hereby amended, reads as follows: "14.1 Effective Date Upon proper application by a Participant, in a manner prescribed by PSI's Comptroller and delivered to PSI's Manager, Payroll-Benefits, who shall administer the Plan's loan program, PSI may direct the Trustee to make a loan to a Participant subject to the requirements of this Article and any other rules as PSI may prescribe. In deciding whether to approve or deny any written request for a loan, PSI's Manager, Payroll-Benefits shall take into consideration the factors applied by commercial banks in making loan decisions, including the Participant's creditworthiness and the available security for the loan. PSI shall apply the eligibility requirements and rules for a loan uniformly to all Participants. For purposes of this Article, the term `Participant' includes Employees and former Employees and Beneficiaries who are `parties in interest,' as defined in ERISA Section 3(14)." (b) Section 14.2(b) as Amended Section 14.2(b), as hereby amended, reads as follows: "(b) There is no minimum principal amount requirement for a loan. The principal amount of any loan to be made plus the principal amount of all loans to a Participant outstanding at the time the loan is to be made shall not exceed the lesser of (1) 50% of the balance of the Participant's Deferred Compensation Account, ESOP Transfer Account, and Rollover Account, and (2) $50,000 reduced by the excess of the highest outstanding balance of loans to the Participant from the Plan during the period beginning one year and one day before the day the loan is to be made over the outstanding balance of loans from the Plan on the date on which the loan is to be made. A Participant may have no more than two loans outstanding at any time. A loan shall be made within 30 days after the loan is approved by PSI or as soon thereafter as administratively feasible. All charges, including all expenses and fees incurred in connection with the processing, record keeping, or refinancing of any loan are, to the extent administratively feasible, charged to the Participant who received the loan, except to the extent paid by the Employers." (c) Section 14.2(h) as Amended Section 14.2(h), as hereby amended, reads as follows: "(h) Amounts equal to any loans shall be transferred pro rata from the Participant's subaccounts under his Deferred Compensation Account, ESOP Transfer Account, and Rollover Account in proportion to the principal amount of the loan. PSI's Comptroller shall establish, operate, and maintain a loan subaccount or otherwise account for the receipt of amounts transferred from the Participant's Fund subaccounts. Appropriate accounting entries reflecting transfers shall be concurrent with the disbursement to the Participant of amounts borrowed. Interest received by the Trustee in respect of amounts borrowed by a Participant shall be credited to the Participant's loan subaccount or otherwise properly credited at the end of each month. Interest so allocated to a Participant shall then be allocated proportionately among the Participant's Fund subaccounts in accordance with the Participant's investment directions in effect when the loan was made. A repayment of principal by a Participant shall be invested among the Funds and credited proportionately to the Participant's appropriate Fund subaccounts in accordance with the Participant's investment directions in effect when the loan was made. If contributions on behalf of the Participant have been suspended or discontinued for any other reason at the time of any interest payment or principal repayment, the payments or repayments shall be invested in accordance with the investment direction in effect when the loan was made." (4) Amendments Effective July 1, 1996 (a) Section 1.13 as Amended Section 1.13, as hereby amended, reads as follows: "1.13 `Compensation' means, effective July 1, 1996, with respect to any Exempt Employee for any period of reference, the sum of the Employee's (1) Base Salary, (2) Overtime Pay, and (3) Performance Lump Sum Pay, plus (4) any Deferred Compensation Contributions made on behalf of the Employee for the Plan Year and other elective contributions made by the Employer on behalf of the Employee during the Plan Year that are not includible in gross income under Code Section 125, Paragraph 402(a)(8), Subsection 402(h), or Subsection 403(d), provided, however, that annual Compensation taken into account under the Plan for any Plan Year beginning on or after January 1, 1989, shall not exceed the limitation specified in Code Paragraph 401(a)(17) (as adjusted for increases in the limitation pursuant to Code Subparagraph 401(a)(17)(B)). For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation specified in Code Paragraph 401(a)(17) shall mean the OBRA '93 Annual Compensation Limit. In determining an Employee's Compensation, the rules of Code Paragraph 414(q)(6) shall apply, except that in applying those rules, the term `family' shall include only the Employee's spouse and lineal descendants who have not attained age 19 before the close of the Plan Year. With respect to a Non-Exempt Employee, `Compensation' means, effective July 1, 1996, the sum of the Employee's (1) Base Wage, (2) Overtime Pay, and (3) Performance Lump Sum Pay, plus (4) Deferred Compensation Contributions made on behalf of the Employee for the Plan Year and other elective contributions made by the Employer on behalf of the Employee during the Plan Year that are not includable in gross income under Code Section 125, Paragraph 402(a)(8), Subsection 402(h), or Subsection 403(b), provided, however, that annual Compensation taken into account under the Plan for any Plan Year beginning on or after January 1, 1989, shall not exceed the limitation specified in Code Paragraph 401(a)(17) (as adjusted for increases in the limitation pursuant to Code Subparagraph 401(a)(17)(B)). For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation specified in Code Paragraph 401(a)(17) shall mean the OBRA '93 Annual Compensation Limit. In determining an Employee's Compensation, the rules of Code Paragraph 414(q)(6) shall apply, except that in applying those rules, the term `family' shall include only the Employee's spouse and lineal descendants who have not attained age 19 before the close of the Plan Year. Notwithstanding anything in this Subsection to the contrary, with respect to any Exempt Employee or Non-Exempt Employee, the term `Compensation' shall not include Overtime Pay for purposes of Article 6 (Employer Contributions)." (b) Section 1.79 as Added Section 1.79, as hereby added, reads as follows: "1.79 `Overtime Pay' means, with respect to a Non- Exempt Employee, the pay received at one-half times the Employee's regular rate of pay as remuneration for hours worked in a work day or a work week in excess of 8 hours or 40 hours, respectively, for the relevant period. With respect to an Exempt Employee, `Overtime Pay' means the pay received in excess of the Employee's regular rate of pay as remuneration for hours worked in a work day or work week in excess of the Employee's regularly scheduled hours pursuant to the Employer's overtime pay policy applicable to Exempt Employees ." (c) Section 5.1(a) as Amended Section 5.1(a), as hereby amended, reads as follows: "(a) Deferred Compensation Contributions. Subject to the limitations set forth in Section 5.6 (Deferred Compensation Contribution Limitation), each Employer shall contribute to the Trust Fund, on behalf of each Participant employed by the Employer as a Deferred Compensation Contribution an amount elected by the Participant equal to not less than one percent nor more than 15 percent (expressed as a whole percentage) of the Participant's Compensation for the first full Payroll Period of the month for which the Participant's election to defer Compensation is to become effective and shall continue for each subsequent Payroll Period that the election is in effect. However, if a Participant receives a hardship withdrawal under Section 12.1 (Hardship Withdrawals) of the Plan or under Section 12.1 (Hardship Withdrawals) of the PSI Energy, Inc. Union Employees' 401(k) Savings Plan, the Participant's Deferred Compensation Contributions shall be suspended for a period of 12 months after the receipt of the hardship withdrawal. An election shall be made by the Participant filing with PSI's Manager, Payroll-Benefits the written form prescribed by PSI's Comptroller at least 15 days (or such shorter period of time as may be designated by PSI's Comptroller) before the first day of the month during which the election is to be effective. The total sum of Deferred Compensation Contributions made under this Plan when combined with the amount of elective deferrals made under any other Employer plan established and maintained by any Employer or Affiliate under Code Subsection 401(k) for a Participant's taxable year, shall not exceed the excess deferral limitation set forth in Code Paragraph 402(g)(1), as adjusted pursuant to Code Paragraph 402(g)(5). However, if a Participant receives a hardship withdrawal under Section 12.1 (Hardship Withdrawals) of the Plan or under Section 12.1 (Hardship Withdrawals) of the PSI Energy, Inc. Union Employees' 401(k) Savings Plan, the Participant may not make Deferred Compensation Contributions for the Participant's taxable year immediately following the taxable year of the hardship withdrawal in excess of the applicable limit under Code Subsection 402(g) for the next taxable year less the amount of the Participant's Deferred Compensation Contributions for the taxable year of the hardship withdrawal. The Deferred Compensation Contribution attributed to each Participant shall be allocated to the Participant's Deferred Compensation Account." (d) Section 5.1(c) as Amended Section 5.1(c), as hereby amended, reads as follows: "(c) After-Tax Contributions. A Participant may also elect to make an After-Tax Contribution of his Compensation to the Trust Fund on his behalf in an amount (expressed as a whole percentage) which together with his Deferred Compensation Contributions, shall not exceed 15 percent of his Compensation (1) for the first full Payroll Period of the month for which the Participant's election (as described in this Paragraph) to make After-Tax Contributions is to become effective and shall continue for each subsequent Payroll Period that the election is in effect (payroll deduction). In the alternative, a Participant may elect to make once per Plan Year an After-Tax Contribution in lump sum payment by a check or money order by the Participant payable to the Trustee and submitted to PSI's Manager, Payroll-Benefits. However, the amount of a Participant's After-Tax Contributions for a Plan Year shall not cause the Participant's Annual Addition to exceed his Maximum Permissible Amount. If a Participant receives a hardship withdrawal under Section 12.1 (Hardship Withdrawals) of the Plan or under Section 12.1 (Hardship Withdrawals) of the PSI Energy, Inc. Union Employees' 401(k) Savings Plan, the Participant's After-Tax Contributions shall be suspended for a period of 12 months after the receipt of the hardship withdrawal. If a Participant receives a withdrawal under Section 12.2 (Withdrawals from After-Tax Contribution Account) of the Plan, the Participant's After-Tax Contributions shall be suspended for a period of 12 months after the receipt of the withdrawal. The After-Tax Contribution attributed to each Participant shall be allocated to the Participant's After-Tax Contribution Account. Any election described in this Subsection shall be made by the Participant in the same manner described in Subsection 5.1(a) with respect to Deferred Compensation Contributions." This Amendment is executed and approved by the duly authorized officers of PSI Energy, Inc., effective as of the dates set forth herein. PSI ENERGY, INC. By: JAMES E. ROGERS James E. Rogers Vice Chairman and Chief Executive Officer Dated: December 30, 1996 APPROVED: By: CHERYL M. FOLEY Cheryl M. Foley Vice President, General Counsel and Corporate Secretary Dated: December 30, 1996 EX-10.Q 10 AGREEMENT This Agreement is made and entered into as of the _____ day of ____________, 1996, by and among PSI Energy, Inc. ("PSI"), an Indiana corporation, Cinergy Corp., a Delaware corporation, individually and on behalf of its subsidiaries (the "Company"), and John M. Mutz (the "Executive"). WHEREAS, as of October 4, 1993, the Executive entered into an Employment Agreement with PSI Resources, Inc., an Indiana corporation, and PSI (the "Employment Agreement"); and WHEREAS, the Company and PSI, pursuant to the terms of the Employment Agreement, have assumed and agreed to perform the obligations of the parties to the Employment Agreement other than the Executive; and WHEREAS, the Company and the Executive desire to amend and clarify certain provisions of the Employment Agreement; NOW, THEREFORE, in consideration of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. The parties agree that Section 2 (a) of the Employment Agreement is hereby amended to reflect that during the remaining term of the Employment Agreement the Executive shall hold the titles of President of PSI Energy, Inc. and Vice President of Cinergy Corp., and that he shall have such authority, duties and responsibilities as may be mutually agreed upon, from time to time, by Executive and James E. Rogers, Vice Chairman and Chief Executive Officer of the Company. 2. The parties agree that Section 4 (d) of the Employment Agreement is hereby amended to reflect that the Executive must give the Company at least two (2) months advance written notice to terminate the Employment Agreement for Good Reason. 3. The parties agree that Executive, at any time during the remaining term of the Employment Agreement, has the right to terminate the Employment Agreement for Good Reason, to deliver a Notice of Termination, and to receive the benefits provided for in Section 5(a)(i) and (ii). 4. Provided that Executive gives proper and timely Notice of Termination of the Employment Agreement for Good Reason, the Company and PSI hereby waive any right to object to the Executive's decision during the remaining term of the Employment Agreement to terminate his employment for Good Reason, deliver a Notice of Termination to the Company or PSI relating to such termination, and to receive the benefits provided for in Sections 5(a)(i) and (ii) on the grounds that Executive consented to the material reduction of his title, authority, duties, or responsibilities as specified in Section 2(a) or to any material breach of the Employment Agreement by the Company, or waived his right to exercise such rights and receive the benefits to which he would thereby be entitled, or on grounds of laches, or for any other reason related to Executive's decision at this time not to deliver a Notice of Termination or terminate his employment for Good Reason. 5. Pursuant to Section 5(c) of the Employment Agreement, PSI and the Company agree to pay all of Executive's legal fees and expenses incurred by the Executive in connection with this Agreement, which fees shall not exceed $10,000. 6. The parties agree that in computing benefits payable pursuant to Section 5(a)(ii) of the Employment Agreement, in addition to all other benefits provided for in such section, at the time of his termination of his employment for Good Reason, (i) the Executive would be entitled to receive from the Company the difference between the fair market value of all shares of Cinergy Corp. common stock subject to stock options held by him which are not fully vested at the time of Executive's termination of employment and the aggregate exercise price of such options, assuming they are 100% vested, and that for such purposes, the "fair market value" shall mean the average of the high and low sales prices of a share of Cinergy Corp. common stock as reported by the "NYSE - Composite Transactions" in The Wall Street Journal on the date of the Executive's termination of employment or the preceding trading day, if that date is not a trading day, and (ii) the Executive would be entitled to receive the present value of any Performance Share Awards held by him on the date of termination of his employment, based on the assumptions that the Committee had made a determination to vest them as permitted by Section 10.3(b) of the Performance Shares Plan and that the Executive continued to work until the last day of the applicable Performance Period for Performance Share Awards held by him (adjusted to reflect, on a pro rata basis, the percentage of service during the applicable Performance Period represented by five years of service through October 4, 1998). IN WITNESS WHEREOF, the Executive and PSI and the Company have caused this Agreement to be executed as of the day and year first written above. CINERGY CORP., on behalf of itself and all of its subsidiaries, including PSI ENERGY, INC. By: JAMES E. ROGERS James E. Rogers, Vice Chairman and Chief Executive Officer JOHN M. MUTZ John M. Mutz EX-10.W 11 THE CINCINNATI GAS & ELECTRIC COMPANY DEFERRED COMPENSATION AND INVESTMENT PLAN As Amended and Restated Effective January 1, 1995 TABLE OF CONTENTS ARTICLE PAGE 1: INTRODUCTION 1 2: DEFINITIONS 3 3: PARTICIPATION 6 4: CONTRIBUTIONS 18 5: INVESTMENTS 32 6: ACCOUNTS 40 7: VESTING AND FORFEITURES 43 8: DISTRIBUTIONS 49 9: WITHDRAWALS DURING EMPLOYMENT 67 10: LOANS 78 11: DOMESTIC RELATIONS ORDERS AND ALTERNATE PAYEES 90 12: FIDUCIARIES: AUTHORITY & RESPONSIBILITY 100 13: ADMINISTRATIVE PROVISIONS 109 14: MISCELLANEOUS PROVISIONS 119 15: DISCRIMINATION TESTING 122 16: LIMITATION ON ANNUAL ADDITIONS 137 17: AMENDMENT AND TERMINATION OF THE PLAN 143 18: TOP-HEAVY PROVISIONS 146 INDEX 154 INTRODUCTION ARTICLE I. : INTRODUCTION A. History. The Cincinnati Gas & Electric Company (CG&E) instituted the Employee Incentive Thrift Plan in 1967. CG&E amended the plan on October 1, 1983 for executive, supervisory, administrative and professional employees to enable those employees to delay the payment of some income taxes and to choose from a wider variety of investment options. As a result of the extensive amendments, the plan was renamed The Cincinnati Gas & Electric Company Deferred Compensation and Investment Plan. A. Purpose. The plan is designed to provide retirement income to the executive, supervisory, administrative and professional paid employees of CG&E and certain death benefits to their beneficiaries. The plan is designed to supplement the participants' Management Retirement Plan benefits which in turn are to be supplemented by the benefits payable under the Social Security Act, and their personal savings for retirement. A. Plan Qualification. CG&E has designed this plan to comply with the provisions of Internal Reve- nue Code 401(a), 401(k), and 501 as a qualified pension plan and to conform to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). All plan provisions are subject to change at any time to the extent necessary to retain the qualified status of the plan or to bring it into compliance with ERISA. The plan and trust agreement shall be construed and interpreted in a manner that gives effect to the intent of retaining the qualified status of the plan. A. Effective Date. Except as otherwise noted with respect to a particular provision, the effective date of the amendment and restatement of this plan is January 1, 1995. Earlier or later amendments to this plan become effective on the date specifically designated in the plan document. ADMINISTRATIVE NOTES DEFINITIONS ARTICLE I. : DEFINITIONS A. Scope of this Article. Definitions of terms relevant to more than one article of the plan are generally included in this Article. Definitions of terms which are used primarily in a single article are defined in that article. B. List of Defined Terms. This section contains a complete list of all defined terms used in this plan. Each defined term is followed by a reference to the section in which it is defined. account ACP ADP aggregation group alternate payee annual addition base pay beneficial owner beneficiary board of directors break in service CG&E CINergy Committee company company-matched contributions , , company-matched stock incentive contributions , , company stock fund compensation DCIP deferred compensation contribution defined benefit fraction defined benefit plan defined contribution fraction defined contribution plan determination date distribution distribution valuation date DRO eligible employee , , eligible retirement plan employee entry date , ERISA excess aggregate contribution excess amount excess contribution Fidelity Equity-Income Fund Fidelity Intermediate Bond Fund Fidelity Magellan Fund Fidelity Retirement Money Market Fund fiduciary flipover provision , forfeiture , hardship hardship withdrawals highly compensated employee , hour of service IRC key employee loan fund mandatory distribution year , military leaves money market fund , non-eligible employee optional contributions parental leaves participant plan plan participation forms plan year present value projected annual benefit quarterly account statements rollover contributions SIP sub-account , terminated participant the PNC fund top heavy top heavy group trust trust agreement trustee vesting VIR Line window cashouts withdrawal year of service year of vesting service 1% owner 5% owner A. Board of Directors. The board of directors is the board of directors of The Cincinnati Gas & Electric Company. A. CG&E. CG&E is The Cincinnati Gas & Electric Company, the plan's sponsor, and any related company which has adopted the plan and has employees participating in the plan. A. CINergy. CINergy is CINergy Corp., the name of the parent holding company of CG&E. A. DCIP. The DCIP is the CG&E Deferred Compensation and Investment Plan. A. ERISA. ERISA is the Employee Retirement Income Security Act of 1974, as amended. A. IRC. IRC is the Internal Revenue Code of 1986, as amended. A. MRP. The MRP is the CG&E Management Retirement Plan. A. Plan. The plan is the CG&E Deferred Compensation and Investment Plan, as set forth in this document. A. Plan Year. The plan year is the calendar year. A. SIP. The CG&E Savings Incentive Plan. A. Related Company. A related company is any entity which is: 1. A member of a controlled group of corporations, as defined in IRC 1563(a), ignoring IRC 1563(e)(C)(3), and, solely for the purpose of , modifying the IRC 1563 (a) phrase "at least 80%" to read "more than 50%", and 1. An unincorporated trade or business which is under common control with The Cincinnati Gas & Electric Company, as determined under IRC 414(c), and 1. A member of an affiliated service group as defined in IRC 414(m), and 1. Any entity required to be aggregated with The Cincinnati Gas & Electric Company under IRC 414(o), and 1. Any other subsidiary or affiliate of The Cincinnati Gas & Electric Company designated by its board of directors to be a related company. PARTICIPATION ARTICLE I. : PARTICIPATION A. Employee. An employee is any person earning a wage or salary from CG&E, including leased employees. A. Participation. 1. Eligible Employee. An eligible employee is any full-time employee on the CG&E executive, supervisory, administrative or professional (ESA&P) payroll who has completed a year of service pursuant to 3.8. The term eligible employee shall include employees who have completed a year of service with a related company. A year of service performed for a related company prior to the date the relationship with The Cincinnati Gas & Electric Company began is included for the purpose of determining eligibility to participate in this plan. The term eligible employee shall include an individual who is a citizen of the United States and is an employee of a related company, if that company has entered into an agreement under IRC 3121(l). [This sub-section should be deleted effective 08-01- 95.] 1. Eligible Employee. An eligible employee is any full-time employee who works 30 or more hours per week on a regular work schedule, or part-time employee who works less than 30 hours per week on a regular work schedule, on the CG&E executive, supervisory, administrative or professional (ESA&P) payroll who has completed a year of service pursuant to 3.8. The term eligible employee shall include employees who have completed a year of service with a related company. A year of service performed for a related company prior to the date the relationship with The Cincinnati Gas & Electric Company began is included for the purpose of determining eligibility to participate in this plan. The term eligible employee shall include an individual who is a citizen of the United States and is an employee of a related company, if that company has entered into an agreement under IRC 3121(l). [This sub-section becomes effective on 08-01-95 and should be deleted effective 01-01-96.] 1. Eligible Employee. An eligible employee is any full-time employee who works 30 or more hours per week on a regular work schedule, or part-time employee who works less than 30 hours per week on a regular work schedule, on the CG&E executive, supervisory, administrative or professional (ESA&P) payroll. The term eligible employee shall include an individual who is a citizen of the United States and is an employee of a related company, if that company has entered into an agreement under IRC 3121(l). [This sub-section becomes effective on 01-01-96.] 1. Non-Eligible Employees. The following defined classes of employees are excluded from plan participation. a) Co-op Employees. Co-op employees are students working for CG&E through a recognized cooperative education program. a) Summer Employees. Summer employees are students employed by CG&E during the summer. a) Temporary Employees. Temporary employees are employees of an employment agency who perform services for CG&E on specific tasks and/or for a specified time period. Generally, temporary employees are directly supervised by CG&E employees. a) Part-time Employees. Part-time employees are employees whose regular work schedule is limited to less than 1,000 hours in any given calendar year. [This sub-section 4) should be deleted effective 08-01-95.] a) Leased Employees. Leased employees are any persons who are not on CG&E's payroll and who have performed services for CG&E pursuant to an agreement between CG&E and any other person on a substantially full time basis for a period of at least one year. The period for which these employees are leased employees under the terms of this plan is limited to the term of service for which they are assigned to CG&E. a) Hourly-Paid Employees. Hourly paid employees are full-time CG&E employees whose compensation for a given payroll period is calculated based on the number of hours worked during the period, times an hourly rate. a) Weekly-Paid Employees. Weekly paid employees are full-time CG&E employees whose compensation for a weekly payroll period is predetermined. a) Independent Contractors. Independent contractors are persons or entities with whom CG&E contracts to complete specific tasks without supervision by CG&E employees. Employees of entities which are independent contractors regarding tasks performed for CG&E may be classified as leased employees if they fall within the definition in above. a) Participants in Other 401(k) Plans. Employees who are eligible to participate in a qualified plan which includes IRC 401(k) features sponsored by any related company are not eligible to participate in this plan. 1. Fail-Safe Provision. In the event that any co-op employee, summer employee, or part-time employee completes a year of service, that employee shall be permitted to participate in this plan. [This sub-section should be deleted effective 08- 01-95.] 1. Fail-Safe Provision. In the event that any co-op employee or summer employee completes a year of service, that employee shall be permitted to participate in this plan. [This sub-section becomes effective on 08-01-95.] A. Participant. A participant is any eligible employee who has assets in the plan. (See also ) A. Terminated Participant. A terminated participant is a participant who has terminated employment with CG&E by reason of death, disability, discharge, retirement, or resignation, but who has assets remaining in the plan. A. Determining Participation and Vesting. An hour of service is the basic unit of measurement used to determine an employee's participation and vesting in the plan. A. Hour of Service. 1. Current Pay. An employee earns an hour of service for each hour for which s/he is directly or indirectly paid or entitled to payment by CG&E during the applicable computation period. These hours are for either the performance of duties or on account of a period of time during which no duties are performed (irrespective of whether the employment relationship is terminated) due to vacation, holiday, jury duty, personal days, incapacity (including disability) and lay-off. In these cases participants will be credited with 8 hours of service for each normally scheduled working day during which no duties are performed. An hour of service for which no duties are performed shall be calculated pursuant to 2530.200b-2 of the U.S. Department of Labor regulations, which are incorporated herein by reference. 1. Back Pay. A participant earns an hour of service for each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by CG&E. The same hours of service shall not be credited under both sub-section above and under this sub-section. These hours will be credited to the employee for the computation period or periods to which the award or agreement pertains, rather than the computation period in which the award, agreement, or payment is made. 1. Salaried Employees. Salaried employees are employees whose pay is not determined on the basis of certain amounts for each hour worked during a given period and whose hours are not required to be counted and recorded by any federal law. Salaried employees shall be credited with 8 hours of service per day in which the employee would be credited with an hour of service pursuant to and above, provided that the employee is credited with no less than 1,000 hours of service per computation period. 1. Effect of Leaves of Absence. Generally, an employee will not earn hours of service while s/he is on a leave of absence. However, hours of service credited during certain military leaves and parental leaves under the provisions of also apply for purposes of determining eligibility to participate in the plan. 1. Consistent Personnel Practices. All leaves of absence affecting accreditation of service under this plan shall be authorized by CG&E in accordance with standard personnel policies applied in a nondiscriminatory manner to all employees similarly situated. A. Limitation Upon Earning Hours of Service. Hours of service earned by CG&E employees generally not eligible to participate in the plan shall be credited, but only for determining the vesting rights of these employees upon their change of status to plan participants. The provisions of and govern- ing transfers of participants and plan assets to and from the SIP are an exception to the general rule. A. Year of Service. A year of service is 12 consecutive months of employment with CG&E, beginning with the first hour of service, during which the employee completes at least 1,000 hours of service. Eligible employees who do not complete a year of service by the first anniversary of their employment commencement date shall be credited with a year of service if they complete at least 1,000 hours of service during a period of 12 consecutive months beginning with the first, and, if necessary, any subsequent anniversary of their employment commencement date. [This section should be deleted effective 01-01-96.] A. Year of Service. A year of service is 12 consecutive months of employment with CG&E, beginning with the first hour of service, during which a co-op employee or summer employee completes at least 1,000 hours of service. Co-op employees or summer employees who do not complete a year of service by the first anniversary of their employment commencement date shall be credited with a year of service if they complete at least 1,000 hours of service during a period of 12 consecutive months beginning with the first, and, if necessary, any subsequent anniversary of their employment commencement date. [This section becomes effective on 01-01-96.] A. Break in Service. A break in service is any period of 12 consecutive months beginning on the employee's employment commencement date, and on any subsequent anniversary of that date, during which the employee completes less than 501 hours of service. A. Commencement of Participation. Except with respect to the company-matched stock incentive contributions (see ), an eligible employee must file a completed set of plan participation forms with the Committee to become a participant. See also . [This section should be deleted effective 01-01-96.] A. Commencement of Participation. An eligible employee must notify the Committee of his or her intent to participate in the plan, except with respect to the company-matched stock incentive contributions (see and ), through the use of the voice or other electronic response system or other media authorized by CG&E. [This section becomes effective on 01-01-96.] A. Entry Date. The entry date is the date an eligible employee becomes a participant in the plan. The entry date is the first monthly or semi-monthly pay date of the month that is at least 30 days following the date the Committee receives the plan participation forms from the eligible employee. [This section should be deleted effective 01-01-96.] A. Entry Date. The entry date is the date an eligible employee becomes a participant in the plan. The entry date is the date an eligible employee first completes an hour of service. [This section becomes effective on 01-01-96.] A. Plan Participation Forms. Plan participation forms are the set of documents which the eligible employee must file with the Committee in order to participate in the plan, except with respect to the company-matched stock incentive contributions. (See ). The forms are: 1. The plan participation agreement ; and 1. The beneficiary form. [This section should be deleted effective 01-01-96.] A. Beneficiary. The beneficiary is the person or entity designated in writing by a participant to receive plan benefits after the participant's death. (See and ) A. Beneficial Owner. The beneficial owner is the owner or beneficiary of an account with the plan. A beneficial owner may be a participant, a terminated participant, a participant's spouse, or an alternate payee. A. Beneficiary Designation. A participant must designate a beneficiary. Married participants must designate their spouse as beneficiary, unless the participant's spouse consents to someone else being named as beneficiary. The consent must be in writing on the form approved by the Committee and the spouse's signature must be notarized. The form must be filed with the Committee to become effective. A consenting spouse may withdraw consent by written notice to the Committee, notarized in the same manner as the consent. Once the retraction of consent has been filed with and accepted by the Committee, the spouse is reinstated by plan operation as the participant's beneficiary. A. Transfer to Weekly or Hourly Payroll. A participant who transfers to the weekly or hourly payroll is no longer eligible to participate in the plan. All of the participant's contributions to the plan shall cease, effective with his or her last pay date as an employee on the executive, supervisory, administrative and professional payroll. A. Transfers From The Weekly or Hourly Payroll. 1. Transfers of SIP Accounts. The trustee shall transfer to this plan the SIP account of any employee who becomes eligible for participation. The transfer shall be made as soon as possible following the date that the employee becomes eligible. The transferred account shall be allocated to the sub-accounts and the investment funds in the manner most similar to the participant's SIP sub-accounts. 1. Continuing Contributions. The contribution percentages and investment directions of any SIP participant who becomes eligible for participation in this plan will continue as contributions and investment directions to this plan. A. Participatory Restrictions on the Activities of Terminated Participants. Subject to the limitations of , and of this plan, a terminated participant's account will remain in this plan until s/he takes a distribution. A terminated participant may not contribute to the plan, withdraw from an optional sub-account, or obtain hardship withdrawals or loans. A terminated participant may not reallocate past contributions except in conjunction with a distribution. [This section should be deleted effective 08-01-95.] A. Participatory Restrictions on the Activities of Terminated Participants. Subject to the limitations of , , , , and of this plan, a terminated participant's account will remain in this plan until s/he takes a distribution. A terminated participant may not contribute to the plan, withdraw from an optional sub-account, or obtain hardship withdrawals or loans. [This section becomes effective on 08-01-95.] A. Participation of Rehired Participants. 1. Non-Vested Participants. a) 5 or Fewer Breaks in Service. Any terminated participant in this plan or in the SIP, who is not yet vested in company-matched contributions or company-matched stock incentive contributions under this plan or the SIP and who is subsequently rehired on the executive, supervisory, administrative and professional payroll before the completion of 5 consecutive breaks in service, becomes an eligible employee on his or her date of rehire. See regarding restoration of the company-matched sub- account. a) More than 5 Breaks in Service. If the individual described in sub-section above is rehired after incurring 5 consecutive breaks in service, eligibility will be subject to the requirements of and of this plan, beginning with the date of rehire. 1. Vested Participants. Any terminated participant in this plan or in the SIP, who is vested in company-matched contributions or company-matched stock incentive contributions under this plan or the SIP and who is subsequently rehired on the executive, supervisory, administrative and professional payroll becomes an eligible employee on his or her reemployment date. [This section should be deleted effective 01-01-96.] A. Participation of Rehired Participants. Any terminated participant in this plan or the SIP who is subsequently rehired on or after January 1, 1996, on the executive, supervisory, administrative and professional payroll becomes an eligible employee on his or her reemployment date. [This section becomes effective on 01-01-96.] CONTRIBUTIONS ARTICLE I. : CONTRIBUTIONS A. Base Pay. 1. Definition. Base pay is the annual salary paid by CG&E to a participant determined as of each pay period. Base pay excludes bonuses, shift differentials, overtime, incentive pay, moving allowances, living and similar allowances, and imputed income. Base pay includes the amount of all elective contributions made by CG&E on behalf of the participant pursuant to salary reduction agreements, if the amount is not included in the gross income of the participant under IRC 125. Base pay includes deferred compensation contributions made under this plan. [This sub-section should be deleted effective 07-01- 96.] 1. Definition. Base pay is the annual salary paid by CG&E to a participant determined as of each pay period. Base pay excludes bonuses, shift differentials, incentive pay, moving allowances, living and similar allowances, and imputed income. Base pay includes the amount of all elective contributions made by CG&E on behalf of the participant pursuant to salary reduction agreements, if the amount is not included in the gross income of the participant under IRC 125. Base pay includes deferred compensation contributions made under this plan. For purposes of determining deferred compensation and optional contributions, base pay includes overtime. For purposes of determining company-matched contributions and company-matched stock incentive contributions, base pay excludes overtime. [This sub-section becomes effective on 07-01-96 and should be deleted effective 01-01-97.] 1. Definition. Base pay is the annual salary paid by CG&E to a participant determined as of each pay period. Base pay excludes shift differentials, incentive pay, moving allowances, living and similar allowances, and imputed income. Base pay includes the amount of all elective contributions made by CG&E on behalf of the participant pursuant to salary reduction agreements, if the amount is not included in the gross income of the participant under IRC 125. Base pay includes deferred compensation contributions made under this plan. For purposes of determining deferred compensation and optional contributions, base pay includes overtime and bonuses. For purposes of determining company- matched contributions and company-matched stock incentive contributions, base pay excludes overtime, but includes bonuses. [This sub-section becomes effective on 01-01-97.] 1. Use of Base Pay. Base pay shall be taken into account only while an employee is a participant in the plan. 1. Limitation on Base Pay. Base pay taken into account for determining contributions under the plan shall not exceed $150,000, as adjusted by the Commissioner of the Internal Revenue Service for increases in the cost of living in accordance with IRC 401(a)(17)(B). 1. Use of Base Pay Limitation. In determining the base pay of a participant for the purpose of determining the participant's accruals under this plan, the rules of IRC 414(q)(6) shall generally apply. However, the term "family" shall include only the spouse of the participant and any lineal descendants of the participant who have not attained age 19 prior to the close of the plan year. If, as a result of this application, the adjusted $150,000 limitation is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's base pay prior to the application of the limitation. [This sub-section should be deleted effective 01-01- 97.] A. Contributions. The plan will accept four types of contributions: 1. Deferred Compensation Contributions. A deferred compensation contribution is the amount by which a participant directs CG&E to reduce his or her base pay and which CG&E is obligated to contribute to the plan. Participants may elect to have their base pay reduced by executing a plan participation agreement. CG&E will then make a contribution to the plan in an amount equal to the participant's selected reduction each pay period. The amount reduced, expressed in 1/2% increments, shall not exceed 15% of the participant's base pay. 1. Optional Contributions. An optional contribution is the participant's voluntary contribution made to the plan through payroll deduction after taxes have been withheld. Participants may choose to make contributions to the plan each pay period through payroll deduction. These optional contributions, expressed in 1/2% increments, are deducted after taxes have been withheld. The amount of the optional contribution together with the deferred compensation contribution, shall not exceed 15% of the participant's base pay. 1. Company-Matched Contributions. The company- matched contribution is the amount contributed by CG&E to the participant's plan account from its earnings based upon the participant's deferred compensation contributions and/or optional contributions, as applicable. For each pay period of the participant, CG&E will contribute out of its accumulated earnings an amount, together with forfeitures, equal to 55% of each participant's deferred compensation and optional contributions up to and including 5% of the participant's base pay. Participants' contributions exceeding 5% of base pay will not be matched. 1. Company-Matched Stock Incentive Contributions. The company-matched stock incentive contribution is the amount of CINergy stock contributed by CG&E in addition to the company-matched contribution. Depending on the performance of CINergy for the year, CG&E will contribute, if at all, an amount of CINergy stock equal in value to between $0.10 and $0.30 for each dollar of a participant's deferred compensation and optional contributions up to and including 4% of the participant's base pay for that year. Participants' contributions exceeding 4% of base pay will not be matched. If a participant did not make any deferred compensation or optional contributions during the year, s/he may still receive a company-matched stock incentive contribution based on the hypothetical assumption that s/he made deferred compensation or optional contributions of 1% of his or her base pay for that year. [This section should be deleted effective 01-01-96.] A. Contributions. The plan will accept five types of contributions: 1. Deferred Compensation Contributions. A deferred compensation contribution is the amount by which a participant directs CG&E to reduce his or her base pay and which CG&E is obligated to contribute to the plan. Participants may elect to have their base pay reduced by informing the Committee through the voice or electronic response system or other media authorized by CG&E. CG&E will then make a contribution to the plan in an amount equal to the participant's selected reduction each pay period. The amount reduced, expressed in 1/2% increments, shall not exceed 15% of the participant's base pay. 1. Optional Contributions. An optional contribution is the participant's voluntary contribution made to the plan through payroll deduction after taxes have been withheld. Participants may choose to make contributions to the plan each pay period through payroll deduction. These optional contributions, expressed in 1/2% increments, are deducted after taxes have been withheld. The amount of the optional contribution together with the deferred compensation contribution, shall not exceed 15% of the participant's base pay. 1. Company-Matched Contributions. The company- matched contribution is the amount contributed by CG&E to the participant's plan account from its earnings based upon the participant's deferred compensation contributions and/or optional contributions, as applicable. For each pay period of the participant, CG&E will contribute out of its accumulated earnings an amount, together with forfeitures, equal to 55% of each participant's deferred compensation and optional contributions up to and including 5% of the participant's base pay. Participants' contributions exceeding 5% of base pay will not be matched. [This sub-section should be deleted effective 01-01- 97.] 1. Company-Matched Contributions. The company- matched contribution is the amount contributed by CG&E to the participant's plan account from its earnings based upon the participant's deferred compensation contributions. For each pay period of the participant, CG&E will contribute out of its accumulated earnings an amount, together with forfeitures, equal to 60% of each participant's deferred compensation contributions up to and including 5% of the participant's base pay. Participants' contributions exceeding 5% of base pay will not be matched. [This sub-section becomes effective on 01-01-97.] 1. Company-Matched Stock Incentive Contributions. The company-matched stock incentive contribution is the amount of CINergy stock contributed by CG&E in addition to the company-matched contribution. Depending on the performance of CINergy for the year, CG&E will contribute, if at all, an amount of CINergy stock between $0.10 and $0.30 for each dollar of a participant's deferred compensation and optional contributions up to and including 4% of the participant's base pay for that year. Participants' contributions exceeding 4% of base pay will not be matched. If a participant did not make any deferred compensation or optional contributions during the year, s/he may still receive a company-matched stock incentive contribution based on the hypothetical assumption that s/he made deferred compensation or optional contributions of 1% of his or her base pay for that year. [This sub-section should be deleted effective 01-01- 97.] 1. Company-Matched Stock Incentive Contributions. The company-matched stock incentive contribution is the amount of CINergy stock contributed by CG&E in addition to the company-matched contribution. Depending on the performance of CINergy for the year, CG&E will contribute, if at all, an amount of CINergy stock between $0.20 and $0.40 for each dollar of a participant's deferred compensation contributions up to and including 5% of the participant's base pay for that year. Participants' deferred compensation contributions exceeding 5% of base pay will not be matched. If a participant did not make any deferred compensation contributions during the year, s/he may still receive a company-matched stock incentive contribution based on the hypothetical assumption that s/he made deferred compensation contributions of 1% of his or her base pay for that year. [This sub-section becomes effective on 01-01-97.] 1. Rollover Contributions. A rollover contribution is the amount contributed by a participant to his or her plan account attributable to a distribution from a retirement plan of a former employer. A participant must make a written request to the Committee to make a rollover contribution. The request must include a statement detailing the type of property to be rolled over and that such property is an eligible rollover contribution. If the Committee so permits, the participant may transfer the amount of the rollover contribution to the trustee. [This section becomes effective on 01-01-96.] A. Contributions Due to Military Leave. Notwithstanding any provision of this plan to the contrary, contributions with respect to qualified military service will be provided in accordance with IRC 414(u). A. Contributions from Sources other than Base Pay. 1. Settlement of Disputes. Prior to the time a participant becomes entitled to receive a lump sum payment of wages in settlement of a dispute with CG&E, the participant may direct contributions to this plan from the lump sum payment in the same percentages and allocation to funds as are in effect at the time when the lump sum amount is paid. CG&E may also make company-matched contributions and/or company- matched stock incentive contributions on the settlement amount. 1. Lump Sum Payment in Lieu of Salary. If a class of participants is designated by CG&E to receive certain pay in the form of a lump sum, the determination of whether that special pay may be used as base pay for making contributions to this plan shall be determined by CG&E. CG&E may also make a determination whether it will make company-matched contributions and/or company- matched stock incentive contributions for each payment of a special lump sum. In the event that the special pay is permitted to be used as base pay for plan contributions, those contributions must be in the same percentages designated by the participant and in effect at the time when the lump sum amount is paid. A. Changing the Percentage of Contributions. 1. Participants. A participant may change the percentage of deferred compensation contributions or optional contributions four times per year. [This sub-section should be deleted effective 01-01-96.] 1. Participants. A participant may change the percentage of deferred compensation contributions and/or optional contributions at anytime through the voice or other electronic response system or other media authorized by CG&E. [This sub-section becomes effective on 01-01-96.] 1. Other Beneficial Owners. Terminated participants, beneficiaries and alternate payees may not contribute to this plan. A. Limitation on Deferred Compensation Contributions. 1. Maximum Amount. A participant's deferred compensation contributions shall not exceed the maximum deferred amount in effect for that tax year pursuant to IRC 402(g) . The maximum amount for 1995 is $9,240 and is adjusted annually as announced by the Internal Revenue Service. 1. Flipover Provision. At the time the IRC 402(g) limit is reached for the amount being deferred by a participant, the same percentage contribution shall be continued as an optional contribution for that participant for the remainder of the year. These optional contributions will be allocated to investment funds in accordance with the most recent directions filed by the participant regarding optional contributions. If the participant has never filed an Allocation of Future Contributions form including directions for optional contributions, the contributions will be invested in the money market fund until the directions for optional contributions are filed with the Committee. [This sub-section should be deleted effective 01-01-96.] 1. Flipover Provision. At the time the IRC 402(g) limit is reached for the amount being deferred by a participant, the same percentage contribution shall be continued as an optional contribution for that participant for the remainder of the year. These optional contributions will be allocated to investment funds in accordance with the most recent directions given by the participant through the voice or other electronic response system or other media authorized by CG&E regarding optional contributions. If the participant never furnished such directions, the contributions will be invested in the money market fund until the directions for optional contributions are provided by the participant to the Committee. [This sub-section becomes effective on 01-01-96.] 1. Suspended Participants. When a participant affected by this section is under suspension of optional contributions under below, the or flipover provisions will not be effective. When the limit is reached, all contributions by the suspended participant shall stop. 1. Excess Deferred Compensation Contributions. If a participant files a plan participation agreement which causes CG&E to inadvertently defer more than is permitted in above, the excess deferred compensation contribution shall be returned to the participant. [This sub-section should be deleted effective 01-01- 96.] 1. Excess Deferred Compensation Contributions. If a participant informs the Committee through the voice or other electronic response system or other media authorized by CG&E which causes CG&E to inadvertently defer more than is permitted in above, the excess deferred compensation contribution shall be returned to the participant. [This sub-section becomes effective on 01-01-96.] A. Voluntary Suspension of Contributions. 1. General Rule. Participants may suspend either their deferred compensation or optional contributions, or both by filing an application to suspend contributions with the Committee. 1. Effective Date. Voluntary suspensions shall become effective on a pay date no later than 30 days after the application to suspend contributions was filed with the Committee. 1. Period of Suspension. Participants may not make the suspended type of contributions to the plan for at least 12 months from the effective date of the suspension. 1. Makeup of Contributions. Participants may not make up suspended contributions. [This section should be deleted effective 01-01-96.] A. Involuntary Suspension of Contributions. 1. Hardship Withdrawals. Participants who have obtained a hardship withdrawal shall be automatically suspended from making deferred or optional contributions for a period of 12 months beginning from the date of the distribution of the hardship withdrawal. 1. Leaves of Absence. Contributions to the plan are automatically suspended during a participant's leave of absence, because the participant earns no base pay from which to contribute. When the participant returns to work for CG&E, contributions shall automatically resume with the first pay check in accordance with the terms of the most recent plan participation agreement. [This sub-section should be deleted effective 01-01- 96.] 