-----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, KggyAESLjbT9CysEwokn6IyF/Gd2ggW1FyS011hj5/W3Jc/2ghUHmUboZULzysnC bhRr20qqcGih8oEeYqT4eg== 0000899652-98-000146.txt : 19981116 0000899652-98-000146.hdr.sgml : 19981116 ACCESSION NUMBER: 0000899652-98-000146 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11377 FILM NUMBER: 98745736 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-Q 1 1998 3RD QTR CINERGY FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format. As of October 31, 1998, shares of Common Stock outstanding for each registrant were as listed:
Company Shares - ------------------------------------------------------------------- ------------ Cinergy Corp., par value $.01 per share 158,584,688 The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086 PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701 The Union Light, Heat and Power Company, par value $15.00 per share 585,333
TABLE OF CONTENTS Item Page Number Number Glossary of Terms . . . . . . . . . . . . . . . . . . . 3 PART I. FINANCIAL INFORMATION 1 Financial Statements Cinergy Corp. Consolidated Balance Sheets . . . . . . . . . . . . . 7 Consolidated Statements of Income (Loss). . . . . . . 9 Consolidated Statements of Changes in Common Stock Equity. . . . . . . . . . . . . . . . . . . . 10 Consolidated Statements of Cash Flows . . . . . . . . 13 Results of Operations . . . . . . . . . . . . . . . . 14 The Cincinnati Gas & Electric Company Consolidated Balance Sheets . . . . . . . . . . . . . 24 Consolidated Statements of Income and Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . 26 Consolidated Statements of Cash Flows . . . . . . . . 27 Results of Operations . . . . . . . . . . . . . . . . 28 PSI Energy, Inc. Consolidated Balance Sheets . . . . . . . . . . . . . 34 Consolidated Statements of Income and Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . 36 Consolidated Statements of Cash Flows . . . . . . . . 37 Results of Operations . . . . . . . . . . . . . . . . 38 The Union Light, Heat and Power Company Balance Sheets. . . . . . . . . . . . . . . . . . . . 43 Statements of Income. . . . . . . . . . . . . . . . . 45 Statements of Cash Flows. . . . . . . . . . . . . . . 46 Results of Operations . . . . . . . . . . . . . . . . 47 Notes to Financial Statements . . . . . . . . . . . . . 51 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 60 3 Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . 67 PART II. OTHER INFORMATION 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 68 5 Other Information . . . . . . . . . . . . . . . . . . . 68 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 68 Signatures. . . . . . . . . . . . . . . . . . . . . . . 70 GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below: TERM DEFINITION 1997 Form Combined 1997 Annual Report on Form 10-K filed separately by 10-K Cinergy, CG&E, PSI, and ULH&P ADR Alternative Dispute Resolution Apache Apache Corporation Avon Energy Avon Energy Partners Holdings, an Unlimited Liability Company and its wholly-owned subsidiary Avon Energy Partners PLC, a Limited Liability Company Bcf Billion cubic feet Beckjord CG&E'S W. C. Beckjord Station (steam electric generating plant) CC&T Cinergy Capital and Trading, Inc. (a subsidiary of Investments) CERCLA Comprehensive Environmental Response, Compensation and Liability Act CFC National Rural Utilities Cooperative Finance Corporation CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) CWIP Construction work in progress Cayuga PSI's Cayuga Station Cinergy or Cinergy Corp. Company Cinergy Global Cinergy Global Power, Inc., formerly Cinergy Investments Power MPI, Inc. (a subsidiary of Cinergy Global Resources) Cinergy Global Cinergy Global Resources, Inc. (a subsidiary of Cinergy), Resources which holds Cinergy's international non-regulated businesses Committed Lines A line of credit providing short-term loans on a committed basis DSM Demand-side management Destec Destec Energy, Inc. Dynegy Dynegy, Inc. EPA United States Environmental Protection Agency EPRI Electric Power Research Institute EPS Earnings per share GLOSSARY OF TERMS (Continued) TERM DEFINITION East Bend CG&E's East Bend Station (steam electric generating plant) Enertech Enertech Associates, Inc., formerly Power International, Inc. (a subsidiary of Cinergy Investments, Inc.) Exxon Exxon Coal and Minerals Company FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission February 1995 An IURC order issued in February 1995 Order Gibson PSI's Gibson Generating Station (steam electric generating plant) HB 443 Customer choice bill introduced by the House Chairman of the Tourism, Development and Energy Committee in Kentucky HJR 95 House Joint Resolution, which calls for an executive task force to study electricity restructuring in Kentucky IDEM Indiana Department of Environmental Management IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water Company, Inc. Investments Cinergy Investments, Inc. (a subsidiary of Cinergy), which holds Cinergy's domestic, non-regulated businesses IOU Investor-owned utility ISO Independent System Operator IT Information Technology IURC Indiana Utility Regulatory Commission kwh Kilowatt-hour mcf Thousand cubic feet MGP Manufactured gas plant MW Megawatts Midlands Midlands Electricity plc, a United Kingdom regional electric company (a wholly-owned subsidiary of Avon Energy) Moravske Moravske Teplarna a.s. (an indirect subsidiary of Cinergy Global Power) N/A Not applicable NERC North American Electric Reliability Council NIPSCO Northern Indiana Public Service Company GLOSSARY OF TERMS (Continued) TERM DEFINITION NOx Nitrogen Oxide Oryx Oryx Energy Company PRP Potentially Responsible Party ProEnergy Producers Energy Marketing, LLC (a subsidiary of CC&T), which is engaged in the marketing of natural gas PSI PSI Energy, Inc. (a subsidiary of Cinergy) PUCO Public Utilities Commission of Ohio RUS Rural Utilities Service SB 237 and Companion electric restructuring bills introduced into the HB 732 Ohio legislature during 1998 SEC United States Securities and Exchange Commission SIP State Implementation Plan September 1996 An IURC order issued in September 1996 on PSI's retail Order rate proceeding Statement 130 Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income Statement 133 Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities UCC Office of Utility Consumer Counselor ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) U.S. District United States District Court for the Southern District of Court Ohio, Western Division Uncommitted A line of credit providing short-term loans on an Lines uncommitted basis WVPA Wabash Valley Power Association, Inc. Wabash River PSI's Wabash River Station Zimmer CG&E's William H. Zimmer Generating Station (steam electric generating plant) CINERGY CORP. AND SUBSIDIARY COMPANIES
CINERGY CORP. CONSOLIDATED BALANCE SHEETS ASSETS September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 78,826 $ 53,310 Restricted deposits 1,531 2,319 Notes receivable 71 110 Accounts receivable less accumulated provision for doubtful accounts of $20,689 at September 30, 1998, and $10,382 at December 31, 1997 832,766 413,516 Materials, supplies, and fuel - at average cost 189,300 163,156 Prepayments and other 56,368 38,171 ----------- ---------- 1,158,862 670,582 Utility Plant - Original Cost In service Electric 9,102,204 8,981,182 Gas 772,006 746,903 Common 185,896 186,078 ----------- ---------- 10,060,106 9,914,163 Accumulated depreciation 3,982,686 3,800,322 ----------- ---------- 6,077,420 6,113,841 Construction work in progress 226,362 183,262 ----------- ---------- Total utility plant 6,303,782 6,297,103 Other Assets Regulatory assets 1,033,651 1,076,851 Investments in unconsolidated subsidiaries 502,623 537,720 Other 438,699 275,897 ----------- ---------- 1,974,973 1,890,468 $ 9,437,617 $8,858,153 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. LIABILITIES AND SHAREHOLDERS' EQUITY September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 917,760 $ 488,716 Accrued taxes 206,361 187,033 Accrued interest 49,011 46,622 Notes payable and other short-term obligations 1,185,486 1,114,028 Long-term debt due within one year 186,000 85,000 Other 98,848 79,193 ---------- ---------- 2,643,466 2,000,592 Non-Current Liabilities Long-term debt 2,210,488 2,150,902 Deferred income taxes 1,095,884 1,248,543 Unamortized investment tax credits 159,030 166,262 Accrued pension and other postretirement benefit costs 305,269 297,142 Other 388,483 277,523 ---------- ---------- 4,159,154 4,140,372 Total liabilities 6,802,620 6,140,964 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 92,648 177,989 Common Stock Equity Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 158,547,701 at September 30, 1998, and 157,744,658 at December 31, 1997 1,585 1,577 Paid-in capital 1,600,776 1,573,064 Retained earnings 943,647 967,420 Accumulated other comprehensive loss (3,659) (2,861) ---------- ---------- Total common stock equity 2,542,349 2,539,200 $9,437,617 $8,858,153
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited) Quarter Ended Year to Date Twelve Months Ended September 30 September 30 September 30 1998 1997 1998 1997 1998 1997 (in thousands, except per share amounts) Operating Revenues Electric $1,601,996 $1,315,165 $3,782,641 $2,923,655 $4,720,684 $3,631,890 Gas 355,945 39,941 666,136 326,964 830,318 494,936 Other 18,545 5,423 43,888 21,705 56,568 31,458 ---------- ---------- ---------- ---------- ---------- ---------- 1,976,486 1,360,529 4,492,665 3,272,324 5,607,570 4,158,284 Operating Expenses Fuel and purchased and exchanged power 1,070,753 804,397 2,318,624 1,470,701 2,760,717 1,707,996 Gas purchased 316,321 15,622 518,006 175,416 608,748 274,219 Other operation and maintenance 235,074 213,458 774,149 651,648 991,075 899,859 Depreciation and amortization 80,425 76,847 240,780 229,496 318,205 305,184 Taxes other than income taxes 69,346 67,174 208,125 204,132 270,037 265,625 ---------- ---------- ---------- ---------- ---------- ---------- 1,771,919 1,177,498 4,059,684 2,731,393 4,948,782 3,452,883 Operating Income 204,567 183,031 432,981 540,931 658,788 705,401 Equity in Earnings of Unconsolidated Subsidiaries 11,421 3,782 32,992 42,462 50,922 57,445 Other Income and (Expenses) - Net (115) 6,268 (11,850) 3,634 (18,088) (8,972) Interest 60,950 58,444 181,511 176,897 240,933 234,560 --------- ---------- ---------- ---------- ---------- ---------- Income Before Taxes 154,923 134,637 272,612 410,130 450,689 519,314 Income Taxes 44,127 48,961 77,891 148,373 142,518 183,732 Preferred Dividend Requirements of Subsidiaries 1,365 3,142 5,152 9,617 8,104 12,856 ---------- ---------- ---------- ---------- ---------- ---------- Net Income Before Extraordinary Item $ 109,431 $ 82,534 $ 189,569 $ 252,140 $ 300,067 $ 322,726 Extraordinary Item - Equity Share of Windfall Profits Tax (Less Applicable Income Taxes of $0) - (109,400) - (109,400) - (109,400) ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss) $ 109,431 $ (26,866) $ 189,569 $ 142,740 $ 300,067 $ 213,326 Average Common Shares Outstanding 158,539 157,679 158,110 157,679 158,007 157,679 Earnings Per Common Share Net income before extraordinary item $0.69 $ 0.53 $1.20 $1.60 $1.90 $2.04 Net income (loss) $0.69 $(0.16) $1.20 $0.91 $1.90 $1.35 Earnings Per Common Share - Assuming Dilution Net income before extraordinary item $0.69 $ 0.52 $1.20 $1.59 $1.90 $2.03 Net income (loss) $0.69 $(0.17) $1.20 $0.90 $1.90 $1.34 Dividends Declared Per Common Share $0.45 $ 0.45 $1.35 $1.35 $1.80 $1.80 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (dollars in thousands) (unaudited) Accumulated Other Total Total Common Paid-in Retained Comprehensive Comprehensive Common Stock Stock Capital Earnings Loss Income (Loss) Equity Quarter Ended September 30, 1998 Balance at July 1, 1998 $1,585 $1,599,435 $ 905,556 $(3,330) $2,503,246 Comprehensive income Net income 109,431 $109,431 109,431 Other comprehensive income, net of tax Foreign currency translation adjustment (329) (329) -------- Other comprehensive loss total (329) (329) -------- Comprehensive income total $109,102 Issuance of 12,423 shares of common stock - net 225 225 Treasury shares purchased (1) (1,536) (1,537) Treasury shares reissued 1 2,637 2,638 Dividends on common stock (see page 9 for per share amounts) (71,340) (71,340) Other 15 15 ------ ---------- ---------- ------- ---------- Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349 Quarter Ended September 30, 1997 Balance at July 1, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347 Comprehensive income Net loss (26,866) $(26,866) (26,866) Other comprehensive income, net of tax Foreign currency translation adjustment (514) (514) -------- Other comprehensive loss total (514) (514) -------- Comprehensive loss total $(27,380) ======== Treasury shares purchased (214) (214) Treasury shares reissued 1,614 1,614 Dividends on common stock (see page 9 for per share amounts) (71,000) (71,000) Other (406) 118 (288) ------ ---------- ---------- ------- ---------- Balance at September 30, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED) (dollars in thousands) (unaudited) Accumulated Other Total Total Common Paid-in Retained Comprehensive Comprehensive Common Stock Stock Capital Earnings Loss Income Equity Nine Months Ended September 30, 1998 Balance at January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200 Comprehensive income Net income 189,569 $189,569 189,569 Other comprehensive income, net of tax Foreign currency translation adjustment (747) (747) Minimum pension liability adjustment (51) (51) -------- Other comprehensive loss total (798) (798) -------- Comprehensive income total $188,771 Issuance of 803,043 shares of common stock - net 8 27,018 27,026 Treasury shares purchased (3) (6,468) (6,471) Treasury shares reissued 3 7,115 7,118 Dividends on common stock (see page 9 for per share amounts) (213,340) (213,340) Other 47 (2) 45 ------ ---------- ---------- ------- ---------- Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349 Nine Months Ended September 30, 1997 Balance at January 1, 1997 $1,577 $1,590,735 $ 993,526 $(1,384) $2,584,454 Comprehensive income Net income 142,740 $142,740 142,740 Other comprehensive income, net of tax Foreign currency translation adjustment (1,103) (1,103) -------- Other comprehensive loss total (1,103) (1,103) -------- Comprehensive income total $141,637 ======== Treasury shares purchased (11) (45,939) (45,950) Treasury shares reissued 11 27,073 27,084 Dividends on common stock (see page 9 for per share amounts) (212,910) (212,910) Other (342) 106 (236) ------ ---------- ---------- ------- ---------- Balance at September 30, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED) (dollars in thousands) (unaudited) Accumulated Other Total Total Common Paid-in Retained Comprehensive Comprehensive Common Stock Stock Capital Earnings Loss Income Equity Twelve Months Ended September 30, 1998 Balance at October 1, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079 Comprehensive income Net income 300,067 $300,067 300,067 Other comprehensive income, net of tax Foreign currency translation adjustment (39) (39) Minimum pension liability adjustment (1,133) (1,133) -------- Other comprehensive loss total (1,172) (1,172) -------- Comprehensive income total $298,895 Issuance of 868,572 shares of common stock - net 8 29,084 29,092 Treasury shares purchased (3) (6,728) (6,731) Treasury shares reissued 3 6,771 6,774 Dividends on common stock (see page 9 for per share amounts) (284,296) (284,296) Other 122 4,414 4,536 ------ ---------- ---------- ------- ---------- Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349 Twelve Months Ended September 30, 1997 Balance at October 1, 1996 $1,577 $1,592,393 $ 994,113 $(1,658) $2,586,425 Comprehensive income Net income 213,326 $213,326 213,326 Other comprehensive income, net of tax Foreign currency translation adjustment (650) (650) Minimum pension liability adjustment (179) (179) -------- Other comprehensive loss total (829) (829) -------- Comprehensive income total $212,497 ======== Treasury shares purchased (12) (48,170) (48,182) Treasury shares reissued 12 27,674 27,686 Dividends on common stock (see page 9 for per share amounts) (283,866) (283,866) Costs of reacquisition of preferred stock of subsidiary (216) (216) Other (370) 105 (265) ------ ---------- ---------- ------- ---------- Balance at September 30, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date Twelve Months Ended September 30 September 30 1998 1997 1998 1997 (in thousands) Operating Activities Net income $ 189,569 $ 142,740 $ 300,067 $ 213,326 Items providing (using) cash currently: Depreciation and amortization 240,780 229,496 318,205 305,184 WVPA settlement 80,000 - 80,000 (80,000) Deferred income taxes and investment tax credits - net (79,350) 4,698 (16,410) 18,549 Equity in earnings of unconsolidated subsidiaries (32,992) (17,309) (50,922) (32,292) Extraordinary item - equity share of windfall profits tax - 109,400 - 109,400 Allowance for equity funds used during construction (793) (189) (701) (208) Regulatory assets - net 57,122 40,355 68,210 68,169 Changes in current assets and current liabilities Restricted deposits 788 (229) 419 (230) Accounts and notes receivable, net of reserves on receivables sold (298,792) (180,916) (335,033) (275,404) Materials, supplies, and fuel (20,037) 9,871 (8,091) 30,351 Accounts payable 293,435 175,165 301,566 218,405 Accrued taxes and interest 21,717 22,719 (22,416) 36,922 Other items - net 94,458 (28,229) 137,017 37,645 --------- --------- --------- --------- Net cash provided by operating activities 545,905 507,572 771,911 649,817 Financing Activities Issuance of common stock 515 - 2,581 - Issuance of long-term debt 373,041 - 473,103 150,217 Retirement of preferred stock of subsidiaries (85,292) (16,182) (85,379) (19,110) Redemption of long-term debt (333,745) (336,312) (333,745) (365,912) Change in short-term debt 61,642 323,128 (69,675) 243,891 Dividends on common stock (212,730) (212,910) (283,686) (283,866) --------- --------- --------- --------- Net cash used in financing activities (196,569) (242,276) (296,801) (274,780) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (238,364) (226,389) (340,030) (345,425) Acquisition of businesses (net of cash acquired) (63,412) - (63,412) - Investments in unconsolidated subsidiaries (22,044) - (51,076) - --------- --------- --------- ---------- Net cash used in investing activities (323,820) (226,389) (454,518) (345,425) Net increase in cash and temporary cash investments 25,516 38,907 20,592 29,612 Cash and temporary cash investments at beginning of period 53,310 19,327 58,234 28,622 --------- --------- --------- --------- Cash and temporary cash investments at end of period $ 78,826 $ 58,234 $ 78,826 $ 58,234 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. Below is information concerning the consolidated results of operations for Cinergy for the quarter, nine months, and twelve months ended September 30, 1998. For information concerning the results of operations for each of the other registrants for the quarter and nine months ended September 30, 1998, see the discussion under the heading "Results of Operations" following the financial statements of each registrant. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998 Operating Revenues Electric Operating Revenues The components of electric operating revenues and the related kwh sales are shown below: Quarter Ended September 30 Revenue Kwh Sales 1998 1997 1998 1997 ($ and kwh in millions) Retail $ 713 $ 671 13,013 12,099 Sales for resale 873 635 25,243 24,553 Other 16 9 N/A N/A ------ ------ ------ ------ Total $1,602 $1,315 38,256 36,652 Electric operating revenues increased $287 million (22%) for the quarter ended September 30, 1998, from the comparable period of 1997. This increase was primarily the result of a higher average price per kwh received on sales for resale transactions. There was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described below. Also contributing to the increase were higher retail kwh sales due to the warmer than normal weather during 1998 and growth in the average number of residential and commercial customers. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Quarter Ended September 30 Revenue Mcf Sales 1998 1997 1998 1997 ---- ---- ---- ----- ($ and mcf in millions) Sales for resale $296 $ - 152 - Retail 48 33 6 4 Transportation 8 6 11 12 Other 4 1 N/A N/A ---- --- --- --- Total $356 $40 169 16 Gas operating revenues increased $316 million in the third quarter of 1998, when compared to the same period last year, primarily due to the gas operating revenues of ProEnergy, which was acquired in June 1998. Other Revenues Other revenues for the quarter ended September 30, 1998, increased $13 million, over the same period of 1997. This increase was primarily the result of increased sales and new initiatives by certain of Cinergy's non-regulated entities. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Quarter Ended September 30 1998 1997 (in millions) Fuel $ 206 $197 Purchased and exchanged power 865 607 ------ ---- Total $1,071 $804 Electric fuel costs increased $9 million (5%) for the quarter ended September 30, 1998, as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1997 $197 Increase (Decrease) due to change in: Price of fuel (6) Deferred fuel cost (4) Kwh generation 19 ---- Fuel expense - September 30, 1998 $206 Purchased and exchanged power expense increased $258 million (43%) for the quarter ended September 30, 1998, when compared to the same period of 1997, primarily reflecting an increase in the average price paid per kwh. Gas Purchased Gas purchased for the quarter ended September 30, 1998, increased $301 million, when compared to the same period last year, primarily due to the gas purchased expenses of ProEnergy, which was acquired in June 1998. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended September 30 1998 1997 (in millions) Other operation $185 $171 Maintenance 50 42 ---- ---- Total $235 $213 Other operation expenses increased $14 million (8%) for the quarter ended September 30, 1998, as compared to the same period last year, primarily due to an increase in new initiatives by certain of Cinergy's consolidated non-regulated businesses. Maintenance expenses increased $8 million (19%) for the quarter ended September 30, 1998, as compared to the same period of 1997, primarily due to an increase in production maintenance at Wabash River, Cayuga, and Gibson, and an increase in distribution line maintenance. Depreciation and Amortization The components of depreciation and amortization expenses are shown below: Quarter Ended September 30 1998 1997 (in millions) Depreciation $74 $73 Amortization of phase-in deferrals 5 3 Amortization of post-in-service deferred operating expenses 1 1 --- --- Total $80 $77 Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for Zimmer. Equity in Earnings of Unconsolidated Subsidiaries For the quarter ended September 30, 1998, the equity in earnings of unconsolidated subsidiaries increased $8 million, as compared to the same period of last year. This increase is primarily attributable to Midlands. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $6 million for the quarter ended September 30, 1998, from the same period of 1997, is due primarily to a gain recorded in 1997 on the sale of a PSI investment. Income Taxes Income taxes decreased $5 million (10%) for the quarter ended September 30, 1998, as compared to the same period of 1997, primarily due to the recognition by Cinergy of Foreign Tax Credits in the third quarter of 1998. Previous projections indicated that these Foreign Tax Credits would expire unused and therefore previous Federal tax provisions had not given benefit to these Foreign Tax Credits. This decrease is somewhat offset by an increase in taxable income over the prior period. Preferred Dividend Requirements of Subsidiaries The decrease in preferred dividend requirements of subsidiaries of $2 million (57%) for the quarter ended September 30, 1998, as compared to the same period of 1997, is primarily attributable to PSI's redemption of all outstanding shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998, respectively. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Operating Revenues Electric Operating Revenues The components of electric operating revenues and the related kwh sales are shown below: Nine Months Ended September 30 Revenue Kwh Sales 1998 1997 1998 1997 ------ ------ ------ ------- ($ and kwh in millions) Retail $1,955 $1,843 35,898 33,934 Sales for resale 1,790 1,056 63,349 46,283 Other 38 25 N/A N/A ------ ------ ------ ------ Total $3,783 $2,924 99,247 80,217 Electric operating revenues increased $859 million (29%) for the nine months ended September 30, 1998, from the comparable period of 1997. This increase was primarily due to increased volumes and a higher average price per kwh received on sales for resale transactions. There was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described below. Also contributing to the increase were higher retail kwh sales due to the warmer than normal weather during 1998, growth in the average number of residential and commercial customers, and an increase in industrial sales primarily reflecting growth in the primary metals and miscellaneous manufacturers sectors. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Nine Months Ended September 30 _ Revenue Mcf Sales 1998 1997 1998 1997 ($ and mcf in millions) Sales for resale $380 $ - 195 - Retail 248 300 37 45 Transportation 28 24 42 40 Other 10 3 N/A N/A ---- ---- --- --- Total $666 $327 274 85 Gas operating revenues increased $339 million for the nine months ended September 30, 1998, when compared to the same period last year. This increase is primarily due to the gas operating revenues of ProEnergy, which was acquired in June 1998. This increase was partially offset by a decline in retail sales due to lower mcf volumes reflecting, in part, the milder weather during the first quarter of 1998, and a reduction in the average number of commercial and industrial customers. Transportation revenues increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by CG&E. Other Revenues Other revenues for the nine months ended September 30, 1998, increased $22 million, over the same period of 1997. This increase was primarily the result of increased sales and new initiatives by certain of Cinergy's non-regulated entities. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Nine Months Ended September 30 1998 1997 (in millions) Fuel $ 542 $ 507 Purchased and exchanged power 1,777 964 ------ ------ Total $2,319 $1,471 Electric fuel costs increased $35 million (7%) for the first nine months of 1998, as compared to the same period last year. An analysis of these fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1997 $507 Increase (Decrease) due to change in: Price of fuel (16) Deferred fuel cost 12 Kwh generation 39 ---- Fuel expense - September 30, 1998 $542 Purchased and exchanged power expense increased $813 million (84%) for the nine months ended September 30, 1998, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others. Also contributing to the increase was a higher average price paid per kwh and increased demand due to the warmer than normal weather for the comparable period of 1997. Gas Purchased Gas purchased for the nine months ended September 30, 1998, increased $343 million when compared to the same period last year, primarily due to the acquisition of ProEnergy in June 1998, and its related gas purchased expense. Slightly offsetting this increase is a decrease in the retail volumes of gas purchased by CG&E, due to lower demand, and a lower average cost per mcf of gas paid by CG&E. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Nine Months Ended September 30 1998 1997 (in millions) Other operation $629 $508 Maintenance 145 144 ---- ---- Total $774 $652 Other operation expenses increased $121 million (24%) for the nine months ended September 30, 1998, as compared to the same period last year. This increase is primarily due to the one-time charge of $80 million recorded during the second quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I. Financial Information"). This increase was also the result of increased growth and new initiatives by certain of Cinergy's consolidated non-regulated businesses. Depreciation and Amortization The components of depreciation and amortization expenses are shown below: Nine Months Ended September 30 1998 1997 (in millions) Depreciation $221 $216 Amortization of phase-in deferrals 17 10 Amortization of post-in-service deferred operating expenses 3 3 ---- ---- Total $241 $229 Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for Zimmer. Equity in Earnings of Unconsolidated Subsidiaries For the nine months ended September 30, 1998, the equity in earnings of unconsolidated subsidiaries decreased $9 million (22%), as compared to the same period of last year. This decrease is primarily attributable to the decline in the earnings of Midlands, which is due to milder weather conditions and a penalty imposed on each electric distribution company due to the delay in opening the electricity supply business to competition. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $15 million for the nine months ended September 30, 1998, as compared to the same period of 1997, is due primarily to a litigation settlement (see Note 10 of the "Notes to Financial Statements" in "Part I. Financial Information") and a gain recorded in 1997 on the sale of a PSI investment. Income Taxes Income taxes decreased $70 million (48%) for the nine months ended September 30, 1998, as compared to the same period of 1997, primarily due to a decrease in taxable income over the prior period. Also contributing to the decrease is Cinergy's recognition of Foreign Tax Credits in the third quarter of 1998. Previous projections indicated that these Foreign Tax Credits would expire unused and therefore previous Federal tax provisions had not given benefit to these Foreign Tax Credits. Preferred Dividend Requirements of Subsidiaries The decrease in preferred dividend requirements of subsidiaries of $4 million (46%)for the nine months ended September 30, 1998, as compared to the same period of 1997, is primarily attributable to PSI's redemption of all outstanding shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998, respectively. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 Operating Revenues Electric Operating Revenues The components of electric operating revenues and the related kwh sales are shown below: Twelve Months Ended September 30 Revenue Kwh Sales 1998 1997 1998 1997 ------ ------ ------- ------- ($ and kwh in millions) Retail $2,566 $2,445 47,264 44,905 Sales for resale 2,103 1,152 74,546 48,525 Other 52 35 N/A N/A ------ ------ ------- ------ Total $4,721 $3,632 121,810 93,430 Electric operating revenues increased $1.1 billion (30%) for the twelve months ended September 30, 1998, from the comparable period of 1997. This increase was primarily due to increased volumes and a higher average price per kwh received on sales for resale transactions. There was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described below. Also contributing to the increase were higher retail kwh sales due to the warmer than normal weather during 1998, growth in the average number of residential and commercial customers, and an increase in industrial sales primarily reflecting growth in the primary metals, transportation equipment, and miscellaneous manufacturers sectors. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Twelve Months Ended September 30 Revenue Mcf Sales 1998 1997 1998 1997 ---- ---- ---- ----- ($ and mcf in millions) Sales for resale $380 $ - 195 - Retail 402 458 61 70 Transportation 37 30 56 52 Other 11 7 N/A N/A ---- ---- --- --- Total $830 $495 312 122 Gas operating revenues increased $335 million (68%) for the twelve months ended September 30, 1998, when compared to the same period last year. This increase is primarily due to the gas operating revenues of ProEnergy, which was acquired in June 1998. This increase was partially offset by a decline in retail revenues reflecting reduced mcf volumes due, in part, to the milder weather during the first quarter of 1998, and a decline in the average number of commercial and industrial customers. Transportation revenues increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by CG&E. Other Revenues Other revenues for the twelve months ended September 30, 1998, increased $25 million (80%), over the same period of 1997. This increase was primarily the result of increased sales and new initiatives by certain of Cinergy's non-regulated entities. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Twelve Months Ended September 30 1998 1997 (in millions) Fuel $ 728 $ 681 Purchased and exchanged power 2,033 1,027 ------ ------ Total $2,761 $1,708 Electric fuel costs increased $47 million (7%) for the twelve months ended September 30, 1998, as compared to the same period last year. An analysis of these fuel costs is shown below: Twelve Months Ended September 30 (in millions) Fuel expense - September 30, 1997 $681 Increase (Decrease) due to change in: Price of fuel (11) Deferred fuel cost (4) Kwh generation 62 ---- Fuel expense - September 30, 1998 $728 Purchased and exchanged power expense increased $1.1 billion (62%) for the twelve months ended September 30, 1998, when compared to the same period of last year, primarily reflecting increased purchases of non-firm power for resale to others. Also contributing to the increase was a higher average price paid per kwh and increased demand due to the warmer than normal weather for the comparable period of 1997. Gas Purchased Gas purchased for the twelve months ended September 30, 1998, increased $335 million when compared to the same period last year, primarily due to the acquisition of ProEnergy in June 1998, and its related gas purchased expense. Slightly offsetting this increase is a decrease in the volumes of gas purchased by CG&E, due to lower demand, and a lower average cost per mcf of gas paid by CG&E. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Twelve Months Ended September 30 1998 1997 (in millions) Other operation $809 $704 Maintenance 182 196 ---- ---- Total $991 $900 Other operation expenses increased $105 million (15%) for the twelve months ended September 30, 1998, as compared to the same period last year. This increase is primarily due to the one-time charge of $80 million recorded during the second quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I. Financial Information"). This increase was also the result of increased growth and new initiatives by certain of Cinergy's consolidated non-regulated businesses. Maintenance expenses decreased $14 million (7%) for the twelve months ended September 30, 1998, as compared to the same period of 1997, primarily due to decreased outage related expenses at PSI's and CG&E's production facilities. Equity in Earnings of Unconsolidated Subsidiaries For the twelve months ended September 30, 1998, the equity in earnings of unconsolidated subsidiaries decreased $7 million (11%), as compared to the same period of last year. This decrease is partially due to a decline in the earnings of Midlands, which is due to milder weather conditions and a penalty imposed on each electric distribution company due to the delay in opening the electricity supply business to competition. The decrease also reflects losses on certain non-utility subsidiaries. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $9 million for the twelve months ended September 30, 1998, as compared to the same period of 1997, is due, in part, to a litigation settlement (see Note 10 of the "Notes to Financial Statements" in "Part I. Financial Information"). Income Taxes Income taxes decreased $41 million (22%) for the twelve months ended September 30, 1998, as compared to the same period of 1997, primarily due to a decrease in taxable income over the prior period. Also contributing to the decrease is Cinergy's recognition of Foreign Tax Credits in the third quarter of 1998. Previous projections indicated that these Foreign Tax Credits would expire unused and therefore previous Federal tax provisions had not given benefit to these Foreign Tax Credits. Preferred Dividend Requirements of Subsidiaries The decrease in preferred dividend requirements of subsidiaries of $5 million (37%) for the twelve months ended September 30, 1998, as compared to the same period of 1997, is primarily attributable to PSI's redemption of all outstanding shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998, respectively. THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS ASSETS September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 6,321 $ 2,349 Restricted deposits 1,173 1,173 Notes receivable from affiliated companies 148,494 27,193 Accounts receivable less accumulated provision for doubtful accounts of $14,855 at September 30, 1998, and $9,199 at December 31, 1997 336,489 193,549 Accounts receivable from affiliated companies 6,553 35,507 Materials, supplies, and fuel - at average cost 106,846 107,967 Prepayments and other 36,543 31,827 ---------- ---------- 642,419 399,565 Utility Plant - Original Cost In service Electric 4,747,890 4,700,631 Gas 772,006 746,903 Common 185,896 186,078 ---------- ---------- 5,705,792 5,633,612 Accumulated depreciation 2,116,313 2,008,005 ---------- ---------- 3,589,479 3,625,607 Construction work in progress 151,226 118,133 ---------- ---------- Total utility plant 3,740,705 3,743,740 Other Assets Regulatory assets 678,344 667,765 Other 92,517 103,368 ---------- ---------- 770,861 771,133 $5,153,985 $4,914,438 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY LIABILITIES AND SHAREHOLDER'S EQUITY September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 415,171 $ 249,538 Accounts payable to affiliated companies 19,243 10,821 Accrued taxes 168,019 149,129 Accrued interest 29,362 25,430 Notes payable and other short-term obligations 230,276 289,000 Notes payable to affiliated companies 8,747 12,253 Long-term debt due within one year 130,000 - Other 25,780 29,950 ---------- ---------- 1,026,598 766,121 Non-Current Liabilities Long-term debt 1,199,633 1,324,432 Deferred income taxes 824,741 794,396 Unamortized investment tax credits 112,328 116,966 Accrued pension and other postretirement benefit costs 142,810 180,566 Other 186,389 100,576 ---------- ---------- 2,465,901 2,516,936 Total liabilities 3,492,499 3,283,057 Cumulative Preferred Stock Not subject to mandatory redemption 20,725 20,793 Common Stock Equity Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at September 30, 1998, and December 31, 1997 762,136 762,136 Paid-in capital 534,672 534,649 Retained earnings 344,858 314,553 Accumulated other comprehensive loss (905) (750) ---------- ---------- Total common stock equity 1,640,761 1,610,588 $5,153,985 $4,914,438