1. Leaves of Absence. Contributions to the plan are automatically suspended during a participant's leave of absence, because the participant earns no base pay from which to contribute. When the participant returns to work for CG&E, contributions shall automatically resume with the first pay check in accordance with the terms most recently provided by the participant on the voice or other electronic response system or other media authorized by CG&E. [This sub-section becomes effective on 01-01-96.] A. Resumption of Contributions. Upon the expiration of the required period of suspension, participants may resume making contributions to the plan by filing a resumption of contributions form with the Committee. The resumption will be effective on the first pay date of the month no later than 30 days after the date the resumption of contributions form was filed with the Committee. Contributions will resume at the same percentages of base pay as were in effect at suspension. If the resumption of contributions form was filed during the period of suspension, it will become effective on the first pay date of the month following the period of suspension. [This section should be deleted effective 01-01-96.] A. Resumption of Contributions. Upon the expiration of the required period of suspension, participants may resume making contributions to the plan by informing the Committee through the voice or other electronic response system or other media authorized by CG&E. The resumption will be effective on the first pay date of the month no later than 30 days after the date the participant informs the Committee of his or her intent to resume contributions. Contributions will resume at the same percentages of base pay as were in effect at suspension. If the participant informs the Committee during his or her suspension, the resumption of contributions will become effective on the first pay date of the month following the period of suspension. [This section becomes effective on 01-01-96.] A. Remittance of Contributions. CG&E will generally forward all deferred compensation, optional, and company-matched contributions to the trustee on the pay date for which the contributions are effective. In any event, CG&E must transmit these contributions promptly after the end of the month in which the contributions are taken. A. Return of Company-Matched Contributions and Company-Matched Stock Incentive Contributions. 1. General Rule. Except as provided in , , , and , and in this section, the assets of the plan shall never revert to or be used by CG&E. a) Mistaken Contributions. Company-matched contributions and company-matched stock incentive contributions made to the trust by reason of a mistake of fact may be returned to CG&E within one year after the payment of the contribution. a) Non-deductible Contributions. Company-matched contributions and company- matched stock incentive contributions made to the plan which are deemed non-deductible pursuant to IRC 404 shall be returned to CG&E within one year after the disallowance of the deduction. If any portion of the non-deductible amount is from a participant's deferred compensation contribution, that amount shall be returned to the participant. INVESTMENTS ARTICLE I. : INVESTMENTS A. Principles of Investment Fund Selection. The Committee will establish and direct the trustee to maintain in the trust at least three investment funds, which collectively are intended to comply with ERISA 404 c) and the regulations thereunder. A. Selection of Investment Funds. One of the investment funds will be the company stock fund. The Committee will select the other investment funds, following the principles of . If a fund is added or deleted, beneficial owners will be given the opportunity to reallocate their past contributions and redirect their sub-accounts among the authorized investment funds. A. Investment Funds in the Plan. The following are the investment funds maintained in the plan trust: 1. Company Stock Fund. The company stock fund is a unitized fund which consists largely of shares of CINergy common stock, and a proportionately small amount of cash. It has been available (formerly with CG&E common stock) since the plan was established on October 1, 1983. The stock will be purchased at fair market value on the open market or from CINergy through the issuance of authorized but previously unissued shares at the option of CINergy. The stock may also be obtained through the exercise of stock rights. Stock received by the trustee as a stock dividend distribution or right is reflected by an increase in the unit value. 1. Fidelity Magellan Fund. The Fidelity Magellan Fund seeks capital appreciation by in- vesting primarily in common stock and securities convertible into common stock. It was added as an additional investment option on 10-01-92. 1. Fidelity Equity-Income Fund. The Fidelity Equity- Income Fund seeks reasonable income by investing primarily in income-producing equity securities. It has been available since the plan was established on October 1, 1983. 1. Fidelity Intermediate Bond Fund. The Fidelity Intermediate Bond Fund seeks to obtain a high level of current income by investing primarily in high and upper-medium grade fixed-income obligations. It has been available since the plan was established on October 1, 1983. 1. The PNC Fund (Sower Money Market Fund - Money Market Portfolio). The investment objective of this portfolio is to provide as high a level of current interest income as is consistent with maintaining liquidity and stability of principal. This fund is called the money market fund throughout this plan. A money market fund, but not necessarily this particular fund, has been available since the plan was established on October 1, 1983. [This sub-section should be deleted effective 01-01-96.] 1. Fidelity Retirement Money Market Fund. The investment objective of this portfolio is to provide as high a level of current interest income as is consistent with maintaining liquidity and stability of principal. This fund is called the money market fund throughout this plan. A money market fund, but not necessarily this particular fund, has been available since the plan was established on October 1, 1983. [T hi s su b- se ct io n be co me s ef fe ct iv e on 01 - - 01 - - 96 .] 1. Loan Fund. The loan fund consists of all promissory notes securing plan loans to participants. The loan fund is administered as described in Article . A. Vested Interest Response Line (VIR Line). The vested interest response line is the telephone line established and maintained by the trustee for use by participants to access their account information and to effectuate certain transactions affecting their accounts. The Vested Interest Response Line is referred to as the VIR Line throughout this plan. A. Participant Investment Elections. A participant selects investment funds for his or her future contributions by using the investment election menu on the VIR Line. Investments must be made in whole percentage increments. A. Investment of Contributions. The trustee shall invest the participants' contributions from CG&E in the participants' current designated investment selections. If the trustee has no record of a current investment selection for a participant's contribution, it shall invest the contribution in the money market fund. The trustee shall invest all company-matched contributions and company-matched stock incentive contributions in the company stock fund. [This section should be deleted effective 01-01-96.] A. Investment of Contributions. The trustee shall invest the participants' contributions from CG&E in the participants' current designated investment selections. If the trustee has no record of a current investment selection for a participant's contribution, it shall invest the contribution in the money market fund. The trustee shall invest all company-matched contributions and company-matched stock incentive contributions in the company stock fund. However, a participant who has reached age 50 may elect to invest his or her company-matched contributions and company-matched stock incentive contributions in any one or more of the investment funds as s/he directs by informing the Committee through the voice or other electronic response system or other media authorized by CG&E. Allocations must be made in whole percentages. [This section becomes effective on 01-01-96.] A. Initial Allocation of Deferred and Optional Contributions. A participant's deferred compensation and/or optional contributions will be allocated to any one or more of the investment funds as s/he directs by filing an allocation of future contributions form with the Committee. Allocations must be made in any whole percentage. Allocations will apply to all contributions made on or after the entry date (see ). Participants' contributions will be invested in the investment funds as of the valuation date coinciding with or next following the date on which they are received by the trustee. If the allocation form is not yet received by the trustee when it must allocate contributions, the contributions will be invested in the money market fund, until the directions for allocations are filed with the Committee. [This section should be deleted effective 01-01-96.] A. Initial Allocation of Deferred and Optional Contributions. A participant's deferred compensation and/or optional contributions, collectively, will be allocated to any one or more of the investment funds as s/he directs by informing the Committee through the voice or other electronic response system or other media authorized by CG&E. Allocations must be made in any whole percentage. Allocations will apply to all contributions made on or after the entry date (see ). Participants' contributions will be invested in the investment funds as of the valuation date coinciding with or next following the date on which they are received by the trustee. If the trustee has not yet received the participant's investment directions when it must allocate contributions, the contributions will be invested in the money market fund, until the directions for allocations are provided by the participant to the Committee. [This section becomes effective on 01-01-96.] A. Investment Fund Transfers of Current Balances. A participant can select reallocation of his or her current account balance in different investment funds and/or different percentages of allocation by using the fund transfers menu on the VIR Line. Investments must be made in whole percentage increments. A participant may elect or change investment funds and/or the percentages in which contributions will be allocated once per quarter. [This section should be deleted effective 08-01-95.] A. Investment Fund Transfers of Current Balances. Except for participants or terminated participants whose accounts are frozen due to pending domestic relations orders, any participant or terminated participant with an account balance under the plan can select reallocation of his or her current account balance in different investment funds and/or different percentages of allocation by using the fund transfers menu on the VIR Line. Investments must be made in whole percentage increments. A participant or terminated participant may elect or change investment funds and/or the percentages in which allocation will be allocated once per quarter. [This section becomes effective on 08-01-95 and should be deleted effective 01-01-96.] A. Investment Fund Transfers of Current Balances. Except for participants or terminated participants whose accounts are frozen due to pending domestic relations orders, any participant or terminated participant with an account balance under the plan can select reallocation of his or her current account balance in different investment funds and/or different percentages of allocation by using the fund transfers menu on the VIR Line. Investments must be made in whole percentage increments. A participant or terminated participant may elect or change investment funds and/or the percentages in which allocations will be allocated at anytime. [This section becomes effective on 01-01-96.] A. Risk of Loss. The participant (or terminated participant) bears the effect for all gain or loss in market value of the investments selected for his or her plan assets. The participant (or terminated participant) also bears the effect of any market fluctuations which occur between the time his or her instructions are delivered to the Committee or the trustee and the time that the instructions are effectuated. The trustee, the Committee, the individual Committee members, and CG&E will not be responsible or liable to participants (or terminated participants) for the negative or positive effect of market fluctuations or reasonable delay in processing transactions upon their accounts. A. Voting CINergy Stock. 1. Participation Instructions. The trustee shall vote the shares of CINergy stock credited to the accounts of beneficial owners in accordance with the instructions given by the beneficial owner. If the instructions are not received by the trustee by a date the trustee designates prior to any meeting of shareholders of CINergy, the trustee shall vote such uninstructed shares at its discretion. 1. Trustee Discretion. The trustee shall vote at its discretion the CINergy stock held in the company stock fund which have not been allocated to beneficial owners' accounts as of the record date of any meeting of shareholders of CINergy. ACCOUNTS ARTICLE I. : ACCOUNTS A. Accounts and Sub-accounts. 1. Account. Each beneficial owner's total assets in the plan shall be maintained in a separate account. The account shall reflect all transactions regarding the beneficial owner's assets. The assets in an account shall be allocated among sub-accounts. 1. Sub-account. Each account must include one or more of the following sub-accounts: a) a deferred compensation sub-account ; a) an optional sub-account; and a) a company-matched sub-account. [This sub-section should be deleted effective 01-01-96.] 1. Sub-account. Each account must include one or more of the following sub accounts: 1) a deferred compensation sub-account; 2) an optional sub-account; 3) a company-matched sub-account; and 4) a rollover sub-account. [Thi s sub- sect ion beco mes effe ctiv e on 01- 01- 96.] 1. A ccoun t Value . Each parti cipan t's accou nt is value d daily . The value of an accou nt refle cts the numbe r of units of each inves tment fund owned by the parti cipan t and is based upon the unit price of each fund. Both the units owned and the price refle ct a close of busin ess valua tion. 2. Investment Ownership. The trustee owns all plan assets as a fiduciary on behalf of the beneficial owners . A. Quarterly Statements. The trustee shall prepare an individual statement of account for each beneficial owner on a quarterly basis. The statements will reflect the status of the account and sub-accounts of the beneficial owner. The trustee shall mail the statements to the beneficial owners as soon as practical after each quarter end. VESTING AND FORFEITURES ARTICLE I. : VESTING AND FORFEITURES A. Vesting. The process by which an employee becomes entitled to a nonforfeitable benefit under this plan. A. Year of Vesting Service. Each period of 12 consecutive months of employment, beginning with the date on which the employee first performed an hour of service for CG&E or any related company, during which he or she completes at least 1,000 hours of service. The calculation period begins on the date (and subsequent anniversaries of that date) the employee first performed an hour of service for CG&E or a related company. Hours of service prior to the date on which the relationship to the Cincinnati Gas & Electric Company began are not included for the purpose of vesting under this plan. The hours of service of non-participating employees, leased employees and co-ops are included in determining their years of vesting service. [This section should be deleted effective 01-01-96.] A. Vested Benefits. 1. Vested Accrued Benefit. The portion of a participant's account available for distribution to the participant upon termination of employment with CG&E. 1. Deferred Compensation Sub-account and Optional Sub-account. Participants are immediately vested in their deferred compensation sub-accounts and optional sub-accounts. [This sub-section should be deleted effective 01-01- 96.] 1. Deferred Compensation Sub-account, Optional Sub-account and Rollover Sub-account. Participants are immediately vested in their deferred compensation sub-accounts, optional sub- accounts and rollover sub-accounts. [This sub-section becomes effective on 01-01-96.] 1. Company-Matched Sub-account. Participants are vested in their company-matched sub-accounts upon occurrence of any of the following: a) termination of this plan, a) partial termination of this plan with respect to affected participants, a) the participant attains 5 years of vesting service, a) the participant dies, a) the participant becomes disabled, a) the participant retires under the MRP, a) the participant is permanently laid off for lack of work, a) the participant attains age 65. [This sub-section should be deleted effective 01-01-96.] 1. C omp any - - Mat che d Sub - - acc oun t. Par tic ipa nts who are cre dit ed wit h one hou r of ser vic e on or aft er Jan uar y 1 , 199 6 are imm edi ate ly ves ted in the ir com pan y- mat che d sub - - acc oun ts. [This sub-section becomes effective on 01-01-96.] A. Vesting of Former Employees. 1. Impact of Breaks in Service. Non-vested former employees who resume employment will be credited for vesting purposes with their prior years of service so long as the number of consecutive breaks in service (see ) incurred by the employees do not exceed five. [This sub-section should be deleted effective 01-01-2001.] 1. Impact of Breaks in Service. Terminated participants who are credited with an hour of service on or after January 1, 1996 are not subject to the break in service rules provided in . [This sub-section becomes effective on 01-01-96.] 1. Immediate Vesting. Former employees or participants who were vested in SIP or DCIP prior to termination of employment will retain or immediately obtain vested status in this plan. A. Special Vesting Rules. 1. Parental Leaves. For the purpose of deter- mining a participant's years of vesting service, a non-vested participant who is granted a leave of absence for the purpose of giving birth to and/or nurturing a newborn, or adopting a child, will be granted credit for 190 hours of vesting service per month, not to exceed a total of 501 hours, during that leave of absence. Hours of vesting service will be granted in the year in which the absence commences to the extent necessary to prevent the employee from incurring a break in service for vesting purposes. To the extent the hours of vesting service are not needed to prevent a break in vesting service, the employee will be credited with the hours of vesting service in the immediately following year to prevent the occurrence of a break in vesting service during that year. 1. Military Leaves. Notwithstanding any provision of this plan to the contrary, credit for vesting service with respect to qualified military service will be provided in accordance with IRC 414(u) . A. Forfeitures and Restorations. 1. Forfeiture. A participant who terminates employment with CG&E and is not vested in his or her company-matched sub-account will forfeit the amount in the company-matched sub-account. The participant shall be deemed to have received a distribution of zero for the company-matched account. The forfeiture will occur upon the participant's termination of employment with CG&E. This forfeiture may be restored in accordance with below. [This sub-section should be deleted effective 01-01-2001.] 1. Forfeiture. A participant's benefit will be forfeited only in accordance with if the participant is credited with an hour of service on or after January 1, 1996. [This sub-section becomes effective on 01-01-96.] 1. Use of Forfeitures. Forfeitures shall be used to reduce the company-matched contributions which are to be made in accordance with , and . 1. Restoration of Forfeitures. A terminated participant, described in above, who resumes employment with CG&E before incurring 5 consecutive breaks in service shall have his or her company-matched sub-account restored, without dividends earned in the interim. [This sub-section should be deleted effective 01-01-96.] 1. Restoration of Forfeitures. A terminated participant who is credited with an hour of service on or after January 1, 1996, shall have his or her benefit restored in accordance with . [This sub-section becomes effective on 01-01-96.] 1. Source of Restorations. Restorations of the company-matched sub-account shall be made from forfeitures during the plan year of the restoration. If there are insufficient forfeitures to cover restorations in any given plan year, CG&E shall make additional contributions to cover the deficit. DISTRIBUTIONS ARTICLE I. : DISTRIBUTIONS A. Distribution. A distribution is the delivery of all of the vested assets in a plan account to its beneficial owner. A. Eligibility for Distribution. 1. Termination. Terminated participants are eligible to receive distribution upon termination of employment for any reason . 1. Disability. Participants and terminated participants are eligible to receive distribution as of the dates on which they become eligible to receive disability benefits under the MRP if they: a) have been granted disability benefits by the Social Security Administration, or a) are determined to be disabled by CG&E's medical director. [This sub-section should be deleted effective 01-01- 97.] 1. Death. Beneficiaries are eligible to receive distribution upon the death of the participant from whom their interests are derived. 1. Acceptance of a DRO. An alternate payee under a DRO which has been accepted by the plan is given a window opportunity to elect distribution. See . 1. Plan Termination. The Committee shall make a distribution to all participants if the plan is terminated without the establishment of a successor plan. [This sub-section should be deleted effective 01-01- 96.] 1. Plan Termination. The Benefits Manager shall make a distribution to all participants if the plan is terminated without the establishment of a successor plan. [This sub-section becomes effective on 01-01-96.] 1. Sale of CG&E. The Committee shall make a distribution to all participants if substantially all of CG&E's assets are sold. [This sub-section should be deleted effective 01-01- 96.] 1. Sale of CG&E. The Benefits Manager shall make a distribution to all participants if substantially all of CG&E's assets are sold. [This sub-section becomes effective on 01-01-96.] 1. Sale of a Subsidiary. The Committee shall make a distribution to participants who are employed by a CG&E subsidiary if the subsidiary is sold and the participants are no longer employed by CG&E. If CG&E sells a subsidiary, but retains the employees who formerly worked for that subsidiary, those employees will not qualify for a distribution as a result of the sale. [This sub-section should be deleted effective 01-01- 96.] 1. Sale of a Subsidiary. The Benefits Manager shall make a distribution to participants who are employed by a CG&E subsidiary if the subsidiary is sold and the participants are no longer employed by CG&E. If CG&E sells a subsidiary, but retains the employees who formerly worked for that subsidiary, those employees will not qualify for a distribution as a result of the sale. [This sub-section becomes effective on 01-01-96.] A. Distribution Valuation Date. The distribution valuation date for a beneficial owner is the business day on which the beneficial owner's units in the funds are sold for the purpose of disbursing funds for a loan, a withdrawal or a distribution. A. Valuing a Distribution. The value of an account for the purpose of distribution shall be based upon the value of the units in the CINergy stock funds and the mutual funds, determined as of the distribution valuation date . A. Events Triggering Distribution. As used in this Article, an event consists of a participant's termination, retirement, permanent layoff for lack of work, disability, or death. 1. Vested Benefit of $3,500 or Less. If the vested benefit is $3,500 or less, the Committee shall make a distribution in a lump sum. [This sub-section should be deleted effective 01-01- 96.] 1. Vested Benefit of $3,500 or Less. If the vested benefit is $3,500 or less, the Benefits Manager shall make a distribution in a lump sum. [This sub-section becomes effective on 01-01-96.] 1. Vested Benefit Over $3,500. If the vested benefit is over $3,500, the participant or beneficiary shall elect to receive or delay the distribution. The election must be filed with the Committee within 60 days of the event. A participant or beneficiary who has elected to delay the distribution can elect a distribution at a later time by filing an application for distribution with the Committee. [This sub-section should be deleted effective 01-01-96.] 1. Vested Benefit Over $3,500. If the vested benefit is over $3,500, the participant or beneficiary shall elect to receive or delay the distribution. The election must be received by the Benefits Manager within 60 days of the event. A participant or beneficiary who has elected to delay the distribution can elect a distribution at a later time by informing the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E. [Thi s sub- sect ion beco mes effe ctiv e on 01- 01- 96.] 1. Mandatory Distribution After an Event. The Committee shall disburse a distribution no later than the 60th day after the close of the calendar year in which the terminated participant who has been affected by an event attains or would have attained age 65. If the terminated employee is age 65 or older on the date of the event, the distribution shall be made within 60 days of the year end during which the event occurred. [This sub-section should be deleted effective 01- 01-96.] 1. Mandatory Distribution After an Event. The Benefits Manager shall disburse a distribution no later than the 60th day after the close of the calendar year in which the terminated participant who has been affected by an event attains or would have attained age 65. If the terminated employee is age 65 or older on the date of the event, the distribution shall be made within 60 days of the year end during which the event occurred. [This sub-section becomes effective on 01-01-96.] A. Participant's Mandatory Distribution Year. The following rules shall apply regardless of any other distribution provision in the plan. 1. Definition. A participant's mandatory distribution year is the year in which s/he attains age 70 1/2. 1. Lump Sum Distribution. The Committee shall make a distribution of all vested benefits accrued as of the September 30 of a participant's mandatory distribution year. The distribution shall be in a lump sum. The distribution shall be disbursed by April 1 following the end of the participant's mandatory distribution year. [This sub-section should be deleted effective 01-01- 96.] 1. Lump Sum Distribution. The Benefits Manager shall make a distribution of all vested benefits accrued as of the September 30 of a participant's mandatory distribution year. The distribution shall be in a lump sum. The distribution shall be disbursed by April 1 following the end of the participant's mandatory distribution year. [This sub-section becomes effective on 01-01-96.] 1. Subsequent Annual Distributions. If the participant has assets in the plan after the mandatory distribution year, the Committee shall distribute all vested benefits accrued as of September 30 each subsequent year, by December 31st of that year. [This sub-section should be deleted effective 01-01- 96.] 1. Subsequent Annual Distributions. If the participant has assets in the plan after the mandatory distribution year, the Benefits Manager shall distribute all vested benefits accrued as of September 30 each subsequent year, by December 31st of that year. [This sub-section becomes effective on 01-01-96.] 1. Continuing Contributions. Participants may continue to contribute to the plan after their mandatory distribution year. [This section should be deleted effective 01-01-97 for all participants, except 5% owners.] A. Participant's (Other than 5% Owner's) Mandatory Distribution Year. The following rules shall apply regardless of any other distribution provision in the plan. 1. Definition. A participant's (other than a 5% owner's) mandatory distribution year is the later of the year in which s/he attains age 70 1/2 or retires. A 5% owner's mandatory distribution year is the year in which s/he attains age 70 1/2. See above for details. 1. Lump Sum Distribution. The Benefits Manager shall make a distribution of all vested benefits accrued as of the September 30 of a participant's (other than a 5% owner's) mandatory distribution year. The distribution shall be in a lump sum. The distribution shall be disbursed by April 1 following the end of the participant's (other than a 5% owner's) mandatory distribution year. 1. Subsequent Annual Distributions. If the participant (other than a 5% owner) has assets in the plan after the mandatory distribution year, the Benefits Manager shall distribute all vested benefits accrued as of September 30 each subsequent year, by December 31st of that year. [This section becomes effective on 01-01-97 for all participants, except 5% owners.] A. Filing Forms for Distribution or Delay. 1. General Rule. A beneficial owner generally must file an application for distribution 90 days in advance of disbursement of a distribution from the plan. [This sub-section should be deleted effective 01-01- 96.] 1. General Rule. A beneficial owner generally must apply for distribution by the voice or other electronic response system or other media authorized by CG&E 90 days in advance of disbursement of a distribution from the plan. [This sub-section becomes effective on 01-01-96.] 1. Timing A Distribution. A beneficial owner must file an application for distribution with the Committee at least 15 business days before disbursement of a distribution from the plan. [This sub-section should be deleted effective 01-01- 96.] 1. Timing A Distribution. A beneficial owner must apply for distribution with the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E at least 15 business days before disbursement of a distribution from the plan. [This sub-section becomes effective on 01-01-96.] 1. Required Elections. If a beneficial owner fails to make a required election to immediately receive distribution or to delay distribution, the plan may process an election to delay distribution filed by the Committee on behalf of the beneficial owner. [This sub-section should be deleted effective 01-01- 96.] 1. Required Elections. If a beneficial owner fails to make a required election to immediately receive distribution or to delay distribution, the plan may process an election to delay distribution as requested by the Benefits Manager on behalf of the beneficial owner. [This sub-section becomes effective on 01-01-96.] 1. Mandatory Distributions. Any mandatory distribution required by the plan or the Internal Revenue Code may be made under the authority of an application for distribution filed by the Committee on behalf of the beneficial owner. [This sub-section should be deleted effective 01-01-96.] 1. Mandatory Distributions. Any mandatory distribution required by the plan or the Internal Revenue Code may be made under the authority of a request for distribution made by the Benefits Manager on behalf of the beneficial owner. [This sub-section becomes effective on 01-01-96.] A. Timing of Distributions. The Committee will disburse distributions as a lump sum or in 5 annual installments. 1. Lump Sum Distributions. The trustee shall mail a lump sum payment to the beneficial owner approximately 15 business days following the day on which the application for distribution was filed with the Committee. 1. Five Annual Installments. A participant whose employment is terminated by reason of retirement under the terms of the MRP, disability, or permanent layoff for lack of work, may irrevocably elect to receive his or her account in five annual installments. Installment distributions are not available to beneficiaries or to participants terminated for other reasons. 1. Timing of Installments. The eligible participant may elect to receive the first installment as soon as practical after the end of the month that the event occurs, or as soon as practical after the end of the year in which the event occurs. The trustee shall disburse the first installment no later than March 1 following the calendar year when the event occurred which triggered the distribution. a) Amount of Each Installment. Those who have elected 5 annual installments shall receive their accounts as follows: 1/5 of the account in the first installment, 1/4 of the account at the time of the second install- ment, 1/3 of the account at the time of the third installment, 1/2 of the account at the time of the fourth installment, and the balance of the account at the time of the last installment. a) Subsequent Installments. The payment date for each subsequent installment shall be as soon as is practicable within each plan year following the anniversary date of the initial payment. The balance of the account shall be revalued in accordance with and any CINergy stock will continue to be voted by such a participant in accordance with . If a participant dies prior to receiving all installments, the remainder in his or her account will be paid in a lump sum to the beneficiary or, if none, in accordance with . [This section should be deleted effective 01-01-96.] A. Timing of Distributions. The Benefits Manager will disburse distributions as a lump sum or in 5 annual installments. 1. Lump Sum Distributions. The trustee shall mail a lump sum payment to the beneficial owner approximately 15 business days following the day on which the Benefits Manager was informed of the participant's request for distribution through the voice or other electronic response system or other media authorized by CG&E. 1. Five Annual Installments. A participant whose employment is terminated by reason of retirement under the terms of the MRP, disability, or permanent layoff for lack of work, may irrevocably elect to receive his or her account in five annual installments. Installment distributions are not available to beneficiaries or to participants terminated for other reasons. 1. Timing of Installments. The eligible participant may elect to receive the first installment as soon as practical after the end of the month that the event occurs, or as soon as practical after the end of the year in which the event occurs. The trustee shall disburse the first installment no later than March 1 following the calendar year when the event occurred which triggered the distribution. a) Amount of Each Installment. Those who have elected 5 annual installments shall receive their accounts as follows: 1/5 of the account in the first installment, 1/4 of the account at the time of the second install- ment, 1/3 of the account at the time of the third installment, 1/2 of the account at the time of the fourth installment, and the balance of the account at the time of the last installment. a) Subsequent Installments. The payment date for each subsequent installment shall be as soon as is practicable within each plan year following the anniversary date of the initial payment. The balance of the account shall be revalued in accordance with and any CINergy stock will continue to be voted by such a participant in accordance with . If a participant dies prior to receiving all installments, the remainder in his or her account will be paid in a lump sum to the beneficiary or, if none, in accordance with . [This section becomes effective on 01-01-96.] A. In Kind Distribution. 1. General Rule. Distributions generally consist of a CINergy stock certificate reflecting the value of the units of the CINergy stock fund in the account as of the distribution valuation date, plus cash from the sale of all other plan investments and incidental cash from the CINergy stock fund. 1. Company Stock Fund. To the extent that a beneficial owner's account includes units of the CINergy stock fund as of the distribution valuation date, s/he may elect to receive cash in lieu of a CINergy stock certificate. 1. Fidelity Funds. The beneficial owner can direct the trustee to transfer his or her Fidelity Equity Income, Intermediate Bond and/or Magellan funds, upon distribution, to an individual account at Fidelity by submitting an application to the Committee. [This sub-section should be deleted effective 01-01-96.] 1. Fidelity Funds. The beneficial owner can direct the trustee to transfer his or her Fidelity Equity Income, Intermediate Bond and/or Magellan funds, upon distribution, to an individual account at Fidelity by informing the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E. [This sub-section becomes effective on 01-01-96.] A. Direct Rollovers to Other Plans. 1. Election. a) Who May Elect. Participants, terminated participants, their beneficiaries who are surviving spouses, and alternate payees who are former spouses of participants, may elect to have any portion of an eligible rollover distribution paid directly to their designated eligible retirement plan. Those making this election must be entitled to distribution or withdrawal of their plan assets, under the terms of this plan. The only plan assets subject to direct rollover are those acquired by reason of being a participant, a surviving spouse or a former spouse alternate payee. a) Manner of Election. This election must be made at the time and in the manner prescribed by the Committee. 1. Distributions Eligible for Rollover. An eligible rollover distribution is any distribution or withdrawal, except as stated in below, of all or any portion of the account of one of the persons listed in above. 1. Distributions Not Eligible for Rollover. a) Portions of Mandatory Distributions. The portion of a mandatory distribution under which is required to be distributed under IRC 401(a)(9) is not eligible for direct rollover. [This sub-section should be deleted effective 01- 01-97 for all participants, except 5% owners.] a) Portions of Mandatory Distributions. The portion of a mandatory distribution under which is required to be distributed under IRC 401(a)(9) is not eligible for direct rollover. [This sub-section becomes effective on 01-01-97 for all participants, except 5% owners.] a) Portions Excluded from Gross Income. The portion of any distribution which is not able to be included in the gross income of the beneficial owner is not eligible for direct rollover. For this purpose, gross income can include any unrealized appreciation of CINergy stock. a) Optional Contributions. Optional contributions are not eligible for direct rollover. However, interest and earnings attributable to optional contributions are eligible for direct rollover. a) Deemed Distributions. A deemed distribution which has occurred because of a participant's failure to make one or more loan payments is not eligible for direct rollover. a) Loan Offsets. The portion of a distribution due to termination of the participant's employment with CG&E which offsets the unpaid portion of a plan loan will not be eligible for direct rollover. a) Periodic Distributions. Any distribution that is one of a series of substantially equal periodic payments, made at least annually, to be paid over the life of the beneficial owner or the joint lives of the beneficial owner and his or her designated beneficiary, or to be paid for a specified period of at least 10 years is not eligible for direct rollover. a) Other. Returns of elective deferrals and corrective distributions of excess contributions and attributable net income are not eligible for direct rollover. Returns of deferrals in excess of the IRC 402(g) limits or in excess of the 415 limits are not eligible for direct rollover. 1. Eligible Retirement Plan. The definition of an eligible retirement plan for the purpose of accepting direct rollovers varies with the class of the person electing the direct rollover. The eligible retirement plan must be willing to accept the rollover distribution. a) Participants and Former Spouse Alternate Payees. Participants and former spouse alternate payees may direct rollovers to an individual retirement account , an individual retirement annuity , an annuity plan or a qualified trust. b) Surviving Spouses. Surviving spouses may direct rollovers only to an individual retirement account, or an individual retirement annuity. A. Settlement Statement. The trustee shall furnish a settlement statement with every distribution. A. Distribution Upon Death of a Participant or Beneficiary. In the event that the participant dies with assets remaining in the plan, the assets will be distributed to the participant's beneficiary. If there is no beneficiary, the assets will be distributed to the participant's surviving spouse. If the participant has no beneficiary or surviving spouse at the time of the participant's death, assets will be distributed to the participant's estate. If the beneficiary of a deceased participant dies while assets remain in the plan, the assets will be distributed to the estate of the beneficiary. In the event an alternate payee dies with assets remaining in the plan, the assets will be paid to the estate of the alternate payee. In each case, the assets will be distributed no later than the close of the plan year which contains the fifth anniversary of the participant's death. If the spouse of a participant or terminated participant is the beneficiary of the plan account, the spouse may delay distribution until the end of the calendar year in which the participant or terminated participant would have attained age 65. See and . A. Plan Hierchary for Distributions. Any sale of a participant's plan assets, which is necessary to generate cash for the purpose of disbursing cash in the amount of after-tax contributions, will be made using the plan hierarchy. WITHDRAWALS DURING EMPLOYMENT ARTICLE I. : WITHDRAWALS DURING EMPLOYMENT A. Withdrawal. A withdrawal is disbursement of any part of the vested assets of a participant to that participant. Distribution installments are not withdrawals. Only participants are eligible to take withdrawals. All other beneficial owners are eligible only for distributions. A. Withdrawals from Company-Matched Sub-Accounts. A participant may not withdraw from the company-matched sub-account during the period s/he is employed by CG&E. A. Withdrawals from Optional Sub-Accounts. Participants may withdraw from their optional sub-accounts plan by filing an application for withdrawal with the Committee. The trustee will disburse the withdrawal directly to the participant , or to another plan if the participant elects and the withdrawal qualifies for direct rollover. See . [This section should be deleted effective 01-01-96.] A. Withdrawals from Optional Sub-Accounts. Participants may withdraw from their optional sub-accounts by the voice or other electronic response system or other media authorized by CG&E. The trustee will disburse the withdrawal directly to the participant , or to another plan if the participant elects and the withdrawal qualifies for direct rollover. See . [This section becomes effective on 01-01-96.] A. Amount Available for Optional Withdrawal. Participants may withdraw either a specific whole dollar amount or the entire balance from their optional sub-accounts. If the participant withdraws less than 100% of his or her optional sub-account balance and requests a second withdrawal within a 12 month period, s/he will be required to withdraw the remaining balance. B. Plan Hierarchy For Withdrawals. If the portion of the participant's account which is to be withdrawn is invested in more than one fund, the withdrawal amount will be deducted from the investment funds using the plan hierarchy. Each fund will be exhausted before the withdrawal draws upon the next fund in the hierarchy. A. Form of Withdrawals. Withdrawals generally consist of a CINergy stock certificate for the units of the CINergy stock fund in the sub-account as of the distribution valuation date, plus cash from the sale of all other plan investments and incidental cash from the CINergy stock fund. A. Cash In Lieu of Stock. A participant may elect to receive cash in lieu of a CINergy stock certificate for his or her assets in the company stock fund. A. Hardship. A hardship is an immediate and heavy financial need of a participant which cannot be met except through a withdrawal from the participant's deferred compensation sub-account in the plan. A. Hardship Withdrawals. A participant may apply to the Committee for a withdrawal of all or a portion of his or her deferred compensation sub-account. The Committee shall not grant the request unless it qualifies under the criteria listed in . [This section should be deleted effective 01-01-96.] A. Hardship Withdrawals. A participant may apply to the Benefits Manager for a withdrawal of all or a portion of his or her deferred compensation sub-account. The Benefits Manager shall not grant the request unless it qualifies under the criteria listed in . [This section becomes effective on 01-01-96.] A. Amount Available for Hardship Withdrawals. The amount available for a hardship withdrawal includes all deferred compensation contributions made in years prior to 1989, including any earnings and losses thereon, and deferred compensation contributions made on or after 01-01-89, excluding earnings and losses thereon. Hardship withdrawals are limited to the actual amount in the participant's account. A. Criteria for Granting a Hardship Withdrawal. The Committee shall use the following criteria when considering an application for a hardship withdrawal: 1. Immediate and Heavy Financial Need. The request must be to satisfy an immediate and heavy financial need for one of the following reasons: a) Medical Expenses. Unreimbursed medical expenses, as described in IRC 213(d), incurred by the participant, the participant's spouse, or any dependents of the participant, as defined in IRC 152, or necessary for those persons to obtain medical care as described in IRC 213(d). a) Purchase of a Principal Residence. Purchase, excluding mortgage payments, of a principal residence of the participant. a) Tuition. Payment of tuition, related educational fees, and room and board for the next 12 months of post-secondary education for the participant, the participant's spouse, children, or dependents. a) Prevention of Foreclosure. Prevention of eviction from, or foreclosure of the mortgage upon, the principal residence of the participant. a) Funeral Expenses. Payment of the funeral expenses of the participant's spouse, children or dependents. a) Other Expenses. Any other expense identified by the Internal Revenue Commissioner as an immediate and heavy financial need. 1. Amount Necessary to Satisfy the Need. The hardship withdrawal is limited to the amount necessary to satisfy the need, plus any amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from the hardship withdrawal. The participant must submit reasonable documentation of the existence and amount of the need. There must be no other resources reasonably available to satisfy the need. The participant must first take all available non-hardship distributions/loans from all of CG&E's other plans: RIP, SIP, MRP . This includes a withdrawal of available funds from the optional sub-account. If a plan loan is either unavailable to the participant, or the available loan is insufficient to meet the need of a participant, and the other criteria of this section are met, the Committee may grant a hardship withdrawal. [This section should be deleted effective 01-01-96.] A. Criteria for Granting a Hardship Withdrawal. The Benefits Manager shall use the following criteria when considering a request for a hardship withdrawal: 1. Immediate and Heavy Financial Need. The request must be to satisfy an immediate and heavy financial need for one of the following reasons: a) Medical Expenses. Unreimbursed medical expenses, as described in IRC 213(d), incurred by the participant, the participant's spouse, or any dependents of the participant, as defined in IRC 152, or necessary for those persons to obtain medical care as described in IRC 213(d). a) Purchase of a Principal Residence. Purchase, excluding mortgage payments, of a principal residence of the participant. a) Tuition. Payment of tuition, related educational fees, and room and board for the next 12 months of post-secondary education for the participant, the participant's spouse, children, or dependents. a) Prevention of Foreclosure. Prevention of eviction from, or foreclosure of the mortgage upon, the principal residence of the participant. a) Funeral Expenses. Payment of the funeral expenses of the participant's spouse, children or dependents. a) Other Expenses. Any other expense identified by the Internal Revenue Commissioner as an immediate and heavy financial need. 1. Amount Necessary to Satisfy the Need. The hardship withdrawal is limited to the amount necessary to satisfy the need, plus any amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from the hardship withdrawal. The participant must submit reasonable documentation of the existence and amount of the need. There must be no other resources reasonably available to satisfy the need. The participant must first take all available non-hardship distributions/loans from all of CG&E's other plans: RIP, SIP, MRP . This includes a withdrawal of available funds from the optional sub-account. If a plan loan is either unavailable to the participant, or the available loan is insufficient to meet the need of a participant, and the other criteria of this section are met, the Benefits Manager may grant a hardship withdrawal. [This section becomes effective on 01-01-96.] A. Required Documentation for Hardship Withdrawals. The participant must file the following documents with the Committee for consideration of a hardship withdrawal: 1. Application. The participant must complete an application for hardship withdrawal, including the spouse's signature acknowledging notice of the application, if the participant is married. 1. Documentation. The participant must attach photocopies of all papers which document the existence and the amount of the need. 1. Written Explanation. The participant must provide a clear and concise explanation, in his or her own words, of how the funds are to be used. 1. Quarterly Statement. The Committee will provide a copy of the participant's most recent quarterly statement indicating the amount of funds that are available to the participant. 1. Personal Financial Statement. A personal financial statement of the participant's assets and liabilities, including the spouse's notarized signature, if the participant is married. [This section should be deleted effective 01-01-96.] A. Required Substantiation for Hardship Withdrawals. The participant must provide the following information to the Benefits Manager for consideration of a hardship withdrawal: a) Request. The participant must make a request to the Benefits Manager for a hardship withdrawal through the voice or other electronic response system or other media authorized by CG&E. If the participant is married, the participant must furnish the Benefits Manager with the signature of the participant's spouse acknowledging notice by the spouse of the request. b) Documentation. The participant must furnish photocopies of all papers which document the existence and the amount of the need. c) Explanation. The participant must provide a clear and concise explanation, in his or her own words, of how the funds are to be used through the voice or other electronic response system or other media authorized by CG&E. d) Quarterly Statement. The Benefits Manager will provide a copy of the participant's most recent quarterly statement indicating the amount of funds that are available to the participant. e) Personal Financial Statement. A personal financial statement of the participant's assets and liabilities, including the spouse's notarized signature, if the participant is married. [This section becomes effective on 01-01-96.] A. Disbursement of Hardship Withdrawals. The trustee will disburse a hardship withdrawal which has been accepted by the Committee directly to the participant. [This section should be deleted effective 01-01-96.] A. Disbursement of Hardship Withdrawals. The trustee will disburse a hardship withdrawal which has been accepted by the Benefits Manager directly to the participant. [This section becomes effective on 01-01-96.] A. Settlement Statement. The trustee shall furnish a settlement statement with every distribution. A. Suspension Following Withdrawal. 1. Optional Sub-Account Withdrawal. Participants who have withdrawn from their optional sub-accounts will not be permitted to make optional contributions to the plan until at least 12 months from the date of disbursement of the withdrawal. 1. Hardship Withdrawal. A participant who is granted a hardship withdrawal shall not be permitted to make deferred compensation or optional contributions to the plan until at least 12 months from the date of the hardship withdrawal disbursement. The IRC 402(g) limit on a participant's deferred compensation contributions for the taxable year of the participant following the taxable year in which the hardship withdrawal occurred shall be reduced by the amount of the participant's deferred compensation contributions during the taxable year in which the hardship withdrawal occurred. LOANS ARTICLE I. : LOANS A. Eligibility for Loans . Participants currently receiving pay from CG&E may apply for and receive a loan from their deferred compensation sub-accounts. No other beneficial owners are eligible for loans. Specifically, participants on leaves of absence, terminated participants, beneficiaries and alternate payees are not eligible to receive loans. A. Loan Requests. Participants may request loans through the current process established by the Committee. The participant must complete and return the promissory note to the trustee. Upon receipt of the completed promissory note, the trustee will send a check for the loan amount to the participant. [This section should be deleted effective 01-01-96.] A. Loan Requests. Participants may request loans through the current process established by the Committee. The participant must execute the promissory note. The promissory note, at the sole discretion of the Committee, may be provided on the back of the check which is issued to the participant for the loan amount. The promissory note will be properly executed and legally enforceable once the participant endorses the back of the check. The participant's endorsement evidences that s/he agrees to the repayment terms. [This section becomes effective on 01-01-96.] A. Limitation of Two Loans at any Given Time. A participant may apply for and obtain a second loan while the first loan remains outstanding. The second loan will be granted at the then prevailing rate of interest and for an entirely separate term of five years or less. The outstanding balance in the participant's loan account will reflect the total of the two loans, although the loans will remain separate and distinct on the trustee's records. The dollar limitation imposed by the plan for one loan will apply to the total outstanding balance for two loans for any given participant. A participant is limited to two outstanding loans at any given time. A. Granting Loans. Loans will be granted from the plan for any reason. A. Loan Amount. 1. 50% of Vested Account Limited by Deferred Compensation Sub-Account. The loaned amount cannot exceed the lesser of $50,000 or 50% of the balance of the participant's vested accrued benefit (company-matched, deferred compensation and optional sub-accounts) and will be further limited by the actual amount in the deferred compensation contribution sub-account on the distribution valuation date for the loan. [This sub-section should be deleted effective 01-01- 96.] 1. 50% of Vested Account Limited by Deferred Compensation Sub-Account and Rollover Sub- Account. The loaned amount cannot exceed the lesser of $50,000 or 50% of the balance of the participant's vested accrued benefit (company- matched, deferred compensation, optional and rollover sub-accounts) and will be further limited by the actual amount in the deferred compensation contribution sub-account and rollover sub-account on the distribution valuation date for the loan. [This sub-section becomes effective on 01-01-96.] 