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1998 1997 1998 1997 (in thousands) Operating Revenues Electric $827,387 $672,372 $1,960,334 $1,485,974 Gas 56,505 39,944 280,437 326,969 -------- -------- ---------- ---------- 883,892 712,316 2,240,771 1,812,943 Operating Expenses Fuel and purchased and exchanged power 518,393 387,363 1,162,004 687,368 Gas purchased 21,539 15,601 139,784 175,395 Other operation and maintenance 96,193 96,851 302,764 307,316 Depreciation and amortization 47,267 45,028 142,877 134,696 Taxes other than income taxes 54,089 52,980 162,484 159,001 -------- -------- ---------- ---------- 737,481 597,823 1,909,913 1,463,776 Operating Income 146,411 114,493 330,858 349,167 Other Income and (Expenses) - Net 511 (1,832) (2,349) (6,658) Interest 25,072 27,633 77,034 87,627 -------- -------- ---------- ---------- Income Before Taxes 121,850 85,028 251,475 254,882 Income Taxes 43,178 32,724 88,925 96,825 -------- -------- ---------- ---------- Net Income $ 78,672 $ 52,304 $ 162,550 $ 158,057 Preferred Dividend Requirement 214 217 644 653 -------- -------- ---------- ---------- Net Income Applicable to Common Stock $ 78,458 $ 52,087 $ 161,906 $ 157,404 Other Comprehensive Income (Loss), Net of Tax - - (155) - -------- -------- ---------- ---------- Comprehensive Income $ 78,458 $ 52,087 $ 161,751 $ 157,404 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date September 30 1998 1997 (in thousands) Operating Activities Net income $ 162,550 $ 158,057 Items providing (using) cash currently: Depreciation and amortization 142,877 134,696 Deferred income taxes and investment tax credits - net (11,592) 18,238 Allowance for equity funds used during construction (770) (154) Regulatory assets - net 23,716 15,147 Changes in current assets and current liabilities Restricted deposits - (2) Accounts and notes receivable, net of reserves on receivables sold (232,865) (42,472) Materials, supplies, and fuel 1,121 415 Accounts payable 174,055 85,545 Accrued taxes and interest 22,822 (7,135) Other items - net 38,295 (12,251) --------- --------- Net cash provided by operating activities 320,209 350,084 Financing Activities Retirement of preferred stock (45) (158) Issuance of long-term debt 223,020 - Redemption of long-term debt (220,409) (290,612) Change in short-term debt (62,230) 178,844 Dividends on preferred stock (645) (655) Dividends on common stock (132,245) (127,800) --------- --------- Net cash used in financing activities (192,554) (240,381) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (123,683) (106,612) Net cash used in investing activities (123,683) (106,612) Net increase in cash and temporary cash investments 3,972 3,091 Cash and temporary cash investments at beginning of period 2,349 5,120 --------- --------- Cash and temporary cash investments at end of period $ 6,321 $ 8,211 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998 Operating Revenues Electric Operating Revenues The components of electric operating revenues and the related kwh sales are shown below: Quarter Ended September 30 Revenue Kwh Sales 1998 1997 1998 1997 ($ and kwh in millions) Retail $397 $372 6,423 6,025 Sales for resale 425 298 12,209 13,913 Other 5 2 N/A N/A ---- ---- ------ ------ Total $827 $672 18,632 19,938 Electric operating revenues increased $155 million (23%) for the quarter ended September 30, 1998, from the comparable period of 1997. This increase was primarily a result of a higher average price per kwh received on sales for resale transactions. There was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described below. Also contributing to the increase was higher retail kwh sales due to the warmer than normal weather during 1998 and growth in the average number of residential and commercial customers. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Quarter Ended September 30 Revenue Mcf Sales 1998 1997 1998 1997 ($ and mcf in millions) Retail $48 $33 6 4 Transportation 8 6 11 12 Other 1 1 N/A N/A --- --- --- --- Total $57 $40 17 16 Gas operating revenues increased $17 million (41%) in the third quarter of 1998, when compared to the same period last year, primarily attributable to the annual true-up of estimated revenues. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Quarter Ended September 30 1998 1997 (in millions) Fuel $ 93 $ 89 Purchased and exchanged power 425 298 ---- ---- Total $518 $387 Electric fuel costs increased $4 million (4%) for the quarter ended September 30, 1998, as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1997 $89 Increase (Decrease) due to change in: Deferred fuel cost (2) Kwh generation 6 Fuel expense - September 30, 1998 $93 Purchased and exchanged power expense increased $127 million for the quarter ended September 30, 1998, when compared to the same period of last year, primarily reflecting an increase in the average price paid per kwh. Gas Purchased Gas purchased for the quarter ended September 30, 1998, increased $6 million (38%), when compared to the same period last year, primarily due to an increase in the average cost per mcf of gas purchased. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended September 30 1998 1997 (in millions) Other operation $73 $76 Maintenance 23 21 --- --- Total $96 $97 Maintenance expenses increased $2 million (10%) for the quarter ended September 30, 1998, as compared to the same period of 1997, primarily due to an increase in production maintenance at Beckjord and East Bend. Depreciation and Amortization The components of depreciation and amortization expenses are shown below: Quarter Ended September 30 1998 1997 (in millions) Depreciation $41 $41 Amortization of phase-in deferrals 5 3 Amortization of post-in-service deferred operating expenses 1 1 --- --- Total $47 $45 Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for Zimmer. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $2 million for the quarter ended September 30, 1998, as compared to the same period of 1997, is due primarily to an increase in interest income resulting from an increase in the balance of short-term loans to affiliated companies through Cinergy's money pool arrangement. Interest The components of interest expense are shown below: Quarter Ended September 30 1998 1997 (in thousands) Interest on long-term debt $25,445 $25,973 Other interest 942 3,001 Allowance for borrowed funds used during construction (1,315) (1,341) ------- ------- Total $25,072 $27,633 The decrease in interest expense of $3 million (9%) for the quarter ended September 30, 1998, as compared to the same period last year, was primarily due to a reduction in other interest expense resulting from decreases in both the average short-term debt borrowings and the short-term debt rates. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Operating Revenues Electric Operating Revenues The components of electric operating revenues and the related kwh sales are shown below: Nine Months Ended September 30 Revenue Kwh Sales 1998 1997 1998 1997 ------ ------ ------ ------- ($ and kwh in millions) Retail $1,075 $ 994 17,357 16,575 Sales for resale 873 484 30,825 23,006 Other 12 8 N/A N/A ------ ------ ------ ------ Total $1,960 $1,486 48,182 39,581 Electric operating revenues increased $474 million (32%) for the nine months ended September 30, 1998, from the comparable period of 1997. This increase was primarily due to a higher average price per kwh received and increased volumes on sales for resale transactions. There was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described below. Also contributing to the increase were higher retail kwh sales due to the warmer than normal weather and growth in the average number of residential and commercial customers. as Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Nine Months Ended September 30 Revenue Mcf Sales ------------------- -------------------- 1998 1997 1998 1997 ---- ---- ---- ----- ($ and mcf in millions) Retail $248 $300 37 45 Transportation 28 24 42 40 Other 4 3 N/A N/A ---- ---- --- --- Total $280 $327 79 85 Gas operating revenues decreased $47 million (14%) for the nine months ended September 30, 1998, when compared to the same period last year. Decreased retail revenues reflecting a decline in mcf sales due to the milder weather during the first quarter of 1998 was the primary reason for this decrease. A decrease in the average number of commercial and industrial customers also contributed to the decline in revenues. Partially offsetting the decline was an increase in transportation revenues, as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by CG&E. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Nine Months Ended September 30 1998 1997 (in millions) Fuel $ 258 $219 Purchased and exchanged power 904 468 ------ ---- Total $1,162 $687 Electric fuel costs increased $39 million (18%) for the nine months ended September 30, 1998, as compared to the same period last year. An analysis of these fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1997 $219 Increase (Decrease) due to change in: Price of fuel (1) Deferred fuel cost 33 Kwh generation 7 ---- Fuel expense - September 30, 1998 $258 Purchased and exchanged power expense increased $436 million (93%) for the nine months ended September 30, 1998, when compared to the same period last year, primarily reflecting a higher average price paid per kwh and increased purchases of power for resale to others. Gas Purchased Gas purchased for the nine months ended September 30, 1998, decreased $36 million (20%) when compared to the same period last year, reflecting a decrease in the volumes of gas purchased, due to lower demand, and a lower average cost per mcf of gas purchased. Depreciation and Amortization The components of depreciation and amortization expenses are shown below: Nine Months Ended September 30 1998 1997 (in millions) Depreciation $123 $122 Amortization of phase-in deferrals 17 10 Amortization of post-in-service deferred operating expenses 3 3 ---- ---- Total $143 $135 Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for Zimmer. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $4 million for the nine months ended September 30, 1998, as compared to the same period of 1997, is largely due to an increase in interest income resulting from an increase in the balance of short-term loans to affiliated companies through Cinergy's money pool arrangement and an adjustment recorded in 1997 related to the sale of certain assets. Interest The components of interest expense are shown below: Nine Months Ended September 30 1998 1997 (in thousands) Interest on long-term debt $75,913 $83,850 Other interest 5,312 7,259 Allowance for borrowed funds used during construction (4,191) (3,482) ------- ------- Total $77,034 $87,627 The decrease in interest expense of $11 million (12%) for the nine months ended September 30, 1998, as compared to the same period last year, was due to decreases in both interest on long-term debt and other interest expense. The decrease in interest expense on long-term debt was primarily due to a net redemption of approximately $116 million of long-term debt during the period from March 1997 through May 1998. The decrease in other interest is due to a reduction in average short-term borrowings. PSI ENERGY, INC. AND SUBSIDIARY COMPANY
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS ASSETS September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 30,488 $ 18,169 Restricted deposits 359 1,146 Notes receivable 79 110 Notes receivable from affiliated companies 8,752 21,998 Accounts receivable less accumulated provision for doubtful accounts of $5,760 at September 30, 1998, and $1,183 at December 31, 1997 370,260 197,898 Accounts receivable from affiliated companies 302 4,516 Materials, supplies, and fuel - at average cost 74,732 55,189 Prepayments and other 13,962 4,405 ---------- ---------- Total current assets 498,934 303,431 Electric Utility Plant - Original Cost In service 4,354,315 4,280,551 Accumulated depreciation 1,866,373 1,792,317 ---------- ---------- 2,487,942 2,488,234 Construction work in progress 75,135 65,129 ---------- ---------- Total electric utility plant 2,563,077 2,553,363 Other Assets Regulatory assets 355,307 409,086 Other 119,713 127,945 ---------- ---------- Total other assets 475,020 537,031 $3,537,031 $3,393,825 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. LIABILITIES AND SHAREHOLDER'S EQUITY September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 368,606 $ 212,833 Accounts payable to affiliated companies 20,757 40,714 Accrued taxes 68,492 69,310 Accrued interest 19,938 21,369 Notes payable and other short-term obligations 117,084 190,600 Notes payable to affiliated companies 163,897 16,435 Long-term debt due within one year 56,000 85,000 Other 2,385 2,560 ---------- ---------- 817,159 638,821 Non-Current Liabilities Long-term debt 976,623 826,470 Deferred income taxes 371,490 403,535 Unamortized investment tax credits 46,702 49,296 Accrued pension and other postretirement benefit costs 109,626 116,576 Other 164,616 176,271 ---------- ---------- 1,669,057 1,572,148 Total liabilities 2,486,216 2,210,969 Cumulative Preferred Stock Not subject to mandatory redemption 71,923 157,196 Common Stock Equity Common stock - without par value; $0.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at September 30, 1998, and December 31, 1997 539 539 Paid-in capital 400,916 390,188 Retained earnings 578,079 636,519 Accumulated other comprehensive loss (642) (1,586) ---------- ---------- Total common stock equity 978,892 1,025,660 $3,537,031 $3,393,825
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1998 1997 1998 1997 (in thousands) Operating Revenues Electric $807,181 $650,987 $1,910,836 $1,464,380 Operating Expenses Fuel and purchased and exchanged power 584,415 425,228 1,242,253 810,032 Other operation and maintenance 110,051 102,742 400,431 310,291 Depreciation and amortization 32,688 31,820 97,433 94,800 Taxes other than income taxes 14,882 14,011 44,356 44,191 -------- -------- ---------- ---------- 742,036 573,801 1,784,473 1,259,314 Operating Income 65,145 77,186 126,363 205,066 Other Income and (Expenses) - Net (315) 6,512 1,616 9,390 Interest 21,975 21,369 67,771 63,321 -------- -------- ---------- ---------- Income Before Taxes 42,855 62,329 60,208 151,135 Income Taxes 16,063 21,839 21,106 55,459 -------- -------- ---------- ---------- Net Income $ 26,792 $ 40,490 $ 39,102 $ 95,676 Preferred Dividend Requirement 1,151 2,925 4,509 8,964 -------- -------- ---------- ---------- Net Income Applicable to Common Stock $ 25,641 $ 37,565 $ 34,593 $ 86,712 Other Comprehensive Income, Net of Tax - - 944 - -------- -------- ---------- ----------- Comprehensive Income $ 25,641 $ 37,565 $ 35,537 $ 86,712 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date September 30 1998 1997 (in thousands) Operating Activities Net income $ 39,102 $ 95,676 Items providing (using) cash currently: Depreciation and amortization 97,433 94,800 WVPA settlement 80,000 - Deferred income taxes and investment tax credits - net (44,433) (13,548) Allowance for equity funds used during construction (23) (35) Regulatory assets - net 33,406 25,208 Changes in current assets and current liabilities Restricted deposits 787 (227) Accounts and notes receivable, net of reserves on receivables sold (158,099) (173,862) Materials, supplies, and fuel (19,543) 9,456 Accounts payable 135,816 99,810 Accrued taxes and interest (2,249) 15,785 Other items - net 12,994 (7,768) --------- --------- Net cash provided by operating activities 175,191 145,295 Financing Activities Issuance of long-term debt 150,021 - Retirement of preferred stock (85,247) (16 024) Redemption of long-term debt (113,336) (45,700) Change in short-term debt 73,946 125,430 Dividends on preferred stock (5,037) (9,059) Dividends on common stock (81,800) (85,200) --------- --------- Net cash used in financing activities (61,453) (30,553) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (101,419) (96,423) Net cash used in investing activities (101,419) (96,423) Net increase in cash and temporary cash investments 12,319 18,319 Cash and temporary cash investments at beginning of period 18,169 2,911 --------- --------- Cash and temporary cash investments at end of period $ 30,488 $ 21,230 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998 Operating Revenues The components of operating revenues and the related kwh sales are shown below: Quarter Ended September 30 Revenue Kwh Sales 1998 1997 1998 1997 ---- ---- ------ ------- ($ and kwh in millions) Retail $315 $299 6,590 6,074 Sales for resale 481 345 13,980 13,321 Other 11 7 N/A N/A ---- ---- ------ ------ Total $807 $651 20,570 19,395 Operating revenues increased $156 million (24%) for the quarter ended September 30, 1998, from the comparable period of 1997. This increase was primarily a result of a higher average price per kwh received and increased volumes on sales for resale transactions. There was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described below. Also contributing to the increase were higher retail kwh sales due to the warmer than normal weather during 1998 and growth in the average number of residential and commercial customers. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Quarter Ended September 30 1998 1997 (in millions) Fuel $113 $109 Purchased and exchanged power 471 316 ---- ---- Total $584 $425 Fuel costs increased $4 million (4%) for the third quarter of 1998, as compared to the same period last year. An analysis of fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1997 $109 Increase (Decrease) due to change in: Price of fuel (6) Deferred fuel cost (2) Kwh generation 12 ---- Fuel expense - September 30, 1998 $113 Purchased and exchanged power expense increased $155 million (49%) for the quarter ended September 30, 1998, when compared to the same period last year, primarily reflecting an increase in the average price paid per kwh and increased demand due to the warmer than normal weather for the third quarter of 1998. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended September 30 1998 1997 (in millions) Other operation $ 83 $ 81 Maintenance 27 22 ---- ---- Total $110 $103 Maintenance expense increased $5 million (23%) for the quarter ended September 30, 1998, as compared to the same period of 1997, primarily due to an increase in production maintenance at Wabash River, Cayuga, and Gibson, and an increase in distribution line maintenance. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $7 million for the quarter ended September 30, 1998, as compared to the same period of 1997, is primarily attributable to a gain recorded in 1997 on the sale of an investment. Preferred Dividend Requirement The decrease in preferred dividend requirement of $2 million (61%) for the quarter ended September 30, 1998, as compared to the same period of 1997, is primarily attributable to PSI's redemption of all outstanding shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998, respectively. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Operating Revenues The components of operating revenues and the related kwh sales are shown below: Nine Months Ended September 30 Revenue Kwh Sales 1998 1997 1998 1997 ------ ------ ------ ------- ($ and kwh in millions) Retail $ 880 $ 849 18,541 17,358 Sales for resale 1,003 599 35,789 24,893 Other 28 16 N/A N/A ------ ------ ------ ------ Total $1,911 $1,464 54,330 42,251 Total operating revenues increased $446 million (30%) for the nine months ended September 30, 1998, when compared to the same period last year. This increase was primarily due to increased volumes and a higher average price per kwh received on sales for resale transactions. There was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described below. Also contributing to the increase were higher retail kwh sales due to the warmer than normal weather during 1998, and an increase in industrial sales, primarily reflecting growth in the primary metals and transportation equipment sectors. Operating Expenses Fuel and Purchased and Exchanged Power The components of fuel and purchased and exchanged power are shown below: Nine Months Ended September 30 1998 1997 (in millions) Fuel $ 284 $288 Purchased and exchanged power 958 522 ------ ---- Total $1,242 $810 Fuel costs decreased $4 million (1%) for the nine months ended September 30, 1998, when compared to the same period last year. An analysis of fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1997 $288 Increase (Decrease) due to change in: Price of fuel (15) Deferred fuel cost (21) Kwh generation 32 ---- Fuel expense - September 30, 1998 $284 Purchased and exchanged power expense increased $436 million (84%) for the nine months ended September 30, 1998, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others. Also contributing to the increase were a higher average price paid per kwh and increased demand due to warmer than normal weather for the comparable period of 1997. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Nine Months Ended September 30 1998 1997 (in millions) Other operation $326 $243 Maintenance 74 67 ---- ---- Total $400 $310 Other operation expenses increased $83 million (34%) for the nine months ended September 30, 1998, as compared to the same period last year. This increase is primarily due to the one-time charge of $80 million recorded during the second quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I. Financial Information"). Maintenance expenses increased $7 million (10%) for the nine months ended September 30, 1998, as compared to the same period of 1997, primarily due to an increase in production maintenance at Wabash River, Cayuga, and Gibson, and an increase in distribution line maintenance. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $8 million for the nine months ended September 30, 1998, as compared to the same period of 1997, is due primarily to a gain recorded in 1997 on the sale of an investment and DSM carrying costs also recorded in 1997. Interest The components of interest expense are shown below: Nine Months Ended September 30 1998 1997 (in thousands) Interest on long-term debt $60,459 $53,928 Other interest 8,976 10,630 Allowance for borrowed funds used during construction (1,664) (1,237) ------- ------- Total $67,771 $63,321 The increase in interest expense of $4 million (7%) for the nine months ended September 30, 1998, as compared to the same period last year, was due to an increase of $7 million in interest on long-term debt, which was partially offset by a decrease of $2 million in other interest expense. The increase in interest on long-term debt was due primarily to the net issuance of approximately $303 million of long-term debt during the period from February 1997 to August 1998. The decrease in other interest expense was primarily due to a reduction in average short-term borrowings. Preferred Dividend Requirement The decrease in preferred dividend requirement of $4 million (50%) for the nine months ended September 30, 1998, as compared to the same period of 1997, is primarily attributable to PSI's redemption of all outstanding shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998, respectively. THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS ASSETS September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Assets Cash and temporary cash investments $ 2,802 $ 546 Accounts receivable less accumulated provision for doubtful accounts of $1,015 at September 30, 1998, and $996 at December 31, 1997 6,105 7,308 Accounts receivable from affiliated companies 10 446 Materials, supplies, and fuel - at average cost 9,674 6,094 Prepayments and other 462 385 -------- -------- Total current assets 19,053 14,779 Utility Plant - Original Cost In service Electric 209,763 204,111 Gas 162,354 155,167 Common 19,075 19,073 -------- -------- 391,192 378,351 Accumulated depreciation 141,642 133,213 -------- -------- 249,550 245,138 Construction work in progress 25,369 14,346 -------- -------- Total utility plant 274,919 259,484 Other Assets Regulatory assets 11,063 11,065 Other 3,844 6,262 -------- -------- 14,907 17,327 $308,879 $291,590 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY LIABILITIES AND SHAREHOLDER'S EQUITY September 30 December 31 1998 1997 (unaudited) (dollars in thousands) Current Liabilities Accounts payable $ 4,689 $ 11,097 Accounts payable to affiliated companies 19,128 19,712 Accrued taxes 1,837 6,332 Accrued interest 1,674 1,286 Notes payable to affiliated companies 39,744 23,487 Long-term debt due within one year 20,000 - Other 4,021 4,364 -------- -------- 91,093 66,278 Non-Current Liabilities Long-term debt 34,534 44,671 Deferred income taxes 27,741 26,211 Unamortized investment tax credits 4,307 4,516 Accrued pension and other postretirement benefit costs 11,434 14,044 Amounts due to customers - income taxes 7,760 6,566 Other 7,447 6,391 -------- -------- 93,223 102,399 Total liabilities 184,316 168,677 Common Stock Equity Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at September 30, 1998, and December 31, 1997 8,780 8,780 Paid-in capital 18,683 18,683 Retained earnings 97,100 95,450 -------- -------- Total common stock equity 124,563 122,913 $308,879 $291,590
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1998 1997 1998 1997 (in thousands) Operating Revenues Electric $56,368 $56,666 $144,903 $152,560 Gas 7,077 8,647 44,183 53,625 ------- ------- -------- -------- 63,445 65,313 189,086 206,185 Operating Expenses Electricity purchased from parent company for resale 41,827 44,237 110,338 113,992 Gas purchased 2,691 3,002 23,211 30,006 Other operation and maintenance 8,987 9,402 27,319 29,198 Depreciation 3,296 3,048 9,737 9,229 Taxes other than income taxes 1,024 905 3,058 3,119 ------- ------- -------- -------- 57,825 60,594 173,663 185,544 Operating Income 5,620 4,719 15,423 20,641 Other Income and (Expenses) - Net (175) (596) (1,051) (1,534) Interest 1,244 1,153 3,328 3,512 ------- ------- -------- -------- Income Before Taxes 4,201 2,970 11,044 15,595 Income Taxes 1,696 731 4,418 6,078 ------- ------- -------- -------- Net Income $ 2,505 $ 2,239 $ 6,626 $ 9,517 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Year to Date September 30 1998 1997 (in thousands) Operating Activities Net income $ 6,626 $ 9,517 Items providing (using) cash currently: Depreciation 9,737 9,229 Deferred income taxes and investment tax credits - net 1,763 (322) Allowance for equity funds used during construction (150) (33) Regulatory assets (31) (312) Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 3,515 7,687 Materials, supplies, and fuel (3,580) (354) Accounts payable (6,992) (9,819) Accrued taxes and interest (4,107) 6,504 Other items - net (330) 5,267 -------- -------- Net cash provided by operating activities 6,451 27,364 Financing Activities Issuance of long-term debt 20,127 - Redemption of long-term debt (10,118) - Change in short-term debt 16,257 (5,988) Dividends on common stock (4,975) (4,975) -------- -------- Net cash provided by (used in) financing activities 21,291 (10,963) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (25,486) (14,808) Net cash used in investing activities (25,486) (14,808) Net increase in cash and temporary cash investments 2,256 1,593 Cash and temporary cash investments at beginning of period 546 1,197 -------- -------- Cash and temporary cash investments at end of period $ 2,802 $ 2,790 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998 Operating Revenues Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Quarter Ended September 30 Revenue Mcf Sales 1998 1997 1998 1997 ------ ------ ----- ----- ($ and mcf in thousands) Retail $6,133 $7,837 764 934 Transportation 819 682 779 854 Other 125 128 14 25 ------ ------ ----- ----- Total $7,077 $8,647 1,557 1,813 Gas operating revenues decreased $2 million (18%) in the third quarter of 1998, when compared to the same period last year, primarily due to a decrease in mcf volumes sold. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased decreased $2 million (5%) for the quarter ended September 30, 1998, as compared to the same period last year. This decrease reflects lower volumes purchased from CG&E. Gas Purchased Gas purchased for the quarter ended September 30, 1998, decreased $.3 million (10%), when compared to the same period last year, primarily due to a decrease in the volumes of gas purchased, due to lower demand. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Quarter Ended September 30 1998 1997 (in thousands) Other operation $7,514 $7,967 Maintenance 1,473 1,435 ------ ------- Total $8,987 $9,402 Other operation expenses decreased $.4 million (6%) for the quarter ended September 30, 1998, as compared to the same period last year, primarily due to a decrease in distribution expenses. Depreciation Depreciation increased $.2 million (8%) for the quarter ended September 30, 1998, as compared to the same period last year, due to additions to depreciable plant. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $.4 million for the quarter ended September 30, 1998, as compared to the same period of 1997, is primarily attributable to a decrease in expenses associated with the sales of accounts receivable and an increase in allowance for equity funds used during construction resulting from an increase in the average balance of CWIP. Interest The components of interest expense are shown below: Quarter Ended September 30 1998 1997 (in thousands) Interest on long-term debt $1,011 $ 881 Other interest 409 317 Allowance for borrowed funds used during construction (176) (45) ------ ------ Total $1,244 $1,153 The increase in interest expense of $.1 million (8%) for the quarter ended September 30, 1998, as compared to the same period last year, was due to changes in interest on long-term debt, other interest, and allowance for borrowed funds used during construction. The increase in interest on long-term debt was due primarily to the net issuance of approximately $10 million of long-term debt during April 1998. Increased short-term borrowings and a higher average balance of CWIP contributed to the increase in other interest expense and allowance for borrowed funds used during construction, respectively. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Operating Revenues Electric Operating Revenues Electric operating revenues decreased $8 million (5%) for the nine months ended September 30, 1998, from the comparable period of 1997. This decrease primarily reflects a revision of ULH&P's estimate of unbilled revenue which was recorded in the second quarter of 1998, which resulted in a decrease in electric operating revenues of $3.6 million and a corresponding decrease to operating income and net income of $1.7 million. Gas Operating Revenues The components of gas operating revenues and the related mcf sales are shown below: Nine Months Ended September 30 Revenue Mcf Sales 1998 1997 1998 1997 ------- ------- ------ ------- ($ and mcf in thousands) Retail $40,586 $50,297 6,361 7,427 Transportation 2,904 2,518 2,734 2,740 Other 693 810 97 131 ------- ------- ----- ------ Total $44,183 $53,625 9,192 10,298 Gas operating revenues decreased $9 million (18%) for the nine months ended September 30, 1998, when compared to the same period of last year. Decreased volumes reflecting the milder weather during the first quarter of 1998, along with a decrease in the price of gas sold, primarily attributed to the revenue decrease. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased decreased $4 million (3%) for the nine months ended September 30, 1998, as compared to the same period last year. This decrease reflects lower volumes purchased from CG&E. Gas Purchased Gas purchased for the nine months ended September 30, 1998, decreased $7 million (23%), when compared to the same period in 1997. This decrease reflects a decline in the average cost per mcf of gas purchased and lower volumes of gas purchased. Other Operation and Maintenance The components of other operation and maintenance expenses are shown below: Nine Months Ended September 30 1998 1997 (in thousands) Other operation $23,176 $24,705 Maintenance 4,143 4,493 ------- -------- Total $27,319 $29,198 Other operation expenses declined $2 million (6%) for the nine months ended September 30, 1998, as compared to the same period last year, primarily due to decreases in distribution and administrative and general expenses. Maintenance expenses declined $.4 million (8%) for the nine months ended September 30, 1998, as compared to the same period last year, primarily due to a decrease in distribution maintenance. Depreciation Depreciation increased $.5 million (6%) for the nine months ended September 30, 1998, as compared to the same period last year, due to additions to depreciable plant. Other Income and (Expenses) - Net The change in other income and (expenses) - net of $.5 million for the nine months ended September 30, 1998, as compared to the same period of 1997, is due primarily to a decrease in expenses associated with the sales of accounts receivable and an increase in allowance for equity funds used during construction resulting from an increase in the average balance of CWIP. Interest The components of interest expense are shown below: Nine Months Ended September 30 1998 1997 (in thousands) Interest on long-term debt $2,845 $2,643 Other interest 958 951 Allowance for borrowed funds used during construction (475) (82) ------ ------ Total $3,328 $3,512 The decrease in interest expense of $.2 million (5%) for the nine months ended September 30, 1998, as compared to the same period last year, was due to changes in interest on long-term debt and allowance for borrowed funds used during construction. The increase in interest on long-term debt was due primarily to the net issuance of approximately $10 million of long-term debt during April 1998. Allowance for borrowed funds used during construction increased primarily as a result of an increase in the average balance of CWIP. NOTES TO FINANCIAL STATEMENTS Cinergy, CG&E, PSI, and ULH&P 1. These Financial Statements reflect all adjustments (which include normal, recurring adjustments and those adjustments discussed in Notes 9 and 14) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1997 Form 10-K of the registrants. TheStatements of Income in this report have been reclassified in order to present the operations of all non-regulated entities as a component of operating income. Prior to this reclassification, the operations of such entities were reflected in "Other Income and Expense - Net." Similarly, "Income Taxes" now includes the income taxes associated with the non-regulated entities. These changes had no effect on net income. Additionally, the Balance Sheets have been reformatted. Cinergy and CG&E 2. On April 7, 1998, CG&E issued and sold $100 million principal amount of its 6.40% Debentures due April 1, 2008. Proceeds from the sale were used to repay short-term indebtedness incurred in connection with CG&E's March 1998 redemptions of $100 million principal amount of its 8 1/2% Series First Mortgage Bonds due 2022 and $60 million principal amount of its 7 3/8% Series First Mortgage Bonds due 2001. 