1. Reduction of $50,000 Maximum. The $50,000 maximum loan amount is reduced by the excess (if any) of the highest outstanding balance of loans to that participant during the one-year period ending on the day before the date the loan is made, over the outstanding balances of loans to that participant made under all qualified plans sponsored by CG&E on the date the loan is made. A. Denial of Loans. The trustee shall not loan funds to a participant if granting the loan would result in a violation of any federal or state statute or regulation regarding loans. A. Plan Hierarchy For Loans. If the participant's deferred compensation sub-account is invested in more than one fund, the loan amount will be deducted from the investments funds using the plan hierarchy. Each fund will be exhausted before the loan draws upon the next fund in the hierarchy. [This section should be deleted effective 01-01-96.] A. Pro-rata Liquidation for Loans. The trustee shall liquidate the participant's deferred compensation sub-account investments and rollover sub-account investments in the same proportion that each investment bears to the entire deferred compensation contribution sub-account and rollover sub-account except for the loan fund. The trustee will disburse the cash produced to the participant minus any administrative fee. [This section becomes effective on 01-01-96.] A. Valuing an Account For A Loan. The trustee shall use the value of the account as of the opening of the business day on which it writes the check for the loan to the participant to determine the amount available for the loan. A. Collateral for Loans. 1. Assignment and Restriction of Withdrawals. The participant shall assign 50% of his or her vested accrued account, and shall sign a promissory note for the amount of the loan, including interest, payable to the order of the trustee. No collateral other than the participant's interest in the plan will be accepted as security for a plan loan. If a participant's optional sub-account becomes collateral for his or her loan, s/he will only be able to withdraw from the optional sub-account the difference between its total value and the portion of the balance of the optional sub-account necessary as collateral for the unpaid loan balance. 1. Effect of a DRO Upon Loan Collateral. If there are insufficient assets in the deferred compensation sub-account of a participant to satisfy the terms of a DRO because of one or more outstanding loans, the trustee will first take additional assets from the participant's optional sub-account, second from the company-matched sub- account, and finally from the loan account portion of the deferred compensation sub-account, in order to satisfy the DRO. [This sub-section should be deleted effective 01-01- 96.] 1. Effect of a DRO Upon Loan Collateral. If there are insufficient assets in the deferred compensation sub-account, or next in the rollover sub-account, if any, of a participant to satisfy the terms of a DRO because of one or more outstanding loans, the trustee will first take additional assets from the participant's optional sub-account, second from the company-matched sub- account, third, from the loan account portion of the deferred compensation sub-account, and finally from the loan account portion of the rollover sub-account, if any, in order to satisfy the DRO. [This sub-section becomes effective on 01-01-96.] A. Interest Rate for Loans. The rate of interest charged on loans will be 1/2 of 1% above the prime rate charged by the trustee in its banking business on the first business day of the month during which the application is received by the trustee. [This section should be deleted effective 01-01-96.] A. Interest Rate for Loans. The rate of interest charged on loans will be a reasonable rate based on commercial standards in the lending industry. [This section becomes effective on 01-01-96.] A. Payment of Loans. A participant who applies for a loan must authorize CG&E to deduct loan payments from his or her pay. CG&E will remit loan deductions to the trustee concurrent with disbursements of the payroll. A. Minimum and Maximum Term of Loans. The participant shall specify the number of months for payment of the loan, with 12 months being the minimum term, and 60 months the maximum term. [This section should be deleted effective 01-01-96.] A. Minimum and Maximum Term of Loans. The participant shall specify the number of months for payment of the loan, with 12 months being the minimum term, and 54 months the maximum term. [This section becomes effective on 01-01-96.] A. Investment of Loan Payments. The trustee will direct loan payments to the investment funds according to the participant's most recent allocation of future contributions form that is on file. [This section should be deleted effective 01-01-96.] A. Investment of Loan Payments. The trustee will direct loan payments to the investment funds according to the most recently provided directions given by the participant through the voice or other electronic response system or other media authorized by CG&E. [This section becomes effective on 01-01-96.] A. Outstanding Loans for Terminated Participants. Upon termination of employment, any outstanding loan of a terminated participant is due immediately or the outstanding amount of the loan will be in default pursuant to or and reclassified as a partial distribution. [This section becomes effective on 01-01-96.] A. Outstanding Loans for Participants on Military Leave. Subject to the Committee's approval of such a policy, loan repayments will be suspended under this plan as permitted under IRC 414(u)(4). A. Prepayment of Loans. A participant may pay the remaining loan balance at any time without any pre-payment penalties by check or money order made payable to the trustee. The prepayment should be sent or delivered to the Committee. A. Loan Default. A participant's loan will go into default upon failure to make one or more payments during a calendar year, violation of any term of the promissory note signed by the participant, or upon declaration of the Committee at its discretion under the terms of the promissory note. [This section should be deleted effective ___________.] A. Loan Default. A participant's loan will go into default upon failure to timely make any payment during a calendar year or violation of any term of the promissory note signed by the participant. [This section becomes effective on __________.] A. Tax Effects of Loan Default. The participant shall pay the tax incurred for any events which arise out of any loan transaction with the plan or any failure to make payments under plan and promissory note requirements. A. Curing Loan Default. A participant who has missed one or more loan payments during a plan year may make those payments up by direct payment to the Committee with a check or money order made payable to the order of the trustee in the amount of the payment, plus interest, on or before the final valuation date of the plan year to cure the default without tax or recharacterization consequences. [This section should be deleted effective _________.] A. Curing Loan Default. A participant who misses any loan payment may make up the missed payment by direct payment to the Committee with a check or money order made payable to the order of the trustee in the amount of the payment, plus interest, on or before the last day of the calendar quarter following the calendar quarter in which the required payment was due to cure the default without tax consequences. [This section becomes effective on __________.] A. Reamortization of Loans. A participant may reamortize a loan so long as the total time for repayment of the loan does not exceed 60 months. Loan reamortizations will be under the plan terms and conditions in effect at the time of the reamortization. [This section should be deleted effective 01-01-96.] A. Reamortization of Loans. A participant who is on a leave of absence (other than military leave) for not longer than one year may reamortize a loan so long as the total time for repayment of the loan does not exceed 54 months and the loan payments due after the leave expires (or, if earlier, after the first year of the leave) are not less than those required under the original terms of the loan. Loan reamortizations will be under the plan terms and conditions in effect at the time of the reamortization. [This section becomes effective on 01-01-96.] A. Recharacterization of Sub-accounts . Effective as of the final valuation date of each plan year, the trustee shall recharacterize all or any portion of the optional and/or company-matched sub-accounts of a participant who has failed to make any loan payment(s) during the year, if those missed payments are still outstanding at the final valuation date. The amount recharacterized shall be limited to the amount of the missed payments. The amount rechar- acterized will be credited to the participant's deferred compensation sub-account as a loan payment. The trustee will notify the participant of the taxable amount of the distribution. The Committee does not waive its ability to determine that a loan is in default, or to foreclose upon a loan, by exercising its right to recharacterize the participant's sub-accounts under this provision. [This section should be deleted effective ___________.] A. Loan Fund Administration. 1. Single Loans. The promissory notes securing payment of loans from plan assets will be reflected on participants' quarterly statements under the loan fund assets. When participants receive plan loans, their investment allocations will reflect credits to their loan funds in an amount equal to the principal amount of the loan. Their other sub-accounts will reflect a total reduction in value equivalent to the principal amount of the loan. As participants make loan payments, the value of the participants' loan funds will be reduced by the amount of the payments attributable to the principal of the loans. Principal and interest, as they are paid, will be allocated to investments per the most recent directions given by the participant. Once the loan is completely repaid, the participant's quarterly statement will reflect no investment in the loan fund. 1. Multiple Loans. The trustee shall maintain separate records of principal, interest, and payment schedule for each loan that a participant has outstanding at any given time. The participant's statement will not reflect each separate loan. The loan fund segment of the quarterly statements distributed to participants will reflect the total of all current loans outstanding to the participant. 1. Loans and DROs. The trustee will allocate as much of the participant's loan fund to the alternate payee as is necessary to satisfy the terms of the DRO if there are insufficient other assets in the participant's account due to the amount of the participant's assets on loan. To the extent possible, loans extended prior to the Committee's receipt of the DRO will be allocated to the alternate payee. However, loans extended after receipt of the DRO will be allocated, if necessary to meet the terms of the DRO. The participant will remain solely responsible for loan payments, even if some portion of a loan or loans has been allocated to an alternate payee to satisfy the terms of a DRO. DOMESTIC RELATIONS ORDERS AND ALTERNATE PAYEES ARTICLE I. : DOMESTIC RELATIONS ORDERS AND ALTERNATE PAYEES A. Domestic Relations Order (DRO). A domestic relations order is any judgment, decree or order, made pursuant to a state domestic relations law, which provides that child support, alimony, maintenance payments or marital property allocation will be made from the plan assets of a participant. A domestic relations order is referred to as a DRO throughout the plan. A. General Rule. The benefits due or to become due to any participant are subject to a domestic relations order accepted by the Committee. A. Qualification and Acceptance of a DRO. 1. Initial Order. The DRO must meet the requirements of IRC 414(p) and use the sample DRO language that has been approved by the Committee to be considered as qualified and to be accepted by the plan. The Committee shall determine whether or not a DRO is qualified. A court order which contains language presuming that it is qualified shall not be binding upon the plan. 1. Amended Orders. A DRO which modifies the terms of a previously qualified DRO may be accepted by the Committee. The amended DRO must meet the qualifications of above, and must be filed with the Committee before any irrevocable action has been taken on execution of the initial DRO. Irrevocable actions include executed cash-outs and any transaction which the Committee decides is impossible or impractical to attempt to reverse. A. Special Conditions Applicable to DROs. 1. Prohibition of Allocating Identical Assets Multiple Times. No DRO may allocate benefits which have been allocated by a previously qualified and accepted DRO. However, an amended DRO which is accepted by the plan may reallocate benefits previously allocated without violating this provision. 1. Applicable Plan(s). The nature of benefits allocated to an alternate payee will be determined in accord with the terms of the plan in effect on the date the DRO is entered onto the records of the issuing court. A. Alternate Payee. An alternate payee is a participant's child, spouse, former spouse or other dependent who is designated to receive benefits under the plan by a DRO. The Committee may rely upon the determination of the court which issues the DRO that the designated alternate payee in the order is entitled, under the law of the appropriate state, to be so named. A. Acknowledgment and Acceptance or Rejection of a DRO. As soon as practical after the Committee receives a DRO, it will send the participant and designated alternate payee an acknowledgment of receipt, notice of acceptance or rejection and a copy of the plan procedures for acceptance or rejection of DROs. The Committee will send a copy of the DRO and notice of acceptance or rejection to the trustee. The Committee shall accept or reject a DRO within 18 months of receiving it. A. Division of Assets By the Trustee. 1. On Receipt of a DRO. The trustee shall freeze the account of the participant upon receiving notice from any plan agent that an Order purporting to be a DRO has been received. Participants with frozen accounts may not obtain loans or withdrawals from the plan, and may not reallocate among funds. Distributions on frozen accounts are subject to delay, pending acceptance of a DRO. 1. On Rejection of a DRO. If the order is rejected, the trustee shall keep the account of the participant frozen for a reasonable period of time, pending receipt of an amended DRO which is accepted by the Committee, or direction from the Committee that the participant's account may become active. 1. On Acceptance of a DRO. The trustee shall segregate the plan assets into two or more accounts as directed by the order as soon as it receives notification that an order is accepted. The trustee shall set up new accounts in the name of each alternate payee under the order. The assets in the sub-accounts of the alternate payees shall be allocated among the investment funds in the same proportions as allocated in the sub-accounts of the participant from which they originated. 1. Participant with Outstanding Loans. If a participant has one or more loans outstanding and insufficient liquid deferred compensation sub-account assets to satisfy the terms of an accepted DRO, the trustee shall avoid allocating loan investment assets if possible. The trustee shall first take the necessary additional assets from the optional sub-account until it is exhausted. Second, the trustee shall take the necessary additional assets from the company-matched sub-account until it is exhausted. Finally, the trustee shall allocate the remaining funds necessary to satisfy the DRO from the loan investment portion of the deferred sub-account. (See ). [This sub-section should be deleted effective 01-01- 96.] 1. Participant with Outstanding Loans. If a participant has one or more loans outstanding and insufficient liquid deferred compensation sub-account assets or next rollover sub-account assets, if any, to satisfy the terms of an accepted DRO, the trustee shall avoid allocating loan investment assets if possible. The trustee shall first take the necessary additional assets from the optional sub-account until it is exhausted. Second, the trustee shall take the necessary additional assets from the company-matched sub-account until it is exhausted. Third, the trustee shall take the necessary additional assets from the loan investment portion of the deferred sub-account. Finally, the trustee shall allocate the remaining funds necessary to satisfy the DRO from the loan investment portion of the rollover sub-account. (See ). [This sub-section becomes effective on 01-01-96.] 1. Denial of DRO within 18 Months. If within 18 months of the original receipt of a DRO it, or a successor DRO, is determined to be not qualified, and no amended DRO acceptable to the plan has been submitted to the Committee, the assets in the alternate payees' sub-accounts will be restored to the sub-accounts of the partici- pant. The trustee shall restore the participant's account to active status. A. Participatory Functions of Alternate Payees. Alternate payees may not withdraw from any sub-account, contribute to any sub-account, apply for loans, apply for hardship withdrawals, or elect an installment distribution. An alternate payee may not change his or her investment direction of sub-accounts, except in conjunction with a distribution. The rights of an alternate payee are limited to: receipt of a quarterly statement of his or her account, receipt of the account proceeds in accord with the terms of the DRO or the plan, a change in the allocation of past contributions in conjunction with a distribution , the right to all claims procedures mandated by ERISA and the right to obtain copies of the plan document and summary plan description as mandated by ERISA. None of these rights under the plan will be in effect until the Committee certifies the pertinent DRO as qualified and so notifies the alternate payee. A. Distribution of Assets Valued at $3,500 or Less. The Committee shall distribute any alternate payee's account assets valued at $3,500 or less at any valuation date. Upon the determination of the value of the account, the alternate payee must file an application for distribution. The Committee shall file an application for distribution on behalf of the alternate payee if s/he does not do so within 60 days of the determination of the value of the account pursuant to . If insufficient cash assets are available to distribute because of loans allocated to the account of the alternate payee, this mandatory distribution will be delayed until there are sufficient cash assets in the account. [This section should be deleted effective 01-01-96.] A. Distribution of Assets Valued at $3,500 or Less. The Benefits Manager shall distribute any alternate payee's account assets valued at $3,500 or less at any valuation date. Upon the determination of the value of the account, the alternate payee must apply for distribution through the voice or other electronic response system or other media authorized by CG&E. The Benefits Manager shall apply for distribution on behalf of the alternate payee if s/he does not do so within 60 days of the determination of the value of the account pursuant to . If insufficient cash assets are available to distribute because of loans allocated to the account of the alternate payee, this mandatory distribution will be delayed until there are sufficient cash assets in the account. [This section becomes effective on 01-01-96.] A. Distribution of Assets Valued Over $3,500. If an alternate payee's assets in the plan are valued over $3,500, s/he is not eligible to receive a lump sum distribution until the participant from whom the account was derived reaches age 50, terminates employment, or dies. An alternate payee who becomes eligible for a distribution must file an application for a lump sum distribution with the Committee no later than the 90 days before the end of the year in which the participant from whom the account was derived becomes age 65. If the alternate payee does not file the application for distribution in a timely manner, the Committee shall file the application on his or her behalf pursuant to . [This section should be deleted effective 01-01-96.] A. Distribution of Assets Valued Over $3,500. If an alternate payee's assets in the plan are valued over $3,500, s/he is not eligible to receive a lump sum distribution until the participant from whom the account was derived reaches age 50, terminates employment, or dies. An alternate payee who becomes eligible for a distribution must apply for a lump sum distribution with the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E no later than the 90 days before the end of the year in which the participant from whom the account was derived becomes age 65. If the alternate payee does not apply for distribution in a timely manner, the Benefits Manager shall apply on his or her behalf pursuant to . [This section becomes effective on 01-01-96.] A. Window Cashouts for Alternate Payees. 1. Effective Date. Alternate payees who have been awarded benefits from this plan shall be given a one-time opportunity to receive a lump sum payment of all their plan interest, regardless of the amount of the present value of the benefit. 1. Retroactivity of Provision. Alternate payees who had been awarded plan benefits prior to the effective date of this provision (April 1, 1991) shall also be given this one-time opportunity to receive their total plan benefit. 1. Notification to Alternate Payees. Notification to the alternate payee of this offer shall allow a minimum of 30 days and a maximum of 90 days to make the irrevocable election to receive the lump sum benefit. 1. Timing of Notification. The Committee shall notify the alternate payee of the availability of the window cashout as soon as practical after the assets have been allocated to the account of the alternate payee. Notice of the window distribution shall be sent to alternate payee with an account containing loan fund assets, but shall indicate the delay in availability. See . 1. Effect of Failure to Elect Window Cashout. The plan assets of an alternate payee who does not elect a cashout under this section shall be governed by the other plan rules regarding distributions to alternate payees. A. Death. In the event of an alternate payee's death, his or her remaining plan assets will be distributed to his or her estate. A. Alternate Payees' Responsibilities. Alternate payees must notify the Committee in writing of any address changes, or the name and address of a designated representative. The notification should be signed and dated by the alternate payee and should reference this plan, and the name of the participant from whom the account derives. A. Limitation on Distribution to Alternate Payees. An alternate payee may not receive any mandatory or elective distribution until the alternate payee's account no longer includes loan fund assets, unless the mandatory distribution is required by the IRC or ERISA. An alternate payee may not receive any elective distribution until all assets allocated to the account of the alternate payee have become vested. FIDUCIARIES: AUTHORITY & RESPONSIBILITY ARTICLE I. : FIDUCIARIES: AUTHORITY & RESPONSIBILITY A. Fiduciary. Any person who exercises any discretionary authority or discretionary control respecting management or administration of the plan or the trust pursuant to the provisions of ERISA. A. Fiduciaries. The following are named as fiduciaries: 1. the members of the Committee, and 1. the trustee. A. Trustee. 1. Appointment. The board of directors shall appoint a trustee for the plan. All assets of the plan shall be held for use in accordance with the plan in providing the benefits payable under the plan and for such investment expenses as may properly be incurred by the trustee. 1. Amendment. The trust agreement may be amended and the trustee changed in the manner provided in the trust agreement. 1. Responsibility. The responsibility for the retention of the trust shall lie with the trustee and not with the Committee. 1. Voting. The trustee shall vote the shares of CINergy stock credited to the accounts of beneficial owners in accordance with the instructions given by the beneficial owner. If the instructions are not received by the trustee by the date it has designated prior to any annual or special meeting of shareholders of CINergy, the trustee shall vote the uninstructed shares at its discretion. The trustee shall also vote at its discretion the shares of CINergy stock held in the company stock fund that have not been allocated to participants' accounts as of the record date of any annual or special meeting of shareholders of CINergy. A. Establishment of the Committee. The Committee is the plan administrator, commonly referred to as the DCIP Committee other than in this plan document. The Committee shall consist of not more than five nor less than three members, who shall be appointed by, and serve at the pleasure of, the board of directors. Members of the Committee may resign by delivering written resignation to the board of directors. Resignations shall become effective at delivery or at any later date specified within the written statement. A. Organization of the Committee. The Committee shall elect a chairperson from their number, and a secretary and such other officers as the Committee may designate, who may, but need not, be members of the Committee, to serve at the pleasure of the Committee. No member of the Committee who is also an employee shall receive any compensation for services as such member. A. Powers of the Committee. The powers of the Committee shall include, but not be limited to, the following: 1. Appoint Committees. The Committee may ap- point committees with any powers it deems neces- sary, including an executive committee to exercise all powers of the Committee between meetings of the Committee. 1. Set Meetings. The Committee may determine the times and places for holding meetings of the Committee, and the notice to be given of the meetings. 1. Establish a Quorum. The Committee shall determine the number of members of the Committee necessary to constitute a quorum for the transaction of business. A quorum must be at least a majority of the committee members. 1. Engage Assistants. The Committee may engage agents and assistants, counsel, clerical, medical, vocational, and accounting services as required to carry out the provisions of the plan. 1. Establish an Agent. The Committee may authorize one or more of their members or any employee as its agent to make any payment, or to execute or deliver any instrument on behalf of the Committee or to perform any other function of the Committee. [This sub-section should be deleted effective 01-01- 96.] 1. Establish an Agent. The Committee may authorize one or more of their members or any employee as its agent to make any payment, or to execute or deliver any instrument on behalf of the Committee or to perform any other function of the Committee. The Benefits Manager and the General Manager of Human Resources Services shall serve as agents of the Committee with respect to the duties assigned to these persons under the plan. [This sub-section becomes effective on 01-01-96.] 1. Select Investment Funds. The Committee shall establish, and change as appropriate, an overall plan for providing a diversified group of investments for the trust assets. The Committee shall also select, and change as appropriate, the various investment funds. 1. Litigate on Behalf of the Plan. The Committee shall commence or defend litigation on behalf of the plan and represent the plan in all such proceedings before any court or other tribunal. 1. Interpret the Plan. The Committee shall interpret the plan, resolve any ambiguities in the plan and establish provisions for any circumstances not provided for in the plan, in a manner fair to plan participants in similar circumstances and consistent with other plan provisions. 1. Determine Eligibility for Benefits. The Committee shall determine eligibility for benefits under the plan, including claims to determine a participant's rights to benefits under any former plan provision. [This sub-section should be deleted effective 01-01-96.] 1. Determine Eligibility for Benefits. The Benefits Manager, the General Manager of Human Resources Services and the Committee shall determine eligibility for benefits under the plan, including claims to determine a participant's rights to benefits under any former plan provision. [This sub-section becomes effective on 01-01-96.] 1. Approve or Deny Requests for Hardship Withdrawals. The Committee shall approve or deny requests for hardship withdrawals, subject to the availability of monies, under the provisions of the plan. [This sub-section should be deleted effective 10-17- 95.] 1. Approve or Deny Requests for Hardship Withdrawals. The Senior Manager of Human Resource Strategy shall approve or deny requests for hardship withdrawals, subject to the availability of monies, under the provisions of the plan. [This sub-section becomes effective on 10-17-95 and should be deleted effective 01-01-96.] 1. Approve or Deny Requests for Hardship Withdrawals. The Benefits Manager shall approve or deny requests for hardship withdrawals, subject to the availability of monies, under the provisions of the plan. If a request for a hardship withdrawal is denied or a participant does not receive a response within 30 days from the day the request was made to the Benefits Manager, then the participant may make a request to the General Manager of Human Resources Services for a hardship withdrawal. If a participant's request is denied by the General Manager of Human Resources Services, or a participant does not receive a response within 60 days from the day the request was made to the General Manager of Human Resources Services, then the participant may petition the Committee to receive a hardship withdrawal. The Committee's decision as to a participant's hardship withdrawal request shall be final. See . [This sub-section becomes effective on 01-01-96.] 1. Accept or Reject DROs . The Committee shall determine if a DRO which directs allocation of plan benefits to one or more alternate payees is qualified. 1. Adopt Procedures. The Committee may estab- lish rules, regulations and procedures necessary for the administration of the plan and the transaction of its business. 1. Amend the Plan. The Committee may adopt any amendment to ensure the continued qualification of the plan and trust under IRC 401(a) and 501(a), to comply with the provisions of any federal statute or regulation impacting pension plans, to enhance the delivery of benefits to participants and beneficiaries, to ease plan administration, or to respond to the withdrawal of CG&E or any of its subsidiaries from the plan. No amendment shall substantially increase the cost of the plan without the consent of the board of directors. 1. Require Accounting. The Committee may request accounting and other information from the trustee. 1. Direct the Trustee. The Committee may direct the trustee, by written instrument, to take action consistent with plan administration and the trust agreement. 1. Approve or Deny Requests for Rollover Contributions. The Committee shall approve or deny requests for rollover contributions to the plan. [This sub-section becomes effective on 01-01-96.] A. Committee Actions. All resolutions or other actions taken by the Committee at any meeting shall be by the vote of a majority of the members of the Committee attending the meeting. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting. A. Accounts and Reports. The Committee shall maintain records of its actions and other data necessary for the administration of the plan. The Committee shall prepare and file any reports required by ERISA or the IRC. A copy of these reports shall be maintained in the office of the secretary of the Committee. A. Action Taken in Good Faith. CG&E, the board of directors, officers and employees of CG&E shall be entitled to rely upon all information furnished by the accountant, trustee, and all opinions given by legal counsel. CG&E, the board of directors, officers and employees of CG&E, and any person acting as a fiduciary under the plan shall be fully pro- tected from liability for any action taken, or permitted by them in good faith, in reliance upon any such information furnished by the accountant, trustee, or legal counsel. A. Decisions Final and Binding. The decisions of the Committee on any matter within its authority shall be made in the sole discretion of the Committee and shall be final and binding on all parties, including, but not limited to, CG&E, participants, terminated participants, beneficiaries and alternate payees. A. Insurance. CG&E may purchase insurance to cover liability of one or more persons who serve in a fiduciary capacity with regard to this plan. A. Trust. The fund established under the trust agreement to which all deferred contributions, optional contributions, company-matched contributions, and company-matched stock incentive contributions are made and from which benefits are solely paid under the terms of the plan. Neither CG&E nor its subsidiaries shall be required to make direct payment of any benefit under the plan. [This section should be deleted effective 01-01-96.] A. Trust. The fund established under the trust agreement to which all deferred contributions, optional contributions, company-matched contributions, company-matched stock incentive contributions, and rollover contributions are made and from which benefits are solely paid under the terms of the plan. Neither CG&E nor its subsidiaries shall be required to make direct payment of any benefit under the plan. [This section becomes effective on 01-01-96.] A. Trust Agreement. The trust agreement is the contract between CG&E's board of directors and the trustee governing the duties and rights of the trustee with regard to plan funds. In accordance with the trust agreement, the trustee shall invest all deferred contributions, optional contributions, company-matched contributions, and company-matched stock incentive contributions, and earnings thereon, in the various investment funds. [This section should be deleted effective 01-01-96.] A. Trust Agreement. The trust agreement is the contract between CG&E's board of directors and the trustee governing the duties and rights of the trustee with regard to plan funds. In accordance with the trust agreement, the trustee shall invest all deferred contributions, optional contributions, company-matched contributions, company-matched stock incentive contributions, and rollover contributions, and earnings thereon, in the various investment funds. [This section becomes effective on 01-01-96.] A. Plan and Employer Identification Numbers. The three-digit plan identification number is 004. CG&E's employer identification number is 31-0240030. The Committee's employer identification number is 31- 0910812. ADMINISTRATIVE PROVISIONS ARTICLE I. : ADMINISTRATIVE PROVISIONS A. Filing Documents with the Plan. 1. Filing Date. Generally, documents addressed to the Committee or forms prepared for use by plan participants will be considered to be filed with the Committee or the plan on the day when they are received by any employee benefits coordinator within CG&E's Human Resources Department or the monthly payroll administrator. 1. DROs. On the day a DRO is received by CG&E's Legal Department, Human Resources Department, or the secretary of the Committee, it will be considered to be filed with the Committee. 1. Forms. Forms prepared under the aegis of the SIP Committee or the Committee for the plan will be accepted for use under the plan unless the particular form is inappropriate for use under this plan or has been supplanted by a revised form. A. Benefit Claims Process. 1. Written Request. Any person who claims a benefit under this plan must file the request in writing with the Committee. 1. Denial of a Claim. If the Committee denies the benefit in full or in part, it will send a detailed written reply to the claimant within 90 days after the claim was filed. The written reply will include the following: a) the specific reason(s) for the denial, referencing any specific plan provisions upon which the decision depends; and a) a request for any additional information available to the claimant in support of his or her position and an explanation, if any, of why it would be of assistance in resolving the claim; and a) the procedures available for a further review of the claim. 1. Automatic Denial. If the Committee has not responded in writing to the participant within 90 days of the filing of the benefit claim, the participant may consider the claim to have been denied and pursue the request for reconsideration. 1. Acceptance of a Claim. If the Committee grants the claim, payment will commence within 90 days of receipt of the claim, or a notice of acceptance will be sent to the claimant if commencement of payment is not feasible within that time frame. 1. Reconsideration of Denial. The claimant may apply in writing to the Committee for reconsideration of the claim. The claimant must file for reconsideration within 60 days of receiving the notice of denial. The claimant or his or her authorized representative may request the opportunity to review pertinent plan documents and submit a written statement of issues and comments, in conjunction with the request for reconsideration. 1. Time-frame for Reconsideration. The Committee will render a decision within 60 days after it receives the request for reconsideration. If special circumstances require extension of time for processing the request, the decision by the Committee will be issued within 120 days after it receives the re- quest for reconsideration. 1. Claimant's Representative. A claimant for plan benefits may act on his or her own behalf, or may use a representative who is authorized to act on behalf of the claimant, throughout the administrative claim process. 1. Exhaustion of Administrative Remedies. If the claim for benefits is denied or ignored in full or in part, the claimant may file suit in federal court to pursue the claim. [This section should be deleted effective 01-01-96.] A. Benefit Claims Process. a) Written Request. Any person who claims a benefit under this plan must file the request in writing with the Benefits Manager. b) Denial of a Claim or Failure to Respond by Benefits Manager. If the Benefits Manager denies the benefit in full or in part or fails to respond within 30 days from the day a claimant files his or her written request, then the claimant may petition the General Manager of Human Resources Services to review the claim. c) Denial of a Claim by the General Manager of Human Resources Services. If the General Manager of Human Resources Services denies the benefit in full or in part, he or she will send a detailed written reply to the claimant within 60 days after the claim was filed with the General Manager of Human Resources Services. The written reply will include the following: 1) the specific reason(s) for the denial, referencing any specific plan provisions upon which the decision depends; and 2) a request for any additional information available to the claimant in support of his or her position and an explanation, if any, of why it would be of assistance in resolving the claim; and 3) the procedures available for a further review of the claim by the Committee. d) Automatic Denial. If the General Manager of Human Resources Services has not responded in writing to the claimant within 60 days of the filing of the benefit claim with the General Manager of Human Resources Services, the claimant may consider the claim to have been denied and pursue the request for reconsideration with the Committee. e) Acceptance of a Claim. If the General Manager of Human Resources Services grants the claim, payment will commence within 60 days of receipt of the claim by the General Manager of Human Resources Services, or a notice of acceptance will be sent to the claimant if commencement of payment is not feasible within that time frame. f) Reconsideration of Denial by the Committee. The claimant may apply in writing to the Committee for reconsideration of the claim. The claimant must file for reconsideration within 60 days of receiving the notice of denial from the General Manager of Human Resources Services. The claimant or his or her authorized representative may request the opportunity to review pertinent plan documents and submit a written statement of issues and comments, in conjunction with the request for reconsideration. g) Time-frame for Reconsideration. The Committee will render a decision within 60 days after it receives the request for reconsideration. If special circumstances require extension of time for processing the request, the decision by the Committee will be issued within 120 days after it receives the request for reconsideration. h) Claimant's Representative. A claimant for plan benefits may act on his or her own behalf, or may use a representative who is authorized to act on behalf of the claimant, throughout the administrative claim process. i) Exhaustion of Administrative Remedies. If the claim for benefits is denied or ignored in full or in part upon reconsideration by the Committee, the claimant may file suit in federal court to pursue the claim. [This section becomes effective on 01-01-96.] A. Uniform Administration. Decisions or actions of the Committee with respect to the eligibility for or nature of benefits to be provided under this plan shall be uniformly applied to all persons similarly situated. [This section should be deleted effective 01-01-96.] A. Uniform Administration. Decisions or actions of the Benefits Manager, the General Manager of Human Resources Services, and the Committee with respect to the eligibility for or nature of benefits to be provided under this plan shall be uniformly applied to all persons similarly situated. [This section becomes effective on 01-01-96.] A. Statutory Construction. The plan shall be construed, enforced, and administered according to the laws of the State of Ohio as to any matter not preempted by ERISA. In any case that a provision of the plan is held illegal or invalid for any reason, it shall not affect the remaining provisions of the plan. However, the plan shall be construed, enforced, and administered as if the illegal provision had not been included in the plan. A. Limitation of Rights of the Employee. The plan is strictly a voluntary undertaking on the part of CG&E. The plan is not a contract between CG&E and any employee. The plan does not constitute consideration for, or an inducement or condition of, the employment of any employee. Nothing contained in the plan gives any employee the right to be retained in the service of CG&E or to interfere with the right of CG&E to discharge any employee at any time. A participant does not have any right or claim to a benefit under the plan except upon fulfilling all of the conditions of eligibility and qualification. The participant's right to receive the benefit must have become fixed under the terms of the plan and there must be funds available in the trust sufficient to pay the benefit. A. Alienation of Benefits. Benefits under the plan shall not be subject in any manner to alienation or assignment. Any attempt to assign or alienate plan benefits shall be void, whether such sums remain with the trustee or are in the course of transmission to the person entitled to them. However, benefits are subject to DROs accepted by the Committee. A. Response to Attempted Alienation. If any participant, pensioner, beneficiary, or alternate payee under the plan becomes bankrupt or attempts to alienate or assign any benefit under the plan, except as specifically provided in the plan or by law, then his or her benefit shall terminate. In that event the Committee shall hold the assets of the affected participant, pensioner, beneficiary, or alternate payee for his or her benefit. A. Correction of Inadvertent Error. The Committee may, in its discretion, recoup any benefit payment, or correct any loan, withdrawal, or other error made in contravention of any plan provision, whether by mistake, inadvertence or misrepresentation. Recovery of overpayment may be accomplished by withholding from future benefits due the individual who was enriched by the overpayment, or may be pursued by any other feasible and appropriate manner of collection. Other corrections shall be made in the manner deemed most feasible by the Committee. A. Information from Beneficial Owners. 1. Each beneficial owner shall be required to furnish the Committee, in the form prescribed by it, such personal data, affidavits, authorization to obtain information, and other information as the Committee may deem appropriate for the proper operation and administration of the plan. 1. Misrepresentations of fact by a beneficial owner to the extent that affects their participation or benefits hereunder shall be handled in accordance with the rules of the Committee. In no event shall CG&E, the Committee, or the trustee have an obligation to provide such a beneficial owner with benefits in excess of those which would have been provided under the plan if there had been no misstatement or misrepresentation. A. Facility of Payment. If the Committee determines from evidence that a claimant entitled to receive benefits under this plan is (at the time the benefit is payable) physically, mentally, or legally incompetent to receive such benefit and give valid receipt therefore, and that another person or an institution is then maintaining or has custody of such incompetent individual, and that no guardian, custodian or other representative of the estate of such incompetent individual has been appointed, the Committee may cause payment to be made to that person or institution having custody or maintaining the participant, former participant or beneficiary. The payment, to the extent made, shall operate as a complete discharge of the Committee, CG&E, and the trustee. [This section should be deleted effective 01-01-96.] A. Facility of Payment. If the Benefits Manager determines from evidence that a claimant entitled to receive benefits under this plan is (at the time the benefit is payable) physically, mentally, or legally incompetent to receive such benefit and give valid receipt therefore, and that another person or an institution is then maintaining or has custody of such incompetent individual, and that no guardian, custodian or other representative of the estate of such incompetent individual has been appointed, the Benefits Manager may cause payment to be made to that person or institution having custody or maintaining the participant, former participant or beneficiary. The payment, to the extent made, shall operate as a complete discharge of the Committee, CG&E, and the trustee. [This section becomes effective on 01-01-96.] A. Lost Beneficial Owner. Any benefit payment under the plan shall be forfeited if the Committee, after reasonable effort, is unable to locate the person to whom payment is due. However, any forfeited benefit shall be restored if a valid claim is made for the forfeited benefit; first from forfeitures, and then from company-matched contributions and company-matched stock incentive contributions. [This section should be deleted effective 01-01-96.] A. Lost Beneficial Owner. Any benefit payment under the plan shall be forfeited if the Benefits Manager, after reasonable effort, is unable to locate the person to whom payment is due. However, any forfeited benefit shall be restored if a valid claim is made for the forfeited benefit; first from forfeitures, and then from company-matched contributions and company-matched stock incentive contributions. [This section becomes effective on 01-01-96.] A. Vested Right. No person shall have any vested rights under the plan except to the extent that vested rights may accrue to him or her as provided under the plan. Furthermore, any person with vested rights under the plan shall look solely to the assets of the plan for satisfaction of his or her vested rights. A. Satisfaction of Claims. Any payment to any beneficial owner in accordance with the terms of the plan shall, to the extent thereof, be in full satisfaction of all claims hereunder, whether they be against CG&E, the Committee, or the trustee, any of whom may require the beneficial owner or his or her legal representative, as a condition precedent to any payment, to execute a release and receipt therefore. A. Plan Amendment Procedure. This plan may be amended from time to time as necessary for compliance with laws or regulations, or to meet the needs of covered employees or the plan sponsor. The board of directors, Committee members, human resources personnel, trustee and/or record keeper personnel, plan accountants, actuaries and attorneys, and plan participants or beneficial owners may propose or recommend amendments. Proposed amendments will be discussed and adopted or rejected at Committee meetings. Those proposing amendments are not entitled to attend the meetings when the amendments are considered. In general the Committee has the authority to adopt amendments, but the board of directors reserves the authority to adopt amendments which have a significant effect upon the funding or cost of the plan. Amendments adopted will be reflected in the appropriate meeting minutes. Plan attorneys will incorporate adopted amendments into the plan document. Material modifications will be included in the summary of material modifications sent to participants periodically for attachment to the summary plan description of this plan, and eventually incorporated into the summary plan description itself. MISCELLANEOUS PROVISIONS ARTICLE I. : MISCELLANEOUS PROVISIONS A. Expenses. The operating expenses of the plan, including fees paid to a servicing organization and fees for professional services and technical or clerical assistance, are generally paid by CG&E with some charges specifically allocated to participants by plan terms. CG&E reserves the right to shift some or all of the expenses it pays to the investment funds and/or to the individual beneficial owners. A. Number. Any use of the singular shall be interpreted to include the plural and the plural the singular. A. Plan Procedures. 1. Conflicts between Plan and Procedures. Procedures must be in accordance with the plan as it is then being administered. Any conflict between written procedures and written plan terms, or plan terms required by law, adopted by the board of directors, or the Committee pursuant to the authority delegated to it, shall be resolved in favor of the plan terms, as administered. 1. Sunset Provision. Any procedure, if not examined and re-authorized by the Committee, shall automatically expire on the date 5 years from its date of publication. 1. Expired Procedures. Any expired procedure may be consulted for its historical value in relation to plan administration, but it shall not be dispositive of the administrative decision. A. Titles and Headings. The names of articles, table of contents, section and sub-section headings, and the index of the plan have been inserted for convenience of reference. In the event of any conflict, the text of the plan, rather than titles, headings, etc., shall control. A. Merger, Consolidation, and Transfer of Assets. Before this plan can be merged or consolidated with any other plan, or its assets or liabilities transferred to another plan, each participant in the plan must be entitled to receive a benefit immediately after the merger, transfer, or consolidation (as if the plan had then terminated) which is equal to or greater than the benefit he/she would have been entitled to receive immediately before the merger, consolidation or transfer (as if the plan had then terminated). This plan will accept the transfer of funds from the SIP in accordance with . As a general rule, this plan will not accept a transfer of assets from any other plan for any reason, including rollovers and mergers. [This section should be deleted effective 01-01-96.] A. Merger, Consolidation, and Transfer of Assets. Before this plan can be merged or consolidated with any other plan, or its assets or liabilities transferred to another plan, each participant in the plan must be entitled to receive a benefit immediately after the merger, transfer, or consolidation (as if the plan had then terminated) which is equal to or greater than the benefit he/she would have been entitled to receive immediately before the merger, consolidation or transfer (as if the plan had then terminated). This plan will accept the transfer of funds from the SIP in accordance with . This plan will accept rollovers from other qualified retirement plans. [This section becomes effective on 01-01-96.] A. Transfer of ESOP Funds. The plan will accept a one-time transfer of assets, at the election of participants in the CG&E Employee Stock Ownership Plan (ESOP), from the terminated ESOP at the time the ESOP assets are disbursed directly from the ESOP Plan Trustee to the Trustee of this plan. A. Service of Process. The secretary of the Committee shall be the designated agent of the plan for the service of process in connection with all matters affecting the plan. A. Warranties. Neither CG&E nor the Committee nor the trustee warrant against any loss or diminution in the value of accounts. A. Adoption of the Plan by Subsidiaries. Any subsidiary of CG&E may participate in the plan by indicating its intention to that effect in writing and delivering a copy of the instrument to the board of directors and the trustee for acceptance in writing. Upon acceptance by the board and the trustee, the subsidiary will be bound by the terms of the plan and the trust agreement, and all subsequent plan amendments. Plan amendments are not subject to review or approval by any subsidiary which has elected to participate in the plan. A subsidiary may withdraw from plan participation at any time by delivery of its written intent to withdraw at least 60 days in advance of the effective date of the withdrawal. DISCRIMINATION TESTING ARTICLE I. : DISCRIMINATION TESTING A. Definitions. The following terms are defined for the purpose of this Article only. 1. Average Contribution Percentage (ACP). The ACP is the average of the ratios, calculated separately for each eligible employee [see , and ], of the sum of the eligible employee's optional contributions, company-matched contributions, company-matched stock incentive contributions which are fully vested or are for participants who actually make deferred compensation or optional contributions for the plan year, and any recharacterized deferred compensation contributions, to the eligible employee's compensation for the plan year. [This sub-section should be deleted effective 01-01-97.] 1. Average Contribution Percentage (ACP). The ACP is the average of the ratios, calculated separately for each eligible employee [see , and ], of the sum of the eligible employee's optional contributions, company-matched contributions, company-matched stock incentive contributions which are fully vested or are for participants who actually make deferred compensation contributions for the plan year, and any recharacterized deferred compensation contributions, to the eligible employee's compensation for the plan year. [This sub-section becomes effective on 01-01-97.] 1. Actual Deferral Percentage (ADP). The ADP is the average of the ratios, calculated separately for each eligible employee, of the amount of deferred compensation contributions made on behalf of the eligible employee for the plan year, to the eligible employee's compensation for that plan year. 1. Compensation. Compensation is the total wages earned and other compensation including amounts paid for sick pay, moving expense payments and reimbursements that are not deductible under IRC 217. Compensation also includes employer contributions under this plan and Code Section 125 plans which are not currently taxable to the employee. Premiums for group term life insurance that exceed the IRC 79(a) limits are also included in compensation. Compensation is limited to $150,000 as adjusted by the Internal Revenue Commissioner for increases in the cost of living in accordance with IRC 401(a)(17)(B) in the same manner as base pay is limited. 