3. On May 1, 1998, CG&E redeemed the entire $50 million principal amount of its 7 3/8% Series First Mortgage Bonds due 1999, at the regular redemption price of 100.00%. This redemption effectively eliminates the maintenance and replacement fund provisions of CG&E's First Mortgage Bond indenture, which provisions required CG&E to make cash payments, deposit bonds, or pledge unfunded property additions to the trustee each year based on an amount related to net revenues. 4. On June 15, 1998, CG&E issued and sold $100 million principal amount of unsecured Reset Put Securities. These debentures will bear interest at a rate of 6.35% for the first five years, and the interest rate may be reset on June 15, 2003, and every five years thereafter to final maturity in 2038 if the callholder exercises its option on any reset date to purchase the bonds and reset the interest rate. If the callholder does not exercise the option on any reset date, the bonds will be redeemed by CG&E at par. Proceeds from the sale were used to repay short-term indebtedness incurred in connection with the redemption of CG&E's 7 3/8% First Mortgage Bonds referred to above and for general corporate purposes. Cinergy and PSI 5. On July 23, 1998, PSI redeemed the entire $24 million principal amount of its 7 5/8% First Mortgage Bonds, Series Y due January 1, 2007, at the redemption price of 102.11%, and the entire $26 million principal amount of its 7% First Mortgage Bonds, Series S due January 1, 2002, at the redemption price of 100.73%. 6. On August 5, 1998, PSI issued and sold $50 million principal amount of unsecured Synthetic Putable Yield Securities. These debentures will bear interest at a rate of 6.50% for the first seven years, and the interest rate may be reset every seven years thereafter to final maturity in 2026 if the callholder exercises its option on any reset date to purchase the bonds and reset the interest rate. If the callholder does not exercise the option on any reset date, the bonds will be redeemed by PSI at par. Proceeds from the sale were used to repay short-term indebtedness incurred in connection with PSI's July 1998 redemptions of the above-mentioned Series Y and Series S First Mortgage Bonds. 7. On August 12, 1998, the Indiana Development Finance Authority loaned the proceeds from the sale of its $23 million principal amount of Environmental Refunding Revenue Bonds, Series 1998, to PSI. The bonds, which are included in notes payable and other short-term obligations in the consolidated balance sheets, will bear interest initially at a daily rate, will mature on August 1, 2028, and are backed by an irrevocable direct-pay letter of credit through August 1, 2002. Proceeds from the sale were used to redeem in September 1998, the $23 million 8 1/4% First Mortgage Bonds, Series QQ, due June 15, 2013 (Pollution Control), at a redemption price of 102% plus accrued interest. Cinergy, CG&E, and ULH&P 8. On April 30, 1998, ULH&P issued and sold $20 million principal amount of its 6.50% Debentures due April 30, 2008. Proceeds from the sale were used by ULH&P to repay short-term indebtedness incurred in connection with the redemption, on April 24, 1998, of $10 million principal amount of its 8% Series First Mortgage Bonds, due 2003, and in connection with its construction program. The redemption of said First Mortgage Bonds effectively eliminates the maintenance and replacement fund provisions of ULH&P's First Mortgage Bond indenture, which provisions required ULH&P to make cash payments, deposit bonds, or pledge unfunded property additions to the trustee each year based on an amount related to net revenues. Cinergy, CG&E, and PSI 9. Cinergy's power marketing and trading function actively markets and trades over-the-counter forward and option contracts for the purchase and sale of electricity. The majority of these contracts are settled via physical delivery of electricity or netted out in accordance with industry trading standards. The Company also trades exchange-traded futures contracts. Option premiums are deferred and included in the Consolidated Balance Sheets and amortized to "Operating Revenues - Electric" or "Fuel and purchased and exchanged power" in the Consolidated Statements of Income over the term of the option contract. Cinergy values its portfolio of contracts using the aggregate lower of cost or market method. To the extent there are net aggregate losses in the portfolio, Cinergy reserves for such losses. Net gains are recognized when realized. Due to the lack of liquidity and the volatility currently experienced in the power markets, significant assumptions must be made by the Company when estimating current market values for purposes of the aggregate lower of cost or market comparison. It is possible that the actual gains and losses from the Company's power marketing and trading activities could differ substantially from the gains and losses estimated currently. Cinergy and its subsidiaries use derivative financial instruments to hedge exposures to foreign currency exchange rates, lower funding costs, and manage exposures to fluctuations in interest rates. Instruments used as hedges must be designated as a hedge at the inception of the contract and must be effective at reducing the risk associated with the exposure being hedged. Accordingly, changes in market values of designated hedge instruments must be highly correlated with changes in market values of the underlying hedged items at inception of the hedge and over the life of the hedge contract. Cinergy utilizes foreign exchange forward contracts and currency swaps to hedge certain of its net investments in foreign operations. Accordingly, any translation gains or losses related to the foreign exchange forward contracts or the principal exchange on the currency swap are recorded in accumulated other comprehensive income, which is a separate component of common stock equity. Aggregate translation losses related to these instruments are reflected in "Current Liabilities Other" in the Consolidated Balance Sheets. Interest rate swaps are accounted for under the accrual method. Accordingly, gains and losses based on any interest differential between fixed-rate and floating-rate interest amounts, calculated on agreed upon notional principal amounts, are recognized in the Consolidated Statements of Income as a component of interest expense as realized over the life of the agreement. Cinergy, CG&E, and PSI 10. As discussed in the 1997 Form 10-K, in October 1995, a suit was filed in the U.S. District Court by three former employees of Enertech 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 stemmed from the termination of employment of the three former employees, alleged 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 alleged 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 alleged compensatory damages of $154 million based upon assumed future success of potential future investments and punitive damages of three times that amount. In April 1998, the parties reached a comprehensive settlement and all claims were dismissed by the U.S. District Court. The obligations of the Company arising out of the settlement are not material to its financial condition or its results of operations. 11. As discussed in the 1997 Form 10-K, prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of coal and/or oil. The gas produced from this process was sold for residential, commercial, and industrial uses. Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 MGP sites which PSI or its predecessors previously owned. In 1945, PSI sold 19 of these sites to IGC, including the Shelbyville and Lafayette sites. PSI or its predecessors acquired five of the 21 MGP sites from NIPSCO (or its predecessors), which were among the 19 sites PSI sold to IGC. Two other sites, located in Goshen and Warsaw, Indiana, were sold by PSI's predecessor to NIPSCO in 1931. PSI has received claims from IGC and NIPSCO that PSI is a PRP under the CERCLA with respect to the 21 MGP sites, and therefore responsible for the costs of investigating and remediating these sites. In August 1997, NIPSCO filed suit against PSI in the United States District Court for the Northern District of Indiana, South Bend Division, claiming, pursuant to the CERCLA, recovery from PSI of NIPSCO's past and future costs of investigating and remediating MGP related contamination at the Goshen MGP site. Recently, NIPSCO increased its estimate of the cost of remediating the Goshen site to approximately $3.8 million. In November 1998, NIPSCO, IGC and PSI entered into a Site Participation and Cost Sharing Agreement by which they settled allocation of CERCLA liability for past and future costs, as between the three companies, at seven MGP sites in Indiana, namely the sites located in Lafayette, Goshen, Warsaw, Rochester, Frankfort, Crawfordsville, and Lebanon. Pursuant to the agreement, NIPSCO's lawsuit against PSI, referenced above, will be dismissed. The parties have assigned one of the parties lead responsibility for managing any further investigation and remediation activities at each of the sites. This agreement follows a similar agreement achieved between IGC and PSI in August 1997, allocating CERCLA liability at 13 MGP sites with which NIPSCO had no involvement. These two agreements, together with an agreement between IGC and PSI entered into several years ago, relating to the Shelbyville MGP site, conclude all CERCLA and similar claims between the three companies relative to MGP sites. Pursuant to the agreements, the parties are continuing to investigate and remediate the sites as appropriate. In the case of some sites, the parties have applied to the IDEM for inclusion of such sites in the Indiana Voluntary Remediation Program. PSI and IGC submitted a proposed agreed order to the IDEM in 1997 related to the Shelbyville MGP site. On April 15, 1998, the IDEM signed the proposed agreed order, which will result in a determination by the IDEM of whether the activities previously undertaken at the site are sufficient to adequately protect human health and the environment. Based upon environmental investigations and remediation completed to date, PSI believes that any further investigation and remediation required for the Shelbyville site will not have a material adverse effect on its financial condition or results of operations. As also discussed in the 1997 Form 10-K, PSI previously placed its insurance carriers on notice of IGC's, NIPSCO's, and the IDEM's claims related to MGP sites. In April 1998, PSI filed suit in Hendricks County Circuit Court against its general liability insurance carriers seeking, among other matters, a declaratory judgment that its insurance carriers are obligated to defend MGP claims against PSI or pay PSI's costs of defense and to indemnify PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims associated with MGP sites. PSI cannot predict the outcome of this litigation. CG&E and its utility subsidiaries are aware of other sites owned or previously owned by CG&E, its subsidiaries, or their predecessors, 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. CG&E and its utility subsidiaries have undertaken preliminary site assessments to obtain more information about some of these MGP sites. Reserves recorded, based on information currently available, are not material to Cinergy's financial condition or results of operations. However, as further investigation and remediation activities are undertaken at these sites, the potential liability for MGP sites could be material to Cinergy's financial condition or results of operations. Cinergy, CG&E, PSI, and ULH&P 12. Effective with the first quarter of 1998, Cinergy and its subsidiaries adopted the provisions of Statement 130. Statement 130 establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. During the second quarter of 1998, the FASB issued Statement 133. The new standard requires companies to record derivative instruments, as defined in Statement 133, as assets or liabilities, measured at fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The standard is effective for fiscal years beginning after June 15, 1999, and Cinergy expects to adopt the provisions of Statement 133 in the first quarter of 2000. The Company has not yet quantified the impacts of adopting Statement 133 on its consolidated financial statements. However, Statement 133 could increase volatility in earnings and other comprehensive income. Cinergy 13. Presented below is a reconciliation of earnings per common share (basic EPS) and earnings per common share assuming dilution (diluted EPS). Income Shares Earnings (Numerator) (Denominator) Per Share (In thousands, except per share amounts) Quarter ended September 30, 1998 Earnings per common share: Net income $109,431 158,539 $ .69 Effect of dilutive securities: Common stock options 606 Contingently issuable common stock 104 EPS--assuming dilution: Net income plus assumed conversions $109,431 159,249 $ .69 Quarter ended September 30, 1997 Earnings per common share: Net income before extraordinary item $ 82,534 157,679 $ .53 Effect of dilutive securities: Common stock options 885 Contingently issuable common stock 204 EPS--assuming dilution: Net income before extraordinary item plus assumed conversions $ 82,534 158,768 $ .52 Income Shares Earnings (Numerator) (Denominator) Per Share (In thousands, except per share amounts) Nine months ended September 30, 1998 Earnings per common share: Net income $189,569 158,110 $1.20 Effect of dilutive securities: Common stock options 694 Contingently issuable common stock 113 EPS--assuming dilution: Net income plus assumed conversions $189,569 158,917 $1.20 Nine months ended September 30, 1997 Earnings per common share: Net income before extraordinary item $252,140 157,679 $1.60 Effect of dilutive securities: Common stock options 931 Contingently issuable common stock 204 EPS--assuming dilution: Net income before extraordinary item plus assumed conversions $252,140 158,814 $1.59 Income Shares Earnings (Numerator) (Denominator) Per Share (In thousands, except per share amounts) Twelve months ended September 30, 1998 Earnings per common share: Net income $300,067 158,007 $1.90 Effect of dilutive securitie Common stock options 757 Contingently issuable common stock 136 EPS--assuming dilution: Net income plus assumed conversions $300,067 158,900 $1.90 Twelve months ended September 30, 1997 Earnings per common share: Net income before extraordinary item and costs of reacquisition of preferred stock of subsidiary $322,726 157,679 $2.04 Effect of dilutive securities: Common stock options 945 Contingently issuable common stock 232 EPS--assuming dilution: Net income before extraordinary item plus assumed conversions $322,726 158,856 $2.03 The after-tax impact of the extraordinary item - equity share of windfall profits tax for the three, nine, and twelve months ended September 30, 1997, was $.69 for both basic and diluted earnings per share. Options to purchase shares of common stock that were excluded from the calculation of EPS--assuming dilution because the exercise prices of these options were greater than the average market price of the common shares during the period are summarized below: Quarter Average Ended Exercise September 30 Shares Price 1998 922,600 $37.51 1997 13,600 34.35 Nine Months Average Ended Exercise September 30 Shares Price 1998 766,900 $37.72 1997 9,300 34.50 Twelve Months Average Ended Exercise September 30 Shares Price 1998 574,100 $37.72 1997 8,500 34.39 Cinergy and PSI 14. 