1. Excess Aggregate Contributions. A participant's excess aggregate contribution for any year is the excess of a) The total amount of the contributions taken into account in computing the numerator of the ACP for a plan year for that participant over a) the maximum amount of that participant's contributions permitted by the ACP test. 1. Excess Contributions. A participant's excess contribution for any year is the excess of a) The total amount of his or her contributions taken into account in computing the numerator of the ADP for a plan year over a) the maximum amount of his or her contributions permitted by the ADP test. 1. Highly Compensated Employee. a) A highly compensated employee is any employee who, during the plan year or the preceding plan year, (A) was at any time a 5% owner, (B) received compensation in excess of $75,000 (or such larger amount as may be determined by the Secretary of Treasury pursuant to IRC 415(d)), (C) received compensation in excess of $50,000 (or such larger amount as may be determined by the Secretary of Treasury pursuant to IRC 415(d) and was in the top-paid group of employees for such plan year, or (D) was at any time an officer and received compensation greater than 50% of the amount in effect under IRC 415(b)(1)(A) for such plan year. Provided, sub-sections (B) through (D) shall apply to an employee meeting such criteria in the plan year only if such employee is also one of the 100 employees who received the most compensation from CG&E during the plan year. For purposes of this sub-section , "compensation" shall include compensation from CG&E and any employer required to be aggregated with CG&E under IRC 414(b), c), (m) or (o). a) A highly compensated employee is any employee who (A) separated from service with CG&E, or is deemed to have separated from service, prior to the plan year, (B) performs no service for CG&E during the plan year, and was a highly compensated employee during either the plan year in which such separation from service occurred or in any plan year ending on or after the employee's 55th birthday. a) The maximum number of officers which will be considered highly compensated employees for a plan year or preceding plan year pursuant to 1)D) above is the lesser of (A) 50 or (B) the greater of three employees or 10% of CG&E's employees. If no officer of CG&E received compensation greater than 50% of the amount in effect under IRC 415(b)(1)(A) for the plan year or the preceding plan year, the highest paid officer for such plan year shall be treated as a highly compensated employee. a) For purposes of 15.1g)1)(C) above, an employee shall be considered a member of the "top paid group" for any year if such employee is in the group consisting of the top 20% of the employees of CG&E when ranked on the basis of compensation paid during the year, pursuant to IRC 414(q)(4). a) If an employee is a "family member" of a highly compensated employee who is a 5% owner (or an employee who was a highly compensated employee by reason of being a 5% owner during the plan year in which the employee separated from service with CG&E or any plan year ending on or after the employee's 55th birthday) during the plan year or the preceding plan year, or a family member of one of the 10 most highly compensated employees of CG&E ranked on the basis of compensation paid by CG&E during the plan year, then the family member and the highly compensated employee shall be aggregated. In such case, the family member and highly compensated employee shall be treated as a single employee receiving compensation and contributions equal to the sum of the compensation and contributions of the family member and highly compensated employee. For purposes of , the term "family member" shall include the spouse, lineal ascendants and descendants of an employee or former employee and the spouses of such lineal ascendants and descendants. a) For purposes of determining whether an employee is a highly compensated employee, the provisions of IRC 414(q), and the regulations thereunder, shall apply. [This sub-section should be deleted effective 01-01- 97.] 1. Highly Compensated Employee. a) A highly compensated employee is any employee who (A) was at any time a 5% owner during the plan year or the preceding plan year, or (B) received compensation for the preceding plan year in excess of $80,000 (or such larger amount as may be determined by the Secretary of Treasury pursuant to IRC 415(d)) and if CG&E elects, was in the top-paid group of employees for such preceding plan year. a) A highly compensated employee is any employee who (A) separated from service with CG&E, or is deemed to have separated from service, prior to the plan year, (B) performs no service for CG&E during the plan year, and was a highly compensated employee during either the plan year in which such separation from service occurred or in any plan year ending on or after the employee's 55th birthday. a) For purposes of 15.1h)1)(B) above, an employee shall be considered a member of the "top paid group" for any year if such employee is in the group consisting of the top 20% of the employees of CG&E when ranked on the basis of compensation paid during the preceding plan year, pursuant to IRC 414(q)(4). a) For purposes of determining whether an employee is a highly compensated employee, the provisions of IRC 414(q), and the regulations thereunder, shall apply. [This sub-section becomes effective on 01-01-97.] A. ADP Testing. The ADP for highly compensated eligible employees for each plan year must satisfy one of the following tests : 1. The ADP Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the ADP for non-highly compensated eligible employees for the plan year, multiplied by 1.25. 1. The ADP Alternative Limitation Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the lesser of a) 2 times the ADP for non-highly compensated eligible employees for the plan year or, a) 2 percentage points, plus the ADP, for non-highly compensated eligible employees. [This section should be deleted effective 01-01-97.] A. ADP Testing. The ADP for highly compensated eligible employees for each plan year must satisfy one of the following tests : 1. The ADP Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the ADP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), multiplied by 1.25. 1. The ADP Alternative Limitation Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the lesser of a) 2 times the ADP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages) or, a) 2 percentage points, plus the ADP, for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages). [This section becomes effective on 01-01-97.] A. ACP Testing. The ACP test will be performed following any recharacterization of deferred contributions required by . The ACP for highly compensated eligible employees for each plan year must satisfy one of the following tests : 1. The ACP Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the ACP for non-highly compensated eligible employees for the plan year, multiplied by 1.25. 1. The ACP Alternative Limitation Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the lesser of a) 2 times the ACP for non-highly compensated eligible employees for the plan year or, a) 2 percentage points, plus the ACP, for non-highly compensated eligible employees. [This section should be deleted effective 01-01-97.] A. ACP Testing. The ACP test will be performed following any recharacterization of deferred contributions required by . The ACP for highly compensated eligible employees for each plan year must satisfy one of the following tests : 1. The ACP Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), multiplied by 1.25. 1. The ACP Alternative Limitation Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the lesser of a) 2 times the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages) or, a) 2 percentage points, plus the ACP, for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages). [This section becomes effective on 01-01-97.] A. Multiple Use of Alternative Limitation. If neither the ADP nor the ACP for highly compensated employees meets the tests in and , the multiple use test of the alternative limitation must be satisfied for the plan year. In order to satisfy the multiple use test of the alternative limitation, the sum of the ACP for highly compensated employees and the ADP for highly compensated employees may not exceed the greater of the following : 1. the sum of: a) 1.25 times the greater of the ADP or the ACP for non-highly compensated eligible employees, and a) the lesser of: (1) 2 percentage points plus the lesser of the ADP or ACP for the non-highly compensated eligible employees, or (1) 2 times the lesser of the ADP or ACP of the non-highly compensated eligible employees; or 1. the sum of: a) 1.25 times the lesser of the ADP or the ACP for non-highly compensated eligible employees, and a) the lesser of: (1) 2 percentage points plus the greater of the ADP or ACP of non-highly compensated eligible employees, or (1) 2 times the greater of the ADP or ACP of non-highly compensated eligible employees. [This section should be deleted effective 01-01-97.] A. Multiple Use of Alternative Limitation. If neither the ADP nor the ACP for highly compensated employees meets the tests in and , the multiple use test of the alternative limitation must be satisfied for the plan year. In order to satisfy the multiple use test of the alternative limitation, the sum of the ACP for highly compensated employees and the ADP for highly compensated employees may not exceed the greater of the following : 1. the sum of: a) 1.25 times the greater of the ADP or the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), and a) the lesser of: (1) 2 percentage points plus the lesser of the ADP or ACP for the non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), or (1) 2 times the lesser of the ADP or ACP of the non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages); or 1. the sum of: a) 1.25 times the lesser of the ADP or the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), and a) the lesser of: (1) 2 percentage points plus the greater of the ADP or ACP of non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), or (1) 2 times the greater of the ADP or ACP of non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages). [This section becomes effective on 01-01-97.] A. Corrective Procedure If ADP Limitation Exceeded. If the plan fails the ADP test provided for in this Article, the following procedure will be followed: 1. Reduction of Highly Compensated Participants' ADP. The ADP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ADP test. In determining the amount of excess contributions for each highly compensated participant, the highest ratio will be reduced to the next highest ratio until the maximum allowed percentage is reached . [This sub-section should be deleted effective 01-01- 97.] 1. Reduction of Highly Compensated Participants' ADP. The ADP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ADP test. Excess contributions will be returned to the highly compensated participants who contributed the largest dollar amounts until the maximum allowed percentage is reached . [This sub-section becomes effective on 01-01-97.] 1. Recharacterization of Excess Contributions. The amount resulting from a reduction in a participant's deferred compensation contributions in or above shall be recharacterized as optional contributions and treated as taxable income to the participant in the tax year in which the participant would have received them if he or she had originally elected to receive them in cash. This recharacterization normally will be made within 2 1/2 months after the close of the plan year . A. Corrective Procedure if ACP Limitation Exceeded. If the plan fails the ACP test, the following procedure will be followed, after recharacterizing any deferred compensation contributions required under or : 1. Reduction of Highly Compensated Participants' ACP. The ACP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ACP test. In determining the amount of excess aggregate contributions for each highly compensated participant, the highest ratio will be reduced to the next highest ratio until the maximum allowed percentage is reached. [This sub-section should be deleted effective 01-01- 97.] 1. Reduction of Highly Compensated Participants' ACP. The ACP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ACP test. Excess aggregate contributions will be returned to the highly compensated participants who contributed the largest dollar amounts until the maximum allowed percentage is reached. [This sub-section becomes effective on 01-01-97.] 1. Disposition of Excess Aggregate Contributions. The aggregate excess contributions resulting from a reduction in a highly compensated participant's ACP ratio in shall be disposed of as follows: a) Excess Optional Contributions. Any excess optional contributions, plus the net of any income or loss attributable to optional contributions as of the last day of the plan year, normally will be distributed to the participant within 2 1/2 months after the end of the plan year. However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year. a) Excess Company-Matched Contributions. Any excess company-matched contributions which are not vested will be treated as forfeitures under . Any excess vested company-matched contributions plus the net of any income or loss attributable to the excess company-matched contributions as of the end of the plan year, shall normally be distributed to the participant within 2 1/2 months after the end of the plan year. However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year. a) Excess Company-Matched Stock Incentive Contributions. Any excess company-matched stock incentive contributions which are not vested will be treated as forfeitures under . Any excess vested company-matched stock incentive contributions plus the net of any income or loss attributable to the excess company-matched stock incentive contributions as of the end of the plan year, shall normally be distributed to the participant within 2 1/2 months after the end of the plan year. However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year. A. Corrective Procedure if the Test for the Multiple Use of Alternative Limitation is Exceeded. If the plan fails the test for the multiple use of the alternative limitation, the following procedure will be followed: 1. Simultaneous Reduction of the ADP and ACP of Highly Compensated Participants. After determining the amount of excess contributions and excess aggregate contributions for each highly compensated participant, the participants with the highest individual ADP and ACP ratios will have their ratios reduced to the next highest ADP and ACP ratio, until the maximum multiple use limit is reached. [This sub-section should be deleted effective 01-01- 97.] 1. Simultaneous Reduction of the ADP and ACP of Highly Compensated Participants. After determining the amount of excess contributions and excess aggregate contributions for each highly compensated participant, the participants who contributed the largest dollar amounts will have their contributions returned, until the maximum multiple use limit is reached. [This sub-section becomes effective on 01-01-97.] 1. Disposition of Excess Contributions and Excess Optional Contributions and Excess Vested Company-Matched Contributions and Excess Vested Company-Matched Stock Incentive Contributions. Any excess contributions, optional contributions, vested company-matched contributions and vested company-matched stock incentive contributions which are determined by the application of or , plus the net of any income or loss attributable to the excess contributions, optional contributions, vested company-matched contributions and vested company-matched stock incentive contributions as of the last day of the plan year, shall normally be distributed to the participant within 2 1/2 months after the end of the plan year. However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year. LIMITATION ON ANNUAL ADDITIONS ARTICLE I. : LIMITATION ON ANNUAL ADDITIONS A. Definitions. The following terms are defined solely for purposes of this Article: 1. Annual Addition. A participant's annual addition is the sum of the following amounts credited to the participant's account for a plan year: a) deferred compensation contributions; a) company-matched contributions; a) company-matched stock incentive contributions; a) optional contributions; and a) forfeitures. 1. Compensation. A participant's compensation for any plan year consists of his or her total wages earned and other compensation including amounts paid for sick pay, moving expense payments and reimbursements that are not deductible under IRC 217, and premiums for group term life insurance that exceed IRC 79(a) limits. Compensation also includes any distribution from any non-qualified deferred compensation plan paid to the participant while s/he remains employed. Compensation does not include employer contributions under this plan or any IRC 125 plan which are not currently taxable to the employee or any distributions from a qualified deferred compensation plan, regardless of whether such amounts are includable in the employee's gross income when distributed. 1. Defined Benefit Fraction. The defined benefit plan fraction applicable to a participant for any plan year is a fraction: 1) the numerator of which is the participant's projected annual benefit (determined as of the close of the plan year) under the MRP; and 2) the denomi- nator of which is the lesser of 1.25 multiplied by the dollar limitation under IRC 415 for defined benefit plans for such year, or 1.4 multiplied by the participant's average compensation for the 3 consecutive calendar years aggregating the greatest compensation from CG&E during which s/he participated in the plan. 1. Defined Benefit Plan. A qualified plan as defined in IRC 414(j). 1. Defined Contribution Fraction. The defined contribution fraction applicable to a participant for any plan year is a fraction: 1) the numerator of which is the sum of annual additions to the participant's account under the plan as of the close of the limitation year; and 2) the denominator of which is the sum of the lesser of the following amounts determined for the limitation year and for each prior limitation year of service with CG&E: (1) the product of 1.25 multiplied by the dollar limitation under IRC 415(c)(1)(A) for defined contribution plans for such year, or (2) the product of 1.4 multiplied by 25% of the participant's compensation for such year. 1. Defined Contribution Plan. A qualified plan as defined in IRC 414(i). 1. Company. The employer that adopts this plan, and all members of a controlled group of corporations, all commonly controlled trades or businesses or affiliated service groups of which the adopting employer is a part, and any other entity required to be aggregated with the employer pursuant to IRC 414(o) regulations. 1. Excess Amount. The excess of the participant's annual additions for the plan year over the maximum annual additions permitted under this Article for the plan year. 1. Projected Annual Benefit. A participant's projected annual benefit is an amount equal to the annual benefit that the participant would be entitled to receive under the terms of the defined benefit plan in which he is a participant, assuming that: a) the participant continues employment until his or her normal retirement age; a) that his or her compensation continues at the same rate as in effect in the plan year under consideration; and a) that all relevant factors used to determine benefits under such plan remain constant. Projected annual benefit is a benefit expressed in the form of a single life annuity disregarding any ancillary benefits or benefits attributable to a rollover contribution. A. General Limitations. Notwithstanding any other provisions of this plan, the maximum annual addition credited to the account of a participant for any plan year shall not exceed the lesser of: 1. $30,000, or 1. 25% of the participant's compensation for that plan year. A. Estimation of Compensation. Prior to the determination of a participant's actual compensation for a plan year, the maximum annual addition for a participant may be computed using a reasonable estimation of the participant's compensation for a plan year. A. Disposition of Excess Amount. In the event the limitations of this Article are exceeded because of an allocation of forfeitures, a reasonable error in estimating a participant's compensation or other reasonable circumstances, the excess amount shall be disposed of as follows : 1. First, any optional contributions that are not eligible for company-matched contributions and company-matched stock incentive contributions will be returned to the participant to the extent that the return would reduce the excess amount. [This sub-section should be deleted effective 01-01- 97.] 1. First, any optional contributions will be returned to the participant to the extent that the return would reduce the excess amount. [This sub-section becomes effective on 01-01-97.] 1. Second, any deferred compensation that are not eligible for company-matched contributions and company-matched stock incentive contributions will be returned to the participant to the extent that the return will reduce the excess amount. 1. Third, any company-matched contributions, made on behalf of a participant under this plan shall be reduced to the extent that the reduction will reduce the excess amount. Such reduction in company-matched contributions shall be treated as a forfeiture in accordance with . 1. Fourth, any company-matched stock incentive contributions, made on behalf of a participant under this plan shall be reduced by the amount needed to eliminate the excess amount. Such reduction in company-matched stock incentive contributions shall be treated as a forfeiture in accordance with . A. Aggregation of Plans of CG&E. 1. For purposes of applying the limitation of this Article, all defined benefit plans (whether or not terminated) of CG&E shall be treated as one defined benefit plan and all defined contribution plans (whether or not terminated) shall be treated as one defined contribution plan. 1. If an excess amount results from the aggregation of annual additions under this plan with annual additions under another defined contribution plan: a) the excess amount shall be first attributable to this plan; and a) such excess amount shall be treated in accordance with . 1. Where a participant is a participant at any time in both a defined contribution plan and a defined benefit plan sponsored by CG&E, the sum of the defined benefit fraction and the defined contribution fraction for any plan year shall not exceed 1.0. Should this limitation be exceeded in any plan year, the participant's benefits under the MRP shall be appropriately reduced so that the defined benefit fraction is equal to the difference between 1.0 and the defined contribution fraction. AMENDMENT AND TERMINATION OF THE PLAN ARTICLE I. : AMENDMENT AND TERMINATION OF THE PLAN A. Amendment of the Plan. 1. Reservation of Right. CG&E expects to continue the plan indefinitely, but as future conditions cannot be foreseen, the board of directors reserves the right to amend or terminate the plan at any time. 1. Effect on Participants. No amendment shall retroactively reduce the rights or benefits of participants or permit the return to CG&E of the CINergy stock, other securities, obligations, deposits, or cash held by the trustee, or permit their use or diversion for any purpose other than for the exclusive benefits of the participants or their beneficiaries. In addition, no amendment shall eliminate an optional form of benefit or eliminate or reduce an early retirement option with respect to benefits attributable to service before this amendment. 1. Discontinuance of Contributions. In the event of a complete discontinuance of company-matched contributions or company-matched stock incentive contributions, the company-matched sub-account will be immediately vested. A. Plan Termination. If the plan is terminated all contributions will cease. The Committee shall direct the trustee to determine the value of each beneficial owner's account as of the date of termination. The value of any unallocated plan assets shall be allocated to the beneficial owners. Each beneficial owner shall become fully vested in the total value of his or her account. Each beneficial owner's balance shall be segregated by the trustee pending disposition. Distribution shall be made, in a single payment, to each beneficial owner as soon as practicable following the date of plan termination. No amendment shall deprive the beneficial owners of their vested rights upon termination of the plan. A. Partial Termination. If the plan is partially terminated, all contributions to the accounts of all affected participants will cease. The Committee shall direct the trustee to determine the value of each affected beneficial owner's account as of the date of the partial termination. The value of any unallocated plan assets shall be allocated to beneficial owners. Each affected beneficial owner shall become fully vested in his or her account. Distribution shall be made, in a single payment, to each beneficial owner as soon as practical following the date of partial plan termination. However, no distribution from a participant's deferred compensation contribution sub-account shall be made at a time not otherwise permitted under the plan. No amendment shall deprive the affected beneficial owners of their vested rights upon partial termination of the plan. A. Liquidation of the Investment Funds. The trust and the investment funds shall continue in existence after the termination of the plan for such period of time as may be required to complete the liquidation thereof in accordance with the terms of this Article. TOP-HEAVY PROVISIONS ARTICLE I. : TOP-HEAVY PROVISIONS A. General Rule. For any plan year for which this plan is a "top-heavy plan" the following provisions will supersede any other conflicting provisions of the Plan: 1. The vesting provisions of or . 1. The minimum contribution provisions of . 1. The limitation on contributions set by . A. Vesting Provisions. 1. Minimum Service Requirements. Participants who have completed at least three years of service and who have completed an hour of service during any plan year in which the plan is top-heavy, shall have a nonforfeitable right to the benefit accrued under this plan. 1. Change from Top-Heavy Status. If the plan ceases to be top-heavy, each participant's vested accrued benefits shall be no less than his or her account balance as of the last day of the last plan year in which the plan was top-heavy. Each participant with 5 or more years of service shall have the right to elect to continue to vest in accordance with the provisions of this Section. Such election must be made in writing to the Committee within 60 days of receipt of written notice. [This section should be deleted effective 01-01-96.] A. Vesting Provisions. a) Minimum Service Requirements. Participants who are credited with an hour of service on or after January 1, 1996 shall have a nonforfeitable right to the benefit accrued under this plan. b) Change from Top-Heavy Status. For participants who are credited with an hour of service on or after January 1, 1996, if the plan ceases to be top-heavy, each participant's vested accrued benefits shall be no less than his or her account balance as of the last day of the last plan year in which the plan was top-heavy. [This section becomes effective on 01-01-96.] A. Minimum Contribution Provisions. 1. Participants Entitled to Minimum Contributions. Each participant who is a non-key employee and who is also employed on the last day of the plan year, even if s/he has failed to complete 1,000 hours of service during the plan year, or is an eligible employee who is excluded from the plan under because of a break in service, or for failing to commence participation in the plan, shall be entitled to have a combination of contributions and forfeitures allocated to his or her account totaling not less than three percent (the "minimum contribution percentage") of his or her compensation. [This sub-section should be deleted effective 01- 01-96.] 1. Participants Entitled to Minimum Contributions. Each participant who is credited with an hour of service on or after January 1, 1996 and who is a non-key employee and who is also employed on the last day of the plan year, even if s/he has failed to complete 1,000 hours of service during the plan year, or is an eligible employee who is excluded from the plan under for failing to commence participation in the plan, shall be entitled to have a combination of contributions and forfeitures allocated to his or her account totaling not less than three percent (the "minimum contribution percentage") of his or her compensation. [This sub-section becomes effective on 01-01-96.] 1. Reduction of Minimum Contribution Percentage. The minimum contribution percentage set forth above shall be reduced for any plan year to the percentage at which contributions (including forfeitures) are made (or required to be made) under the plan for the plan year for the key employee for whom such percentage is the highest for such plan year. 1. Determining the Percentage of Key Employees. For the purpose of above, the contribution percentage of the key employee shall be determined by dividing the company-matched contributions, company-matched stock incentive contributions and deferred compensation contributions (including forfeitures) made for the key employee by so much of his or her total compensation for the plan year as does not exceed the limitation on compensation. Contributions taken into account under the preceding sentence shall include company contributions under this plan and/or the SIP. Contributions taken into account under this sub-section shall not include any contributions under the Social Security Act or any other federal or state law. A. Top-Heavy Plan Definition. This plan is top-heavy if, as of the determination date the aggregation group for a given plan year is a top-heavy group. As used in this Article, these terms have the following meanings: 1. Determination Date. For any plan year the last day of the preceding plan year. 1. Present Value. The sum of (1) the account balance determined as of the most recent valuation date that is within the twelve-month period ending on the determination date, (2) an adjustment for contributions due as of the determination date, and (3) for defined contribution plans, the amount in dollar value of the aggregate distributions made to any employee under the applicable plan during the five year period ending on the determination date unless reflected in the value of the accrued benefit or account balance as of the most recent valuation date as defined in that plan. 1. Aggregation Group. An aggregation group is the group of qualified plans, if any, that are required to be aggregated in accordance with IRC 416. 1. Top-Heavy Group. a) The aggregated group of plans is top-heavy if, as of the applicable determination date, the following ratio exceeds 60%: (1) The ratio of: the sum of the present value of the cumulative accrued benefits for key employees under the MRP, plus the sum of the account balances of key employees under this plan and all other plans included in the aggregation group (1) To: the sum of the present value of the accrued benefits for all participants, excluding former key employees, under the MRP, plus the sum of account balances for all participants, excluding former key employees, under this plan and all other plans included in the group. a) In calculating the top-heavy ratio and determining if it exceeds 60%, the MRP Committee shall comply with the provisions of IRC 416. a) If the aggregation group is a top-heavy group as of the determination date, each plan in the group will be top-heavy. If the aggregation group is not a top-heavy group as of the determination date, no plan within such group will be top-heavy. 1. Key Employee. An employee who, at any time during the plan year or any of the 4 preceding plan years, was: a) an officer or former officer of CG&E having annual compensation greater than 50 percent of the defined benefit limitation of IRC 415(b)(1)(A). The IRC 415(b)(1)(A) defined benefit limitation was $90,000 in 1986, and is adjusted annually; or a) one of the 10 employees having annual compensation of more than the limitation in effect under IRC 415(c)(1)(A) and owning, or considered as owning within the meaning of IRC 318, both more than a 1/2% interest and the largest interests in CG&E ; or a) a 5% owner, or a) a 1% owner with annual compensation of more than $150,000. 1. 1% Owner. Any person who owns, or is considered as owning within the meaning of IRC 318, more than 1% of the outstanding stock of CG&E or stock possessing more than 1% of the combined voting power of all stock of CG&E. 1. 5% Owner. Any person who owns, or is considered as owning within the meaning of IRC 318, more than 5% of the outstanding stock of CG&E or stock possessing more than 5% of the combined voting power of all stock of CG&E. A. Adjustments to IRC Section 415 for Top-Heavy Plans. In the event this plan is top-heavy and participants also participate in the MRP, one of the two following provisions shall apply: 1. If for the plan year this plan would not be a "top-heavy plan" as defined in if "90%" were substituted for "60%," then shall apply for such plan year as if amended so that "four percent" were substituted for "three percent". 1. If for the plan year this plan would continue to be a "top-heavy plan" if "90%" were substituted for "60 %," then the denominator of both the defined contribution plan fraction and the defined benefit plan fraction shall be calculated as set forth in and for the limitation year ending in such plan year by substituting "1.0" for "1.25", except with respect to any individual for whom there are no deferred compensation contributions, or company-matched contributions, company-matched stock incentive contributions, forfeitures or optional contributions allocated or any accruals for such individuals under the defined benefit plan. A. Coordination with Other Plans. In the event this plan is determined to be top-heavy, the provisions of the MRP dealing with minimum benefits and with limitations on benefits shall be substituted for and of this plan. CERTIFICATE This plan has been approved and adopted by the Deferred Compensation Investment Plan Committee on / /96, subject to comments pursuant to the issuance of a determination letter by the Internal Revenue Service. _____________________________________ Richard L. Bond Secretary of the Deferred Compensation Investment Plan Committee _____________________________________ Date INDEX This index references the root of hyphenated words as if they were single words, e.g. "account" will also reference the occurrence of "sub-account". This index also references words and phrases in the text and the endnotes. Endnote references reflect the text page where the endnote occurs, not the page where the endnote itself is printed. EX-10.X 12 THE CINCINNATI GAS & ELECTRIC COMPANY SAVINGS INCENTIVE PLAN As Amended and Restated Effective January 1, 1995 TABLE OF CONTENTS PAGE ARTICLE 1: INTRODUCTION 1 ARTICLE 2: DEFINITIONS 3 ARTICLE 3: PARTICIPATION 6 ARTICLE 4: CONTRIBUTIONS 17 ARTICLE 5: INVESTMENTS 30 ARTICLE 6: ACCOUNTS 38 ARTICLE 7: VESTING AND FORFEITURES 41 ARTICLE 8: DISTRIBUTIONS 47 ARTICLE 9: WITHDRAWALS DURING EMPLOYMENT 65 ARTICLE 10: LOANS 76 ARTICLE 11: DOMESTIC RELATIONS ORDERS AND ALTERNATE PAYEES 88 ARTICLE 12: FIDUCIARIES: AUTHORITY & RESPONSIBILITY 98 ARTICLE 13: ADMINISTRATIVE PROVISIONS 107 ARTICLE 14: MISCELLANEOUS PROVISIONS 117 ARTICLE 15: DISCRIMINATION TESTING 120 ARTICLE 16: LIMITATION ON ANNUAL ADDITIONS 135 ARTICLE 17: AMENDMENT AND TERMINATION OF THE PLAN 141 INDEX 144 INTRODUCTION ARTICLE 1: INTRODUCTION 1.1 History. The Cincinnati Gas & Electric Company (CG&E) instituted the Employee Incentive Thrift Plan in 1967. CG&E amended the plan on October 1, 1985 for weekly and hourly paid employees to enable those employees to delay the payment of some income taxes and to choose from a wider variety of investment options. As a result of the extensive amendments, the plan was renamed The Cincinnati Gas & Electric Company Savings Incentive Plan. 1.2 Purpose. The plan is designed to provide retirement income to the weekly and hourly paid employees of CG&E and certain death benefits to their beneficiaries. The plan is designed to supplement the participants' Retirement Income Plan benefits which in turn are to be supplemented by the benefits payable under the Social Security Act, and their personal savings for retirement. 1.3 Plan Qualification. CG&E has designed this plan to comply with the provisions of Internal Revenue Code 401(a), 401(k), and 501 as a qualified pension plan and to conform to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). All plan provisions are subject to change at any time to the extent necessary to retain the qualified status of the plan or to bring it into compliance with ERISA. The plan and trust agreement shall be construed and interpreted in a manner that gives effect to the intent of retaining the qualified status of the plan. 1.4 Effective Date. Except as otherwise noted with respect to a particular provision, the effective date of the amendment and restatement of this plan is January 1, 1995. Earlier or later amendments to this plan become effective on the date specifically designated in the plan document. ADMINISTRATIVE NOTES DEFINITIONS ARTICLE 2: DEFINITIONS 2.1 Scope of this Article. Definitions of terms relevant to more than one article of the plan are generally included in this Article. Definitions of terms which are used primarily in a single article are defined in that article. 2.2 List of Defined Terms. This section contains a complete list of all defined terms used in this plan. Each defined term is followed by a reference to the section in which it is defined. account 6.1a) ACP 15.1a), 15.1b) ADP 15.1c) alternate payee 11.5 annual addition 16.1a) base pay 4.1 beneficial owner 3.17 beneficiary 3.16 board of directors 2.3 break in service 3.10 CG&E 2.4 CINergy 2.5 Committee 12.4 company 16.1g) company-matched contributions 4.2c), 4.3c), 4.3d) company-matched stock incentive contributions 4.2d), 4.3e), 4.3f) company stock fund 5.3a) compensation 15.1d), 16.1b) DCIP 2.6 deferred compensation contributions 4.2a), 4.3a) defined benefit fraction 16.1c) defined benefit plan 16.1d) defined contribution fraction 16.1e) defined contribution plan 16.1f) distribution 8.1 distribution valuation date 8.3 DRO 11.1 eligible employee 3.2a), 3.2b) eligible retirement plan 8.12d) employee 3.1 entry date 3.13, 3.14 ERISA 2.7 ESA&P 3.2c)6) excess aggregate contribution 15.1e) excess amount 16.1h) excess contribution 15.1f) Fidelity Equity-Income Fund 5.3c) Fidelity Intermediate Bond Fund 5.3d) Fidelity Magellan Fund 5.3b) Fidelity Retirement Money Market Fund 5.3f) fiduciary 12.1 forfeiture 7.6a), 7.6b) hardship 9.9 hardship withdrawals 9.10, 9.11 highly compensated employee 15.1g), 15.1h) hour of service 3.6 IBEW 3.25a) IRC 2.8 IUU 3.25b) loan fund 5.3g) mandatory distribution year 8.6a), 8.7a) military leaves 7.5b) money market fund 5.3e), 5.3f) non-eligible employee 3.2c) optional contributions 4.2b), 4.3b) parental leaves 7.5a) participant 3.3 plan 2.9 plan participation forms 3.15 plan year 2.10 pooled investment funds 5.4 projected annual benefit 16.1i) quarterly account statements 6.2 RIP 2.11 rollover contributions 4.3g) sub-account 6.1b), 6.1c) terminated participant 3.4 the PNC fund 5.3e) trust 12.12, 12.13 trust agreement 12.14, 12.15 trustee 12.3 USWA 3.25c) vesting 7.1 VIR Line 5.4 window cashouts 11.13 withdrawal 9.1 year of service 3.8, 3.9 year of vesting service 7.2 2.3 Board of Directors. The board of directors is the board of directors of The Cincinnati Gas & Electric Company. 2.4 CG&E. CG&E is The Cincinnati Gas & Electric Company, the plan's sponsor, and any related company which has adopted the plan and has employees participating in the plan. 2.5 CINergy. CINergy is CINergy Corp., the name of the parent holding company of CG&E. 2.6 DCIP. The DCIP is the CG&E Deferred Compensation and Investment Plan. 2.7 ERISA. ERISA is the Employee Retirement Income Security Act of 1974, as amended. 2.8 IRC. IRC is the Internal Revenue Code of 1986, as amended. 2.9 Plan. The plan is the CG&E Savings Incentive Plan, as set forth in this document. 2.10 Plan Year. The plan year is the calendar year. 2.11 RIP. The RIP is the CG&E Retirement Income Plan. 2.12 SIP. The SIP is the CG&E Savings Incentive Plan. 2.13 Related Company. A related company is any entity which is: a) A member of a controlled group of corporations, as defined in IRC 1563(a), ignoring IRC 1563(e)(C)(3), and, solely for the purpose of 2.4, modifying the IRC 1563 (a) phrase "at least 80%" to read "more than 50%", and b) An unincorporated trade or business which is under common control with The Cincinnati Gas & Electric Company, as determined under IRC 414(c), and c) A member of an affiliated service group as defined in IRC 414(m), and d) Any entity required to be aggregated with The Cincinnati Gas & Electric Company under IRC 414(o), and e) Any other subsidiary or affiliate of The Cincinnati Gas & Electric Company designated by its board of directors to be a related company. PARTICIPATION ARTICLE 3: PARTICIPATION 3.1 Employee. An employee is any person earning a wage or salary from CG&E, including leased employees.1 3.2 Participation. a) Eligible Employee. An eligible employee is any full-time employee on the CG&E weekly or hourly payroll who has completed a year of service pursuant to 3.8. The term eligible employee shall include employees who have completed a year of service with a related company. A year of service performed for a related company prior to the date the relationship with The Cincinnati Gas & Electric Company began is included for the purpose of determining eligibility to participate in this plan. The term eligible employee shall include an individual who is a citizen of the United States and is an employee of a related company, if that company has entered into an agreement under IRC 3121(l). [This sub-section should be deleted effective 01-01-96.] b) Eligible Employee. An eligible employee is any full-time employee on the CG&E weekly or hourly payroll. The term eligible employee shall include an individual who is a citizen of the United States and is an employee of a related company, if that company has entered into an agreement under IRC 3121(l). [This sub-section becomes effective on 01-01-96.] c) Non-Eligible Employees. The following defined classes of employees are excluded from plan participation. 1) Co-op Employees. Co-op employees are students working for CG&E through a recognized cooperative education program. 2) Summer Employees. Summer employees are students employed by CG&E during the summer. 3) Temporary Employees. Temporary employees are employees of an employment agency who perform services for CG&E on specific tasks and/or for a specified time period. Generally, temporary employees are directly supervised by CG&E employees. 4) Part-time Employees. Part-time employees are employees whose regular work schedule is limited to less than 1,000 hours in any given calendar2 year. 5) Leased Employees. Leased employees are any persons who are not on CG&E's payroll and who have performed services for CG&E pursuant to an agreement between CG&E and any other person on a substantially full time basis for a period of at least one year. The period for which these employees are leased employees under the terms of this plan is limited to the term of service for which they are assigned to CG&E. 6) Executive, Supervisory, Administrative and Professional Employees (ESA&P). Executive, Supervisory, Administrative and Professional (ESA&P) employees are full- time employees paid on a monthly or semi- monthly salaried basis. For convenience, the semi-monthly and monthly payrolls are collectively called the ESA&P payroll. 7) Weekly & Hourly Paid Employees. Those weekly & hourly paid employees who have not completed a year of service. [This sub-section 7) should be deleted effective 01-01-96.] 8) Independent Contractors. Independent contractors are persons or entities with whom CG&E contracts to complete specific tasks without supervision by CG&E employees. Employees of entities which are independent contractors regarding tasks performed for CG&E may be classified as leased employees if they fall within the definition in 3.2c)5) above. 9) Participants in Other 401(k) Plans. Employees who are eligible to participate in a qualified plan which includes IRC 401(k) features sponsored by any related company are not eligible to participate in this plan. d) Fail-Safe Provision. In the event that any co-op employee, summer employee, or part-time employee completes a year of service, that employee shall be permitted to participate in this plan. 3.3 Participant. A participant is any eligible employee who has assets in the plan. (See also 3.4) 3.4 Terminated Participant. A terminated participant is a participant who has terminated employment with CG&E by reason of death, disability, discharge, retirement, or resignation, but who has assets remaining in the plan. 3.5 Determining Participation and Vesting. An hour of service is the basic unit of measurement used to determine an employee's participation and vesting in the plan. 3.6 Hour of Service. a) Current Pay. An employee earns an hour of service for each hour for which s/he is directly or indirectly paid or entitled to payment by CG&E during the applicable computation period. These hours are for either the performance of duties or on account of a period of time during which no duties are per- formed (irrespective of whether the employment relationship is terminated) due to vacation, holiday, jury duty, personal days, incapacity (including disability) and lay-off. In these cases participants will be credited with 8 hours of service for each normally scheduled working day during which no duties are performed. An hour of service for which no duties are performed shall be calculated pursuant to 2530.200b-2 of the U.S. Department of Labor regulations, which are incorporated herein by reference. b) Back Pay. A participant earns an hour of service for each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by CG&E. The same hours of service shall not be credited under both sub-section 3.6a) above and under this sub-section. These hours will be credited to the employee for the computation period or periods to which the award or agreement pertains, rather than the computation period in which the award, agreement, or payment is made. c) Effect of Leaves of Absence. Generally, an employee will not earn hours of service while s/he is on a leave of absence. However, hours of service credited during certain military leaves and parental leaves under the provisions of 7.5 also apply for purposes of determining eligibility to participate in the plan. d) Consistent Personnel Practices. All leaves of absence affecting accreditation of service under this plan shall be authorized by CG&E in accordance with standard personnel policies applied in a nondiscriminatory manner to all employees similarly situated. 3.7 Limitation Upon Earning Hours of Service. Hours of service earned by CG&E employees generally not eligible to participate in the plan shall be credited, but only for determining the vesting rights of these employees upon their change of status to plan participants. The provisions of 3.19 and 3.20 governing transfers of participants and plan assets to and from the DCIP are an exception to the general rule. 3.8 Year of Service.3 A year of service is 12 consecutive months of employment with CG&E, beginning with the first hour of service, during which the employee completes at least 1,000 hours of service. Eligible employees who do not complete a year of service by the first anniversary of their employment commencement date shall be credited with a year of service if they complete at least 1,000 hours of service during a period of 12 consecutive months beginning with the first, and, if necessary, any subsequent anniversary of their employment commencement date. [This section should be deleted effective 01-01-96.] 3.9 Year of Service. A year of service is 12 consecutive months of employment with CG&E, beginning with the first hour of service, during which a co-op employee, summer employee, or part- time employee completes at least 1,000 hours of service. Co-op employees, summer employees or part-time employees who do not complete a year of service by the first anniversary of their employment commencement date shall be credited with a year of service if they complete at least 1,000 hours of service during a period of 12 consecutive months beginning with the first, and, if necessary, any subsequent anniversary of their employment commencement date. [This section becomes effective on 01-01-96.] 3.10 Break in Service. A break in service is any period of 12 consecutive months beginning on the employee's employment commencement date, and on any subsequent anniversary of that date, during which the employee completes less than 501 hours of service. 3.11 Commencement of Participation.4 Except with respect to company-matched stock incentive contributions (see 4.2d)), an eligible employee must file a completed set of plan participation forms5 with the Committee6 to become a participant. See also 3.20. [This section should be deleted effective 01-01-96.] 3.12 Commencement of Participation. An eligible employee must notify the Committee of his or her intent to participate in the plan, except with respect to the company-matched stock incentive contributions (see 4.3e) and 4.3f)), through the use of the voice or other electronic response system or other media authorized by CG&E. [This section becomes effective on 01-01-96.] 3.13 Entry Date. The entry date is the date an eligible employee becomes a participant in the plan. The entry date is the first weekly pay date of the month that is at least 30 days following the date the Committee receives the plan participation forms from the eligible employee. [This section should be deleted effective 01-01-96.] 3.14 Entry Date. The entry date is the date an eligible employee becomes a participant in the plan. The entry date is the date an eligible employee first completes an hour of service. [This section becomes effective on 01-01-96.] 3.15 Plan Participation Forms. Plan participation forms are the set of documents which the eligible employee must file with the Committee in order to participate in the plan, except with respect to the company-matched stock incentive contributions. (See 4.2d)). The forms are: a) The plan participation agreement, and 7 b) The beneficiary designation form.8 [This section should be deleted effective 01-01-96.] 3.16 Beneficiary. The beneficiary is the person or entity designated in writing by a participant to receive plan benefits after the participant's death. (See 8.14 and 11.14) 3.17 Beneficial Owner. The beneficial owner is the owner or beneficiary of an account with the plan. A beneficial owner may be a participant, a terminated participant, a participant's spouse, or an alternate payee. 3.18 Beneficiary Designation. A participant must designate a beneficiary. Married participants must designate their spouse as beneficiary, unless the participant's spouse consents to someone else being named as beneficiary. The consent must be in writing on the form9 approved by the Committee and the spouse's signature must be notarized. The form must be filed with the Committee to become effective.10 A consenting spouse may withdraw consent by written notice to the Committee, notarized in the same manner as the consent. Once the retraction of consent has been filed with and accepted by11 the Committee, the spouse is reinstated by plan operation as the participant's beneficiary. 3.19 Transfer to the ESA&P Payroll. A participant who transfers to the ESA&P payroll is no longer eligible to participate in the plan. All of the participant's contributions to the plan shall cease, effective with his or her last pay date as an employee on the weekly or hourly payroll. 3.20 Transfers From The ESA&P Payroll. a) Transfers of DCIP Accounts. The trustee shall transfer to this plan the DCIP account of any employee who becomes eligible for participation.12 The transfer shall be made as soon as possible following the date that the employee becomes eligible. The transferred account shall be allocated to the sub-accounts and the investment funds in the manner most similar to the participant's DCIP sub-accounts. b) Continuing Contributions. The contribution percentages and investment directions of any DCIP participant who becomes eligible for participation in this plan will continue as contributions and investment directions to this plan. 3.21 Participatory Restrictions on the Activities of Terminated Participants. Subject to the limitations of 8.5a), 8.5e) and 8.6 of this plan, a terminated participant's account will remain in this plan until s/he takes a distribution. A terminated participant may not contribute to the plan, withdraw from an optional sub-account, or obtain hardship withdrawals or loans. A terminated participant may not reallocate past contributions except in conjunction with a distribution.13 [This section should be deleted effective 08-01-95.] 3.22 Participatory Restrictions on the Activities of Terminated Participants. Subject to the limitations of 8.5a), 8.5b), 8.5e), 8.5f), 8.6 and 8.7 of this plan, a terminated participant's account will remain in this plan until s/he takes a distribution. A terminated participant may not contribute to the plan, withdraw from an optional sub-account, or obtain hardship withdrawals or loans. [This section becomes effective on 08-01-95.] 3.23 Participation of Rehired Participants. a) Non-Vested Participants. 1) 5 or Fewer Breaks in Service. Any terminated participant in this plan or in the DCIP, who is not yet vested in company-matched contributions or company- matched stock incentive contributions under this plan or the DCIP and who is subsequently rehired on the weekly or hourly payroll before the completion of 5 consecutive breaks in service, becomes an eligible employee on his or her date of rehire. See 7.6 regarding restoration of the company-matched sub-account. 2) More than 5 Breaks in Service. If the individual described in sub-section 3.23a)1) above is rehired after incurring 5 consecutive breaks in service, eligibility will be subject to the requirements of 3.2a) of this plan, beginning with the date of rehire. b) Vested Participants. Any terminated participant in this plan or in the DCIP, who is vested in company-matched contributions or company-matched stock incentive contributions under this plan or the DCIP and who is subsequently rehired on the weekly or hourly payroll becomes an eligible employee on his or her reemployment date.14 [This section should be deleted effective 01-01-96.] 3.24 Participation of Rehired Participants. Any terminated participant in this plan or the DCIP who is subsequently rehired on or after January 1, 1996, on the weekly or hourly payroll is an eligible employee on his or her reemployment date. [This section becomes effective on 01-01-96.] 3.25 Union Representation. Eligible employees are represented or have their benefits under this plan bargained for by one of three labor-unions. The union representation of eligible employees is either under the IBEW, the IUU or the USWA. a) IBEW. The IBEW is the International Brotherhood of Electrical Workers. IBEW is used in the plan as an adjective to describe those workers bargained for by this union. b) IUU. The IUU is the Independent Utilities Union. IUU is used in the plan as an adjective to describe those workers bargained for by this union. c) USWA. The USWA is the United Steelworkers of America. USWA is used in the plan as an adjective to describe those workers bargained for by this union. CONTRIBUTIONS ARTICLE 4: CONTRIBUTIONS 4.1 Base Pay. a) Definition. Base pay is the amount of straight time wages paid to an eligible employee by CG&E on a weekly or hourly basis for services, up to and including a maximum of 40 hours per week.1 Base pay excludes bonuses, shift differentials, overtime, incentive pay, moving allowances, living2 and similar allowances, and imputed income. Base pay includes the amount of all elective contributions made by CG&E on behalf of the participant pursuant to salary reduction agreements, if the amount is not included in the gross income of the participant under IRC 125. Base pay includes deferred compensation contributions made under this plan. [This sub-section should be deleted effective 01-01-97.] b) Definition. Base pay is the amount of straight time wages paid to an eligible employee by CG&E on a weekly or hourly basis for services, up to and including a maximum of 40 hours per week.3 Base pay excludes shift differentials, incentive pay, moving allowances, living and similar allowances, and imputed income. Base pay includes the amount of all elective contributions made by CG&E on behalf of the participant pursuant to salary reduction agreements, if the amount is not included in the gross income of the participant under IRC 125. Base pay includes deferred compensation contributions made under this plan. For purposes of determining deferred compensation and optional contributions, base pay includes overtime and bonuses. For purposes of determining company-matched contributions and company- matched stock incentive contributions, base pay excludes overtime, but includes bonuses. [This sub-section becomes effective on 01-01-97.] c) Use of Base Pay. Base pay shall be taken into account only while an employee is a participant in the plan. d) Limitation on Base Pay. Base pay taken into account for determining contributions under the plan shall not exceed $150,000, as adjusted4 by the Commissioner of the Internal Revenue Service for increases in the cost of living in accordance with IRC 401(a)(17)(B). e) Use of Base Pay Limitation. In determining the base pay of a participant for the purpose of determining the participant's accruals under this plan, the rules of IRC 414(q)(6) shall generally apply. However, the term "family" shall include only the spouse of the participant and any lineal descendants of the participant who have not attained age 19 prior to the close of the plan year. If, as a result of this application, the adjusted $150,000 limitation is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's base pay prior to the application of the limitation. [This sub-section should be deleted effective 01- 01-97.] 