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 was contingent upon a number of events, including the conclusion of WVPA's bankruptcy proceeding, negotiation of certain terms and conditions with WVPA, the RUS, and the CFC, 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 RUS and the CFC. The $80 million obligation, net of insurance proceeds, other credits, and applicable income tax effects, was charged to income in 1988. In January 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 and final negotiations to implement the settlement agreement were begun with WVPA, the RUS, and the CFC. An agreement on all matters has been reached with the parties. As a result, PSI recorded a liability to the RUS and the CFC. PSI will repay the obligation to the RUS with interest over a 35-year term. A lump sum payment was made to the CFC in 1998, in full satisfaction of PSI's obligation to the CFC. PSI will use the net proceeds from a 35-year power sales agreement with WVPA to fund the principal and interest on the obligation to the RUS. Assumption of the liability (recorded as long-term debt in the Consolidated Balance Sheet) resulted in a charge against second quarter earnings of $80 million ($50 million after tax or $.32 per share basic and diluted). Cinergy 15. The Company's Midlands subsidiary (of which the Company owns 50%) has a 40% ownership interest in a 586 MW power project in Pakistan (Uch project or Uch) which was originally scheduled to begin commercial operation in late 1998. The Pakistani government-owned utility has issued a notice of intent to terminate certain key project agreements relative to the Uch project. The notice asserts that various forms of corruption were involved in the original granting of the agreements to the Uch investors by a predecessor government. The Company believes that this notice is similar to notices received by a number of other independent power projects in Pakistan. The Uch investors, including a subsidiary of Midlands, strongly deny the allegations and are pursuing all available legal options to enforce their contractual rights under the project agreements. Physical construction of the project is substantially complete; however, commissioning, which management believes could be completed within a 60- 90 day period, has been delayed as a result of the above situation. The Uch investors continue to explore remedies to the situation with officials of the Pakistani government and are working with the project's lenders to ensure their continued support to the project. Arising from the delay of the completion of the plant, the project turnkey contractor has given notice of its desire to invoke dispute resolution procedures (under the terms of the turnkey contract) in relation to a claim for additional costs arising from the failure of the project to provide fuel gas and interconnection facilities. Uch Power Limited denies that it is liable for any additional costs arising from this delay and will defend itself against the claim. Through its 50% ownership of Midlands, the Company's current investment in the Uch project is approximately $32 million. In addition, project lenders could require investors to make additional capital contributions to the project under certain conditions. The Company's share of these additional contributions is approximately $12 million. At the present time, the Company cannot predict the ultimate outcome of this matter. Cinergy and PSI 16. As discussed in the 1997 Form 10-K, PSI filed a petition with the FERC for recovery, through the fuel adjustment clause, of the wholesale jurisdictional portion of the costs resulting from the Exxon contract buyout. During July 1998, the FERC accepted PSI's request to recover these buyout costs from its wholesale customers for the period August 1996 through December 2002. 17. As discussed in the 1997 Form 10-K, PSI agreed to begin pre-funding its obligations for postretirement benefits other than pensions in connection with the settlement which resulted in the February 1995 Order. Implementation of pre-funding was subject to negotiations with the UCC and approval by the IURC. In October 1998, the IURC approved a settlement agreement between PSI and the UCC authorizing three optional funding alternatives. 18. As discussed in the 1997 Form 10-K, PSI and Dynegy (formerly Destec) entered into a 25-year contractual agreement for the provision of coal gasification services in November 1995. The agreement requires PSI to pay Dynegy a base monthly fee including certain monthly operating expenses. PSI received authorization in the September 1996 Order for the inclusion of these costs in retail rates. In addition, PSI received authorization to defer, for subsequent recovery in retail rates, the base monthly fees and expenses incurred prior to the effective date of the September 1996 Order. Over the next five years, the base monthly fees and expenses for the coal gasification service agreement are expected to total $201 million. During the third quarter of 1998, PSI reached an agreement with Dynegy to purchase the remainder of its 25-year contract for coal gasification services for $265.7 million. The proposed purchase, which is contingent upon regulatory approval, is expected to be completed in 1999. PSI will investigate financing alternatives. The transaction, if approved as proposed, is not expected to have a material impact on PSI's earnings. Due to the competition within the natural gas market, natural gas prices have fallen to a level that has made the current gasification services agreement uneconomical for PSI and its customers. Under the current proposal, the gasification service costs would be replaced by lower natural gas costs. In nominal dollars, it is estimated that the total savings, primarily as a result of the purchase, would be approximately $275 million over the life of the original contract. Cinergy, CG&E, and ULH&P 19. As more fully discussed in the 1997 Form 10-K, Cinergy made a filing with the SEC in February 1998, setting forth its rationale supporting retention of CG&E's and ULH&P's gas operations. As part of its order approving the merger, the SEC had previously reserved judgment over Cinergy's ownership of CG&E's and ULH&P's gas operations, pending a determination of the amount of increased operating costs that would result from the gas operations being divested and operated on a stand- alone basis. On November 2, 1998, the SEC issued an order unconditionally approving Cinergy's retention of CG&E's and its subsidiaries', including ULH&P's, gas businesses. The order was issued based on the SEC's finding that a divestiture of CG&E's and its subsidiaries', including ULH&P's, gas businesses would likely result in increased expenses and the potential loss of competitive advantages. Cinergy 20. On November 3, 1998, Cinergy Global Resources issued and sold $150 million of its 6.20% Debentures due 2008. The debentures are unconditionally guaranteed as to the payment of principal and interest by Cinergy. In addition, payment of principal of and interest on the debentures is also insured by a financial guaranty insurance policy. A portion of the proceeds from the sale was used to repay approximately $115 million of short-term indebtedness and the remainder will be used for the acquisition and development of additional energy-related assets. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in this Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in "Part I. Financial Information" reflect and elucidate Cinergy's corporate vision of the future and, as a part of that, outline goals and aspirations, as well as specific projections. These goals and projections are considered forward-looking statements and are based on management's beliefs, as well as certain assumptions made by management. In addition to any assumptions and other factors that are referred to specifically in connection with these statements, other factors that could cause actual results to differ materially from those indicated in any forward- looking statements include, among others: factors generally affecting utility operations--such as unusual weather conditions, unusual maintenance or repairs, or unanticipated changes in fuel costs; increased competition in the electric and gas utility environment; regulatory factors, including the failure to obtain anticipated regulatory approvals; changes in accounting principles or policies; adverse economic conditions; changing market conditions; availability or cost of capital; employee workforce factors; costs and effects of legal and administrative proceedings; changes in legislative requirements; and other risks. The SEC's rules do not require forward-looking statements to be revised or updated, and Cinergy does not intend to do so. FINANCIAL CONDITION Recent Developments Cinergy Acquisitions In June 1998, through CC&T, Cinergy acquired ProEnergy from Apache and Oryx. ProEnergy has had and will continue to have exclusive marketing rights to North American gas production owned or controlled by Apache and Oryx, which represents approximately 1.1 Bcf per day of dedicated natural gas supply. These supplies, combined with the active marketing of third party gas, are geographically diverse and are spread through the Southwest, Rocky Mountains, Gulf Coast, Gulf of Mexico, and Michigan. The acquisition was funded with cash and by the issuance of 771,258 new shares of Cinergy common stock. In June 1998, a subsidiary of Cinergy Global Power acquired Moravske, a 410 MW district heating plant in the Czech Republic. In addition, in September 1998, a subsidiary of Cinergy Global Power acquired a 406 MW district heating plant in the city of Plzen, Czech Republic. The purchase prices for these acquisitions were not material to Cinergy's financial condition or results of operations. Competitive Pressures Cinergy, CG&E, PSI, and ULH&P Federal Developments As discussed in the 1997 Form 10-K, Cinergy collaborated with other Midwestern utility companies to form the Midwest ISO. During the third quarter of 1998, the FERC approved the formation of the Midwest ISO. Cinergy, CG&E, and ULH&P State Developments As discussed in the 1997 Form 10-K, comprehensive electric restructuring legislation was introduced in the Ohio legislature during 1998. This legislation, SB 237 and HB 732, "companion" electric restructuring bills, proposes to afford choice to all retail electric customers in Ohio beginning January 1, 2000. Legislative hearings on these bills occurred in the spring and summer. In addition, legislation to provide for securitization of transition costs through issuance of rate reduction bonds has been pending in Ohio since 1997. It is uncertain whether these pieces of legislation will be passed in Ohio in 1998. During the third quarter of 1998, Ohio's IOUs, including CG&E, released a draft bill that sets forth the utilities' approach to comprehensive electric restructuring in Ohio. Under the IOUs' proposal, choice to all retail electric customers would be introduced by January 1, 2001, rates would be frozen during a five-year transition period, low income protections would be maintained, and a fixed charge for certain government approved transition costs would be imposed (and costs could be securitized if rates are not increased). Both this proposal and SB 237/HB 732 are being studied by a legislative working group that was convened in September 1998. It is uncertain at this time whether the IOUs' proposal will be introduced in Ohio's General Assembly, or, if introduced, whether it will be passed and signed into law. As also discussed in the 1997 Form 10-K, HB 443 was introduced into the Kentucky General Assembly in January 1998. HB 443 was not brought to a vote during the 1998 legislative session. Rather, HJR 95, which calls for the formation of an executive task force comprised of members from the Governor's office and the Kentucky General Assembly to further study electric restructuring, was passed by the Kentucky General Assembly, and was signed by the Governor during April 1998. Task force members will study electric restructuring in anticipation of the next legislative session, which occurs in January 2000. Regulatory Matters Cinergy, CG&E, and ULH&P Potential Divestiture of Gas Operations See Note 19 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy and PSI Coal Contract Buyout Costs See Note 16 of the "Notes to Financial Statements" in "Part I. Financial Information." Environmental Issues Cinergy, CG&E, and PSI Ambient Air Standards As discussed in the 1997 Form 10-K, during 1997, the EPA revised the National Ambient Air Quality Standards for ozone and fine particulate matter. The EPA has also proposed, but not finalized, new rules for regional haze. The United States Congress, as part of the funding bill for the Surface Transportation Act, combined the schedules for fine particulates and regional haze implementation. The impact of the particulate standards and regional haze rules cannot be determined at this time. In June 1998, 13 Midwestern and Southern states and numerous industry groups within those states, including Cinergy, filed comments in opposition to the EPA proposed NOx rules. These 13 states and utility commentors proposed alternative reduction strategies that would generally phase in NOx reductions by 65 percent by 2002-2004, would determine by 2002 if additional reductions are needed, and then implement necessary controls between 2005-2007. Commentors also generally opposed the EPA's 22 state trading program in favor of smaller and more flexible multi-state programs. In September 1998, the EPA finalized its Ozone Transport Rule. It applies to 22 states in the eastern half of the United States, including the three states in which Cinergy operates, and also proposes a model NOx trading program. This rule recommends that states reduce utility NOx emissions by approximately 85% from 1990 levels by 2003. The affected states have until September 24, 1999, to incorporate utility NOx reductions into their SIPs. It is anticipated that this new rule will be heavily litigated by the affected states, industry, and other stakeholders. Cinergy's initial estimate for compliance with the new Ozone Transport Rule is $500-$600 million in capital expenditures between now and 2003. Air Toxics As discussed in the 1997 Form 10-K, the EPA was to announce, by April 15, 1998, its conclusions regarding the need for additional air toxics regulations. In April 1998, the EPA announced that it would make its regulatory determination on the need for additional air toxics regulation by November 15, 1998. If more air toxics regulations are issued, the compliance cost could be significant. Cinergy cannot predict the outcome or effects of the EPA's determination. MGP Sites See Note 11 of the "Notes to Financial Statements" in "Part I. Financial Information." Accounting Issues Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 12 of the "Notes to Financial Statements" in "Part I. Financial Information." Market Risk Sensitive Instruments and Positions Cinergy, CG&E, PSI, and ULH&P The following discussions about Cinergy's market risk sensitive instruments and positions and risk management activities include forward-looking information and statements that involve risks and uncertainties. The forward- looking information and statements presented are only estimates of what may occur in the future, assuming certain adverse market conditions, due to their dependence on model characteristics and assumptions. As a result, actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, rather they merely present indications of reasonably possible losses. Cinergy, CG&E, and PSI Energy Commodities Sensitivity The Company markets and trades over-the-counter forward and option contracts for the purchase and sale of electricity. The Company also trades exchange-traded futures contracts. See Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information" for the Company's accounting policies for certain derivative instruments. During a few days late in the second quarter, wholesale electric power markets in the Midwest exhibited unprecedented price volatility due to several market factors, including an extended period of unseasonably hot weather, scheduled and unplanned generating unit outages, transmission constraints, and defaults by certain power marketers on their supply obligations. The simultaneous culmination of these events resulted in temporary but extreme price spikes in the hourly and daily markets and very little trading liquidity and price transparency in the term markets. During this period of extreme price volatility and trading illiquidity, Cinergy's power marketing and trading function maintained its ability to provide the physical delivery of power to fulfill its contractual obligations. The daily value-at-risk as of September 30, 1998, was less than 3% of Cinergy's "Income Before Taxes" for the twelve months then ended. The value-at-risk model utilizes a 95% confidence interval and uses the variance-covariance statistical modeling technique and historical volatilities and correlations over the past 200 day period. The estimated market prices used to value these transactions for value-at-risk purposes reflect the use of established pricing models and various factors, including quotations from exchanges and over-the-counter markets, price volatility factors, the time value of money, and location differentials. The variables used for value-at-risk purposes at September 30, 1998, reflect the impacts of the events which transpired in the Midwestern electric power markets during late June 1998. Cinergy provides reserves as required for the potential unrealized losses in the fair value of its portfolio of open forward and option contract positions and potential unrealized losses due to nonperformance of certain counterparties pursuant to contractual supply obligations. Due to the basic lack of liquidity, price transparency, and extreme price volatility currently experienced in the electric power markets, significant assumptions regarding estimated market prices and potential counterparty credit risk must be made by the Company for the purposes of providing appropriate reserves. It is possible that actual realized results from the Company's power marketing and trading activities could differ substantially from those currently estimated. As of September 30, 1998, approximately 69% of Cinergy's power marketing and trading activity represents commitments with 10 counterparties. The majority of these contracts are for terms of one year or less. The temporary but extreme price volatility and trading illiquidity exhibited in the Midwestern electric power markets late in the second quarter resulted in a few power marketers defaulting on contractual supply obligations and industry-wide uncertainty as to whether others will be able to fulfill existing contractual supply obligations for future delivery of electricity. As of September 30, 1998, Cinergy believes it has adequately reserved for credit exposure relating to its portfolio of existing contracts. Cinergy remains committed to being a long-term participant in the evolving competitive wholesale electric power market and will continue to manage its power marketing and trading portfolio to maximize its existing value while creating additional value. The New York Mercantile Exchange electricity futures contracts for delivery into Cinergy's transmission grid, which started trading on July 10, 1998, should provide additional liquidity and greater price transparency, as well as additional risk management capabilities in Cinergy's core service territory and trading region. Cinergy continues to review and enhance its current risk management practices to ensure their responsiveness to evolving and changing market and business conditions. In addition, efforts are ongoing to develop and enhance systems to improve the timeliness and quality of market and credit risk information. Cinergy Exchange Rate Sensitivity Cinergy utilizes foreign exchange forward contracts