4.2 Contributions. The plan will accept four types of contributions: a) Deferred Compensation Contributions. A deferred compensation contribution is the amount by which a participant directs CG&E to reduce his or her base pay and which CG&E is obligated to contribute to the plan. Participants may elect to have their base pay reduced by executing a plan participation agreement. CG&E will then make a contribution to the plan in an amount equal to the participant's selected reduction each pay period. The amount reduced, expressed in 1/2% increments, shall not exceed 15% of the participant's base pay. b) Optional Contributions. An optional contribution is the participant's voluntary contribution made to the plan through payroll deduction after taxes have been withheld. Participants may choose to make contributions to the plan each pay period through payroll deduction. These optional contributions, expressed in 1/2% increments, are deducted after taxes have been withheld. The amount of the optional contribution together with the deferred compensation contribution, shall not exceed 15%5 of the participant's base pay. c) Company-Matched Contributions. The company- matched contribution is the amount contributed by CG&E to the participant's plan account from its earnings based upon the participant's deferred compensation contributions and/or optional contributions, as applicable. For each pay period of the participant, CG&E will contribute out of its accumulated earnings an amount, together with forfeitures, equal to 55% of each participant's deferred compensation and optional contributions up to and including 5% of the participant's base pay. Participants' contributions exceeding 5% of base pay will not be matched. d) Company-Matched Stock Incentive Contributions. The company-matched stock incentive contribution is the amount of CINergy stock contributed by CG&E in addition to the company-matched contribution. Depending on the performance of CINergy for the year, CG&E will contribute, if at all, an amount of CINergy stock equal in value to between $0.10 and $0.30 for each dollar of a participant's deferred compensation and optional contributions up to and including 4% of the participant's base pay for that year. Participants' contributions exceeding 4% of base pay will not be matched. If a participant did not make any deferred compensation or optional contributions during the year, s/he may still receive a company- matched stock incentive contribution based on the hypothetical assumption that s/he made deferred compensation or optional contributions of 1% of his or her base pay for that year. [This section should be deleted effective 01-01-96.] 4.3 Contributions. The plan will accept five types of contributions: a) Deferred Compensation Contributions. A deferred compensation contribution is the amount by which a participant directs CG&E to reduce his or her base pay and which CG&E is obligated to contribute to the plan. Participants may elect to have their base pay reduced by informing the Committee through the voice or electronic response system or other media authorized by CG&E. CG&E will then make a contribution to the plan in an amount equal to the participant's selected reduction each pay period. The amount reduced, expressed in 1/2% increments, shall not exceed 15% of the participant's base pay. b) Optional Contributions. An optional contribution is the participant's voluntary contribution made to the plan through payroll deduction after taxes have been withheld. Participants may choose to make contributions to the plan each pay period through payroll deduction. These optional contributions, expressed in 1/2% increments, are deducted after taxes have been withheld. The amount of the optional contribution together with the deferred compensation contribution, shall not exceed 15%6 of the participant's base pay. c) Company-Matched Contributions. The company- matched contribution is the amount contributed by CG&E to the participant's plan account from its earnings based upon the participant's deferred compensation contributions and/or optional contributions, as applicable. For each pay period of the participant, CG&E will contribute out of its accumulated earnings an amount, together with forfeitures, equal to 55% of each participant's deferred compensation and optional contributions up to and including 5% of the participant's base pay. Participants' contributions exceeding 5% of base pay will not be matched. [This sub-section should be deleted effective 01- 01-97.] d) Company-Matched Contributions. The company- matched contribution is the amount contributed by CG&E to the participant's plan account from its earnings based upon the participant's deferred compensation contributions. For each pay period of the participant, CG&E will contribute out of its accumulated earnings an amount, together with forfeitures, equal to 60% of each participant's deferred compensation contributions up to and including 5% of the participant's base pay. Participants' contributions exceeding 5% of base pay will not be matched. [This sub-section becomes effective on 01-01-97.] e) Company-Matched Stock Incentive Contributions. The company-matched stock incentive contribution is the amount of CINergy stock contributed by CG&E in addition to the company-matched contribution. Depending on the performance of CINergy for the year, CG&E will contribute, if at all, an amount of CINergy stock between $0.10 and $0.30 for each dollar of a participant's deferred compensation and optional contributions up to and including 4% of the participant's base pay for that year. Participants' contributions exceeding 4% of base pay will not be matched. If a participant did not make any deferred compensation or optional contributions during the year, s/he may still receive a company-matched stock incentive contribution based on the hypothetical assumption that s/he made deferred compensation or optional contributions of 1% of his or her base pay for that year. [This sub-section should be deleted effective 01- 01-97.] f) Company-Matched Stock Incentive Contributions. The company-matched stock incentive contribution is the amount of CINergy stock contributed by CG&E in addition to the company-matched contribution. Depending on the performance of CINergy for the year, CG&E will contribute, if at all, an amount of CINergy stock between $0.20 and $0.40 for each dollar of a participant's deferred compensation contributions up to and including 5% of the participant's base pay for that year. Participants' deferred compensation contributions exceeding 5% of base pay will not be matched. If a participant did not make any deferred compensation contributions during the year, s/he may still receive a company-matched stock incentive contribution based on the hypothetical assumption that s/he made deferred compensation contributions of 1% of his or her base pay for that year. [This sub-section becomes effective on 01-01-97.] g) Rollover Contributions. A rollover contribution is the amount contributed by a participant to his or her plan account attributable to a distribution from a retirement plan of a former employer. A participant must make a written request to the Committee to make a rollover contribution. The request must include a statement detailing the type of property to be rolled over and that such property is an eligible rollover contribution.7 If the Committee so permits, the participant may transfer the amount of the rollover contribution to the trustee. [This section becomes effective on 01-01-96.] 4.4 Contributions Due to Military Leave. Notwithstanding any provision of this plan to the contrary, contributions with respect to qualified military service will be provided in accordance with IRC 414(u). 4.5 Contributions from Sources other than Base Pay. a) Settlement of Disputes. Prior to the time a participant becomes entitled to receive a lump sum payment of wages in settlement of a dispute with CG&E, the participant may direct contributions to this plan from the lump sum payment in the same percentages and allocation to funds as are in effect at the time when the lump sum amount is paid. CG&E may also make company-matched contributions and/or company- matched stock incentive contributions on the settlement amount. b) Lump Sum Payment in Lieu of Salary. If a class of participants is designated by CG&E to receive certain pay in the form of a lump sum, the determination of whether that special pay may be used as base pay for making contributions to this plan shall be determined by CG&E. CG&E may also make a determination whether it will make company-matched contributions and/or company-matched stock incentive contributions for each payment of a special lump sum. In the event that the special pay is permitted to be used as base pay for plan contributions, those contributions must be in the same percentages designated by the participant and in effect at the time when the lump sum amount is paid. 4.6 Changing the Percentage of Contributions. a) Participants. A participant may change the percentage of deferred compensation contributions or optional contributions four times per year.8 [This sub-section should be deleted effective 01- 01-96.] b) Participants. A participant may change the percentage of deferred compensation contributions and/or optional contributions at anytime through the voice or other electronic response system or other media authorized by CG&E. [This sub-section becomes effective on 01-01-96.] c) Other Beneficial Owners. Terminated participants, beneficiaries and alternate payees may not contribute to this plan. 4.7 Limitation on Deferred Compensation Contributions. a) Maximum Amount. A participant's deferred compensation contributions shall not exceed the maximum deferred amount in effect for that tax year pursuant to IRC 402(g)9. The maximum amount for 1995 is $9,24010 and is adjusted annually as announced by the Internal Revenue Service. b) Reaching Maximum Amount. At the time the IRC 402(g) limit is reached for the amount being deferred by a participant, his or her deferred compensation contribution shall cease for the remainder of that year. c) Excess Deferred Compensation Contributions. If a participant files a plan participation agreement which causes CG&E to inadvertently defer more than is permitted in 4.7a) above, the excess deferred compensation contribution shall be returned to the participant.11 [This sub-section should be deleted effective 01- 01-96.] d) Excess Deferred Compensation Contributions. If a participant informs the Committee through the voice or other electronic response system or other media authorized by CG&E which causes CG&E to inadvertently defer more than is permitted in 4.7a) above, the excess deferred compensation contribution shall be returned to the participant.12 [This sub-section becomes effective on 01-01-96.] 4.8 Voluntary Suspension of Contributions. a) General Rule. Participants may suspend either their deferred compensation or optional contributions, or both by filing13 an application to suspend contributions14 with the Committee. b) Effective Date. Voluntary suspensions shall become effective on a pay date no later than 30 days after the application to suspend contributions was filed with the Committee. c) Period of Suspension. Participants may not make the suspended type of contributions to the plan for at least 12 months from the effective date of the suspension. d) Makeup of Contributions. Participants may not make up suspended contributions. [This section should be deleted effective 01-01-96.] 4.9 Involuntary Suspension of Contributions. a) Hardship Withdrawals. Participants who have obtained a hardship withdrawal shall be automatically suspended from making deferred or optional contributions for a period of 12 months beginning from the date of the distribution of the hardship withdrawal. b) Leaves of Absence. Contributions to the plan are automatically suspended during a participant's leave of absence, because the participant earns no base pay from which to contribute. When the participant returns to work for CG&E, contributions shall automati- cally resume with the first pay check in accordance with the terms of the most recent plan participation agreement. [This sub-section should be deleted effective 01- 01-96.] c) Leaves of Absence. Contributions to the plan are automatically suspended during a participant's leave of absence, because the participant earns no base pay from which to contribute. When the participant returns to work for CG&E, contributions shall automati- cally resume with the first pay check in accordance with the terms most recently provided by the participant on the voice or other electronic response system or other media authorized by CG&E. [This sub-section becomes effective on 01-01-96.] 4.10 Resumption of Contributions. Upon the expiration of the required period of suspension, participants may resume making contributions to the plan by filing a resumption of contributions form15 with the Committee. The resumption will be effective on the first pay date of the month no later than 30 days after the date the resumption of contributions form was filed with the Committee. Contributions will resume at the same percentages of base pay as were in effect at suspension. If the resumption of contributions form was filed during the period of suspension, it will become effective on the first pay date of the month following the period of suspension. [This section should be deleted effective 01-01-96.] 4.11 Resumption of Contributions. Upon the expiration of the required period of suspension, participants may resume making contributions to the plan by informing the Committee through the voice or other electronic response system or other media authorized by CG&E. The resumption will be effective on the first pay date of the month no later than 30 days after the date the participant informs the Committee of his or her intent to resume contributions. Contributions will resume at the same percentages of base pay as were in effect at suspension. If the participant informs the Committee during his or her suspension, the resumption of contributions will become effective on the first pay date of the month following the period of suspension. [This section becomes effective on 01-01-96.] 4.12 Remittance of Contributions. CG&E will generally forward all deferred compensation, optional, and company-matched contributions to the trustee on the pay date for which the contributions are effective. In any event, CG&E must transmit these contributions promptly after the end of the month in which the contributions are taken. 4.13 Return of Company-Matched Contributions and Company-Matched Stock Incentive Contributions. a) General Rule. Except as provided in 7.6, 15.9c)2), 15.9c)3), 16.4d) and 16.4e), and in this section, the assets of the plan shall never revert to or be used by CG&E. 1) Mistaken Contributions. Company-matched contributions and company-matched stock incentive contributions made to the trust by reason of a mistake of fact may be returned to CG&E within one year after the payment of the contribution. 2) Non-deductible Contributions. Company-matched contributions and company- matched stock incentive contributions made to the plan which are deemed non-deductible pursuant to IRC 404 shall be returned to CG&E within one year after the disallowance of the deduction. If any portion of the non-deductible amount is from a participant's deferred compensation contribution, that amount shall be returned to the participant INVESTMENTS ARTICLE 5: INVESTMENTS 5.1 Principles of Investment Fund Selection. The Committee will establish and direct the trustee to maintain in the trust at least three investment funds, which collectively are intended to comply with ERISA 404 c) and the regulations thereunder1. 5.2 Selection of Investment Funds. One of the investment funds will be the company stock fund. The Committee will select the other investment funds, following the principles of 5.1. If a fund is added or deleted, beneficial owners will be given the opportunity to reallocate their past contributions and redirect their sub-accounts among the authorized investment funds. 5.3 Investment Funds in the Plan. The following are the investment funds2 maintained in the plan trust: a) Company Stock Fund. The company stock fund is a unitized fund which consists largely of shares of CINergy common stock, and a proportionately small amount of cash. It has been available (formerly with CG&E common stock) since the plan was established on October 1, 1985. The stock will be purchased at fair market value on the open market or from CINergy through the issuance of authorized but previously unissued shares at the option of CINergy. The stock may also be obtained through the exercise of stock rights. Stock received by the trustee as a stock dividend distribution or right is reflected by an increase in the unit value. b) Fidelity Magellan Fund.3 The Fidelity Magellan Fund seeks capital appreciation by investing primarily in common stock and securities convertible into common stock.4 It was added as an additional investment option on 10-01-92. c) Fidelity Equity-Income Fund. The Fidelity Equity- Income Fund seeks reasonable income by investing primarily in income-producing equity securities.5 It has been available since the plan was established on October 1, 1985. d) Fidelity Intermediate Bond Fund. The Fidelity Intermediate Bond Fund seeks to obtain a high level of current income by investing primarily in high and upper-medium grade fixed-income obligations.6 It has been available since the plan was established on October 1, 1985. e) The PNC Fund (Sower Money Market Fund - Money Market Portfolio).7 The investment objective of this portfolio is to provide as high a level of current interest income as is consistent with maintaining liquidity and stability of principal.8 This fund is called the money market fund throughout this plan. A money market fund, but not necessarily this particular fund, has been available since the plan was established on October 1, 1985. [This sub-section should be deleted effective 01-01-96.] f) Fidelity Retirement Money Market Fund. The investment objective of this portfolio is to provide as high a level of current interest income as is consistent with maintaining liquidity and stability of principal. This fund is called the money market fund throughout this plan. A money market fund, but not necessarily this particular fund, has been available since the plan was established on October 1, 1985. [This sub-section becomes effective on 01-01-96.] g) Loan Fund. The loan fund consists of all promis- sory notes securing plan loans to participants. The loan fund is administered as described in Article 10. 5.4 Vested Interest Response Line (VIR Line). The vested interest response line is the telephone line established and maintained by the trustee for use by participants to access their account information and to effectuate certain transactions affecting their accounts. The Vested Interest Response Line is referred to as the VIR Line throughout this plan. 5.5 Participant Investment Elections. A participant selects investment funds for his or her future contributions by using the investment election menu on the VIR Line. Investments must be made in whole percentage increments.9 5.6 Investment of Contributions. The trustee shall invest the participants' contributions from CG&E in the participants' current designated investment selections. If the trustee has no record of a current investment selection for a participant's contribution, it shall invest the contribution in the money market fund. The trustee shall invest all company-matched contributions and company-matched stock incentive contributions in the company stock fund.10 [This section should be deleted effective 01-01-96.] 5.7 Investment of Contributions. The trustee shall invest the participants' contributions from CG&E in the participants' current designated investment selections. If the trustee has no record of a current investment selection for a participant's contribution, it shall invest the contribution in the money market fund. The trustee shall invest all company-matched contributions and company-matched stock incentive contributions in the company stock fund.11 However, a participant who has reached age 50 may elect to invest his or her company- matched contributions and company-matched stock incentive contributions in any one or more of the investment funds as s/he directs by informing the Committee through the voice or other electronic response system or other media authorized by CG&E. Allocations must be made in whole percentages. [This section becomes effective on 01-01-96.] 5.8 Initial Allocation of Deferred and Optional Contributions. A participant's deferred compensation and/or optional contributions will be allocated to any one or more of the investment funds as s/he directs by filing an allocation of future contributions form with the Committee.12. Allocations must be made in any whole percentage. Allocations will apply to all contributions made on or after the entry date (see 3.13). Participant- s' contributions will be invested in the investment funds as of the valuation date coinciding with or next following the date on which they are received by the trustee. If the allocation form is not yet received by the trustee when it must allocate contributions, the contributions will be invested in the money market fund, until the directions for allocations are filed with the Committee.13 [This section should be deleted effective 01-01-96.] 5.9 Initial Allocation of Deferred and Optional Contributions. A participant's deferred compensation and/or optional contributions, collectively, will be allocated to any one or more of the investment funds as s/he directs by informing the Committee through the voice or other electronic response system or other media authorized by CG&E. Allocations must be made in any whole percentage. Allocations will apply to all contributions made on or after the entry date (see 3.14). Participant- s' contributions will be invested in the investment funds as of the valuation date coinciding with or next following the date on which they are received by the trustee. If the trustee has not yet received the participant's investment directions when it must allocate contributions, the contributions will be invested in the money market fund, until the directions for allocations are provided by the participant to the Committee. [This section becomes effective on 01-01-96.] 5.10 Investment Fund Transfers of Current Balances. A participant can select reallocation of his or her current account balance in different investment funds and/or different percentages of allocation by using the fund transfers menu on the VIR Line.14 Investments must be made in whole percentage increments. A participant may elect or change investment funds and/or the percentages in which contributions will be allocated once per quarter. [This section should be deleted effective 08-01-95.] 5.11 Investment Fund Transfers of Current Balances. Except for participants or terminated participants whose accounts are frozen due to pending domestic relations orders, any participant or terminated participant with an account balance under the plan can select reallocation of his or her current account balance in different investment funds and/or different percentages of allocation by using the fund transfers menu on the VIR Line.15 Investments must be made in whole percentage increments. A participant or terminated participant may elect or change investment funds and/or the percentages in which allocation will be allocated once per quarter. [This section becomes effective on 08-01-95 and should be deleted effective 01-01-96.] 5.12 Investment Fund Transfers of Current Balances. Except for participants or terminated participants whose accounts are frozen due to pending domestic relations orders, any participant or terminated participant with an account balance under the plan can select reallocation of his or her current account balance in different investment funds and/or different percentages of allocation by using the fund transfers menu on the VIR Line.16 Investments must be made in whole percentage increments. A participant or terminated participant may elect or change investment funds and/or the percentages in which allocations will be allocated at anytime. [This section becomes effective on 01-01-96.] 5.13 Risk of Loss. The participant (or terminated participant) bears the effect for all gain or loss in market value of the investments selected for his or her plan assets. The participant (or terminated participant) also bears the effect of any market fluctuations which occur between the time his or her instructions are delivered to the Committee or the trustee and the time that the instructions are effectuated. The trustee, the Committee, the individual Committee members, and CG&E will not be responsible or liable to participants (or terminated participant) for the negative or positive effect of market fluctuations or reasonable delay in processing transactions upon their accounts. 5.14 Voting CINergy Stock. a) Participation Instructions. The trustee shall vote the shares of CINergy stock credited to the accounts of beneficial owners in accordance with the instructions given by the beneficial owner. If the instructions are not received by the trustee by a date the trustee designates prior to any meeting of shareholders of CINergy, the trustee shall vote such uninstructed shares at its discretion. b) Trustee Discretion. The trustee shall vote at its discretion the CINergy stock held in the company stock fund which have not been allocated to beneficial owners' accounts as of the record date of any meeting of shareholders of CINergy. ACCOUNTS ARTICLE 6: ACCOUNTS 6.1 Accounts and Sub-accounts. a) Account. Each beneficial owner's total assets in the plan shall be maintained in a separate account. The account shall reflect all transactions regarding the beneficial owner's assets. The assets in an account shall be allocated among sub-accounts. b) Sub-account. Each account must include one or more of the following sub-accounts: 1) a deferred compensation sub-account1; 2) an optional sub-account; and 3) a company-matched sub-account. [This sub-section should be deleted effective 01-01-96.] c) Sub-account. Each account must include one or more of the following sub accounts: 1) a deferred compensation sub-account; 2) an optional sub-account; 3) a company-matched sub-account; and 4) a rollover sub-account. [This sub-section becomes effective on 01-01-96.] d) Account Value. Each participant's account is valued daily.2 The value of an account reflects the number of units of each investment fund owned by the participant and is based upon the unit price of each fund. Both the units owned and the price reflect a close of business valuation.3 e) Investment Ownership. The trustee owns4 all plan assets as a fiduciary on behalf of the beneficial owners.5 6.2 Quarterly Statements. The trustee shall prepare an individual statement of account for each beneficial owner on a quarterly basis.6 The statements will reflect the status of the account and sub-accounts of the beneficial owner. The trustee shall mail the statements to the beneficial owners as soon as practical after each quarter end. VESTING AND FORFEITURES ARTICLE 7: VESTING AND FORFEITURES 7.1 Vesting. The process by which an employee becomes entitled to a nonforfeitable benefit under this plan. 7.2 Year of Vesting Service. Each period of 12 consecutive months of employment, beginning with the date on which the employee first performed an hour of service for CG&E or any related company, during which he or she completes at least 1,000 hours of service. The calculation period begins on the date (and subsequent anniversaries of that date) the employee first performed an hour of service for CG&E or a related company. Hours of service prior to the date on which the relationship to the Cincinnati Gas & Electric Company began are not included for the purpose of vesting under this plan. The hours of service of non-participating employees, leased employees and co-ops are included in determining their years of vesting service. [This section should be deleted effective 01-01-96.] 7.3 Vested Benefits. a) Vested Accrued Benefit. The portion of a participant's account available for distribution to the participant upon termination of employment with CG&E. b) Deferred Compensation Sub-account and Optional Sub-account. Participants are immediately vested in their deferred compensation sub-accounts and optional sub-accounts. [This sub-section should be deleted effective 01-01-96.] c) Deferred Compensation Sub-account, Optional Sub- account and Rollover Sub-account. Participants are immediately vested in their deferred compensation sub- accounts, optional sub-accounts and rollover sub- accounts. [This sub-section becomes effective on 01-01-96.] d) Company-Matched Sub-account. Participants are vested in their company-matched sub-accounts upon occurrence of any of the following: 1) termination of this plan, 2) partial termination of this plan with respect to affected participants, 3) the participant attains 5 years of vesting service,1 4) the participant dies, 5) the participant becomes disabled, 6) the participant retires under the RIP, 7) the participant is permanently laid off for lack of work, 8) the participant attains age 65.2 [This sub-section should be deleted effective 01-01-96.] e) Company-Matched Sub-account. Participants who are credited with one hour of service on or after January 1, 1996 are immediately vested in their company-matched sub-accounts. [This sub-section becomes effective on 01-01-96.] 7.4 Vesting of Former Employees. a) Impact of Breaks in Service. Non-vested former employees who resume employment will be credited for vesting purposes with their prior years of service so long as the number of consecutive breaks in service (see 3.10) incurred by the employees do not exceed five. [This sub-section should be deleted effective 01-01-2001.] b) Impact of Breaks in Service. Terminated participants who are credited with an hour of service on or after January 1, 1996 are not subject to the break in service rules provided in 3.10. [This sub-section becomes effective on 01-01-96.] c) Immediate Vesting. Former employees or partici- pants who were vested in SIP or DCIP prior to termina- tion of employment will retain or immediately obtain vested status in this plan. 7.5 Special Vesting Rules. a) Parental Leaves. For the purpose of determining a participant's years of vesting service, a non-vested participant who is granted a leave of absence for the purpose of giving birth to and/or nurturing a newborn, or adopting a child, will be granted credit for 190 hours of vesting service per month, not to exceed a total of 501 hours, during that leave of absence. Hours of vesting service will be granted in the year in which the absence commences to the extent necessary to prevent the employee from incurring a break in service for vesting purposes. To the extent the hours of vesting service are not needed to prevent a break in vesting service, the employee will be credited with the hours of vesting service in the immediately following year to prevent the occurrence of a break in vesting service during that year. b) Military Leaves. Notwithstanding any provision of this plan to the contrary, credit for vesting service with respect to qualified military service will be provided in accordance with IRC 414(u)3. 7.6 Forfeitures and Restorations. a) Forfeiture. A participant who terminates employment with CG&E and is not vested in his or her company-matched sub-account will forfeit the amount in the company-matched sub-account. The participant shall be deemed to have received a distribution of zero for the company-matched account. The forfeiture will occur upon the participant's termination of employment with CG&E. This forfeiture may be restored in accordance with 7.6d) below. [This sub-section should be deleted effective 01-01-2001.] b) Forfeiture. A participant's benefit will be forfeited only in accordance with 13.15 if the participant is credited with an hour of service on or after January 1, 1996. [This sub-section becomes effective on 01-01-96.] c) Use of Forfeitures. Forfeitures shall be used to reduce the company-matched contributions which are to be made in accordance with 4.2c), 4.3c) and 4.3d). d) Restoration of Forfeitures. A terminated participant, described in 7.6a) above, who resumes employment with CG&E before incurring 5 consecutive breaks in service shall have his or her company-matched sub-account restored, without dividends earned in the interim. [This sub-section should be deleted effective 01-01-96.] e) Restoration of Forfeitures. A terminated participant who is credited with an hour of service on or after January 1, 1996, shall have his or her benefit restored in accordance with 13.15. [This sub-section becomes effective on 01-01-96.] f) Source of Restorations. Restorations of the company-matched sub-account shall be made from forfeitures during the plan year of the restoration. If there are insufficient forfeitures to cover restorations in any given plan year, CG&E shall make additional contributions to cover the deficit. DISTRIBUTIONS ARTICLE 8: DISTRIBUTIONS 8.1 Distribution. A distribution is the delivery of all of the vested assets in a plan account to its beneficial owner.1 8.2 Eligibility for Distribution. a) Termination. Terminated participants are eligible to receive distribution upon termination of employment for any reason2. b) Disability. Participants and terminated participants are eligible to receive distribution as of the dates on which they become eligible to receive disability benefits under the RIP if they: 1) have been granted disability benefits by the Social Security Administration, or 2) are determined to be disabled by CG&E's medical director.3 [This sub-section should be deleted effective 01-01-97.] c) Death. Beneficiaries are eligible to receive distribution upon the death of the participant from whom their interests are derived. d) Acceptance of a DRO. An alternate payee under a DRO which has been accepted by the plan is given a window opportunity to elect distribution. See 11.13. e) Plan Termination. The Committee shall make a distribution to all participants if the plan is terminated without the establishment of a successor plan. [This sub-section should be deleted effective 01-01-96.] f) Plan Termination. The Benefits Manager shall make a distribution to all participants if the plan is terminated without the establishment of a successor plan. [This sub-section becomes effective on 01-01-96.] g) Sale of CG&E. The Committee shall make a distribution to all participants if substantially all of CG&E's assets are sold. [This sub-section should be deleted effective 01-01-96.] h) Sale of CG&E. The Benefits Manager shall make a distribution to all participants if substantially all of CG&E's assets are sold. [This sub-section becomes effective on 01-01-96.] i) Sale of a Subsidiary. The Committee shall make a distribution to participants who are employed by a CG&E subsidiary if the subsidiary is sold and the participants are no longer employed by CG&E. If CG&E sells a subsidiary, but retains the employees who formerly worked for that subsidiary, those employees will not qualify for a distribution as a result of the sale. [This sub-section should be deleted effective 01-01-96.] j) Sale of a Subsidiary. The Benefits Manager shall make a distribution to participants who are employed by a CG&E subsidiary if the subsidiary is sold and the participants are no longer employed by CG&E. If CG&E sells a subsidiary, but retains the employees who formerly worked for that subsidiary, those employees will not qualify for a distribution as a result of the sale. [This sub-section becomes effective on 01-01-96.] 8.3 Distribution Valuation Date. The distribution valuation date for a beneficial owner is the business day on which the beneficial owner's units in the funds are sold for the purpose of disbursing funds for a loan, a withdrawal or a distribution.4 8.4 Valuing a Distribution. The value of an account for the purpose of distribution shall be based upon the value of the units in the CINergy stock funds and the mutual funds, determined as of the distribution valuation date5. 8.5 Events Triggering Distribution. As used in this Article, an event consists of a participant's termination, retirement, permanent layoff for lack of work, disability, or death. a) Vested Benefit of $3,500 or Less. If the vested benefit is $3,500 or less, the Committee shall make a distribution in a lump sum. [This sub-section should be deleted effective 01-01-96.] b) Vested Benefit of $3,500 or Less. If the vested benefit is $3,500 or less, the Benefits Manager shall make a distribution in a lump sum. [This sub-section becomes effective on 01-01-96.] c) Vested Benefit Over $3,500.6 If the vested benefit is over $3,500, the participant or beneficiary shall elect to receive or delay the distribution. The election7 must be filed with the Committee within 60 days of the event. A participant or beneficiary who has elected to delay8 the distribution can elect a distribution at a later time by filing an application for distribution9 with the Committee. [This sub-section should be deleted effective 01-01-96.] d) Vested Benefit Over $3,500.10 If the vested bene- fit is over $3,500, the participant or beneficiary shall elect to receive or delay the distribution. The election must be received by the Benefits Manager within 60 days of the event. A participant or beneficiary who has elected to delay11 the distribution can elect a distribution at a later time by informing the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E. [This sub-section becomes effective on 01-01-96.] e) Mandatory Distribution After an Event. The Committee shall disburse a distribution no later than the 60th day after the close of the calendar year in which the terminated participant who has been affected by an event attains or would have attained age 65. If the terminated employee is age 65 or older on the date of the event, the distribution shall be made within 60 days of the year end during which the event occurred. [This sub-section should be deleted effective 01-01-96.] f) Mandatory Distribution After an Event. The Benefits Manager shall disburse a distribution no later than the 60th day after the close of the calendar year in which the terminated participant who has been affected by an event attains or would have attained age 65. If the terminated employee is age 65 or older on the date of the event, the distribution shall be made within 60 days of the year end during which the event occurred. [This sub-section becomes effective on 01-01-96.] 8.6 Participant's Mandatory Distribution Year. The following rules shall apply regardless of any other distribution provision in the plan.12 a) Definition. A participant's mandatory distribution year is the year in which s/he attains age 70 1/2. b) Lump Sum Distribution. The Committee shall make a distribution of all vested benefits accrued as of the September 30 of a participant's mandatory distribution year. The distribution shall be in a lump sum. The distribution shall be disbursed by April 1 following the end of the participant's mandatory distribution year.13 [This sub-section should be deleted effective 01-01-96.] c) Lump Sum Distribution. The Benefits Manager shall make a distribution of all vested benefits accrued as of the September 30 of a participant's mandatory distribution year. The distribution shall be in a lump sum. The distribution shall be disbursed by April 1 following the end of the participant's mandatory distribution year.14 [This sub-section becomes effective on 01-01-96.] d) Subsequent Annual Distributions. If the partici- pant has assets in the plan after the mandatory distribution year, the Committee shall distribute all vested benefits accrued as of September 30 each subsequent year, by December 31st of that year. [This sub-section should be deleted effective 01-01-96.] e) Subsequent Annual Distributions. If the partici- pant has assets in the plan after the mandatory distribution year, the Benefits Manager shall distribute all vested benefits accrued as of September 30 each subsequent year, by December 31st of that year. [This sub-section becomes effective on 01-01-96.] f) Continuing Contributions. Participants may continue to contribute to the plan after their mandatory distribution year. [This section should be deleted effective 01-01-97 for all participants, except 5% owners.] 8.7 Participant's (Other than 5% Owner's) Mandatory Distribution Year. The following rules shall apply regardless of any other distribution provision in the plan.15 a) Definition. A participant's (other than a 5% owner's) mandatory distribution year is the later of the year in which s/he attains age 70 1/2 or retires. A 5% owner's mandatory distribution year is the year in which s/he attains age 70 1/2. See 8.6 above for details. b) Lump Sum Distribution. The Benefits Manager shall make a distribution of all vested benefits accrued as of the September 30 of a participant's (other than a 5% owner's) mandatory distribution year. The distribution shall be in a lump sum. The distribution shall be disbursed by April 1 following the end of the participant's (other than a 5% owner's) mandatory distribution year.16 c) Subsequent Annual Distributions. If the partici- pant (other than a 5% owner) has assets in the plan after the mandatory distribution year, the Benefits Manager shall distribute all vested benefits accrued as of September 30 each subsequent year, by December 31st of that year. [This section becomes effective on 01-01-97 for all participants, except 5% owners.] 8.8 Filing Forms for Distribution or Delay. a) General Rule. A beneficial owner generally must file an application for distribution17 90 days in advance of disbursement of a distribution from the plan. [This sub-section should be deleted effective 01-01-96.] b) General Rule. A beneficial owner generally must apply for distribution by the voice or other electronic response system or other media authorized by CG&E 90 days in advance of disbursement of a distribution from the plan. [This sub-section becomes effective on 01-01-96.] c) Timing A Distribution. A beneficial owner must file an application for distribution with the Committee at least 15 business days before disbursement of a distribution from the plan. [This sub-section should be deleted effective 01-01-96.] d) Timing A Distribution. A beneficial owner must apply for distribution with the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E at least 15 business days before disbursement of a distribution from the plan. [This sub-section becomes effective on 01-01-96.] e) Required Elections. If a beneficial owner fails to make a required election to immediately receive distribution or to delay distribution, the plan may process an election to delay distribution filed by the Committee on behalf of the beneficial owner. [This sub-section should be deleted effective 01-01-96.] f) Required Elections. If a beneficial owner fails to make a required election to immediately receive distribution or to delay distribution, the plan may process an election to delay distribution as requested by the Benefits Manager on behalf of the beneficial owner. [This sub-section becomes effective on 01-01-96.] g) Mandatory Distributions. Any mandatory distribution required by the plan or the Internal Revenue Code may be made under the authority of an application for distribution filed by the Committee18 on behalf of the beneficial owner. [This sub-section should be deleted effective 01-01-96.] h) Mandatory Distributions. Any mandatory distribution required by the plan or the Internal Revenue Code may be made under the authority of a request for distribution made by the Benefits Manager19 on behalf of the beneficial owner. [This sub-section becomes effective on 01-01-96.] 8.9 Timing of Distributions. The Committee will disburse distributions as a lump sum or in 5 annual installments. a) Lump Sum Distributions. The trustee shall mail a lump sum payment to the beneficial owner approximately 15 business days following the day on which the application for distribution was filed with the Committee. b) Five Annual Installments. A participant whose employment is terminated by reason of retirement under the terms of the RIP, disability, or permanent layoff for lack of work, may irrevocably elect to receive his or her account in five annual installments.20 Installment distributions are not available to beneficiaries or to participants terminated for other reasons.21 c) Timing of Installments. The eligible participant may elect to receive the first installment as soon as practical after the end of the month that the event occurs, or as soon as practical after the end of the year in which the event occurs. The trustee shall disburse the first installment no later than March 122 following the calendar year when the event occurred which triggered the distribution. 1) Amount of Each Installment. Those who have elected 5 annual installments shall receive their accounts as follows: 1/5 of the account in the first installment, 1/4 of the account at the time of the second installment, 1/3 of the account at the time of the third installment, 1/2 of the account at the time of the fourth installment, and the balance of the account at the time of the last installment. 2) Subsequent Installments. The payment date for each subsequent installment shall be as soon as is practicable within each plan year following the anniversary date of the initial payment. The balance of the account shall be revalued in accordance with 8.4 and any CINergy stock will continue to be voted by such a participant in accordance with 5.14. If a participant dies prior to receiving all installments, the remainder in his or her account will be paid in a lump sum to the beneficiary or, if none, in accordance with 8.14. [This section should be deleted effective 01-01-96.] 8.10 Timing of Distributions. The Benefits Manager will disburse distributions as a lump sum or in 5 annual installments. a) Lump Sum Distributions. The trustee shall mail a lump sum payment to the beneficial owner approximately 15 business days following the day on which the Benefits Manager was informed of the participant's request for distribution through the voice or other electronic response system or other media authorized by CG&E. b) Five Annual Installments. A participant whose employment is terminated by reason of retirement under the terms of the RIP, disability, or permanent layoff for lack of work, may irrevocably elect to receive his or her account in five annual installments.23 Installment distributions are not available to beneficiaries or to participants terminated for other reasons.24 c) Timing of Installments. The eligible participant may elect to receive the first installment as soon as practical after the end of the month that the event occurs, or as soon as practical after the end of the year in which the event occurs. The trustee shall disburse the first installment no later than March 125 following the calendar year when the event occurred which triggered the distribution. 1) Amount of Each Installment. Those who have elected 5 annual installments shall receive their accounts as follows: 1/5 of the account in the first installment, 1/4 of the account at the time of the second installment, 1/3 of the account at the time of the third installment, 1/2 of the account at the time of the fourth installment, and the balance of the account at the time of the last installment. 2) Subsequent Installments. The payment date for each subsequent installment shall be as soon as is practicable within each plan year following the anniversary date of the initial payment. The balance of the account shall be revalued in accordance with 8.4 and any CINergy stock will continue to be voted by such a participant in accordance with 5.14. If a participant dies prior to receiving all installments, the remainder in his or her account will be paid in a lump sum to the beneficiary or, if none, in accordance with 8.14. [This section becomes effective on 01-01-96.] 8.11 In Kind Distribution. a) General Rule. Distributions generally consist of a CINergy stock certificate reflecting the value of the units of the CINergy stock fund in the account as of the distribution valuation date, plus cash from the sale of all other plan investments and incidental cash from the CINergy stock fund. b) Company Stock Fund. To the extent that a beneficial owner's account includes units of the CINergy stock fund as of the distribution valuation date, s/he may elect to receive cash in lieu of a CINergy stock certificate.26 c) Fidelity Funds. The beneficial owner can direct the trustee to transfer his or her Fidelity Equity Income, Intermediate Bond and/or Magellan funds, upon distribution, to an individual account27 at Fidelity by submitting an application to the Committee. [This sub-section should be deleted effective 01-01-96.] d) Fidelity Funds. The beneficial owner can direct the trustee to transfer his or her Fidelity Equity Income, Intermediate Bond and/or Magellan funds, upon distribution, to an individual account28 at Fidelity by informing the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E. [This sub-section becomes effective on 01-01-96.] 8.12 Direct Rollovers to Other Plans. a) Election. 1) Who May Elect. Participants, terminated participants, their beneficiaries who are surviving spouses, and alternate payees who are former spouses of participants, may elect to have any portion of an eligible rollover distribution paid directly to their designated eligible retirement plan.29 Those making this election must be entitled to distribution or withdrawal of their plan assets, under the terms of this plan. The only plan assets subject to direct rollover are those acquired by reason of being a participant, a surviving spouse or a former spouse alternate payee. 2) Manner of Election. This election must be made at the time and in the manner prescribed by the Committee.30 b) Distributions Eligible for Rollover. An eligible rollover distribution is any distribution or withdrawal, except as stated in 8.12c) below, of all or any portion of the account of one of the persons listed in 8.12a) above. c) Distributions Not Eligible for Rollover. 1) Portions of Mandatory Distributions. The portion of a mandatory distribution under 8.6 which is required to be distributed under IRC 401(a)(9) is not eligible for direct rollover. [This sub-section should be deleted effective 01-01-97 for all participants, except 5% owners.] 2) Portions of Mandatory Distributions. The portion of a mandatory distribution under 8.7 which is required to be distributed under IRC 401(a)(9) is not eligible for direct rollover. [This sub-section becomes effective on 01-01-97 for all participants, except 5% owners.] 3) Portions Excluded from Gross Income. The portion of any distribution which is not able to be included in the gross income of the beneficial owner is not eligible for direct rollover. For this purpose, gross income can include any unrealized appreciation of CINergy stock.31 4) Optional Contributions. Optional contributions are not eligible for direct rollover. However, interest and earnings attributable to optional contributions are eligible for direct rollover. 5) Deemed Distributions. A deemed distribution which has occurred because of a participant's failure to make one or more loan payments is not eligible for direct rollover.32 6) Loan Offsets. The portion of a distribution due to termination of the participant's employment with CG&E which offsets the unpaid portion of a plan loan will not be eligible for direct rollover.33 7) Periodic Distributions.34 Any distribution that is one of a series of substantially equal periodic payments, made at least annually, to be paid over the life of the beneficial owner or the joint lives of the beneficial owner and his or her designated beneficiary, or to be paid for a specified period of at least 10 years is not eligible for direct rollover. 8) Other. Returns of elective deferrals and corrective distributions of excess contributions and attributable net income are not eligible for direct rollover.35 Returns of deferrals in excess of the IRC 402(g) limits or in excess of the 415 limits are not eligible for direct rollover. d) Eligible Retirement Plan. The definition of an eligible retirement plan for the purpose of accepting direct rollovers varies with the class of the person electing the direct rollover. The eligible retirement plan must be willing to accept the rollover distribution.36 1) Participants and Former Spouse Alternate Payees. Participants and former spouse alternate payees may direct rollovers to an individual retirement account37, an individual retirement annuity38, an annuity plan39 or a qualified trust.40 2) Surviving Spouses. Surviving spouses may direct rollovers only to an individual retirement account, or an individual retirement annuity.41 8.13 Settlement Statement. The trustee shall furnish a settlement statement42 with every distribution.43 8.14 Distribution Upon Death of a Participant or Beneficiary. In the event that the participant dies with assets remaining in the plan, the assets will be distributed to the participant's beneficiary. If there is no beneficiary, the assets will be distributed to the participant's surviving spouse. If the participant has no beneficiary or surviving spouse at the time of the participant's death, assets will be distributed to the participant's estate. If the beneficiary of a deceased participant dies while assets remain in the plan, the assets will be distributed to the estate of the beneficiary. In the event an alternate payee dies with assets remaining in the plan, the assets will be paid to the estate of the alternate payee. In each case, the assets will be distributed no later than the close of the plan year which contains the fifth anniversary of the participant's death. If the spouse of a participant or terminated participant is the beneficiary of the plan account, the spouse may delay distribution until the end of the calendar year in which the participant or terminated participant would have attained age 65. See Section 8.5e) and 8.5f).44 8.15 Plan Hierchary for Distributions. Any sale of a participant's plan assets, which is necessary to generate cash for the purpose of disbursing cash in the amount of after-tax contributions, will be made using the plan hierarchy. WITHDRAWALS DURING EMPLOYMENT ARTICLE 9: WITHDRAWALS DURING EMPLOYMENT 9.1 Withdrawal.1 A withdrawal is disbursement of any part of the vested assets of a participant to that participant. Distribution installments are not withdrawals. Only participants are eligible to take withdrawals. All other beneficial owners are eligible only for distributions. 9.2 Withdrawals from Company-Matched Sub-Accounts. A participant may not withdraw from the company-matched sub-account during the period s/he is employed2 by CG&E. 9.3 Withdrawals from Optional Sub-Accounts. Participants may withdraw from their optional sub-accounts plan by filing an application for withdrawal3 with the Committee. The trustee will disburse the withdrawal directly to the participant,4 or to another plan if the participant elects and the withdrawal qualifies for direct rollover. See 8.12. [This section should be deleted effective 01-01-96.] 9.4 Withdrawals from Optional Sub-Accounts. Participants may withdraw from their optional sub-accounts by the voice or other electronic response system or other media authorized by CG&E. The trustee will disburse the withdrawal directly to the participant5, or to another plan if the participant elects and the withdrawal qualifies for direct rollover. See 8.12. [This section becomes effective on 01-01-96.] 9.5 Amount Available for Optional Withdrawal. Participants may withdraw either a specific whole dollar amount or the entire balance from their optional sub-accounts. If the participant withdraws less than 100% of his or her optional sub-account balance and requests a second withdrawal within a 12 month period, s/he will be required to withdraw the remaining balance. 9.6 Plan Hierarchy For Withdrawals. If the portion of the participant's account which is to be withdrawn is invested in more than one fund, the withdrawal amount will be deducted from the investment funds using the plan hierarchy.6 Each fund will be exhausted before the withdrawal draws upon the next fund in the hierarchy. 9.7 Form of Withdrawals. Withdrawals generally consist of a CINergy stock certificate for the units of the CINergy stock fund in the sub-account as of the distribution valuation date, plus cash from the sale of all other plan investments and incidental cash from the CINergy stock fund. 9.8 Cash In Lieu of Stock. A participant may elect to receive cash in lieu of a CINergy stock certificate for his or her assets in the company stock fund.7 9.9 Hardship. A hardship is an immediate and heavy financial need of a participant which cannot be met except through a withdrawal from the participant's deferred compensation sub-account in the plan. 9.10 Hardship Withdrawals. A participant may apply to the Committee for a withdrawal of all or a portion of his or her deferred compensation sub-account. The Committee shall not grant the request unless it qualifies under the criteria listed in 9.13. [This section should be deleted effective 01-01-96.] 9.11 Hardship Withdrawals. A participant may apply to the Benefits Manager for a withdrawal of all or a portion of his or her deferred compensation sub-account. The Benefits Manager shall not grant the request unless it qualifies under the criteria listed in 9.14. [This section becomes effective on 01-01-96.] 9.12 Amount Available for Hardship Withdrawals. The amount available for a hardship withdrawal includes all deferred compensation contributions made in years prior to 1989, including any earnings and losses thereon, and de- ferred compensation contributions made on or after 01-01-89, excluding earnings and losses thereon. Hardship withdrawals are limited to the actual amount in the participant's account. 9.13 Criteria for Granting a Hardship Withdrawal.8 The Committee shall use the following criteria9 when considering an application for a hardship withdrawal: a) Immediate and Heavy Financial Need.10 The request must be to satisfy an immediate and heavy financial need for one of the following reasons: 1) Medical Expenses. Unreimbursed medical expenses, as described in IRC 213(d), incurred by the participant, the participant's spouse, or any dependents of the participant, as defined in IRC 152, or necessary for those persons to obtain medical care as described in IRC 213(d). 2) Purchase of a Principal Residence. Purchase, excluding mortgage payments, of a principal residence of the participant. 3) Tuition. Payment of tuition, related educational fees, and room and board for the next 12 months11 of post-secondary education for the participant, the participant's spouse, children, or dependents. 4) Prevention of Foreclosure. Prevention of eviction from, or foreclosure of the mortgage upon, the principal residence of the participant. 5) Funeral Expenses. Payment of the funeral expenses of the participant's spouse, children or dependents. 6) Other Expenses. Any other expense identified by the Internal Revenue Commissioner12 as an immediate and heavy financial need. b) Amount Necessary to Satisfy the Need. The hardship withdrawal is limited to the amount necessary to satisfy the need, plus any amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from the hardship withdrawal. The participant must submit reasonable documentation of the existence and amount of the need. There must be no other resources reasonably available to satisfy the need. The participant must first take all available non-hardship distributions/loans from all of CG&E's other plans: RIP, DCIP, MRP13. This includes a withdrawal of available funds from the optional sub-account. If a plan loan is either unavailable to the participant, or the available loan is insufficient to meet the need of a participant, and the other criteria of this section are met, the Committee may grant a hardship withdrawal. [This section should be deleted effective 01-01-96.] 9.14 Criteria for Granting a Hardship Withdrawal.14 The Benefits Manager shall use the following criteria15 when considering a request for a hardship withdrawal: a) Immediate and Heavy Financial Need.16 The request must be to satisfy an immediate and heavy financial need for one of the following reasons: 1) Medical Expenses. Unreimbursed medical expenses, as described in IRC 213(d), incurred by the participant, the participant's spouse, or any dependents of the participant, as defined in IRC 152, or necessary for those persons to obtain medical care as described in IRC 213(d). 2) Purchase of a Principal Residence. Purchase, excluding mortgage payments, of a principal residence of the participant. 3) Tuition. Payment of tuition, related educational fees, and room and board for the next 12 months17 of post-secondary education for the participant, the participant's spouse, children, or dependents. 4) Prevention of Foreclosure. Prevention of eviction from, or foreclosure of the mortgage upon, the principal residence of the participant. 5) Funeral Expenses. Payment of the funeral expenses of the participant's spouse, children or dependents. 6) Other Expenses. Any other expense identified by the Internal Revenue Commissioner18 as an immediate and heavy financial need. b) Amount Necessary to Satisfy the Need. The hardship withdrawal is limited to the amount necessary to satisfy the need, plus any amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from the hardship withdrawal. The participant must submit reasonable documentation of the existence and amount of the need. There must be no other resources reasonably available to satisfy the need. The participant must first take all available non-hardship distributions/loans from all of CG&E's other plans: RIP, SIP, MRP19. This includes a withdrawal of available funds from the optional sub-account. If a plan loan is either unavailable to the participant, or the available loan is insufficient to meet the need of a participant, and the other criteria of this section are met, the Benefits Manager may grant a hardship withdrawal. [This section becomes effective on 01-01-96.] 9.15 Required Documentation for Hardship Withdrawals. The participant must file the following documents with the Committee20 for consideration of a hardship withdrawal: a) Application. The participant must complete an application for hardship withdrawal, including the spouse's signature acknowledging notice of the application, if the participant is married. b) Documentation. The participant must attach photocopies of all papers which document the existence and the amount of the need. c) Written Explanation. The participant must provide a clear and concise explanation, in his or her own words, of how the funds are to be used. d) Quarterly Statement. The Committee21 will provide a copy of the participant's most recent quarterly statement indicating the amount of funds that are available to the participant. e) Personal Financial Statement. A personal financial statement of the participant's assets and liabilities, including the spouse's notarized signature, if the participant is married. [This section should be deleted effective 01-01-96.] 9.16 Required Substantiation for Hardship Withdrawals. The participant must provide the following information to the Benefits Manager for consideration of a hardship withdrawal: a) Request. The participant must make a request to the Benefits Manager for a hardship withdrawal through the voice or other electronic response system or other media authorized by CG&E. If the participant is married, the participant must furnish the Benefits Manager with the signature of the participant's spouse acknowledging notice by the spouse of the request. b) Documentation. The participant must furnish photocopies of all papers which document the existence and the amount of the need. c) Explanation. The participant must provide a clear and concise explanation, in his or her own words, of how the funds are to be used through the voice or other electronic response system or other media authorized by CG&E. d) Quarterly Statement. The Benefits Manager will provide a copy of the participant's most recent quarterly statement indicating the amount of funds that are available to the participant. e) Personal Financial Statement. A personal financial statement of the participant's assets and liabilities, including the spouse's notarized signature, if the participant is married. [This section becomes effective on 01-01-96.] 9.17 Disbursement of Hardship Withdrawals.22 The trustee will disburse23 a hardship withdrawal which has been accepted by the Committee directly to the participant. [This section should be deleted effective 01-01-96.] 9.18 Disbursement of Hardship Withdrawals.24 The trustee will disburse25 a hardship withdrawal which has been accepted by the Benefits Manager directly to the participant. [This section becomes effective on 01-01-96.] 9.19 Settlement Statement. The trustee shall furnish a settlement statement26 with every distribution.27 9.20 Suspension Following Withdrawal. a) Optional Sub-Account Withdrawal. Participants who have withdrawn from their optional sub-accounts will not be permitted to make optional contributions to the plan until at least 12 months from the date of disbursement of the withdrawal. b) Hardship Withdrawal. A participant who is granted a hardship withdrawal shall not be permitted to make deferred compensation or optional contributions28 to the plan until at least 12 months from the date of the hardship withdrawal disbursement. The IRC 402(g) limit on a participant's deferred compensation contributions for the taxable year of the participant following the taxable year in which the hardship withdrawal occurred shall be reduced by the amount of the participant's deferred compensation contributions during the taxable year in which the hardship withdrawal occurred. LOANS ARTICLE 10: LOANS 10.1 Eligibility for Loans1. Participants currently receiving pay from CG&E may apply for and receive a loan from their deferred compensation sub-accounts. No other beneficial owners are eligible for loans. Specifically, participants on leaves of absence,2 terminated participants, beneficiaries and alternate payees are not eligible to receive loans.3 10.2 Loan Requests. Participants may request loans through the current process established by the Committee.4 The participant must complete and return the promissory note to the trustee. Upon receipt of the completed promissory note, the trustee will send a check for the loan amount to the participant. [This section should be deleted effective 01-01-96.] 10.3 Loan Requests. Participants may request loans through the current process established by the Committee.5 The participant must execute the promissory note. The promissory note, at the sole discretion of the Committee, may be provided on the back of the check which is issued to the participant for the loan amount. The promissory note will be properly executed and legally enforceable once the participant endorses the back of the check. The participant's endorsement evidences that s/he agrees to the repayment terms. [This section becomes effective on 01-01-96.] 10.4 Limitation of Two Loans at any Given Time. A participant may apply for and obtain a second loan while the first loan remains outstanding. The second loan will be granted at the then prevailing rate of interest and for an entirely separate term of five years or less. The outstanding balance in the participant's loan account will reflect the total of the two loans, although the loans will remain separate and distinct on the trustee's records. The dollar limitation imposed by the plan for one loan will apply to the total outstanding balance for two loans for any given participant. A participant is limited to two outstanding loans at any given time. 10.5 Granting Loans. Loans will be granted from the plan for any reason. 10.6 Loan Amount.6 a) 50% of Vested Account Limited by Deferred Compensation Sub-Account. The loaned amount cannot exceed the lesser of $50,000 or 50% of the balance of the participant's vested accrued benefit (company-matched, deferred compensation and optional sub-accounts) and will be further limited by the actual amount in the deferred compensation contribution sub-account on the distribution valuation date for the loan. [This sub-section should be deleted effective 01-01-96.] b) 50% of Vested Account Limited by Deferred Compensation Sub-Account and Rollover Sub-Account. The loaned amount cannot exceed the lesser of $50,000 or 50% of the balance of the participant's vested accrued benefit (company-matched, deferred compensation, optional and rollover sub-accounts) and will be further limited by the actual amount in the deferred compensation contribution sub-account and rollover sub-account on the distribution valuation date for the loan. [This sub-section becomes effective on 01-01-96.] c) Reduction of $50,000 Maximum.7 The $50,000 maximum loan amount is reduced by the excess (if any) of the highest outstanding balance of loans to that participant during the one-year period ending on the day before the date the loan is made, over the outstanding balances of loans to that participant made under all qualified plans sponsored by CG&E on the date the loan is made. 10.7 Denial of Loans. The trustee shall not loan funds to a participant if granting the loan would result in a violation of any federal or state8 statute or regulation regarding loans. 10.8 Plan Hierarchy For Loans. If the participant's deferred compensation sub-account is invested in more than one fund, the loan amount will be deducted from the investments funds using the plan hierarchy.9 Each fund will be exhausted before the loan draws upon the next fund in the hierarchy. [This section should be deleted effective 01-01-96.] 10.9 Pro-rata Liquidation for Loans. The trustee shall liquidate the participant's deferred compensation sub-account investments and rollover sub-account investments in the same proportion that each investment bears to the entire deferred compensation contribution sub-account and rollover sub-account except for the loan fund. The trustee will disburse the cash produced to the participant minus any administrative fee. [This section becomes effective on 01-01-96.] 10.10 Valuing an Account For A Loan. The trustee shall use the value of the account as of the opening of the business day on which it writes the check for the loan to the participant to determine the amount available for the loan. 10.11 Collateral for Loans. a) Assignment and Restriction of Withdrawals. The participant shall assign 50% of his or her vested accrued account, and shall sign a promissory note for the amount of the loan, including interest, payable to the order of the trustee. No collateral other than the participant's interest in the plan will be accepted as security for a plan loan. If a participant's optional sub-account becomes collateral for his or her loan, s/he will only be able to withdraw from the optional sub-account the difference between its total value and the portion of the balance of the optional sub-account necessary as collateral for the unpaid loan balance. b) Effect of a DRO Upon Loan Collateral. If there are insufficient assets10 in the deferred compensation sub-account of a participant to satisfy the terms of a DRO because of one or more outstanding loans, the trustee will first take additional assets from the participant's optional sub-account, second from the company-matched sub-account, and finally from the loan account portion of the deferred compensation sub- account, in order to satisfy the DRO. [This sub-section should be deleted effective 01-01-96.] c) Effect of a DRO Upon Loan Collateral. If there are insufficient assets11 in the deferred compensation sub-account, or next in the rollover sub-account, if any, of a participant to satisfy the terms of a DRO because of one or more outstanding loans, the trustee will first take additional assets from the participant's optional sub-account, second from the company-matched sub-account, third, from the loan account portion of the deferred compensation sub- account, and finally from the loan account portion of the rollover sub-account, if any, in order to satisfy the DRO. [This sub-section becomes effective on 01-01-96.] 10.12 Interest Rate for Loans. The rate of interest charged on loans will be 1/2 of 1%12 above the prime rate charged by the trustee in its banking business on the first business day of the month during which the application is received by the trustee.13 [This section should be deleted effective 01-01-96.] 10.13 Interest Rate for Loans. The rate of interest charged on loans will be a reasonable rate based on commercial standards in the lending industry. [This section becomes effective on 01-01-96.] 10.14 Payment of Loans. A participant who applies for a loan must authorize CG&E to deduct loan payments from his or her pay.14 CG&E will remit loan deductions to the trustee concurrent with disbursements of the payroll. 10.15 Minimum and Maximum Term of Loans. The participant shall specify the number of months for payment of the loan, with 12 months being the minimum term, and 60 months the maximum term.15 [This section should be deleted effective 01-01-96.] 10.16 Minimum and Maximum Term of Loans. The participant shall specify the number of months for payment of the loan, with 12 months being the minimum term, and 54 months the maximum term.16 [This section becomes effective on 01-01-96.] 10.17 Investment of Loan Payments. The trustee will direct loan payments to the investment funds according to the participant's most recent allocation of future contributions form that is on file. [This section should be deleted effective 01-01-96.] 10.18 Investment of Loan Payments. The trustee will direct loan payments to the investment funds according to the most recently provided directions given by the participant through the voice or other electronic response system or other media authorized by CG&E. [This section becomes effective on 01-01-96.] 10.19 Outstanding Loans for Terminated Participants. Upon termination of employment, any outstanding loan of a terminated participant is due immediately or the outstanding amount of the loan will be in default pursuant to 10.22 or 10.23 and reclassified as a partial distribution. [This section becomes effective on 01-01-96.] 10.20 Outstanding Loans for Participants on Military Leave. Subject to the Committee's approval of such a policy, loan repayments will be suspended under this plan as permitted under IRC 414(u)(4). 10.21 Prepayment of Loans. A participant may pay the remaining loan balance at any time without any pre-payment penalties by check or money order made payable to the trustee. The prepayment should be sent or delivered to the Committee.17 10.22 Loan Default. A participant's loan will go into default upon failure to make one or more payments during a calendar year, violation of any term of the promissory note signed by the participant, or upon declaration of the Committee at its discretion18 under the terms of the promissory note. [This section should be deleted effective .] 10.23 Loan Default. A participant's loan will go into default upon failure to timely make any payment during a calendar year or violation of any term of the promissory note signed by the participant.19 [This section becomes effective on __________.] 10.24 Tax Effects of Loan Default. The participant shall pay the tax incurred for any events which arise out of any loan transaction with the plan or any failure20 to make payments under plan and promissory note requirements. 10.25 Curing Loan Default. A participant who has missed one or more loan payments during a plan year may make those payments up by direct payment to the Committee with a check or money order made payable to the order of the trustee in the amount of the payment, plus interest, on or before the final valuation date of the plan year to cure the default without tax or recharacterization consequences.21 [This section should be deleted effective ____________.] 10.26 Curing Loan Default. A participant who misses any loan payment may make up the missed payment by direct payment to the Committee with a check or money order made payable to the order of the trustee in the amount of the payment, plus interest, on or before the last day of the calendar quarter following the calendar quarter in which the required payment was due to cure the default without tax consequences.22 [This section becomes effective on __________.] 10.27 Reamortization of Loans. A participant may reamortize a loan so long as the total time for repayment of the loan does not exceed 60 months. Loan reamortizations will be under the plan terms and conditions in effect at the time of the reamortization. [This section should be deleted effective 01-01-96.] 10.28 Reamortization of Loans. A participant who is on a leave of absence (other than military leave) for not longer than one year may reamortize a loan so long as the total time for repayment of the loan does not exceed 54 months and the loan payments due after the leave expires (or, if earlier, after the first year of the leave) are not less than those required under the original terms of the loan. Loan reamortizations will be under the plan terms and conditions in effect at the time of the reamortization.23 [This section becomes effective on 01-01-96.] 10.29 Recharacterization of Sub-accounts24. Effective as of the final valuation date of each plan year, the trustee shall recharacterize all or any portion of the optional and/or company-matched sub-accounts of a participant who has failed to make any loan payment(s) during the year, if those missed payments are still outstanding at the final valuation date. The amount recharacterized shall be limited to the amount of the missed payments. The amount recharacterized will be credited to the participant's deferred compensation sub-account as a loan payment. The trustee will notify the participant of the taxable amount of the distribution. The Committee does not waive its ability to determine that a loan is in default, or to foreclose upon a loan, by exercising its right to recharacterize the participant's sub-accounts under this provision. [This section should be deleted effective ___________.] 10.30 Loan Fund Administration a) Single Loans. The promissory notes securing payment of loans from plan assets will be reflected on participants' quarterly statements under the loan fund assets. When participants receive plan loans, their investment allocations will reflect credits to their loan funds in an amount equal to the principal amount of the loan. Their other sub-accounts will reflect a total reduction in value equivalent to the principal amount of the loan. As participants make loan payments, the value of the participants' loan funds will be reduced by the amount of the payments attributable to the principal of the loans. Principal and interest, as they are paid, will be allocated to investments per the most recent directions given by the participant. Once the loan is completely repaid, the participant's quarterly statement will reflect no investment in the loan fund. b) Multiple Loans. The trustee shall maintain separate records of principal, interest, and payment schedule for each loan that a participant has outstanding at any given time. The participant's statement will not reflect each separate loan. The loan fund segment of the quarterly statements distributed to participants will reflect the total of all current loans outstanding to the participant. c) Loans and DROs. The trustee will allocate as much of the participant's loan fund to the alternate payee as is necessary to satisfy the terms of the DRO if there are insufficient other assets in the participant's account due to the amount of the participant's assets on loan. To the extent possible, loans extended prior to the Committee's receipt of the DRO will be allocated to the alternate payee. However, loans extended after receipt of the DRO will be allocated, if necessary to meet the terms of the DRO. The participant will remain solely responsible for loan payments, even if some portion of a loan or loans has been allocated to an alternate payee to satisfy the terms of a DRO. DOMESTIC RELATIONS ORDERS AND ALTERNATE PAYEES ARTICLE 11: DOMESTIC RELATIONS ORDERS AND ALTERNATE PAYEES 11.1 Domestic Relations Order (DRO). A domestic relations order is any judgment, decree or order, made pursuant to a state domestic relations law, which provides that child support, alimony, maintenance payments or marital property allocation will be made from the plan assets of a participant. A domestic relations order is referred to as a DRO throughout the plan. 11.2 General Rule. The benefits due or to become due to any participant are subject to a domestic relations order accepted by the Committee. 11.3 Qualification and Acceptance of a DRO. a) Initial Order. The DRO must meet the requirements of IRC 414(p) and use the sample DRO language that has been approved by the Committee1 to be considered as qualified and to be accepted by the plan. The Committee2 shall determine whether or not a DRO is qualified. A court order which contains language presuming that it is qualified shall not be binding upon the plan. b) Amended Orders. A DRO which modifies the terms of a previously qualified DRO may be accepted by the Committee. The amended DRO must meet the qualifications of 11.3a) above, and must be filed with the Committee before any irrevocable action has been taken on execution of the initial DRO. Irrevocable actions include executed cash-outs and any transaction which the Committee decides is impossible or impractical to attempt to reverse. 11.4 Special Conditions Applicable to DROs. a) Prohibition of Allocating Identical Assets Multiple Times. No DRO may allocate benefits which have been allocated by a previously qualified and accepted DRO. However, an amended DRO which is accepted by the plan may reallocate benefits previously allocated without violating this provision. b) Applicable Plan(s). The nature of benefits allocated to an alternate payee will be determined in accord with the terms of the plan in effect on the date the DRO is entered onto the records of the issuing court. 11.5 Alternate Payee. An alternate payee is a participant's child, spouse, former spouse or other dependent who is designated to receive benefits under the plan by a DRO. The Committee may rely upon the determination of the court which issues the DRO that the designated alternate payee in the order is entitled, under the law of the appropriate state, to be so named. 11.6 Acknowledgment and Acceptance or Rejection of a DRO. As soon as practical after the Committee receives a DRO, it will send the participant and designated alternate payee an acknowledgment of receipt, notice of acceptance or rejection and a copy of the plan procedures for acceptance or rejection of DROs.3 The Committee will send a copy of the DRO and notice of acceptance or rejection to the trustee. The Committee shall accept or reject a DRO within 18 months of receiving it. 11.7 Division of Assets By the Trustee. a) On Receipt of a DRO. The trustee shall freeze the account of the participant upon receiving notice from any plan agent that an Order purporting to be a DRO has been received. Participants with frozen accounts may not obtain loans or withdrawals from the plan, and may not reallocate among funds. Distributions on frozen accounts are subject to delay, pending acceptance of a DRO. b) On Rejection of a DRO. If the order is rejected, the trustee shall keep the account of the participant frozen for a reasonable period of time, pending receipt of an amended DRO which is accepted by the Committee, or direction from the Committee that the participant's account may become active. c) On Acceptance of a DRO. The trustee shall segregate the plan assets into two or more accounts as directed by the order as soon as it receives notification that an order is accepted. The trustee shall set up new accounts in the name of each alternate payee under the order.4 The assets in the sub-accounts of the alternate payees shall be allocated among the investment funds in the same proportions as allocated in the sub-accounts of the participant from which they originated. d) Participant with Outstanding Loans. If a participant has one or more loans outstanding and insufficient liquid deferred compensation sub-account assets to satisfy the terms of an accepted DRO, the trustee shall avoid allocating loan investment assets if possible. The trustee shall first take the necessary additional assets from the optional sub-account until it is exhausted. Second, the trustee shall take the necessary additional assets from the company-matched sub-account until it is exhausted. Finally, the trustee shall allocate the remaining funds necessary to satisfy the DRO from the loan investment portion of the deferred sub-account. (See 10.11b)). [This sub-section should be deleted effective 01-01-96.] e) Participant with Outstanding Loans. If a participant has one or more loans outstanding and insufficient liquid deferred compensation sub-account assets, or next rollover sub-account assets, if any, to satisfy the terms of an accepted DRO, the trustee shall avoid allocating loan investment assets if possible. The trustee shall first take the necessary additional assets from the optional sub-account until it is exhausted. Second, the trustee shall take the necessary additional assets from the company-matched sub-account until it is exhausted. Third, the trustee shall take the necessary additional assets from the loan investment portion of the deferred sub-account. Finally, the trustee shall allocate the remaining funds necessary to satisfy the DRO from the loan investment portion of the rollover sub-account. (See 10.11c)). [This sub-section becomes effective on 01-01-96.] f) Denial of DRO within 18 Months. If within 18 months of the original receipt of a DRO it, or a successor DRO, is determined to be not qualified, and no amended DRO acceptable to the plan has been submitted to the Committee, the assets in the alternate payees' sub-accounts will be restored to the sub-accounts of the participant. The trustee shall restore the participant's account to active status. 11.8 Participatory Functions of Alternate Payees. Alternate payees may not withdraw from any sub-account, contribute to any sub-account, apply for loans, apply for hardship withdrawals, or elect an installment distribution. An alternate payee may not change his or her investment direction of sub-accounts, except in conjunction with a distribution. The rights of an alternate payee are limited to: receipt of a quarterly statement of his or her account, receipt of the account proceeds in accord with the terms of the DRO or the plan, a change in the allocation of past contributions in conjunction with a distribution5, the right to all claims procedures mandated by ERISA and the right to obtain copies of the plan document and summary plan description as mandated by ERISA. None of these rights under the plan will be in effect until the Committee certifies the pertinent DRO as qualified and so notifies the alternate payee. 11.9 Distribution of Assets Valued at $3,500 or Less. The Committee shall distribute any alternate payee's account assets valued at $3,500 or less at any valuation date. Upon the determination of the value of the account, the alternate payee must file an application for distribution. The Committee shall file an application for distribution on behalf of the alternate payee if s/he does not do so within 60 days of the determination of the value of the account pursuant to 8.5a)6. If insufficient cash assets are available to distribute because of loans allocated to the account of the alternate payee, this mandatory distribution will be delayed until there are sufficient cash assets in the account. [This section should be deleted effective 01-01-96.] 11.10 Distribution of Assets Valued at $3,500 or Less. The Benefits Manager shall distribute any alternate payee's account assets valued at $3,500 or less at any valuation date. Upon the determination of the value of the account, the alternate payee must apply for distribution through the voice or other electronic response system or other media authorized by CG&E. The Benefits Manager shall apply for distribution on behalf of the alternate payee if s/he does not do so within 60 days of the determination of the value of the account pursuant to 8.5b)7. If insufficient cash assets are available to distribute because of loans allocated to the account of the alternate payee, this mandatory distribution will be delayed until there are sufficient cash assets in the account. [This section becomes effective on 01-01-96.] 11.11 Distribution of Assets Valued Over $3,500. If an alternate payee's assets in the plan are valued over $3,500, s/he is not eligible to receive a lump sum distribution8 until the participant from whom the account was derived reaches age 50,9 terminates employment, or dies. An alternate payee who becomes eligible for a distribution must file an application for a lump sum distribution with the Committee no later than the 90 days before the end of the year in which the participant from whom the account was derived becomes age 65. If the alternate payee does not file the application for distribution in a timely manner, the Committee shall file the application on his or her behalf pursuant to 8.5c). [This section should be deleted effective 01-01-96.] 11.12 Distribution of Assets Valued Over $3,500. If an alternate payee's assets in the plan are valued over $3,500, s/he is not eligible to receive a lump sum distribution10 until the participant from whom the account was derived reaches age 50,11 terminates employment, or dies. An alternate payee who becomes eligible for a distribution must apply for a lump sum distribution with the Benefits Manager through the voice or other electronic response system or other media authorized by CG&E no later than the 90 days before the end of the year in which the participant from whom the account was derived becomes age 65. If the alternate payee does not apply for distribution in a timely manner, the Benefits Manager shall apply on his or her behalf pursuant to 8.5d). [This section becomes effective on 01-01-96.] 11.13 Window Cashouts for Alternate Payees. a) Effective Date. Alternate payees who have been awarded benefits from this plan shall be given a one-time opportunity to receive a lump sum payment of all their plan interest, regardless of the amount of the present value of the benefit.12 b) Retroactivity of Provision. Alternate payees who had been awarded plan benefits prior to the effective date of this provision (April 1, 1991) shall also be given this one-time opportunity to receive their total plan benefit. c) Notification to Alternate Payees. Notification to the alternate payee of this offer shall allow a minimum of 30 days and a maximum of 90 days to make the irrevocable election to receive the lump sum benefit. d) Timing of Notification. The Committee shall notify the alternate payee of the availability of the window cashout as soon as practical after the assets have been allocated to the account of the alternate payee. Notice of the window distribution shall be sent to alternate payee with an account containing loan fund assets, but shall indicate the delay in availability. See 11.16. e) Effect of Failure to Elect Window Cashout. The plan assets of an alternate payee who does not elect a cashout under this section shall be governed by the other plan rules regarding distributions to alternate payees. 11.14 Death. In the event of an alternate payee's death, his or her remaining plan assets will be distributed to his or her estate. 11.15 Alternate Payees' Responsibilities. Alternate payees must notify the Committee in writing of any address changes, or the name and address of a designated representative. The notification should be signed and dated by the alternate payee and should reference this plan, and the name of the participant from whom the account derives. 11.16 Limitation on Distribution to Alternate Payees. An alternate payee may not receive any mandatory or elective distribution until the alternate payee's account no longer includes loan fund assets,13 unless the mandatory distribution is required by the IRC or ERISA. An alternate payee may not receive any elective distribution until all assets allocated to the account of the alternate payee have become vested. FIDUCIARIES: AUTHORITY & RESPONSIBILITY ARTICLE 12: FIDUCIARIES: AUTHORITY & RESPONSIBILITY 12.1 Fiduciary. Any person who exercises any discretionary authority or discretionary control respecting management or administration of the plan or the trust pursuant to the provisions of ERISA. 12.2 Fiduciaries. The following are named as fiduciaries: a) the members of the Committee, and b) the trustee. 12.3 Trustee. a) Appointment. The board of directors shall appoint a trustee for the plan. All assets of the plan shall be held for use in accordance with the plan in providing the benefits payable under the plan and for such investment expenses as may properly be incurred by the trustee. b) Amendment. The trust agreement may be amended and the trustee changed in the manner provided in the trust agreement. c) Responsibility. The responsibility for the reten- tion of the trust shall lie with the trustee and not with the Committee. d) Voting. The trustee shall vote the shares of CINergy stock credited to the accounts of beneficial owners in accordance with the instructions given by the beneficial owner. If the instructions are not received by the trustee by the date it has designated prior to any annual or special meeting of shareholders of CINergy, the trustee shall vote the uninstructed shares at its discretion. The trustee shall also vote at its discretion the shares of CINergy stock held in the company stock fund that have not been allocated to participants' accounts as of the record date of any annual or special meeting of shareholders of CINergy. 12.4 Establishment of the Committee. The Committee is the plan administrator, commonly referred to as the SIP Committee other than in this plan document. The Committee shall consist of not more than five nor less than three members, who shall be appointed by, and serve at the pleasure of, the board of directors. Members of the Committee may resign by delivering written resignation to the board of directors. Resignations shall become effective at delivery or at any later date specified within the written statement. 12.5 Organization of the Committee. The Committee shall elect a chairperson from their number, and a secretary and such other officers as the Committee may designate, who may, but need not, be members of the Committee, to serve at the pleasure of the Committee. No member of the Committee who is also an employee shall receive any compensation for services as such member. 12.6 Powers of the Committee. The powers of the Committee shall include, but not be limited to, the following: a) Appoint Committees. The Committee may appoint committees with any powers it deems necessary, including an executive committee to exercise all powers of the Committee between meetings of the Committee.1 b) Set Meetings. The Committee may determine the times and places for holding meetings of the Committee, and the notice to be given of the meetings. c) Establish a Quorum. The Committee shall determine the number of members of the Committee necessary to constitute a quorum for the transaction of business. A quorum must be at least a majority of the committee members. d) Engage Assistants. The Committee may engage agents and assistants, counsel, clerical, medical, vocational, and accounting services as required to carry out the provisions of the plan. e) Establish an Agent. The Committee may authorize one or more of their members or any employee as its agent to make any payment, or to execute or deliver any instrument on behalf of the Committee or to perform any other function of the Committee. [This sub-section should be deleted effective 01-01-96.] f) Establish an Agent. The Committee may authorize one or more of their members or any employee as its agent to make any payment, or to execute or deliver any instrument on behalf of the Committee or to perform any other function of the Committee. The Benefits Manager and the General Manager of Human Resources Services shall serve as agents of the Committee with respect to the duties assigned to these persons under the plan. [This sub-section becomes effective on 01-01-96.] g) Select Investment Funds. The Committee shall establish, and change as appropriate, an overall plan for providing a diversified group of investments for the trust assets. The Committee shall also select, and change as appropriate, the various investment funds. h) Litigate on Behalf of the Plan. The Committee shall commence or defend litigation on behalf of the plan and represent the plan in all such proceedings before any court or other tribunal. i) Interpret the Plan. The Committee shall interpret the plan, resolve any ambiguities in the plan and establish provisions for any circumstances not provided for in the plan, in a manner fair to plan participants in similar circumstances and consistent with other plan provisions. j) Determine Eligibility for Benefits. The Committee shall determine eligibility for benefits under the plan, including claims to determine a participant's rights to benefits under any former plan provision. [This sub-section should be deleted effective 01-01-96.] k) Determine Eligibility for Benefits. The Benefits Manager, the General Manager of Human Resources Services and the Committee shall determine eligibility for benefits under the plan, including claims to determine a participant's rights to benefits under any former plan provision. [This sub-section becomes effective on 01-01-96.] l) Approve or Deny Requests for Hardship Withdrawals. The Committee shall approve or deny requests for hardship withdrawals, subject to the availability of monies, under the provisions of the plan. [This sub-section should be deleted effective 10-17-95.] m) Approve or Deny Requests for Hardship Withdrawals. The Senior Manager of Human Resource Strategy shall approve or deny requests for hardship withdrawals, subject to the availability of monies, under the provisions of the plan. [This sub-section becomes effective on 10-17-95 and should be deleted effective 01-01-96.] n) Approve or Deny Requests for Hardship Withdrawals. The Benefits Manager shall approve or deny requests for hardship withdrawals, subject to the availability of monies, under the provisions of the plan. If a request for a hardship withdrawal is denied or a participant does not receive a response within 30 days from the day the request was made to the Benefits Manager, then the participant may make a request to the General Manager of Human Resources Services for a hardship withdrawal. If a participant's request is denied by the General Manager of Human Resources Services, or a participant does not receive a response within 60 days from the day the request was made to the General Manager of Human Resources Services, then the participant may petition the Committee to receive a hardship withdrawal. The Committee's decision as to a participant's hardship withdrawal request shall be final. See 13.3. [This sub-section becomes effective on 01-01-96.] o) Accept or Reject DROs2. The Committee shall determine if a DRO which directs allocation of plan benefits to one or more alternate payees is qualified.3 p) Adopt Procedures. The Committee may establish rules, regulations and procedures4 necessary for the administration of the plan and the transaction of its business. q) Amend the Plan. The Committee may adopt any amendment to ensure the continued qualification of the plan and trust under IRC 401(a) and 501(a), to comply with the provisions of any federal statute5 or regulation impacting pension plans, to enhance the delivery of benefits to participants and beneficia- ries, to ease plan administration, or to respond to the withdrawal of CG&E or any of its subsidiaries from the plan. No amendment shall substantially increase the cost of the plan without the consent of the board of directors. r) Require Accounting. The Committee may request accounting and other information from the trustee. s) Direct the Trustee. The Committee may direct the trustee, by written instrument, to take action consistent with plan administration and the trust agreement. t) Approve or Deny Requests for Rollover Contributions. The Committee shall approve or deny requests for rollover contributions to the plan. [This sub-section becomes effective on 01-01-96.] 12.7 Committee Actions. All resolutions or other actions taken by the Committee at any meeting shall be by the vote of a majority of the members of the Committee attending the meeting. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting. 12.8 Accounts and Reports. The Committee shall maintain records of its actions and other data necessary for the administration of the plan. The Committee shall prepare and file any reports required by ERISA or the IRC. A copy of these reports shall be maintained in the office of the secretary of the Committee. 12.9 Action Taken in Good Faith. CG&E, the board of directors, officers and employees of CG&E shall be entitled to rely upon all information furnished by the accountant, trustee, and all opinions given by legal counsel. CG&E, the board of directors, officers and employees of CG&E, and any person acting as a fiduciary under the plan shall be fully protected from liability for any action taken, or permitted by them in good faith, in reliance upon any such information furnished by the accountant, trustee, or legal counsel. 12.10 Decisions Final and Binding. The decisions of the Committee on any matter within its authority shall be made in the sole discretion of the Committee and shall be final and binding on all parties, including, but not limited to, CG&E, participants, terminated participants, beneficiaries and alternate payees. 12.11 Insurance. CG&E may purchase insurance to cover liability of one or more persons who serve in a fiduciary capacity with regard to this plan. 12.12 Trust. The fund established under the trust agreement to which all deferred contributions, optional contributions, company-matched contributions, and company-matched stock incentive contributions are made and from which benefits are solely paid under the terms of the plan. Neither CG&E nor its subsidiaries shall be required to make direct payment of any benefit under the plan. [This section should be deleted effective 01-01-96.] 12.13 Trust. The fund established under the trust agreement to which all deferred contributions, optional contributions, company-matched contributions, company- matched stock incentive contributions, and rollover contributions are made and from which benefits are solely paid under the terms of the plan. Neither CG&E nor its subsidiaries shall be required to make direct payment of any benefit under the plan. [This section becomes effective on 01-01-96.] 12.14 Trust Agreement. The trust agreement is the contract between CG&E's board of directors and the trustee governing the duties and rights of the trustee with regard to plan funds. In accordance with the trust agreement, the trustee shall invest all deferred contributions, optional contributions, company-matched contributions, and company-matched stock incentive contributions, and earnings thereon, in the various investment funds. [This section should be deleted effective 01-01-96.] 12.15 Trust Agreement. The trust agreement is the contract between CG&E's board of directors and the trustee governing the duties and rights of the trustee with regard to plan funds. In accordance with the trust agreement, the trustee shall invest all deferred contributions, optional contributions, company-matched contributions, company-matched stock incentive contributions, and rollover contributions, and earnings thereon, in the various investment funds. [This section becomes effective on 01-01-96.] 12.16 Plan and Employer Identification Numbers. The three-digit plan identification number is 002. CG&E's employer identification number is 31-0240030. The Committee's employer identification number is 31-0910812. ADMINISTRATIVE PROVISIONS ARTICLE 13: ADMINISTRATIVE PROVISIONS 13.1 Filing Documents with the Plan. a) Filing Date. Generally, documents addressed to the Committee or forms prepared for use by plan participants will be considered to be filed with the Committee or the plan on the day when they are received by any employee benefits coordinator within CG&E's Human Resources Department or the monthly payroll administrator. b) DROs. On the day a DRO is received by CG&E's Legal Department, Human Resources Department, or the secretary of the Committee, it will be considered to be filed with the Committee. c) Forms. Forms prepared under the aegis of the DCIP Committee or the Committee for the plan will be accepted for use under the plan unless the particular form is inappropriate for use under this plan or has been supplanted by a revised form. 13.2 Benefit Claims Process. a) Written Request. Any person who claims a benefit under this plan must file the request in writing with the Committee. b) Denial of a Claim. If the Committee denies the benefit in full or in part, it will send a detailed written reply to the claimant within 90 days after the claim was filed. The written reply will include the following: 1) the specific reason(s) for the denial, referencing any specific plan provisions upon which the decision depends; and 2) a request for any additional information available to the claimant in support of his or her position and an explanation, if any, of why it would be of assistance in resolving the claim; and 3) the procedures available for a further review of the claim. c) Automatic Denial. If the Committee has not responded in writing to the participant within 90 days of the filing of the benefit claim, the participant may consider the claim to have been denied and pursue the request for reconsideration. d) Acceptance of a Claim. If the Committee grants the claim, payment will commence within 90 days of receipt of the claim, or a notice of acceptance will be sent to the claimant if commencement of payment is not feasible within that time frame. e) Reconsideration of Denial. The claimant may apply in writing to the Committee for reconsideration of the claim. The claimant must file for reconsideration within 60 days of receiving the notice of denial. The claimant or his or her authorized representative may request the opportunity to review pertinent plan documents and submit a written statement of issues and comments, in conjunction with the request for reconsideration. f) Time-frame for Reconsideration. The Committee will render a decision within 60 days after it receives the request for reconsideration. If special circumstances require extension of time for processing the request, the decision by the Committee will be issued within 120 days after it receives the request for reconsideration. g) Claimant's Representative. A claimant for plan benefits may act on his or her own behalf, or may use a representative who is authorized to act on behalf of the claimant, throughout the administrative claim process. h) Exhaustion of Administrative Remedies. If the claim for benefits is denied or ignored in full or in part, the claimant may file suit in federal court to pursue the claim. [This section should be deleted effective 01-01-96.] 13.3 Benefit Claims Process. a) Written Request. Any person who claims a benefit under this plan must file the request in writing with the Benefits Manager. b) Denial of a Claim or Failure to Respond by Benefits Manager. If the Benefits Manager denies the benefit in full or in part or fails to respond within 30 days from the day a claimant files his or her written request, then the claimant may petition the General Manager of Human Resources Services to review the claim. c) Denial of a Claim by the General Manager of Human Resources Services. If the General Manager of Human Resources Services denies the benefit in full or in part, he or she will send a detailed written reply to the claimant within 60 days after the claim was filed with the General Manager of Human Resources Services. The written reply will include the following: 1) the specific reason(s) for the denial, referencing any specific plan provisions upon which the decision depends; and 2) a request for any additional information available to the claimant in support of his or her position and an explanation, if any, of why it would be of assistance in resolving the claim; and 3) the procedures available for a further review of the claim by the Committee. d) Automatic Denial. If the General Manager of Human Resources Services has not responded in writing to the claimant within 60 days of the filing of the benefit claim with the General Manager of Human Resources Services, the claimant may consider the claim to have been denied and pursue the request for reconsideration with the Committee. e) Acceptance of a Claim. If the General Manager of Human Resources Services grants the claim, payment will commence within 60 days of receipt of the claim by the General Manager of Human Resources Services, or a notice of acceptance will be sent to the claimant if commencement of payment is not feasible within that time frame. f) Reconsideration of Denial by the Committee. The claimant may apply in writing to the Committee for reconsideration of the claim. The claimant must file for reconsideration within 60 days of receiving the notice of denial from the General Manager of Human Resources Services. The claimant or his or her authorized representative may request the opportunity to review pertinent plan documents and submit a written statement of issues and comments, in conjunction with the request for reconsideration. g) Time-frame for Reconsideration. The Committee will render a decision within 60 days after it re- ceives the request for reconsideration. If special circumstances require extension of time for processing the request, the decision by the Committee will be issued within 120 days after it receives the request for reconsideration. h) Claimant's Representative. A claimant for plan benefits may act on his or her own behalf, or may use a representative who is authorized to act on behalf of the claimant, throughout the administrative claim process. i) Exhaustion of Administrative Remedies. If the claim for benefits is denied or ignored in full or in part upon reconsideration by the Committee, the claimant may file suit in federal court to pursue the claim. [This section becomes effective on 01-01-96.] 13.4 Uniform Administration. Decisions or actions of the Committee with respect to the eligibility for or nature of benefits to be provided under this plan shall be uniformly applied to all persons similarly situated. [This section should be deleted effective 01-01-96.] 