and currency swaps to hedge certain of its net investments in foreign operations. See Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information" for Cinergy's accounting policies for certain derivative instruments. Cinergy's market risks have not changed materially from the market risks reported in the 1997 Form 10-K. Cinergy, CG&E, PSI, and ULH&P Interest Rate Sensitivity The Company's net exposure to changes in interest rates primarily consists of debt instruments with floating interest rates that are benchmarked to various market indices. To manage the Company's exposure to fluctuations in interest rates and to lower funding costs, the Company constantly evaluates the use of, and has entered into, interest rate swaps. See Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information" for the Company's accounting policies for certain derivative instruments. The Company's market risks have not changed materially from the market risks reported in the 1997 Form 10-K. CAPITAL RESOURCES AND REQUIREMENTS Cinergy, CG&E, PSI, and ULH&P Long-term Debt For information regarding recent issuances and redemptions of long-term debt securities, see Notes 2, 3, 4, 5, 6, 7, 8, and 20 of the "Notes to Financial Statements" in "Part I. Financial Information." On October 14, 1998, PSI issued a promissory note to the RUS (recorded as long-term debt in the consolidated balance sheet) in the amount of $86.4 million. For information concerning the WVPA settlement, see Note 14 of the "Notes to Financial Statements" in "Part I. Financial Information." This issuance effectively reduces PSI's remaining authority for long-term debt issuances to $40.6 million. In October 1998, PSI filed with the IURC for state regulatory authority for long-term debt issuances of $400 million. CG&E's remaining state regulatory authority for long-term debt issuances expired in June 1998. CG&E is currently in the process of filing an application with the PUCO requesting authorization to issue additional long-term debt. On August 21, 1998, the SEC issued an order permitting Cinergy to issue and sell from time to time unsecured debt securities in an aggregate principal amount not to exceed $400 million outstanding at any time. Cinergy, CG&E, PSI, and ULH&P Short-term Debt Obligations representing notes payable and other short-term obligations (excluding notes payable to affiliated companies) at September 30, 1998, were as follows: Cinergy Established Lines Outstanding (in millions) Cinergy Committed lines Acquisition line $ 350 $ 350 Revolving line 600 - Commercial paper - 301 Uncommitted line 45 82* Utility subsidiaries Committed lines 300 - Uncommitted lines 360 81 Pollution control notes 266 266 Non-utility subsidiaries 125 105 ------ ------ Total $2,046 $1,185 CG&E Established Lines Outstanding (in millions) Committed lines $100 $ - Uncommitted lines 190 46 Pollution control notes 184 184 ---- ---- Total $474 $230 PSI Established Lines Outstanding (in millions) Committed lines $200 $ - Uncommitted lines 170 35 Pollution control notes 82 82 ---- ---- Total $452 $117 * Excess over Established Line represents amount sold by dealers to other investors. Cinergy, CG&E, and PSI Cinergy's committed lines are comprised of an acquisition line and a revolving line. The established revolving line (as shown in the above table) also provides credit support for Cinergy's commercial paper program. During July 1998, the commercial paper program was increased to a maximum principal amount of $400 million. This increase is supported by an additional revolving line of $200 million, which was also established in July 1998. Approximately half of the proceeds from the commercial paper sales were used to reduce the acquisition line to the quarter-end level of $350 million. CG&E and PSI also have the capacity to issue commercial paper that must be supported by committed lines of the respective company. Neither CG&E nor PSI issued commercial paper during the third quarter of 1998. Cinergy, CG&E, PSI, and ULH&P Cinergy's utility subsidiaries had regulatory authority to borrow up to $853 million ($453 million for CG&E and its subsidiaries, including $50 million for ULH&P, and $400 million for PSI) as of September 30, 1998. Regulatory authority for CG&E and PSI excludes the Pollution Control Notes, which are considered long-term debt for regulatory purposes. In connection with this authority, committed lines, as well as uncommitted lines, have been arranged. The established committed lines (as shown in the above table) include $81 million designated as backup for certain of the uncommitted lines at September 30, 1998. Further, the committed lines are maintained by commitment fees. Cinergy, CG&E, PSI, and ULH&P Year 2000 The Year 2000 issue generally exists because many computer systems and applications, including those embedded in equipment and facilities, use two digit rather than four digit date fields to designate an applicable year. As a result, the systems and applications may not properly recognize the year 2000 or process data which includes it, potentially causing data miscalculations or inaccuracies or operational malfunctions or failures, which could materially affect Cinergy's financial condition or results of operations. Cinergy has established a centrally-managed, company-wide initiative to identify, evaluate, and address Year 2000 issues. Cinergy's Year 2000 efforts, which began in the fourth quarter of 1996, are all encompassing and include its generation, transmission, and distribution systems and related infrastructure. Also within the scope of this initiative are operational and financial IT systems and applications, end-user computing resources, and building systems, such as security, elevator, and heating and cooling systems. In addition, the project includes a review of the Year 2000 readiness efforts of Cinergy's key suppliers and customers and other principal business partners, and, as appropriate, the development of joint business support and continuity plans for Year 2000 issues. Further, the scope of the Year 2000 project includes communications with regulatory agencies and the inclusion of Year 2000 concerns as a regular part of the due diligence process in any new business venture. While this initiative is broad in scope, it has been structured to identify and prioritize efforts for mission critical systems, electric and gas systems and services, and key business partners. Under its current Year 2000 plan, Cinergy has established a target date of June 30, 1999, for the remediation and testing of its generation, transmission, and distribution systems (gas and electric). One example of Cinergy's remediation and testing efforts is the current operation of some of its generating units with post Year 2000 dates. Cinergy cannot guarantee that third parties on whom it depends for essential goods and services (those where the interruption of the supply of such goods and services could lead to issues involving the safety of employees, customers, or the public, the continued reliable delivery of gas and/or electricity, the ability to comply with applicable laws or regulations, and revenues) will convert their critical systems and processes in a timely manner. Failure or delay by any of these third parties could significantly disrupt business. However, to address this issue, Cinergy has established a supplier compliance program, and is working with its key suppliers in an effort to minimize such risks. In addition, Cinergy is coordinating its findings and other issues with other utilities via EPRI's Year 2000 Embedded Systems Project and with the Year 2000 Readiness Assessment Program of the NERC, acting at the request of the U.S. Department of Energy. In addition to the approximately $10 million in expenses incurred through September 30, 1998, for matters historically identified as Year 2000-related, Cinergy currently estimates that it will incur additional expenses of approximately $3 million through the completion of the program. Cinergy's progress to date ranges from 80% for IT systems to approximately 40% regarding assessment of critical vendors. The timing of expenses may vary and is not necessarily indicative of readiness efforts or progress to date. Cinergy anticipates that a portion of its Year 2000 expenses will not be incremental costs, but rather will represent the redeployment of existing IT resources. Since its formation, Cinergy has incurred, and will continue to incur, significant capital improvement costs for IT systems. These costs related to planned system upgrades or replacements would have been required in the normal course of business and are not being incurred sooner than originally planned as a result of the Year 2000 issue. Avon Energy has also undertaken activities to address Year 2000 issues. The estimated proportionate share of Avon Energy's incremental Year 2000 costs (costs which would not have been required in the normal course of business) that will flow through to Cinergy's earnings as a result of such activities is not expected to have a material impact on the financial condition or results of operations of Cinergy. As part of the Year 2000 initiative, Cinergy is in the process of reviewing its existing contingency and business continuity plans to determine if any modifications are needed in light of the Year 2000 problem. Contingency planning to maintain and restore service in the event of natural and other disasters (including software and hardware-related problems) has been part of Cinergy's standard operation for many years, and Cinergy is working to leverage this experience in the review of existing plans to address Year 2000- related challenges. These reviews are expected to assess the potential for business disruption in various scenarios, including the most reasonably likely worst-case scenario, and to provide for key operational back-up, recovery, and restoration alternatives. The above information is based on Cinergy's current best estimates, which were derived using numerous assumptions of future events, including the availability and future costs of certain technological and other resources, third-party modification actions and other factors. Given the complexity of these issues and possible as yet unidentified risks, actual results may vary materially from those anticipated and discussed above. Specific factors that might cause such differences include, among others, the ability to locate and correct all affected computer code, the timing and success of remedial efforts of third-party suppliers, and similar uncertainties. The descriptions herein of the elements of Cinergy's Year 2000 efforts are forward-looking statements. Of necessity, this effort is based on estimates of assessment, remediation, testing, and contingency planning activities and dates for perceived problems not yet identified. There can be no assurances that actual results will not materially differ from expectations. The SEC's rules do not require forward-looking statements to be revised or updated, and Cinergy does not intend to do so. Cinergy Other Commitments Cinergy has issued performance and debt guarantees to numerous counterparties totaling approximately $421 million. RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "Item 1. Financial Statements" in "Part I. Financial Information." ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Cinergy, CG&E, PSI, and ULH&P Reference is made to the "Market Risk Sensitive Instruments and Positions" section in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in "Part I. Financial Information." PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Cinergy and CG&E Skinner Landfill Remediation As discussed in the 1997 Form 10-K, CG&E was notified, in the first quarter of 1998, by the Allocator in a court-mandated ADR proceeding, that it had been identified as a PRP under CERCLA with respect to the Skinner Landfill Superfund Site, which is located approximately 15 miles north of Cincinnati, Ohio. In March 1997, the plaintiffs from the underlying CERCLA litigation brought suit in the U.S. District Court, against over 80 PRPs. In August 1997, the U.S. District Court entered an order staying the litigation and requiring all parties to engage in a non-binding, confidential ADR process. The Allocator, which has been given authority by the U.S. District Court to identify other parties that may be responsible for response costs, has informed CG&E that it was identified by a site owner, operator, or worker as one that had arranged for the disposal of waste at the landfill and has concluded that a reasonable basis exists for CG&E's participation in the ADR process. In early October 1998, the Allocator issued a report which concluded that CG&E was responsible for $500 of clean-up costs related to the disposal of a small amount of utility poles, shop waste, tree mulch and light ballast. The total clean-up costs for the site are estimated to be $15 million. While the Allocator has not identified a responsible party for approximately 70% of the costs, CG&E does not expect any further allocations to substantially increase its share of the clean-up costs. Cinergy, CG&E, and PSI See Notes 11 and 15 of the "Notes to Financial Statements" in "Part I. Financial Information." ITEM 5. OTHER INFORMATION Cinergy and PSI On October 28, 1998, the Company announced that Mary L. Schapiro has been appointed to Cinergy's board, effective January 1, 1999. Ms. Schapiro will fill the board vacancy resulting from the retirement of Van P. Smith. Mr. Smith has served on Cinergy's board since 1994 and has served on the PSI board since 1986. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits identified with a pound sign (#) are being filed herewith by the registrant identified in the exhibit discussion below and are incorporated herein by reference with respect to any other designated registrant. Exhibits not so identified are filed herewith: Exhibit Designation Nature of Exhibit Cinergy 4-A Base Indenture dated as of October 15, 1998, between Cinergy Global Resources and The Fifth Third Bank as Trustee. 4-B First Supplemental Indenture dated as of October 15, 1998, between Cinergy Global Resources and The Fifth Third Bank as Trustee. Cinergy, CG&E, and PSI 10-A #Second Amended and Restated Employment Agreement dated September 22, 1998, between Cinergy, Cinergy Services, Inc., CG&E, and PSI and James E. Rogers. (Exhibit to Cinergy's September 30, 1998, Form 10- Q in File No. 1-11377.) Cinergy, CG&E, PSI, and ULH 27 Financial Data Schedules (included in electronic submission only) (b) The following reports on Form 8-K were filed during the quarter and previously reported on Form 10-Q for the quarter ended June 30, 1998. Date of Report Item Filed Cinergy July 15, 1998 Item 5. Other Events Item 7. Financial Statements and Exhibits CG&E July 15, 1998 Item 5. Other Events PSI July 15, 1998 Item 5. Other Events SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include normal, recurring adjustments and those adjustments discussed in Notes 9 and 14 of the "Notes to Financial Statements" in "Part I. Financial Information") necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY PSI ENERGY, INC. THE UNION LIGHT, HEAT AND POWER COMPANY Registrants Date: November 12, 1998 /s/John P. Steffen -------------------------------------- John P. Steffen Duly Authorized Officer and Chief Accounting Officer EX-4 2 INDENTURE CINERGY GLOBAL RESOURCES, INC. AND THE FIFTH THIRD BANK, Trustee Indenture Dated as of October 15, 1998 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. CINERGY GLOBAL RESOURCES, INC. Indenture Dated as of October 15, 1998 TABLE OF CONTENTS Parties 1 Recitals of the Company 1 ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions:............................................1 Act 1 Affiliate; control...............................................2 Authenticating Agent.............................................2 Board of Directors...............................................2 Board Resolution.................................................2 Business Day.....................................................2 Commission.......................................................2 Company..........................................................2 Company Request; Company Order...................................2 Corporate Trust Office...........................................2 Corporation......................................................2 Covenant Defeasance..............................................2 Defaulted Interest...............................................2 Defeasance.......................................................2 Depositary.......................................................2 Event of Default.................................................3 Exchange Act.....................................................3 Expiration Date..................................................3 Global Security..................................................3 Holder...........................................................3 Indenture........................................................3 interest.........................................................3 Interest Payment Date............................................3 Investment Company Act...........................................3 Junior Subordinated Securities...................................3 Maturity.........................................................3 Notice of Default................................................3 Officers' Certificate............................................3 Opinion of Counsel...............................................3 Original Issue Discount Security.................................3 Outstanding......................................................3 Paying Agent.....................................................4 Person...........................................................4 Place of Payment.................................................4 Predecessor Security.............................................5 Redemption Date..................................................5 Redemption Price.................................................5 Regular Record Date..............................................5 Responsible Officer..............................................5 Securities.......................................................5 Securities Act...................................................5 Security Register; Security Registrar............................5 Senior Debt......................................................5 Special Record Date..............................................5 Stated Maturity..................................................5 Subsidiary.......................................................6 Trust Indenture Act..............................................6 Trustee..........................................................6 U.S. Government Obligation.......................................6 Vice President...................................................6 Section 102. Compliance Certificates and Opinions......................6 Section 103. Form of Documents Delivered to Trustee....................6 Section 104. Acts of Holders; Record Dates.............................7 Section 105. Notices, Etc., to Trustee and Company.....................8 Section 106. Notice to Holders; Waiver.................................9 Section 107. Conflict with Trust Indenture Act.........................9 Section 108. Effect of Headings and Table of Contents..................9 Section 109. Successors and Assigns....................................9 Section 110. Separability Clause.......................................9 Section 111. Benefits of Indenture.....................................9 Section 112. Governing Law............................................10 Section 113. Legal Holidays...........................................10 Section 114. Certain Matters Relating to Currencies...................10 Section 115. Immunity of Incorporators, Stockholders, Officers and Directors......................................10 Section 116. Counterparts.............................................10 Section 117. Assignment to Affiliate..................................11 ARTICLE TWO Security Forms Section 201. Forms Generally...........................................11 Section 202. Form of Face of Security..................................11 Section 203. Form of Reverse of Security...............................14 Section 204. Form of Legend for Global Securities......................17 Section 205. Form of Trustee's Certificate of Authentication.......... 