13.5 Uniform Administration. Decisions or actions of the Benefits Manager, the General Manager of Human Resources Services, and the Committee with respect to the eligibility for or nature of benefits to be provided under this plan shall be uniformly applied to all persons similarly situated. [This section becomes effective on 01-01-96.] 13.6 Statutory Construction. The plan shall be construed, enforced, and administered according to the laws of the State of Ohio as to any matter not preempted by ERISA. In any case that a provision of the plan is held illegal or invalid for any reason, it shall not affect the remaining provisions of the plan. However, the plan shall be construed, enforced, and administered as if the illegal provision had not been included in the plan. 13.7 Limitation of Rights of the Employee. The plan is strictly a voluntary undertaking on the part of CG&E. The plan is not a contract between CG&E and any employee. The plan does not constitute consideration for, or an inducement or condition of, the employment of any employee. Nothing contained in the plan gives any employee the right to be retained in the service of CG&E or to interfere with the right of CG&E to discharge any employee at any time. A participant does not have any right or claim to a benefit under the plan except upon fulfilling all of the conditions of eligibility and qualification. The participant's right to receive the benefit must have become fixed under the terms of the plan and there must be funds available in the trust sufficient to pay the benefit. 13.8 Alienation of Benefits. Benefits under the plan shall not be subject in any manner to alienation or assignment. Any attempt to assign or alienate plan benefits shall be void, whether such sums remain with the trustee or are in the course of transmission to the person entitled to them. However, benefits are subject to DROs accepted by the Committee. 13.9 Response to Attempted Alienation. If any participant, pensioner, beneficiary, or alternate payee under the plan becomes bankrupt or attempts to alienate or assign any benefit under the plan, except as specifically provided in the plan or by law, then his or her benefit shall terminate. In that event the Committee shall hold the assets of the affected participant, pensioner, beneficiary, or alternate payee for his or her benefit. 13.10 Correction of Inadvertent Error. The Committee may, in its discretion, recoup any benefit payment, or correct any loan, withdrawal, or other error made in contravention of any plan provision, whether by mistake, inadvertence or misrepresentation. Recovery of overpayment may be accomplished by withholding from future benefits due the individual who was enriched by the overpayment, or may be pursued by any other feasible and appropriate manner of collection. Other corrections shall be made in the manner deemed most feasible by the Committee. 13.11 Information from Beneficial Owners. a) Each beneficial owner shall be required to furnish the Committee, in the form prescribed by it, such personal data, affidavits, authorization to obtain information, and other information as the Committee may deem appropriate for the proper operation and administration of the plan. b) Misrepresentations of fact by a beneficial owner to the extent that affects their participation or benefits hereunder shall be handled in accordance with the rules of the Committee. In no event shall CG&E, the Committee, or the trustee have an obligation to provide such a beneficial owner with benefits in excess of those which would have been provided under the plan if there had been no misstatement or misrepresentation. 13.12 Facility of Payment. If the Committee determines from evidence that a claimant entitled to receive benefits under this plan is (at the time the benefit is payable) physically, mentally, or legally incompetent to receive such benefit and give valid receipt therefore, and that another person or an institution is then maintaining or has custody of such incompetent individual, and that no guardian, custodian or other representative of the estate of such incompetent individual has been appointed, the Committee may cause payment to be made to that person or institution having custody or maintaining the participant, former participant or beneficiary. The payment, to the extent made, shall operate as a complete discharge of the Committee, CG&E, and the trustee. [This section should be deleted effective 01-01-96.] 13.13 Facility of Payment. If the Benefits Manager determines from evidence that a claimant entitled to receive benefits under this plan is (at the time the benefit is payable) physically, mentally, or legally incompetent to receive such benefit and give valid receipt therefore, and that another person or an institution is then maintaining or has custody of such incompetent individual, and that no guardian, custodian or other representative of the estate of such incompetent individual has been appointed, the Benefits Manager may cause payment to be made to that person or institution having custody or maintaining the participant, former participant or beneficiary. The payment, to the extent made, shall operate as a complete discharge of the Committee, CG&E, and the trustee. [This section becomes effective on 01-01-96.] 13.14 Lost Beneficial Owner. Any benefit payment under the plan shall be forfeited if the Committee, after reasonable effort, is unable to locate the person to whom payment is due. However, any forfeited benefit shall be restored if a valid claim is made for the forfeited benefit; first from forfeitures, and then from company-matched contributions and company-matched stock incentive contributions. [This section should be deleted effective 01-01-96.] 13.15 Lost Beneficial Owner. Any benefit payment under the plan shall be forfeited if the Benefits Manager, after reasonable effort, is unable to locate the person to whom payment is due. However, any forfeited benefit shall be restored if a valid claim is made for the forfeited benefit; first from forfeitures, and then from company-matched contributions and company-matched stock incentive contributions. [This section becomes effective on 01-01-96.] 13.16 Vested Right. No person shall have any vested rights under the plan except to the extent that vested rights may accrue to him or her as provided under the plan. Furthermore, any person with vested rights under the plan shall look solely to the assets of the plan for satisfaction of his or her vested rights. 13.17 Satisfaction of Claims. Any payment to any beneficial owner in accordance with the terms of the plan shall, to the extent thereof, be in full satisfaction of all claims hereunder, whether they be against CG&E, the Committee, or the trustee, any of whom may require the beneficial owner or his or her legal representative, as a condition precedent to any payment, to execute a release and receipt therefore. 13.18 Plan Amendment Procedure.1 This plan may be amended from time to time as necessary for compliance with laws or regulations, as negotiated with one or more unions, or to meet the needs of covered employees or the plan sponsor. The board of directors, Committee members, human resources personnel, trustee and/or record keeper personnel, plan accountants, actuaries and attorneys, and plan participants or beneficial owners may propose or recommend amendments. Proposed amendments will be discussed and adopted or rejected at Committee meetings. Those proposing amendments are not entitled to attend the meetings when the amendments are considered. In general the Committee has the authority to adopt amendments, but the board of directors reserves the authority to adopt amendments which have a significant effect upon the funding or cost of the plan. Amendments adopted will be reflected in the appropriate meeting minutes. Plan attorneys will incorporate adopted amendments into the plan document. Material modifications will be included in the summary of material modifications sent to participants periodically for attachment to the summary plan description of this plan, and eventually incorporated into the summary plan description itself. MISCELLANEOUS PROVISIONS ARTICLE 14: MISCELLANEOUS PROVISIONS 14.1 Expenses. The operating expenses of the plan, including fees paid to a servicing organization and fees for professional services and technical or clerical assistance, are generally paid by CG&E with some charges specifically allocated to participants by plan terms. CG&E reserves the right to shift some or all of the expenses it pays to the investment funds and/or to the individual beneficial owners. 14.2 Number. Any use of the singular shall be interpreted to include the plural and the plural the singular. 14.3 Plan Procedures. a) Conflicts between Plan and Procedures. Procedures must be in accordance with the plan as it is then being administered. Any conflict between written procedures and written plan terms, or plan terms required by law, adopted by the board of directors, or the Committee pursuant to the authority delegated to it, shall be resolved in favor of the plan terms, as administered. b) Sunset Provision. Any procedure, if not examined and re-authorized by the Committee, shall automatical- ly expire on the date 5 years from its date of publication. c) Expired Procedures. Any expired procedure may be consulted for its historical value in relation to plan administration, but it shall not be dispositive of the administrative decision. 14.4 Titles and Headings. The names of articles, table of contents, section and sub-section headings, and the index of the plan have been inserted for convenience of reference. In the event of any conflict, the text of the plan, rather than titles, headings, etc., shall control. 14.5 Merger, Consolidation, and Transfer of Assets. Before this plan can be merged or consolidated with any other plan, or its assets or liabilities transferred to another plan, each participant in the plan must be entitled to receive a benefit immediately after the merger, transfer, or consolidation (as if the plan had then terminated) which is equal to or greater than the benefit he/she would have been entitled to receive immediately before the merger, consolidation or transfer (as if the plan had then terminated). This plan will accept the transfer of funds from the DCIP in accordance with 3.20a). As a general rule, this plan will not accept a transfer of assets from any other plan for any reason, including rollovers and mergers. [This section should be deleted effective 01-01-96.] 14.6 Merger, Consolidation, and Transfer of Assets. Before this plan can be merged or consolidated with any other plan, or its assets or liabilities transferred to another plan, each participant in the plan must be entitled to receive a benefit immediately after the merger, transfer, or consolidation (as if the plan had then terminated) which is equal to or greater than the benefit he/she would have been entitled to receive immediately before the merger, consolidation or transfer (as if the plan had then terminated). This plan will accept the transfer of funds from the DCIP in accordance with 3.20a). This plan will accept rollovers from other qualified retirement plans. [This section becomes effective on 01-01-96.] 14.7 Transfer of ESOP Funds. The plan will accept a one-time transfer of assets, at the election of partici- pants in the CG&E Employee Stock Ownership Plan (ESOP), from the terminated ESOP at the time the ESOP assets are disbursed directly from the ESOP Plan Trustee to the Trustee of this plan. 14.8 Service of Process. The secretary of the Committee shall be the designated agent of the plan for the service of process in connection with all matters affecting the plan. 14.9 Warranties. Neither CG&E nor the Committee nor the trustee warrant against any loss or diminution in the value of accounts. 14.10 Adoption of the Plan by Subsidiaries. Any subsidiary of CG&E may participate in the plan by indicating its intention to that effect in writing and delivering a copy of the instrument to the board of directors and the trustee for acceptance in writing. Upon acceptance by the board and the trustee, the subsidiary will be bound by the terms of the plan and the trust agreement, and all subsequent plan amendments. Plan amendments are not subject to review or approval by any subsidiary which has elected to participate in the plan. A subsidiary may withdraw from plan participation at any time by delivery of its written intent to withdraw at least 60 days in advance of the effective date of the withdrawal. DISCRIMINATION TESTING ARTICLE 15: DISCRIMINATION TESTING 15.1 Definitions. The following terms are defined for the purpose of this Article only. a) Average Contribution Percentage (ACP). The ACP is the average of the ratios, calculated separately for each eligible employee [see 3.2a)and 3.2b)], of the sum of1 the eligible employee's optional contributions, company-matched contributions, company- matched stock incentive contributions which are fully vested or are for participants who actually make deferred compensation or optional contributions for the plan year, and any recharacterized deferred compensation contributions, to the eligible employee's compensation for the plan year. [This sub-section should be deleted effective 01-01-97.] b) Average Contribution Percentage (ACP). The ACP is the average of the ratios, calculated separately for each eligible employee [see 3.2a)and 3.2b)], of the sum of2 the eligible employee's optional contributions, company-matched contributions, company- matched stock incentive contributions which are fully vested or are for participants who actually make deferred compensation contributions for the plan year, and any recharacterized deferred compensation contributions, to the eligible employee's compensation for the plan year. [This sub-section becomes effective on 01-01-97.] c) Actual Deferral Percentage (ADP). The ADP is the average of the ratios, calculated separately for each eligible employee, of the amount of3 deferred compensation contributions made on behalf of the eligible employee for the plan year, to the eligible employee's compensation for that plan year. d) Compensation. Compensation is the total wages earned and other compensation including amounts paid for sick pay, moving expense payments and reimbursements that are not deductible under IRC 217.4 Compensation also includes employer contributions under this plan and Code Section 125 plans which are not currently taxable to the employee. Premiums for group term life insurance that exceed the IRC 79(a) limits are also included in compensation.5 Compensation is limited to $150,000 as adjusted6 by the Internal Revenue Commissioner for increases in the cost of living in accordance with IRC 401(a)(17)(B) in the same manner as base pay is limited. e) Excess Aggregate Contributions. A participant's excess aggregate contribution for any year is the excess of 1) The total amount of the 7contributions8 taken into account in computing the numerator of the ACP for a plan year for that participant over 2) the maximum amount of that participant's contributions permitted by the ACP test. f) Excess Contributions. A participant's excess contribution for any year is the excess of 1) The total amount of his or her contributions taken into account in computing the numerator of the ADP for a plan year over 2) the maximum amount of his or her contributions permitted by the ADP test. g) Highly Compensated Employee.9 1) A highly compensated employee is any employee who, during the plan year or the preceding plan year, (A) was at any time a 5% owner, (B) received compensation in excess of $75,000 (or such larger amount as may be determined by the Secretary of Treasury pursuant to IRC 415(d)), (C) received compensation in excess of $50,000 (or such larger amount as may be determined by the Secretary of Treasury pursuant to IRC 415(d) and was in the top-paid group of employees for such plan year, or (D) was at any time an officer and received compensation greater than 50% of the amount in effect under IRC 415(b)(1)(A) for such plan year. Provided, sub-sections (B) through (D) shall apply to an employee meeting such criteria in the plan year only if such employee is also one of the 100 employees who received the most compensation from CG&E during the plan year. For purposes of this sub-section 15.1g)1), "compensation" shall include compensation from CG&E and any employer required to be aggregated with CG&E under IRC 414(b), (c), (m) or (o). 2) A highly compensated employee is any employee who (A) separated from service with CG&E, or is deemed to have separated from service, prior to the plan year, (B) performs no service for CG&E during the plan year, and was a highly compensated employee during either the plan year in which such separation from service occurred or in any plan year ending on or after the employee's 55th birthday. 3) The maximum number of officers which will be considered highly compensated employees for a plan year or preceding plan year pursuant to 1)D) above is the lesser of (A) 50 or (B) the greater of three employees or 10% of CG&E's employees. If no officer of CG&E received compensation greater than 50% of the amount in effect under IRC 415(b)(1)(A) for the plan year or the preceding plan year, the highest paid officer for such plan year shall be treated as a highly compensated employee. 4) For purposes of 15.1g)1)(C) above, an employee shall be considered a member of the "top paid group" for any year if such employee is in the group consisting of the top 20% of the employees of CG&E when ranked on the basis of compensation paid during the year, pursuant to IRC 414(q)(4). 5) If an employee is a "family member" of a highly compensated employee who is a 5% owner (or an employee who was a highly compensated employee by reason of being a 5% owner during the plan year in which the employee separated from service with CG&E or any plan year ending on or after the employee's 55th birthday) during the plan year or the preceding plan year, or a family member of one of the 10 most highly compensated employees of CG&E ranked on the basis of compensation paid by CG&E during the plan year, then the family member and the highly compensated employee shall be aggregated. In such case, the family member and highly compensated employee shall be treated as a single employee receiving compensation and contributions equal to the sum of the compensation and contributions of the family member and highly compensated employee. For purposes of 15.1g), the term "family member" shall include the spouse, lineal ascendants and descendants of an employee or former employee and the spouses of such lineal ascendants and descendants. 6) For purposes of determining whether an employee is a highly compensated employee, the provisions of IRC 414(q), and the regulations thereunder, shall apply. [This sub-section should be deleted effective 01-01-97.] h) Highly Compensated Employee.10 1) A highly compensated employee is any employee who (A) was at any time a 5% owner during the plan year or the preceding plan year, or (B) received compensation for the preceding plan year in excess of $80,000 (or such larger amount as may be deter- mined by the Secretary of Treasury pursuant to IRC 415(d)) and if CG&E elects, was in the top-paid group of employees for such preceding plan year. 2) A highly compensated employee is any employee who (A) separated from service with CG&E, or is deemed to have separated from service, prior to the plan year, (B) performs no service for CG&E during the plan year, and was a highly compensated employee during either the plan year in which such separation from service occurred or in any plan year ending on or after the employee's 55th birthday. 3) For purposes of 15.1h)1)(B) above, an employee shall be considered a member of the "top paid group" for any year if such employee is in the group consisting of the top 20% of the employees of CG&E when ranked on the basis of compensation paid during the preceding plan year, pursuant to IRC 414(q)(4). 4) For purposes of determining whether an employee is a highly compensated employee, the provisions of IRC 414(q), and the regulations thereunder, shall apply. [This sub-section becomes effective on 01-01-97.] 15.2 ADP Testing. The ADP for highly compensated eligible employees for each plan year must satisfy one of the following tests11: a) The ADP Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the ADP for non-highly compensated eligible employees for the plan year, multiplied by 1.25. b) The ADP Alternative Limitation Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the lesser of 1) 2 times the ADP for non-highly compensated eligible employees for the plan year or, 2) 2 percentage points, plus the ADP, for non-highly compensated eligible employees. [This section should be deleted effective 01-01-97.] 15.3 ADP Testing. The ADP for highly compensated eligible employees for each plan year must satisfy one of the following tests12: a) The ADP Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the ADP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), multiplied by 1.25. b) The ADP Alternative Limitation Test. The ADP for highly compensated eligible employees for the plan year shall not exceed the lesser of 1) 2 times the ADP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages) or, 2) 2 percentage points, plus the ADP, for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages). [This section becomes effective on 01-01-97.] 15.4 ACP Testing. The ACP test will be performed following any recharacterization of deferred contributions required by 15.6. The ACP for highly compensated eligible employees for each plan year must satisfy one of the following tests13: a) The ACP Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the ACP for non-highly compensated eligible employees for the plan year, multiplied by 1.25. b) The ACP Alternative Limitation Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the lesser of 1) 2 times the ACP for non-highly compensated eligible employees for the plan year or, 2) 2 percentage points, plus the ACP, for non-highly compensated eligible employees. [This section should be deleted effective 01-01-97.] 15.5 ACP Testing. The ACP test will be performed following any recharacterization of deferred contributions required by 15.7. The ACP for highly compensated eligible employees for each plan year must satisfy one of the following tests14: a) The ACP Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), multiplied by 1.25. b) The ACP Alternative Limitation Test. The ACP for highly compensated eligible employees for the plan year shall not exceed the lesser of 1) 2 times the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages) or, 2) 2 percentage points, plus the ACP, for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan percentages). [This section becomes effective on 01-01-97.] 15.6 Multiple Use of Alternative Limitation. If neither the ADP nor the ACP for highly compensated employees meets the tests in 15.2a) and 15.4a)15, the multiple use test of the alternative limitation must be satisfied for the plan year. In order to satisfy the multiple use test of the alternative limitation, the sum of the ACP for highly compensated employees and the ADP for highly compensated employees may not exceed the greater of the following16: a) the sum of: 1) 1.25 times the greater of the ADP or the ACP for non-highly compensated eligible employees, and 2) the lesser of: A) 2 percentage points plus the lesser of the ADP or ACP for the non-highly compensated eligible employees, or B) 2 times the lesser of the ADP or ACP of the non-highly compensated eligible employees; or b) the sum of: 1) 1.25 times the lesser of the ADP or the ACP for non-highly compensated eligible employees, and 2) the lesser of: A) 2 percentage points plus the greater of the ADP or ACP of non-highly compensated eligible employees, or B) 2 times the greater of the ADP or ACP of non-highly compensated eligible employees. [This section should be deleted effective 01-01-97.] 15.7 Multiple Use of Alternative Limitation. If neither the ADP nor the ACP for highly compensated employees meets the tests in 15.3a) and 15.5a)17, the multiple use test of the alternative limitation must be satisfied for the plan year. In order to satisfy the multiple use test of the alternative limitation, the sum of the ACP for highly compensated employees and the ADP for highly compensated employees may not exceed the greater of the following18: a) the sum of: 1) 1.25 times the greater of the ADP or the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), and 2) the lesser of: A) 2 percentage points plus the lesser of the ADP or ACP for the non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), or B) 2 times the lesser of the ADP or ACP of the non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages); or b) the sum of: 1) 1.25 times the lesser of the ADP or the ACP for non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), and 2) the lesser of: A) 2 percentage points plus the greater of the ADP or ACP of non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages), or B) 2 times the greater of the ADP or ACP of non-highly compensated eligible employees for the preceding plan year (unless CG&E elects to use current plan year percentages). [This section becomes effective on 01-01-97.] 15.8 Corrective Procedure If ADP Limitation Exceeded. If the plan fails the ADP test provided for in this Article, the following procedure will be followed: a) Reduction of Highly Compensated Participants' ADP. The ADP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ADP test. In determining the amount of excess contributions for each highly compensated participant, the highest ratio will be reduced to the next highest ratio until the maximum allowed percentage is reached19. [This sub-section should be deleted effective 01-01-97.] b) Reduction of Highly Compensated Participants' ADP. The ADP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ADP test. Excess contributions will be returned to the highly compensated participants who contributed the largest dollar amounts until the maximum allowed percentage is reached20. [This sub-section becomes effective on 01-01-97.] c) Recharacterization of Excess Contributions. The amount resulting from a reduction in a participant's deferred compensation contributions in 15.8a) or 15.8b) above shall be recharacterized as optional contributions and treated as taxable income to the participant in the tax year in which the participant would have received them if he or she had originally elected to receive them in cash. This recharacterization normally will be made within 2 1/2 months after the close of the plan year21. 15.9 Corrective Procedure if ACP Limitation Exceeded. If the plan fails the ACP test, the following procedure will be followed, after recharacterizing any deferred compensation contributions required under 15.6 or 15.7: a) Reduction of Highly Compensated Participants' ACP. The ACP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ACP test. In determining the amount of excess aggregate contributions for each highly compensated participant, the highest ratio will be reduced to the next highest ratio until the maximum allowed percentage is reached. [This sub-section should be deleted effective 01-01-97.] b) Reduction of Highly Compensated Participants' ACP. The ACP for highly compensated participants shall be reduced to the maximum acceptable level determined by the ACP test. Excess aggregate contributions will be returned to the highly compensated participants who contributed the largest dollar amounts until the maximum allowed percentage is reached. [This sub-section becomes effective on 01-01-97.] c) Disposition of Excess Aggregate Contributions. The aggregate excess contributions resulting from a reduction in a highly compensated participant's ACP ratio in 15.9a) or 15.9b) shall be disposed of as follows: 1) Excess Optional Contributions. Any excess optional contributions, plus the net of any income or loss attributable to optional contributions as of the last day of the plan year,22 normally will be distributed to the participant within 2 1/2 months after the end of the plan year.23 However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year.24 2) Excess Company-Matched Contributions. Any excess company-matched contributions which are not vested will be treated as forfeitures under 7.6c). Any excess vested company-matched contributions25 plus the net of any income or loss attributable to the excess company-matched contributions as of the end of the plan year,26 shall normally be distributed to the participant within 2 1/2 months after the end of the plan year.27 However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year.28 3) Excess Company-Matched Stock Incentive Contributions. Any excess company-matched stock incentive contributions which are not vested will be treated as forfeitures under 7.6c). Any excess vested company-matched stock incentive contributions29 plus the net of any income or loss attributable to the excess company-matched stock incentive contributions as of the end of the plan year,30 shall normally be distributed to the participant within 2 1/2 months after the end of the plan year.31 However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year.32 15.10 Corrective Procedure if the Test for the Multiple Use of Alternative Limitation is Exceeded. If the plan fails the test for the multiple use of the alternative limitation, the following procedure will be followed: a) Simultaneous Reduction of the ADP and ACP of Highly Compensated Participants. After determining the amount of excess contributions and excess aggregate contributions for each highly compensated participant, the participants with the highest individual ADP and ACP ratios will have their ratios reduced to the next highest ADP and ACP ratio, until the maximum multiple use limit is reached. [This sub-section should be deleted effective 01-01-97.] b) Simultaneous Reduction of the ADP and ACP of Highly Compensated Participants. After determining the amount of excess contributions and excess aggregate contributions for each highly compensated participant, the participants who contributed the largest dollar amounts will have their contributions returned, until the maximum multiple use limit is reached. [This sub-section becomes effective on 01-01-97.] c) Disposition of Excess Contributions and Excess Optional Contributions and Excess Vested Company-Matched Contributions and Excess Vested Company-Matched Stock Incentive Contributions. Any excess contributions, optional contributions, vested company-matched contributions, and vested company- matched stock incentive contributions which are determined by the application of 15.10a) or 15.10b), plus the net of any income or loss attributable to the excess contributions, optional contributions, vested company-matched contributions, and vested company- matched stock incentive contributions as of the last day of the plan year, shall normally be distributed to the participant within 2 1/2 months after the end of the plan year.33 However, if distributions are not made by that time, distributions shall be made within 12 months after the close of the plan year.34 LIMITATION ON ANNUAL ADDITIONS ARTICLE 16: LIMITATION ON ANNUAL ADDITIONS 16.1 Definitions. The following terms are defined solely for purposes of this Article: a) Annual Addition.1 A participant's annual addition is the sum of the following amounts credited to the participant's account for a plan year: 1) deferred compensation contributions; 2) company-matched contributions; 3) company-matched stock incentive contributions; 4) optional contributions; and 5) forfeitures. b) Compensation.2 A participant's compensation for any plan year consists of his or her total wages earned and other compensation including amounts paid for sick pay, moving expense payments and reimbursements that are not deductible under IRC 217, and premiums for group term life insurance that exceed IRC 79(a) limits. Compensation also includes any distribution from any non-qualified deferred compensation plan paid to the participant while s/he remains employed. Compensation does not include employer contributions under this plan or any IRC 125 plan which are not currently taxable to the employee or any distributions from a qualified deferred compensation plan, regardless of whether such amounts are includable in the employee's gross income when distributed.3 c) Defined Benefit Fraction.4 The defined benefit plan fraction applicable to a participant for any plan year is a fraction: 1) the numerator of which is the participant's projected annual benefit5 (determined as of the close of the plan year) under the RIP; and 2) the denominator of which is the lesser of 1.25 multiplied by the dollar limitation under IRC 415 for defined benefit plans for such year, or 1.4 multiplied by the participant's average compensation for the 3 consecutive calendar years aggregating the greatest compensation from CG&E during which s/he participated in the plan. d) Defined Benefit Plan. A qualified plan as defined in IRC 414(j). e) Defined Contribution Fraction6. The defined contribution fraction applicable to a participant for any plan year is a fraction: 1) the numerator of which is the sum of annual additions to the participant's account under the plan as of the close of the limitation year; and 2) the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of service with CG&E: 1) the product of 1.25 multiplied by the dollar limitation under IRC 415(c)(1)(A) for defined contribution plans for such year,7 or 2) the product of 1.4 multiplied by 25% of the participant's compensation for such year. f) Defined Contribution Plan. A qualified plan as defined in IRC 414(i). g) Company. The employer that adopts this plan, and all members of a controlled group of corporations, all commonly controlled trades or businesses or affiliated service groups of which the adopting employer is a part, and any other entity required to be aggregated with the employer pursuant to IRC 414(o) regulations.8 h) Excess Amount. The excess of the participant's annual additions for the plan year over the maximum annual additions permitted under this Article for the plan year. i) Projected Annual Benefit.9 A participant's projected annual benefit is an amount equal to the annual benefit that the participant would be entitled to receive under the terms of the defined benefit plan in which he is a participant, assuming that: 1) the participant continues employment until his or her normal retirement age; 2) that his or her compensation continues at the same rate as in effect in the plan year under consideration; and 3) that all relevant factors used to determine benefits under such plan remain constant. Projected annual benefit is a benefit expressed in the form of a single life annuity disregarding any ancillary benefits or benefits attributable to a rollover contribution. 16.2 General Limitations. Notwithstanding any other provisions of this plan, the maximum annual addition credited to the account of a participant for any plan year10 shall not exceed the lesser of: a) $30,000, or b) 25% of the participant's compensation for that plan year. 16.3 Estimation of Compensation. Prior to the determination of a participant's actual compensation for a plan year, the maximum annual addition for a participant may be computed using a reasonable estimation of the participant's compensation for a plan year. 16.4 Disposition of Excess Amount. In the event the limitations of this Article are exceeded because of an allocation of forfeitures, a reasonable error in estimating a participant's compensation or other reasonable circumstances, the excess amount shall be disposed of as follows11: a) First, any optional contributions that are not eligible for company-matched contributions and company-matched stock incentive contributions will be returned to the participant to the extent that the return would reduce the excess amount. [This sub-section should be deleted effective 01-01-97.] b) First, any optional contributions will be returned to the participant to the extent that the return would reduce the excess amount. [This sub-section becomes effective on 01-01-97.] c) Second, any deferred compensation that are not eligible for company-matched contributions and company-matched stock incentive contributions will be returned to the participant to the extent that the return will reduce the excess amount. d) Third, any company-matched contributions, made on behalf of a participant under this plan shall be reduced to the extent that the reduction will reduce the excess amount. Such reduction in company-matched contributions shall be treated as a forfeiture in accordance with 7.6.12 e) Fourth, any company-matched stock incentive contributions, made on behalf of a participant under this plan shall be reduced by the amount needed to eliminate the excess amount. Such reduction in company-matched stock incentive contributions shall be treated as a forfeiture in accordance with 7.6.13 16.5 Aggregation of Plans of CG&E. a) For purposes of applying the limitation of this Article, all defined benefit plans (whether or not terminated) of CG&E shall be treated as one defined benefit plan and all defined contribution plans (whether or not terminated) shall be treated as one defined contribution plan.14 b) If an excess amount results from the aggregation of annual additions under this plan with annual additions under another defined contribution plan: 1) the excess amount shall be first attributable to this plan; and 2) such excess amount shall be treated in accordance with 16.1h). c) Where a participant is a participant at any time in both a defined contribution plan and a defined benefit plan sponsored by CG&E, the sum of the defined benefit fraction and the defined contribution fraction for any plan year shall not exceed 1.0. Should this limita- tion be exceeded in any plan year, the participant's benefits under the RIP shall be appropriately reduced so that the defined benefit fraction is equal to the difference between 1.0 and the defined contribution fraction. AMENDMENT AND TERMINATION OF THE PLAN ARTICLE 17: AMENDMENT AND TERMINATION OF THE PLAN 17.1 Amendment of the Plan. a) Reservation of Right. CG&E expects to continue the plan indefinitely, but as future conditions cannot be foreseen, the board of directors reserves the right to amend or terminate the plan at any time. b) Effect on Participants. No amendment shall retroactively reduce the rights or benefits of participants1 or permit the return to CG&E of the CINergy stock, other securities, obligations, deposits, or cash held by the trustee, or permit their use or diversion for any purpose other than for the exclusive benefits of the participants or their bene- ficiaries. In addition, no amendment shall eliminate an optional form of benefit or eliminate or reduce an early retirement option with respect to benefits attributable to service before this amendment. c) Discontinuance of Contributions. In the event of a complete discontinuance of company-matched contributions or company-matched stock incentive contributions, the company-matched sub-account will be immediately vested. 17.2 Plan Termination. If the plan is terminated all contributions will cease. The Committee shall direct the trustee to determine the value of each beneficial owner's account as of the date of termination. The value of any unallocated plan assets shall be allocated to the beneficial owners. Each beneficial owner shall become fully vested in the total value of his or her account. Each beneficial owner's balance shall be segregated by the trustee pending disposition. Distribution shall be made, in a single payment, to each beneficial owner as soon as practicable following the date of plan termination.2 No amendment shall deprive the beneficial owners of their vested rights upon termination of the plan. 17.3 Partial Termination. If the plan is partially terminated, all contributions to the accounts of all affected participants will cease. The Committee shall direct the trustee to determine the value of each affected beneficial owner's account as of the date of the partial termination. The value of any unallocated plan assets shall be allocated to beneficial owners. Each affected beneficial owner shall become fully vested in his or her account. Distribution shall be made, in a single payment, to each beneficial owner as soon as practical following the date of partial plan termination. However, no distribution from a participant's deferred compensation contribution sub-account shall be made at a time not otherwise permitted under the plan. No amendment shall deprive the affected beneficial owners of their vested rights upon partial termination of the plan. 17.4 Liquidation of the Investment Funds. The trust and the investment funds shall continue in existence after the termination of the plan for such period of time as may be required to complete the liquidation thereof in accordance with the terms of this Article. INDEX This index references the root of hyphenated words as if they were single words, e.g. "account" will also reference the occurrence of "sub-account". This index also references words and phrases in the text and the endnotes. Endnote references reflect the text page where the endnote occurs, not the page where the endnote itself is printed. EX-10.GG 13 Adopted by the Cinergy Corp. Board of Directors on January 25, 1996 JANUARY 1, 1996 AMENDMENT TO THE CINERGY CORP. ANNUAL INCENTIVE PLAN The Cinergy Corp. Annual Incentive Plan, as adopted effective October 24, 1994, is hereby amended, effective as of January 1, 1996, with respect to certain provisions of the Plan pertaining to distribution of awards and the maximum amount of award available to executive officers. (1) Explanation of Amendment. On January 25, 1996, the Compensation Committee of the board of directors of Cinergy Corp. recommended that the board adopt the Cinergy Corp. Nonqualified Deferred Compensation Plan which will permit the Compensation Committee to allow participants to defer the receipt of awards otherwise payable under Cinergy Corp.'s various incentive compensation plans, including its Annual Incentive Plan. The proposed amendment to Article 9 of the Plan provides that, unless the Participant defers receipt of an award under the Plan in accordance with the provisions of the Cinergy Corp. Nonqualified Deferred Compensation Plan, the award will be payable to the Participant on the first business day of March of the year following the year in which the award was earned. The proposed amendment to Article 1 defines the Cinergy Corp. Nonqualified Deferred Compensation Plan. On December 20, 1995, the Internal Revenue Service promulgated final regulations relating to the disallowance of deductions for employee remuneration in excess of one million dollars. Consistent with the final regulations, the proposed amendment to Article 20 states as to objective corporate and objective individual goals the maximum dollar amount of compensation that can be paid to a "covered employee" under the Plan. Previously, the maximum award was expressed as a percentage of annual base salary. The term "covered employee" includes the chief executive officer and the four highest compensated officers for the applicable year. (2) Article 9, As Amended. Article 9, as hereby amended, reads as follows: "Article 9 Distribution After the determination and approval have been made under Article 7 (Annual Performance Award) as to the amount of Annual Performance Award to which a Participant is entitled at the end of an Employer's Performance Period, the resulting Annual Performance Award shall be paid to the Participant in cash in one lump sum on the first business day of March following the end of the Performance Period for which the Annual Performance Award was made unless the Participant has previously elected in writing to defer the receipt of all or a portion of the award in accordance with the provisions of the Cinergy Nonqualified Deferred Compensation Plan." (3) Section 1.30, As Added. Section 1.30, as added, hereby reads as follows: "Nonqualified Deferred Compensation Plan" means the nonqualified deferred compensation arrangement known as the `Cinergy Corp. Nonqualified Deferred Compensation Plan,' as amended from time to time, and any successor plan thereto." (4) Article 20, As Amended. Article 20, as hereby amended, reads as follows: "ARTICLE 20 EXECUTIVE OFFICERS Notwithstanding any provision of the Plan to the contrary, this Article will govern the terms of the Annual Performance Awards granted to Executive Officers. This Article is designed to comply with Code Subsection 162(m) to the extent applicable. All provisions in this Article, and any other applicable provision of the Plan shall be construed in a manner to so comply. (a) With respect to Executive Officers, the Plan shall be administered by a committee (the "AIP Committee") consisting of two or more persons each of whom is an "outside director" for purposes of Code Subsection 162(m). The AIP Committee and CINergy's Committee may be the same committee provided that the membership of CINergy's Committee satisfies the conditions set forth in the preceding sentence. (b) With respect to Participants who are Executive Officers as of the beginning of a Performance Period, the AIP Committee shall establish the Corporate Target Goals and Individual Goals for each Performance Period within the time necessary to satisfy the requirements of Code Subsection 162(m). Corporate Target Goals shall be based on objective performance criteria pertaining to an Employer's performance, efficiency, or profitability including, but without limitation, stock price, total shareholder return, market share, sales, earnings per share, costs, net operating incomes, cash flow, fuel cost per million BTU, costs per kilowatt hour, retained earnings, or return on equity. Individual Goals shall be based on objective or, with respect to separate awards under the Plan, subjective performance criteria pertaining to an Executive Officer's individual effort as to enhancement of either individual performance or achievement or attainment of Corporate Target Goals or other Individual Goals. Further, in the case of Participants who are Covered Employees as of the end of the Performance Period, unless otherwise determined by the AIP Committee, or unless otherwise designated as separate awards based on subjective performance criteria, payments shall be made only after achievement of the applicable performance goals has been certified by the AIP Committee. In no event shall payment in respect of Annual Performance Awards based on Corporate Target Goals and objective Individual Goals granted for a Performance Period be made to a Participant who is a Covered Employee as of the end of a Performance Period in an amount that exceeds one million dollars." IN WITNESS WHEREOF, Cinergy Corp. has caused this document to be executed and approved by its duly authorized officers, effective as of January 1, 1996. CINERGY CORP. By: JAMES E. ROGERS James E. Rogers Vice Chairman, President and Chief Executive Officer Dated: October 25, 1996 Approved: By: JEROME A. VENNEMANN Jerome A. Vennemann Associate General Counsel and Assistant Corporate Secretary Dated: October 25, 1996 EX-10.RR 14 CINERGY CORP. 401(k) EXCESS PLAN ARTICLE I NATURE AND PURPOSE OF PLAN 1.1 Type of Plan. The name of this Plan is the Cinergy Corp. 401(k) Excess Plan, effective January 1, 1997. The Plan is maintained by the Company as an unfunded, non- qualified deferred compensation plan for a select group of the Employer's management or highly-compensated employees. 1.2 Purpose of Plan. The purpose of the Plan is to provide a means for the payment of deferred compensation to a select group of key senior management employees of the Employer, in recognition of their substantial contributions to the operation of the Employer, and to provide those individuals with additional financial security as an inducement to them to remain in employment with the Employer. ARTICLE II DEFINITIONS AND RULES OF CONSTRUCTION 2.1 Definitions. As used in the Plan, the following words and phrases, when capitalized, have the following meanings except when used in a context that plainly requires a different meaning: (a) "Account" means the record of a Participant's total interest in the Plan. (b) "Beneficiary" means, with respect to a Participant, the person or persons designated pursuant to Section 5.5 (Designation of Beneficiary) to receive benefits under the Plan in the event of the Participant's death. (c) "Board of Directors" means the duly constituted board of directors of the Company on the applicable date. (d) "Change in Control" means an event described in Subsection 5.2(b) (Distribution Upon a Change in Control). (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and interpretive rules and regulations. (f) "Committee" means a committee composed of those members of the Compensation Committee of the Board of Directors who are not Participants in the Plan. (g) "Company" means Cinergy Corp., a Delaware Corporation, and any corporation that shall succeed to its business and adopt the Plan. (h) "Compensation" means, with respect to a Participant for a Plan Year, the annual base salary paid to the Participant by the Employer for services, including elective contributions made by the Employer on behalf of the Employee during the Plan Year that are not includable in gross income under Code Section 125, Paragraph 402(a)(8), Subsection 402(h) or Subsection 403(b). "Compensation" does not include amounts deferred under other deferral arrangements, bonuses, annual or long-term incentive pay, moving allowances, living and similar allowances and imputed income. (i) "Deferral Account" means, with respect to a Participant, the bookkeeping account that serves as a record of the deferrals and earnings and losses on those deferrals credited to the Participant under the terms of this Plan. (j) "Deferral Agreement" means the written agreement entered into between an Eligible Employee and the Employer pursuant to which the Eligible Employee elects to make deferrals under the Plan. (k) "Effective Date" means January 1, 1997. (l) "Eligible Employee" means a key management Employee who is selected by the Committee as an individual who has the opportunity to impact significantly the annual operating success of the Employer. (m) "Employee" means any person employed by the Employer on a full-time salaried basis, including officers of the Company or a Related Employer. (n) "Employer" means the Company and any Related Employer. (o) "Employer Base Matching Contribution" means, with respect to a Participant, the contribution made by the Employer on behalf of a Participant pursuant to Section 3.3 (Employer Base Matching Contributions). (p) "Employer Incentive Matching Contribution" means, with respect to a Participant, the contribution made by the Employer on behalf of a Participant pursuant to Section 3.4 (Employer Incentive Matching Contributions). (q) "401(k) Plan" means The Cincinnati Gas & Electric Company Deferred Compensation and Investment Plan or the PSI Energy, Inc. Employees' 401(k) Savings Plan, whichever is applicable to a Participant. (r) "Insolvent" means, with respect to the Company, the Company being unable to pay its debts as they are due, or the Company being subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (s) "Investment Options" means, with respect to any Plan Year, the investment options that the Committee makes available to Participants under the Plan from among the investment options available under the 401(k) Plan as of the first day of the Plan Year. (t) "Matching Account" means, with respect to a Participant, the bookkeeping account that serves as a record of the Employer Base Matching Contributions, the Employer Incentive Matching Contributions and earnings and losses on those contributions credited to the Participant under the terms of this Plan. (u) "Participant" means an Eligible Employee or former Eligible Employee who has an interest in the Plan pursuant to Section 3.2 (Election to Defer), 3.3 (Employer Base Matching Contributions) or 3.4 (Employer Incentive Matching Contributions). (v) "Plan" means this instrument, as amended from time to time, and the non-qualified deferred compensation plan so established. (w) "Plan Year" means a calendar year commencing on or after January 1, 1997. (x) "Rabbi Trust" means the grantor trust that the Company, in its sole discretion, may establish pursuant to Subsection 4.4(b) (Accounts Unfunded) for the deposit of funds to be used for the exclusive purpose of paying benefits accrued under the Plan, subject to the claims of the Company's general creditors in the event the Company becomes Insolvent. (y) "Related Employer" means any Employer that, together with the Company, is under common control or a member of an affiliated service group, as determined under Code Subsections 414(b), (c), (m), and (o). (z) "Termination of Employment" means, with respect to a Participant, the cessation of the relationship of Employer and Employee between the Participant and the Employer for any reason other than the Participant's death. A Participant shall not be treated as having incurred a Termination of Employment until the employment relationship between the Participant and all Related Employers has terminated. (aa) "Trustee" means the trustee of the Rabbi Trust that the Company, in its sole discretion, may establish pursuant to Subsection 4.4(b) (Accounts Unfunded). (bb) "Unforeseeable Emergency" means, for the purpose of Subsection 3.2(d) (Suspension or Cessation of Deferrals) and Section 5.3 (Distribution Upon Financial Emergency), with respect to a Participant or Beneficiary, a severe financial hardship to the Participant or Beneficiary resulting from a sudden and unexpected illness or accident of the Participant, Beneficiary, or his or her dependents; loss of the Participant's or Beneficiary's property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's or Beneficiary's control. 2.2 Rules of Construction. The following rules of construction shall govern in interpreting the Plan: (a) The provisions of this Plan shall be construed and governed in all respects under and by the internal laws of the State of Ohio, to the extent not preempted by federal law. (b) Words used in the masculine gender shall be construed to include the feminine gender, where appropriate, and vice versa. (c) Words used in the singular shall be construed to include the plural, where appropriate, and vice versa. (d) The headings and subheadings in the Plan are inserted for convenience of reference only and are not to be considered in the construction of any provision of the Plan. (e) If any provision of the Plan shall be held to be illegal or invalid for any reason, that provision shall be deemed to be null and void, but the invalidation of that provision shall not otherwise impair or affect the Plan. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. Participation in the Plan is limited to Eligible Employees. 3.2 Election to Defer. (a) Election Procedure. Within a reasonable time before the beginning of each Plan Year, the Committee shall provide each Eligible Employee with a Deferral Agreement. An Eligible Employee may elect to defer his or her compensation to the Plan by delivering a completed Deferral Agreement to the Committee or its designate prior to the first day of the Plan Year. On the Deferral Agreement, the Eligible Employee shall indicate the amount or percentage of his Compensation to be deferred under the Plan for the Plan Year as an elective contribution, subject to the provisions of Subsection (b). The Eligible Employee also shall indicate whether to contribute to the 401(k) Plan that portion of his Compensation deferred pursuant to the preceding sentence that he can contribute to the 401(k) Plan for the Plan Year without exceeding the limitations of Code Subsection 402(g), Paragraph 401(k)(3) and 401(a)(17) for the Plan Year. Subject to Subsection (c), an election made under this Section shall be effective as of the first day of the Plan Year, and subject to Subsection (d), the election for any Plan Year shall be irrevocable. (b) Maximum Amount of Deferrals. For each Plan Year beginning on or after the Effective Date, each Eligible Employee may elect to defer under the Plan up to 100% of his Compensation. (c) New Participant Deferrals. The Committee, in its sole discretion, may permit a new Eligible Employee to enroll in the Plan during a Plan Year and, no later than 30 days after becoming an Eligible Employee, make an irrevocable prospective election to defer a portion of his Compensation for the remainder of the Plan Year. (d) Suspension or Cessation of Deferrals. With the written consent of the Committee, a Participant may suspend or cease deferrals, in whole or in part, during the course of a Plan Year, due to an Unforeseeable Emergency. Suspension or cessation of deferrals shall not in any way affect a Participant's rights or benefits with respect to amounts already deferred under the Plan. In the event a Participant suspends or ceases deferrals pursuant to this Subsection, the Participant shall not be permitted to resume deferrals before the first day of the following Plan Year or such later date as specified by the Committee. 3.3 Employer Base Matching Contributions. If an Eligible Employee is entitled to an employer base matching contribution under his or her 401(k) Plan, the Employer shall make an Employer Base Matching Contribution to the Participant's Matching Account equal to the amount of the Participant's employer base matching contribution computed in accordance with the 401(k) Plan (prior to the limitation of Code Paragraph 401(m)(2)), but using the Participant's Compensation as defined in this Plan. 3.4 Employer Incentive Matching Contributions. If an Eligible Employee is entitled to an employer incentive matching contribution under his or her 401(k) Plan, the Employer shall make an Employer Incentive Matching Contribution to the Participant's Matching Account equal to the amount of the Participant's employer incentive matching contribution computed in accordance with the 401(k) Plan (prior to the limitation of Code Paragraph 401(m)(2)), but using the Participant's Compensation as defined in this Plan. 3.5 Cessation of Participation. Any Participant who ceases to be an Eligible Employee, but continues to be an Employee, shall cease to be eligible to make deferrals or receive contributions under this Article but shall continue to have a Deferral Account and a Matching Account, shall continue to be credited with earnings and losses on his Accounts under Section 4.2 (Earnings and Losses) (until those Accounts are fully distributed pursuant to Article V (Distribution of Benefits)) and shall be entitled to receive benefits under Article V (Distribution of Benefits). ARTICLE IV PARTICIPANTS' ACCOUNTS 4.1 Establishment of Accounts. The Committee shall create and maintain adequate records to disclose the interest in the Plan of each Participant and Beneficiary. Records shall be in the form of individual bookkeeping accounts, which shall be credited with deferrals and contributions pursuant to Sections 3.2 (Election to Defer), 3.3 (Employer Base Matching Contributions), and 3.4 (Employer Incentive Matching Contributions) and earnings and losses pursuant to Section 4.2 (Earnings and Losses), and debited with any contributions to a 401(k) Plan pursuant to Section 4.7 (Determination and Treatment of Amounts Contributable to the 401(k) Plan) and any payments pursuant to Article V (Distribution of Benefits). Each Participant shall have a separate Deferral Account and Matching Account. The Participant's interest in his Accounts shall be fully vested at all times. Notwithstanding the preceding sentence, the Participant's interest in his Accounts shall be subject to the claims of the Company's general creditors in the event the Company becomes Insolvent. 4.2 Earnings and Losses. (a) Deemed Investment of Accounts. During each Plan Year, a Participant's Accounts shall be credited with investment earnings and losses as though they are invested, in accordance with the Participant's elections pursuant to Subsection (b), in one or more of the Investment Options. The deemed investment of a Participant's Accounts among the Investment Options in accordance with the Participant's elections, is solely the measure of the investment performance of the Deferral Account and Matching Account. It does not give the Participant any ownership interest in any Investment Option, nor does it bind the Company, the Committee, or the Trustee as to the investment of any Rabbi Trust or any other amounts represented by the Deferral Accounts or Matching Accounts. (b) Election Procedure. Each Participant, upon first becoming an Eligible Employee, may make initial elections, on a form provided by the Committee, to allocate his Deferral Account and his Matching Account among the Investment Options. The Participant may make separate elections with respect to each of his Accounts. If the Participant fails to make an initial election with respect to an Account, he shall be deemed to have elected to allocate that Account to the Fidelity Retirement Money Market Fund Investment Option for that Plan Year. A Participant may change his Investment Option designations (for his future deferrals and contributions, his existing Accounts, or both) once each Plan Year, as of the first day of the Plan Year, by filing an appropriate election form with the Committee by the prior December 31. Until a Participant timely files a new investment election form, his prior Investment Option designations shall control. 4.3 Credits to Accounts. (a) A Participant's deferrals pursuant to Section 3.2 (Election to Defer) shall be credited to his Deferral Account in terms of cash as of the date(s) on which the deferred amount would otherwise have been paid to the Participant or credited to his accounts under the 401(k) Plan. (b) The Employer Base Matching Contribution shall be credited to a Participant's Matching Account in terms of cash on the same date(s) as employer base matching contributions are credited to participants' accounts under the 401(k) Plan. An Eligible Employee does not need to make deferrals pursuant to Section 3.2 (Election to Defer) of this Plan to receive Employer Base Matching Contributions. (c) The Employer Incentive Matching Contribution shall be credited to a Participant's Matching Account in terms of cash on the same date(s) as employer incentive matching contributions are credited to participants' accounts under the 401(k) Plan. An Eligible Employee does not need to make deferrals pursuant to Section 3.2 (Election to Defer) of this Plan to receive Employer Incentive Matching Contributions. (d) Earnings and losses on the deemed investment of the Participant's Deferral Account and Matching Account under Section 4.2 (Earnings and Losses) shall be credited monthly, on the last day of each month, based on the value of the Participant's Deferral Account and Matching Account as of the first day of the month. 4.4 Accounts Unfunded. (a) Accounts shall be accounting accruals, in the names of Participants, on the Employer's books. Accounts shall be unfunded, so that the Employer's obligation to pay benefits under the Plan is merely a contractual duty to make payments when due under the Plan. The Employer's promise to pay benefits under the Plan shall not be secured in any way, and except as provided in Subsection (b), the Company shall not set aside or segregate assets for the purpose of paying amounts credited to Participants' Deferral Accounts or Matching Accounts. (b) Notwithstanding the provisions of Subsection (a), the Company, in its sole discretion, may establish a Rabbi Trust. The Employer, in its sole discretion, may make such contributions to the Rabbi Trust as the Committee determines are appropriate to enable the Employer to pay benefits under the Plan. Any Rabbi Trust established under this Section shall be created pursuant to a written trust document that conforms to the model form of rabbi trust agreement approved by the Internal Revenue Service in Revenue Procedure 92-64 (as amended from time to time). 4.5 Valuation of Deferral Accounts. (a) Deferral Account. The value of a Participant's Deferral Account as of any date shall equal the dollar amount of any deferrals credited to the Deferral Account pursuant to Section 3.2 (Election to Defer), increased or decreased by the earnings and losses deemed to be credited to the Deferral Account in accordance with Section 4.2 (Earnings and Losses), and decreased by the amount of any contributions made or to be made from the Deferral Account to the 401(k) Plan pursuant to Section 4.7(a) (Deferrals) and any payments made from the Deferral Account to the Participant or his Beneficiary pursuant to Article V (Distribution of Benefits). (b) Matching Account. The value of a Participant's Matching Account as of any date shall equal the dollar amount of any contributions credited to the Matching Account pursuant to Sections 3.3 (Employer Base Matching Contributions) or 3.4 (Employer Incentive Matching Contributions), increased or decreased by the earnings and losses deemed to be credited to the Matching Account in accordance with Section 4.2 (Earnings and Losses), and decreased by the amount of any contributions made or to be made from the Matching Account to the 401(k) Plan pursuant to Section 4.7(b) (Matching Contributions) and any payments made from the Matching Account to the Participant or his Beneficiary pursuant to Article V (Distribution of Benefits). 4.6 Annual Report. Within 120 days following the end of each Plan Year, the Committee shall provide to each Participant a written statement of the amount standing to his credit in his Accounts as of the end of that Plan Year. 4.7 Determination and Treatment of Amounts Contributable to the 401(k) Plan. (a) Deferrals. As soon as administratively feasible for each Plan Year, the Committee shall determine the amount that each Eligible Employee electing deferrals pursuant to Section 3.2 (Employer Base Matching Contributions) can contribute to the 401(k) Plan for the same Plan Year without exceeding the limitations of Code Subsection 402(g) and Code Paragraphs 401(k)(3) and 401(a)(17) for the Plan Year. If an Eligible Employee elected to contribute to the 401(k) Plan that portion of his deferrals that did not exceed the determined amount, that portion shall be transferred directly to the 401(k) Plan no later than March 15 of the following Plan Year. Alternatively, if the Eligible Employee elected to receive a lump sum distribution of that portion of his deferrals that did not exceed the determined amount, that portion shall be distributed to him no later than March 15 of the following Plan Year. The earnings and losses credited to the transferred or distributed portion pursuant to Section 4.3 (Credits to Accounts) shall remain in the Eligible Employee's Deferral Account until distributed pursuant to Article V (Distribution of Benefits). (b) Matching Contributions. As soon as administratively feasible for each Plan Year, the Committee shall determine the amount that the Employer can contribute as employer base matching contributions and employer incentive matching contributions to the 401(k) Plan for the same Plan Year without exceeding the limitations of Code Paragraph 401(m)(2) and its interpretive regulations and Code Paragraph 401(a)(17) for the Plan Year. If an Eligible Employee elected to contribute to the 401(k) Plan that portion of his Employer Base Matching Contributions and Employer Incentive Matching Contributions that did not exceed the determined amount, that portion shall be transferred directly to the 401(k) Plan no later than March 15 of the following Plan Year. Alternatively, if the Eligible Employee elected to receive a lump sum distribution of that portion of his Employer Base Matching Contributions and Employer Incentive Matching Contributions that did not exceed the determined amount, that portion shall be distributed to him no later than March 15 of the following Plan Year. The earnings and losses credited to the transferred or distributed portion pursuant to Section 4.3 (Credits to Accounts) shall remain in the Eligible Employee's Matching Account until distributed pursuant to Article V (Distribution of Benefits). ARTICLE V DISTRIBUTION OF BENEFITS 5.1 General Distribution Rules. (a) General Provisions. Except as otherwise provided in Sections 5.2 (Distribution Upon a Change in Control), Section 5.3 (Distribution Upon Financial Emergency), and Section 5.4 (Death Benefits), a Participant's Accounts shall be distributed to the Participant (or to his Beneficiary in the event of his death) as provided in this Section. (b) Participant's Election. For each Plan Year, a Participant may select, on a form provided by the Committee and from among the options described in this Section, the form for the payment of his deferrals and contributions for the Plan Year (and any investment earnings attributable to those deferrals and contributions). A Participant's election for each Plan Year shall be irrevocable, but the Participant may make a new election for each Plan Year's deferrals and contributions. (1) Form of Distribution. A Participant may elect to have his deferrals and contributions (and attributable earnings) for a Plan Year distributed in one of the following forms: (A) A lump sum payment; or (B) Substantially equal annual installments over a specified number of two to ten years. (2) Time of Distribution. Distribution of a Participant's interest in his Accounts shall commence no later than 30 days after the earlier of the Participant's death or his Termination of Employment. Subsequent installments shall be payable on or as soon as administratively feasible following the first business day of each succeeding year. (c) Default Procedure. If a Participant fails to make an election pursuant to this Section, then, except as otherwise provided in Section 5.2 (Distribution Upon a Change in Control, Section 5.3 (Distribution Upon Financial Emergency), and Section 5.4 (Death Benefits), the Participant's Accounts (and attributable earnings) shall be distributed in five substantially equal annual installments commencing no later than 30 days after the earlier of the Participant's death or his Termination of Employment. 5.2 Distribution Upon a Change in Control. (a) Notwithstanding any other Section, if a Change in Control occurs, the Committee in its sole discretion may elect to accelerate the distribution of a Participant's Accounts so that a Participant's Accounts shall be distributed to the Participant (or, in the event of his death, to his Beneficiary) in a single lump sum payment no later than 30 days after the Change in Control occurs. (b) As used in this Plan, a "Change in Control" of the Company shall occur if (1) any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) of more than 50 percent of the then outstanding voting stock of the Company, otherwise than through a transaction arranged by, or consummated with the prior approval of, the Board of Directors; (2) the Company's shareholders approve a definitive agreement to merge or consolidate the Company with or into another corporation in a transaction in which neither the Company nor any of its subsidiaries or affiliates will be the surviving corporation, or to sell or otherwise dispose of all or substantially all of the Company's asset to any person or group other than the Company or any of its subsidiaries or affiliates, other than a merger or a sale which will result in the voting securities of the Company outstanding prior to the merger or sale continuing to represent at least 50 percent of the combined voting power of the voting securities of the corporation surviving the merger or purchasing the assets; or (3) during any period of two consecutive years, individuals who at the beginning of that period constitute the Board of Directors (and any new Director whose election by the Board of Directors or whose nomination for election by the Company's shareholders was approved by a vote of at least two- thirds of the Directors then still in office who either were Directors at the beginning of that period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors. 5.3 Distribution Upon Financial Emergency. A Participant or Beneficiary, upon written petition to the Committee, may withdraw some or all of the balance of the Participant's Deferral Account or Matching Account if the Committee, in its sole discretion, determines that the requested withdrawal is on account of an Unforeseeable Emergency and that the amount to be withdrawn does not exceed the amount necessary to satisfy the Unforeseeable Emergency. The balance of the Participant's Deferral Account or Matching Account available for withdrawal shall not include any amount that the Participant elected to contribute to the 401(k) Plan but that has not yet been transferred to the 401(k) Plan pursuant to Section 4.7 (Determination and Treatment of Amounts Contributable to the 401(k) Plan). Withdrawals under this Section shall not be permitted to the extent that the Unforeseeable Emergency may reasonably be relieved through (a) reimbursement or compensation by insurance or otherwise, (b) liquidation of the Participant's or Beneficiary's assets (to the extent liquidation would not itself cause a financial hardship), or (c) suspension or cessation of elective deferrals under this Plan or the 401(k) Plan. 5.4 Death Benefits. In the event that a Participant dies before his Accounts are completely distributed, his Beneficiary shall be entitled to a death benefit equal to the amount credited to the Participant's Accounts immediately before his death. The form and timing of the payment of the death benefit shall be determined pursuant to Section 5.1 (General Distribution Rules). 5.5 Designation of Beneficiary. A Participant's Beneficiary shall be the person or persons, including a trustee, designated by the Participant in writing pursuant to the practices of, or rules prescribed by, the Committee, as the recipient of any benefits payable under the Plan following the Participant's death. To be effective, a Beneficiary designation must be filed with the Committee during the Participant's life on a form prescribed by the Committee; provided, however, that finalized divorce or marriage (other than a common law marriage) shall automatically revoke a previously filed Beneficiary designation, unless in the case of divorce the former spouse was not designated as the Beneficiary or in the case of marriage the Participant's new spouse is already the designated Beneficiary. If the Participant designates more than one Beneficiary, any payments under this Article to each Beneficiary shall be made in equal shares unless the Participant has designated otherwise, in which case the payments shall be made in the shares designated by the Participant. If no person has been designated as the Participant's Beneficiary, if a Participant's Beneficiary designation has been revoked by marriage or divorce, or if no person designated as Beneficiary survives the Participant, the Participant's estate shall be his Beneficiary. ARTICLE VI ADMINISTRATION 6.1 Administrator. The Committee shall be the Administrator of the Plan. All decisions of the Committee shall be by a vote of a majority of its members and shall be final and binding. 6.2 Notices. Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if it is in writing or hand delivered, or sent by registered or certified mail, to any member of the Committee or its designate. The notice or filing shall be deemed made as of the date of delivery, or if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 6.3 Powers and Duties of the Committee. Subject to the specific limitations stated in this Plan, the Committee shall have the following powers, duties, and responsibilities: (a) To carry out the general administration of the Plan; (b) To cause to be prepared all forms necessary or appropriate for the administration of the Plan; (c) To keep appropriate books and records; (d) To determine amounts to be distributed to Participants and Beneficiaries under the provisions of the Plan; (e) To determine, consistent with the provisions of this instrument, all questions of eligibility, rights, and status of Participants and Beneficiaries under the Plan; (f) To issue, amend, and rescind rules relating to the administration of the Plan, to the extent those rules are consistent with the provisions of this document; (g) To exercise all other powers and duties specifically conferred upon the Committee elsewhere in this document; and (h) To interpret, with discretionary authority, the provisions of this Plan and to resolve, with discretionary authority, all disputed questions of Plan interpretation and benefit eligibility. ARTICLE VII AMENDMENT AND TERMINATION 7.1 Amendment. The Company reserves the right to amend the Plan at any time by action of the Board of Directors or the Committee, with written notice given to each Participant in the Plan. The Company, however, may not make any amendment that reduces a Participant's benefits accrued as of the date of the amendment unless the Participant consents in writing to the amendment. Notwithstanding the foregoing, the Company may not amend any of the provisions of Section 5.2 (Distribution Upon a Change in Control) within three years of a Change in Control. 7.2 Termination. The Company reserves the right to terminate the Plan, by action of the Board of Directors or the Committee, at any time it deems appropriate. Upon termination of the Plan, no further contribution shall be made to the Plan. Subject to Section 5.2 (Distribution Upon a Change in Control), distribution following termination of the Plan shall be made at the time and under the terms and conditions as the Company, in its sole discretion, shall determine, which shall commence no later than the earlier of a Participant's death or Termination of Employment. ARTICLE VIII MISCELLANEOUS 8.1 Relationship. Notwithstanding any other provision of this Plan, this Plan and action taken pursuant to it shall not be deemed or construed to establish a trust or fiduciary relationship of any kind between or among the Company, Participants, Beneficiaries or any other persons. The Plan is intended to be unfunded for purposes of the Code and the Employee Retirement Income Security Act of 1974, as amended. The rights of Participants and Beneficiaries to receive payment of deferred compensation under the Plan is strictly a contractual right of payment, and this Plan does not grant, nor shall it be deemed to grant Participants, Beneficiaries, or any other person any interest or right to any of the funds, property, or assets of the Employer other than as an unsecured general creditor of the Employer. 8.2 Other Benefits and Plans. Nothing in this Plan shall be deemed to prevent Participants from receiving, in addition to the benefits provided for under this Plan, any funds that may be distributable to them at any time under any other present or future retirement or incentive plan of the Employer. 8.3 Anticipation of Benefits. Neither Participants nor Beneficiaries shall have the power to transfer, assign, anticipate, pledge, alienate, or otherwise encumber in advance any of the payments that may become due under this Plan, and any attempt to do so shall be void. Any payments that may become due under this Plan shall not be subject to attachment, garnishment, execution, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise. 8.4 No Guarantee of Continued Employment. Nothing contained in this Plan or any action taken under the Plan shall be construed as a contract of employment or as giving any Participant any right to be retained in employment with the Employer. The Employer specifically reserves the right to terminate any Participant's employment at any time with or without cause, and with or without notice or assigning a reason, subject to the terms of any written employment agreement between the Participant and the Employer. 8.5 Waiver of Breach. The Company's or the Committee's waiver of any Plan provision shall not operate or be construed as a waiver of any subsequent breach by the Participant. 8.6 Protective Provisions. Each Participant shall cooperate with the Company and the Committee by furnishing any and all information requested by the Company or the Committee in order to facilitate the payment of benefits under the Plan, and by taking any other relevant action as may be requested by the Company or the Committee. If any Participant refuses so to cooperate, the Company shall have no further obligation to the Participant or his Beneficiary under this Plan, other than to distribute to the Participant the cumulative deferrals he has already made, and the cumulative contributions that have been made on his behalf, pursuant to the Plan; provided, however, that the Committee may determine that benefits may be payable in an amount reduced to compensate the Company for any loss, cost, damage, or expense suffered or incurred by the Company as a result in any way of the Participant's action or failure to act. 8.7 Benefit. This Plan shall be binding upon and inure to the benefit of the Employer and its successors and assigns. 8.8 Responsibility for Legal Effect. Neither the Committee nor the Company makes any recommendations or warranties, express or implied, or assumes any responsibility concerning the legal context or other implications or effects of this Plan. 8.9 Tax Withholding. The Employer shall withhold from any deferrals or from any payment made under the Plan such amount or amounts as may be required by applicable federal, State, or local laws. Cinergy Corp. has caused this document to be executed by its duly authorized officers, as of the ____ day of _________________, 1996. CINERGY CORP. By: JAMES E. ROGERS James E. Rogers Vice Chairman, President and Chief Executive Officer Dated: December 30, 1996 APPROVED: By: CHERYL M. FOLEY Cheryl M. Foley Vice President, General Counsel and Corporate Secretary Dated: December 30, 1996 EX-10.SS 15 CINERGY CORP. NONQUALIFIED DEFERRED INCENTIVE COMPENSATION PLAN ARTICLE I NATURE AND PURPOSE OF PLAN 1.1 History of Plan. This document is a continuation and complete restatement, effective December 1, 1996, of the Cinergy Corp. Nonqualified Deferred Compensation Plan, which was approved by the Board of Directors on January 25, 1996. Effective December 1, 1996, the Plan is renamed the Cinergy Corp. Nonqualified Deferred Incentive Compensation Plan. 1.2 Type of Plan. The Plan is maintained by the Company as an unfunded, nonqualified deferred compensation plan for a select group of the Employer's management or highly- compensated employees. 1.3 Purpose of Plan. The purpose of the Plan is to provide a means for the payment of deferred incentive compensation to a select group of key senior management employees of the Employer, in recognition of their substantial contributions to the operation of the Employer, and to provide those individuals with additional financial security as an inducement to them to remain in employment with the Employer. ARTICLE II DEFINITIONS AND RULES OF CONSTRUCTION 2.1 Definitions. As used in the Plan, the following words and phrases, when capitalized, have the following meanings except when used in a context that plainly requires a different meaning: (a) "Account" means the record of a Participant's interest in the Plan. (b) "Beneficiary" means, with respect to a Participant, the person or persons designated pursuant to Section 5.5 (Designation of Beneficiary) to receive benefits under the Plan in the event of the Participant's death. (c) "Board of Directors" means the duly constituted board of directors of the Company on the applicable date. (d) "Change in Control" means an event described in Subsection 5.2(b) (Distribution Upon a Change in Control). (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and interpretive rules and regulations. (f) "Committee" means a committee composed of those members of the Compensation Committee of the Board of Directors who are not Participants in the Plan. (g) "Company" means Cinergy Corp., a Delaware Corporation, and any corporation that shall succeed to its business and adopt the Plan. (h) "Compensation" means, with respect to a Participant for a Plan Year, the award or bonus payable to the Participant for the Plan Year under any of the Company's annual or long-term incentive plans or programs determined by the Committee as awards or bonuses to be eligible for deferral under this Plan. (i) "Deferral Agreement" means the written agreement entered into between an Eligible Employee and the Employer pursuant to which the Eligible Employee elects to make deferrals under the Plan. (j) "Eligible Employee" means a key management Employee who is selected by the Committee as an individual who has the opportunity to impact significantly the annual operating success of the Employer. (k) "Employee" means any person employed by the Employer on a full-time salaried basis, including officers of the Company or a Related Employer. (l) "Employer" means the Company and any Related Employer. (m) "Insolvent" means, with respect to the Company, the Company being unable to pay its debts as they are due, or the Company being subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (n) "Investment Options" means, with respect to any Plan Year, the investment options designated by the Committee as available measures of investment earnings under the Plan for the Plan Year. (o) "Participant" means an Eligible Employee or former Eligible Employee who has an interest in the Plan pursuant to Section 3.2 (Election to Defer). (p) "Plan" means this document, as amended from time to time, and the nonqualified deferred compensation plan so established. (q) "Plan Year" means a calendar year commencing on or after January 1, 1997. (r) "Rabbi Trust" means the grantor trust that the Company, in its sole discretion, may establish pursuant to Subsection 4.4(b) (Accounts Unfunded) for the deposit of funds to be used for the exclusive purpose of paying benefits accrued under the Plan, subject to the claims of the Company's general creditors in the event the Company becomes Insolvent. (s) "Related Employer" means any Employer that, together with the Company, is under common control or a member of an affiliated service group, as determined under Code Subsections 414(b), (c), (m), and (o). (t) "Termination of Employment" means, with respect to a Participant, the cessation of the relationship of Employer and Employee between the Participant and the Employer for any reason other than the Participant's death. A Participant shall not be treated as having incurred a Termination of Employment until the employment relationship between the Participant and all Related Employers has terminated. (u) "Trustee" means the trustee of the Rabbi Trust that the Company, in its sole discretion, may establish pursuant to Subsection 4.4(b) (Accounts Unfunded). (v) "Unforeseeable Emergency" means, for the purpose of Subsection 3.2(d) (Suspension or Cessation of Deferrals) and Section 5.3 (Distribution Upon Financial Emergency), with respect to a Participant or Beneficiary, a severe financial hardship to the Participant or Beneficiary resulting from a sudden and unexpected illness or accident of the Participant, Beneficiary, or his or her dependents; loss of the Participant's or Beneficiary's property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's or Beneficiary's control. 2.2 Rules of Construction. The following rules of construction shall govern in interpreting the Plan: (a) The provisions of this Plan shall be construed and governed in all respects under and by the internal laws of the State of Ohio, to the extent not preempted by federal law. (b) Words used in the masculine gender shall be construed to include the feminine gender, where appropriate, and vice versa. (c) Words used in the singular shall be construed to include the plural, where appropriate, and vice versa. (d) The headings and subheadings in the Plan are inserted for convenience of reference only and are not to be considered in the construction of any provision of the Plan. (e) If any provision of the Plan shall be held to be illegal or invalid for any reason, that provision shall be deemed to be null and void, but the invalidation of that provision shall not otherwise impair or affect the Plan. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. Participation in the Plan is limited to Eligible Employees. 3.2 Election to Defer. (a) Incentive Plans Subject to the Plan. For each Plan Year the Committee shall designate which, if any, incentive compensation plans and programs of the Employers are subject to the provisions of the Plan for that Plan Year. (b) Election Procedure. Within a reasonable time before the beginning of each Plan Year, the Committee shall provide each Eligible Employee with a Deferral Agreement. An Eligible Employee may elect to defer all or a specified portion of his Compensation under the Plan by delivering a completed Deferral Agreement to the Committee or its designate prior to the first day of the Plan Year. On the Deferral Agreement, the Eligible Employee shall indicate the amount or percentage of his Compensation to be deferred under the Plan for the Plan Year, subject to the provisions of Subsection (b). Subject to Subsection (c), an election made under this Section shall be effective as of the first day of the Plan Year, and subject to Subsection (d), the election for any Plan Year shall be irrevocable. (c) Maximum Amount of Deferrals. For each Plan Year beginning on or after the Effective Date, each Eligible Employee may elect to defer under the Plan up to 100% of his Compensation. (d) New Participant Deferrals. The Committee, in its sole discretion, may permit a new Eligible Employee to enroll in the Plan during a Plan Year and, no later than 30 days after becoming an Eligible Employee, make an irrevocable prospective election to defer a portion of his Compensation for the remainder of the Plan Year. (e) Suspension or Cessation of Deferrals. With the written consent of the Committee, a Participant may suspend or cease deferrals, in whole or in part, during the course of a Plan Year, due to an Unforeseeable Emergency. Suspension or cessation of deferrals shall not in any way affect a Participant's rights or benefits with respect to amounts already deferred under the Plan. In the event a Participant suspends or ceases deferrals pursuant to this Subsection, the Participant shall not be permitted to resume deferrals before the first day of the following Plan Year or such later date as specified by the Committee. 3.3 Cessation of Participation. Any Participant who ceases to be an Eligible Employee, but continues to be an Employee, shall cease to be eligible to make deferrals under this Article but shall continue to have an Account, shall continue to be credited with earnings and losses on his Account under Section 4.2 (Earnings and Losses) until those Accounts are fully distributed pursuant to Article V (Distribution of Benefits), and shall be entitled to receive benefits under Article V (Distribution of Benefits). ARTICLE IV PARTICIPANTS' ACCOUNTS 4.1 Establishment of Accounts. The Committee shall create and maintain adequate records to disclose the interest in the Plan of each Participant and Beneficiary. Records shall be in the form of individual bookkeeping accounts, which shall be credited with deferrals and contributions pursuant to Sections 3.2 (Election to Defer), and earnings and losses pursuant to Section 4.2 (Earnings and Losses), and debited with any payments pursuant to Article V (Distribution of Benefits). Each Participant shall have a separate Account. The Participant's interest in his Account shall be fully vested at all times. Notwithstanding the preceding sentence, the Participant's interest in his Account shall be subject to the claims of the Company's general creditors in the event the Company becomes Insolvent. 4.2 Earnings and Losses. (a) Deemed Investment of Accounts. During each Plan Year, a Participant's Account shall be credited with investment earnings and losses as though it is invested, in accordance with the Participant's election pursuant to Subsection (b), in one or more of the Investment Options. The deemed investment of a Participant's Account among the Investment Options in accordance with the Participant's election is solely the measure of the investment performance of the Account. It does not give the Participant any ownership interest in any Investment Option, nor does it bind the Company, the Committee, or the Trustee as to the investment of any Rabbi Trust or any other amounts represented by the Accounts. (b) Election Procedure. Each Participant, upon first becoming an Eligible Employee, may make an initial election, on a form provided by the Committee, to allocate his Account among the Investment Options. If the Participant fails to make an initial election, he shall be deemed to have elected to allocate his Account to the Fidelity Retirement Money Market Fund Investment Option for that Plan Year. A Participant may change his Investment Option designations (for his future deferrals, his existing Account, or both) once each Plan Year, as of the first day of the Plan Year, by filing an appropriate election form with the Committee by the prior December 31. Until a Participant timely files a new investment election form, his prior Investment Option designation shall control. 4.3 Credits to Accounts. (a) A Participant's deferrals pursuant to Section 3.2 (Election to Defer) shall be credited to his Account in terms of cash as of the date(s) on which the deferred amount would otherwise have been paid to the Participant. (b) Earnings and losses on the deemed investment of the Participant's Account under Section 4.2 (Earnings and Losses) shall be credited monthly, on the last day of each month, based on the value of the Participant's Account as of the first day of the month. 4.4 Accounts Unfunded. (a) Accounts shall be accounting accruals, in the names of Participants, on the Employer's books. Accounts shall be unfunded, so that the Employer's obligation to pay benefits under the Plan is merely a contractual duty to make payments when due under the Plan. The Employer's promise to pay benefits under the Plan shall not be secured in any way, and except as provided in Subsection (b), the Company shall not set aside or segregate assets for the purpose of paying amounts credited to Participants' Accounts. (b) Notwithstanding the provisions of Subsection (a), the Company, in its sole discretion, may establish a Rabbi Trust. The Employer, in its sole discretion, may make such contributions to the Rabbi Trust as the Committee determines are appropriate to enable the Employer to pay benefits under the Plan. Any Rabbi Trust established under this Section shall be created pursuant to a written trust document that conforms to the model form of rabbi trust agreement approved by the Internal Revenue Service in Revenue Procedure 92-64 (as amended from time to time). 4.5 Valuation of Accounts. The value of a Participant's Account as of any date shall equal the dollar amount of any deferrals credited to the Account pursuant to Section 3.2 (Election to Defer), increased or decreased by the earnings and losses deemed to be credited to the Account in accordance with Section 4.2 (Earnings and Losses), and decreased by the amount of any payments made from the Account to the Participant or his Beneficiary pursuant to Article V (Distribution of Benefits). 4.6 Annual Report. Within 120 days following the end of each Plan Year, the Committee shall provide to each Participant a written statement of the amount standing to his credit in his Account as of the end of that Plan Year. ARTICLE V DISTRIBUTION OF BENEFITS 5.1 General Distribution Rules. (a) General Provisions. Except as otherwise provided in Sections 5.2 (Distribution Upon a Change in Control), Section 5.3 (Distribution Upon Financial Emergency), and Section 5.4 (Death Benefits), a Participant's Account shall be distributed to the Participant (or to his Beneficiary in the event of his death) as provided in this Section. (b) Participant's Election. For each Plan Year, a Participant may select, on a form provided by the Committee and from among the options described in this Section, the form for the payment of his deferrals for the Plan Year (and any investment earnings attributable to those deferrals). A Participant's election for each Plan Year shall be irrevocable, but the Participant may make a new election for each Plan Year's deferrals. (1) Form of Distribution. A Participant may elect to have his deferrals (and attributable earnings) for a Plan Year distributed in one of the following forms: (A) A lump sum payment; or (B) Substantially equal annual installments over a specified number of two to ten years. (2) Time of Distribution. Distribution of a Participant's interest in his Account shall commence no later than 30 days after the earlier of the Participant's death or his Termination of Employment. Subsequent installments shall be payable on or as soon as administratively feasible following the first business day of each succeeding year. (c) Default Procedure. If a Participant fails to make an election pursuant to this Section, then, except as otherwise provided in Section 5.2 (Distribution Upon a Change in Control, Section 5.3 (Distribution Upon Financial Emergency), and Section 5.4 (Death Benefits), the Participant's Account (and attributable earnings) shall be distributed in five substantially equal annual installments commencing no later than 30 days after the earlier of the Participant's death or his Termination of Employment. 5.2 Distribution Upon a Change in Control. (a) Notwithstanding any other Section, if a Change in Control occurs, the Committee in its sole discretion may elect to accelerate the distribution of a Participant's Account so that a Participant's Account shall be distributed to the Participant (or, in the event of his death, to his Beneficiary) in a single lump sum payment no later than 30 days after the Change in Control occurs. (b) As used in this Plan, a "Change in Control" of the Company shall occur if (1) any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) of more than 50 percent of the then outstanding voting stock of the Company, otherwise than through a transaction arranged by, or consummated with the prior approval of, the Board of Directors; (2) the Company's shareholders approve a definitive agreement to merge or consolidate the Company with or into another corporation in a transaction in which neither the Company nor any of its subsidiaries or affiliates will be the surviving corporation, or to sell or otherwise dispose of all or substantially all of the Company's asset to any person or group other than the Company or any of its subsidiaries or affiliates, other than a merger or a sale which will result in the voting securities of the Company outstanding prior to the merger or sale continuing to represent at least 50 percent of the combined voting power of the voting securities of the corporation surviving the merger or purchasing the assets; or (3) during any period of two consecutive years, individuals who at the beginning of that period constitute the Board of Directors (and any new Director whose election by the Board of Directors or whose nomination for election by the Company's shareholders was approved by a vote of at least two- thirds of the Directors then still in office who either were Directors at the beginning of that period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors. 5.3 Distribution Upon Financial Emergency. A Participant or Beneficiary, upon written petition to the Committee, may withdraw some or all of the balance of the Participant's Account if the Committee, in its sole discretion, determines that the requested withdrawal is on account of an Unforeseeable Emergency and that the amount to be withdrawn does not exceed the amount necessary to satisfy the Unforeseeable Emergency. Withdrawals under this Section shall not be permitted to the extent that the Unforeseeable Emergency may reasonably be relieved through (a) reimbursement or compensation by insurance or otherwise, (b) liquidation of the Participant's or Beneficiary's assets (to the extent liquidation would not itself cause a financial hardship), or (c) suspension or cessation of elective deferrals under this Plan. 5.4 Death Benefits. In the event that a Participant dies before his Account is completely distributed, his Beneficiary shall be entitled to a death benefit equal to the amount credited to the Participant's Account immediately before his death. The form and timing of the payment of the death benefit shall be determined pursuant to Section 5.1 (General Distribution Rules). 5.5 Designation of Beneficiary. A Participant's Beneficiary shall be the person or persons, including a trustee, designated by the Participant in writing pursuant to the practices of, or rules prescribed by, the Committee, as the recipient of any benefits payable under the Plan following the Participant's death. To be effective, a Beneficiary designation must be filed with the Committee during the Participant's life on a form prescribed by the Committee; provided, however, that finalized divorce or marriage (other than a common law marriage) shall automatically revoke a previously filed Beneficiary designation, unless in the case of divorce the former spouse was not designated as the Beneficiary or in the case of marriage the Participant's new spouse is already the designated Beneficiary. If the Participant designates more than one Beneficiary, any payments under this Article to each Beneficiary shall be made in equal shares unless the Participant has designated otherwise, in which case the payments shall be made in the shares designated by the Participant. If no person has been designated as the Participant's Beneficiary, if a Participant's Beneficiary designation has been revoked by marriage or divorce, or if no person designated as Beneficiary survives the Participant, the Participant's estate shall be his Beneficiary. ARTICLE VI ADMINISTRATION 6.1 Administrator. The Committee shall be the Administrator of the Plan. All decisions of the Committee shall be by a vote of a majority of its members and shall be final and binding. 6.2 Notices. Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if it is in writing or hand delivered, or sent by registered or certified mail, to any member of the Committee or its designate. The notice or filing shall be deemed made as of the date of delivery, or if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 6.3 Powers and Duties of the Committee. Subject to the specific limitations stated in this Plan, the Committee shall have the following powers, duties, and responsibilities: (a) To carry out the general administration of the Plan; (b) To cause to be prepared all forms necessary or appropriate for the administration of the Plan; (c) To keep appropriate books and records; (d) To determine amounts to be distributed to Participants and Beneficiaries under the provisions of the Plan; (e) To determine, consistent with the provisions of this instrument, all questions of eligibility, rights, and status of Participants and Beneficiaries under the Plan; (f) To issue, amend, and rescind rules relating to the administration of the Plan, to the extent those rules are consistent with the provisions of this document; (g) To exercise all other powers and duties specifically conferred upon the Committee elsewhere in this document; and (h) To interpret, with discretionary authority, the provisions of this Plan and to resolve, with discretionary authority, all disputed questions of Plan interpretation and benefit eligibility. ARTICLE VII AMENDMENT AND TERMINATION 7.1 Amendment. The Company reserves the right to amend the Plan at any time by action of the Board of Directors or the Committee, with written notice given to each Participant in the Plan. The Company, however, may not make any amendment that reduces a Participant's benefits accrued as of the date of the amendment unless the Participant consents in writing to the amendment. Notwithstanding the foregoing, the Company may not amend any of the provisions of Section 5.2 (Distribution Upon a Change in Control) within three years of a Change in Control. 7.2 Termination. The Company reserves the right to terminate the Plan, by action of the Board of Directors or the Committee, at any time it deems appropriate. Upon termination of the Plan, no further contribution shall be made to the Plan. Subject to Section 5.2 (Distribution Upon a Change in Control), distribution following termination of the Plan shall be made at the time and under the terms and conditions as the Company, in its sole discretion, shall determine, which shall commence no later than the earlier of a Participant's death or Termination of Employment. ARTICLE VIII MISCELLANEOUS 8.1 Relationship. Notwithstanding any other provision of this Plan, this Plan and action taken pursuant to it shall not be deemed or construed to establish a trust or fiduciary relationship of any kind between or among the Company, Participants, Beneficiaries or any other persons. The Plan is intended to be unfunded for purposes of the Code and the Employee Retirement Income Security Act of 1974, as amended. The rights of Participants and Beneficiaries to receive payment of deferred compensation under the Plan is strictly a contractual right of payment, and this Plan does not grant, nor shall it be deemed to grant Participants, Beneficiaries, or any other person any interest or right to any of the funds, property, or assets of the Employer other than as an unsecured general creditor of the Employer. 8.2 Other Benefits and Plans. Nothing in this Plan shall be deemed to prevent Participants from receiving, in addition to the benefits provided for under this Plan, any funds that may be distributable to them at any time under any other present or future retirement or incentive plan of the Employer. 8.3 Anticipation of Benefits. Neither Participants nor Beneficiaries shall have the power to transfer, assign, anticipate, pledge, alienate, or otherwise encumber in advance any of the payments that may become due under this Plan, and any attempt to do so shall be void. Any payments that may become due under this Plan shall not be subject to attachment, garnishment, execution, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise. 8.4 No Guarantee of Continued Employment. Nothing contained in this Plan or any action taken under the Plan shall be construed as a contract of employment or as giving any Participant any right to be retained in employment with the Employer. The Employer specifically reserves the right to terminate any Participant's employment at any time with or without cause, and with or without notice or assigning a reason, subject to the terms of any written employment agreement between the Participant and the Employer. 8.5 Waiver of Breach. The Company's or the Committee's waiver of any Plan provision shall not operate or be construed as a waiver of any subsequent breach by the Participant. 8.6 Protective Provisions. Each Participant shall cooperate with the Company and the Committee by furnishing any and all information requested by the Company or the Committee in order to facilitate the payment of benefits under the Plan, and by taking any other relevant action as may be requested by the Company or the Committee. If any Participant refuses to so cooperate, the Company shall have no further obligation to the Participant or his Beneficiary under this Plan, other than to distribute to the Participant the cumulative deferrals he has already made, and the cumulative contributions that have been made on his behalf, pursuant to the Plan; provided, however, that the Committee may determine that benefits may be payable in an amount reduced to compensate the Company for any loss, cost, damage, or expense suffered or incurred by the Company as a result in any way of the Participant's action or failure to act. 8.7 Benefit. This Plan shall be binding upon and inure to the benefit of the Employer and its successors and assigns. 8.8 Responsibility for Legal Effect. Neither the Committee nor the Company makes any recommendations or warranties, express or implied, or assumes any responsibility concerning the legal context or other implications or effects of this Plan. 8.9 Tax Withholding. The Employer shall withhold from any deferrals or from any payment made under the Plan such amount or amounts as may be required by applicable federal, State, or local laws. Cinergy Corp. has caused this document to be executed by its duly authorized officers, as of December 1, 1996. CINERGY CORP. By: JAMES E. ROGERS James E. Rogers Vice Chairman, President and Chief Executive Officer Dated: December 30, 1996 APPROVED: By: CHERYL M. FOLEY Cheryl M. Foley Vice President, General Counsel and Corporate Secretary Dated: December 30, 1996 EX-23 16 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our report, dated January 29, 1997, included in this Annual Report on Form 10-K for the year ended December 31, 1996, into (i) Cinergy Corp.'s previously filed Registration Statement Nos. 33-55267, 33-55291, 33-55293, 33- 55713, 33-56067, 33-56089, 33-56091, 33-56093, 33-56095 and 333- 17531; (ii) PSI Energy, Inc.'s previously filed Registration Statement Nos. 33-48612, 33-57064 and 333-10899; (iii) The Cincinnati Gas & Electric Company's previously filed Registration Statement Nos. 33-45116, 33-52335 and 33-58967; and (iv) The Union Light, Heat and Power Company's previously filed Registration Statement Nos. 33-40245 and 33-58965. Arthur Andersen LLP Cincinnati, Ohio, March 27, 1997. EX-24 17 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp., The Cincinnati Gas & Electric Company, The Union Light, Heat and Power Company, and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 29th day of January, 1997. /s/ Jackson H. Randolph Jackson H. Randolph POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 30th day of January, 1997. /s/ Neil A. Armstrong Neil A. Armstrong POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 30th day of January, 1997. /s/ Phillip R. Cox Phillip R. Cox POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 29th day of January, 1997. /s/ Kenneth M. Duberstein Kenneth M. Duberstein POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 27th day of January, 1997. /s/ George C. Juilfs George C. Juilfs POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 24th day of January, 1997. /s/ Melvin Perelman Melvin Perelman POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 30th day of January, 1997. /s/ Thomas E. Petry Thomas E. Petry POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of January, 1997. /s/ John J. Schiff, Jr. John J. Schiff, Jr. POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of January, 1997. /s/ Philip R. Sharp Philip R. Sharp POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of January, 1997. /s/ Dudley S. Taft Dudley S. Taft POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of January, 1997. /s/ Oliver W. Waddell Oliver W. Waddell POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 27th day of January, 1997. /s/ James K. Baker James K. Baker POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 30th day of January, 1997. /s/ Michael G. Browning Michael G. Browning POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 20th day of January, 1997. /s/ John A. Hillenbrand II John A. Hillenbrand II POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of The Cincinnati Gas & Electric Company and The Union Light, Heat and Power Company, the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 24th day of January, 1997. /s/ William J. Grealis William J. Grealis POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 30th day of January, 1997. /s/ Van P. Smith Van P. Smith POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of PSI Energy, Inc., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 27th day of January, 1997. /s/ John M. Mutz John M. Mutz POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and J. Wayne Leonard, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of The Union Light, Heat and Power Company, the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1996, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission. The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of February, 1997. /s/ Cheryl M. Foley Cheryl M. Foley EX-27 18 CINERGY 12/31/96 10-K
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 DEC-31-1996 JAN-01-1996 DEC-31-1996 12-MOS PER-BOOK 6,289,626 0 566,011 1,168,666 824,211 8,848,514 1,577 1,590,735 992,142 2,584,454 0 194,232 2,534,978 713,617 0 0 140,000 0 0 0 2,681,233 8,848,514 3,242,740 218,269 2,466,213 2,684,482 558,258 15,322 573,580 215,603 357,977 23,180 316,406 274,358 190,617 816,089 2.00 2.00 -----END PRIVACY-ENHANCED MESSAGE-----