17 ARTICLE THREE The Securities Section 301. Amount Unlimited; Issuable in Series......................18 Section 302. Denominations.............................................20 Section 303. Execution, Authentication, Delivery and Dating............20 Section 304. Temporary Securities......................................21 Section 305. Registration, Registration of Transfer and Exchange.......21 Section 306. Mutilated, Destroyed, Lost and Stolen Securities..........23 Section 307. Payment of Interest; Interest Rights Preserved............23 Section 308. Persons Deemed Owners.....................................24 Section 309. Cancellation..............................................25 Section 310. Computation of Interest...................................25 Section 311. CUSIP Numbers.............................................25 ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture...................25 Section 402. Application of Trust Money................................26 ARTICLE FIVE Remedies Section 501. Events of Default.........................................26 Section 502. Acceleration of Maturity; Rescission and Annulment........27 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee..............................28 Section 504. Trustee May File Proofs of Claim..........................28 Section 505. Trustee May Enforce Claims Without Possession of Securities.......................................29 Section 506. Application of Money Collected............................29 Section 507. Limitation on Suits.......................................29 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest................................30 Section 509. Restoration of Rights and Remedies........................30 Section 510. Rights and Remedies Cumulative............................30 Section 511. Delay or Omission Not Waiver..............................30 Section 512. Control by Holders........................................30 Section 513. Waiver of Past Defaults...................................30 Section 514. Undertaking for Costs.....................................31 Section 515. Waiver of Usury, Stay or Extension Laws...................31 ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities.......................31 Section 602. Notice of Defaults........................................31 Section 603. Certain Rights of Trustee.................................32 Section 604. Not Responsible for Recitals or Issuance of Securities....32 Section 605. May Hold Securities.......................................32 Section 606. Money Held in Trust.......................................33 Section 607. Compensation and Reimbursement............................33 Section 608. Conflicting Interests.....................................33 Section 609. Corporate Trustee Required; Eligibility...................33 Section 610. Resignation and Removal; Appointment of Successor.........34 Section 611. Acceptance of Appointment by Successor....................35 Section 612. Merger, Conversion, Consolidation or Succession to Business.........................................36 Section 613. Preferential Collection of Claims Against Company.........36 Section 614. Appointment of Authenticating Agent.......................36 Section 615. Indemnification...........................................37 ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders..........................................38 Section 702. Preservation of Information; Communications to Holders..........................................38 Section 703. Reports by Trustee........................................38 Section 704. Reports by Company........................................38 ARTICLE EIGHT Consolidation, Merger and Sale Section 801. Consolidation and Mergers Permitted.......................39 Section 802. Rights and Duties of Successor Company....................39 Section 803. Opinion of Counsel........................................40 ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Holders........40 Section 902. Supplemental Indentures With Consent of Holders...........41 Section 903. Execution of Supplemental Indentures......................42 Section 904. Effect of Supplemental Indentures.........................42 Section 905. Conformity with Trust Indenture Act.......................42 Section 906. Reference in Securities to Supplemental Indentures........42 ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest................42 Section 1002. Maintenance of Office or Agency...........................43 Section 1003. Money for Securities Payments to Be Held in Trust.........43 Section 1004. Statement by Officers as to Default.......................44 Section 1005. Maintenance of Properties.................................44 Section 1006. Payment of Taxes and Other Claims.........................44 Section 1007. Waiver of Certain Covenants...............................44 Section 1008. Calculation of Original Issue Discount....................45 ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article..................................45 Section 1102. Election to Redeem; Notice to Trustee.....................45 Section 1103. Selection by Trustee of Securities to Be Redeemed.........45 Section 1104. Notice of Redemption......................................46 Section 1105. Deposit of Redemption Price...............................46 Section 1106. Securities Payable on Redemption Date.....................46 Section 1107. Securities Redeemed in Part...............................47 ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article..................................47 Section 1202. Satisfaction of Sinking Fund Payments with Securities.....47 Section 1203. Redemption of Securities for Sinking Fund.................47 ARTICLE THIRTEEN Defeasance and Covenant Defeasance Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance..........................................48 Section 1302. Defeasance and Discharge..................................48 Section 1303. Covenant Defeasance.......................................48 Section 1304. Conditions to Defeasance or Covenant Defeasance...........49 Section 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions.......50 Section 1306. Reinstatement.............................................51 ARTICLE FOURTEEN Junior Subordinated Securities Section 1401. Certain Securities Subordinate to Senior Debt.............51 Section 1402. Payment Over of Proceeds Upon Default.....................51 Section 1403. Payment Over of Proceeds Upon Dissolution, Etc............52 Section 1404. Subrogation to Rights of Holders of Senior Debt...........53 Section 1405. Trustee to Effectuate Subordination.......................53 Section 1406. Notice to Trustee.........................................53 Section 1407. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights....................54 Section 1408. No Waiver of Subordination Provisions.....................54 Testimonium...............................................................55 Signatures................................................................55 INDENTURE, dated as of October 15, 1998, between Cinergy Global Resources, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 139 East Fourth Street, Cincinnati, Ohio 45202, 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 an "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 or in the City of New York 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, a Vice President, its Treasurer or its Secretary, and delivered to the Trustee, or (ii) any Person or Persons designated in a Board Resolution, or in a Company Order previously delivered to the Trustee signed by any of the foregoing, and delivered to the Trustee. "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, limited liability 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, The Depository Trust Company or another 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 Request or 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, limited liability company, 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.] CINERGY GLOBAL RESOURCES, INC. ...................................... No. ......... $..................... CUSIP NO.______________________ Cinergy Global Resources, Inc., a corporation duly organized and existing under the laws of the state of Delaware (herein called the "Company", which term includes any successor Person under the Indenture 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. CINERGY GLOBAL RESOURCES, 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 October 15, 1998 (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) Notwithstanding Section 902, any other terms of the Securities of a series, which terms may be inconsistent with or vary the provisions of this Indenture to effectuate aspects of such series not contemplated hereby, including (without implied limitation), rights of, and actions which may be taken by, the issuer of (i) a financial guarantee insurance policy or (ii) another form of credit enhancement, liquidity or both. 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 (the "Security Registrar") 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 Section 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................................................................... Authorized Signatory 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, to the extent required by law, 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(19), 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, 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, 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 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. (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. CINERGY GLOBAL RESOURCES, INC. By /s/ William L. Sheafer William L. Sheafer Vice President and Treasurer THE FIFTH THIRD BANK, as Trustee By /s/ Kerry R. Byrne Kerry R. Byrne Vice President EX-4 3 FIRST SUPPLEMENTAL INDENTURE CINERGY GLOBAL RESOURCES, INC. AND THE FIFTH THIRD BANK, Trustee ---------------- First Supplemental Indenture Dated as of October 15, 1998 To Indenture Dated as of October 15, 1998 ---------------- 6.20% Debentures due 2008 FIRST SUPPLEMENTAL INDENTURE (herein the "Supplemental Indenture"), dated as of October 15, 1998, between Cinergy Global Resources, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 139 East Fourth Street, Cincinnati, Ohio 45202, and The Fifth Third Bank, an Ohio banking corporation, as Trustee (herein called the "Trustee") under the Indenture dated as of October 15, 1998 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 in this Supplemental Indenture for the establishment of a new series of its Securities to be known as its 6.20% Debentures due 2008 (herein called the "Debentures"). All things necessary to make this Supplemental Indenture a valid agreement of the Company have been done. Now, Therefore, This 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 and the Insurer (as hereinafter defined), as follows: ARTICLE ONE Definitions All words and terms defined in Article One of the Indenture shall have the same meanings in this Supplemental Indenture, except that (or in addition thereto) the words and terms set forth below shall have the following meanings: "Agent" means any Security Registrar, Paying Agent or co-registrar. "Applicable Accrued Interest Amount" means, at the Optional Redemption Date, the amount of interest accrued and unpaid from the prior interest payment date to the Optional Redemption Date on the Debentures subject to the Optional Redemption determined at the rate per annum shown in the title thereof, computed on the basis of a 360-day year of twelve 30-day months. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Debenture, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Cedel" means Cedel Bank, societe anonyme. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Debentures to be redeemed pursuant to the Optional Redemption. "Comparable Treasury Price" means, with respect to the Optional Redemption Date, the average of the Reference Treasury Dealer Quotations for such Optional Redemption Date. "Debt Service" means the scheduled amount of interest, premium (if any) and amortization of principal payable on the Debentures on any Interest Payment Date. "Definitive Debenture" means a certificated Debenture registered in the name of the Holder thereof and issued in accordance with Article Three hereof, in the form of Exhibit A-1 hereto except that such Debenture shall not bear the Global Debenture Legend and shall not have the "Schedule of Exchanges of Interests in the Global Debenture" attached hereto. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Events of Default" means those events specified as Events of Default in Section 211 hereof. "Global Debentures" means, individually and collectively, each of the Restricted Global Debentures and the Unrestricted Global Debentures in the form of Exhibit A hereto issued in accordance with Section 301, 303(b)(iv) or 303(d)(ii) hereof. "Global Debenture Legend" means the legend set forth in Section 303(f)(ii) hereof, which is required to be placed on all Global Debentures issued under this Supplemental Indenture. "Guarantor" means Cinergy Corp. "Guaranty Agreement" means the agreement of that name dated as of November 3, 1998 between the Guarantor and the Trustee guaranteeing payment of Debt Service on the Debentures. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Indirect Participant" means a Person who holds a beneficial interest in a Global Debenture through a Participant. "Initial Purchaser" means a purchaser of Debentures from the Company upon the initial issuance thereof by the Company. "Insurance Policy" means the unconditional and irrevocable policy of financial guaranty insurance to be issued by the Insurer on November 3, 1998 guaranteeing payment of regularly scheduled principal of and interest on the Debentures. "Insurer" means MBIA Insurance Corporation. "Maturity Date" means November 3, 2008. "Non-U.S. Person" means a Person who is not a U.S. Person. "Optional Redemption" means the right of the company to redeem Debentures as set forth in Section 210 hereof. "Optional Redemption Date" means the date of an Optional Redemption. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "Private Placement Legend" means the legend set forth in Section 303(f)(i) hereof to be placed on all Debentures issued under this Supplemental Indenture except where otherwise permitted by the provisions of this Supplemental Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Reference Treasury Dealer" means a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"). "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Debenture" means a Regulation S Temporary Global Debenture or Regulation S Permanent Global Debenture, as appropriate. "Regulation S Permanent Global Debenture" means a permanent global Debenture in the form of Exhibit A-1 hereto bearing the Global Debenture Legend and the Private Placement Legend, if applicable, and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Debenture upon expiration of the Restricted Period. "Regulation S Temporary Global Debenture" means a temporary global Debenture in the form of Exhibit A-2 hereto bearing the Global Debenture Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Debentures initially sold in reliance on Rule 903 of Regulation S. "Remaining Scheduled Payments" means, with respect to any Debenture, the remaining scheduled payments of the principal thereof to be redeemed and interest thereon that would be due after the Optional Redemption Date but for the Optional Redemption. "Restricted Definitive Debenture" means a Definitive Debenture bearing the Private Placement Legend. "Restricted Global Debenture" means a Global Debenture bearing the Private Placement Legend. "Restricted Period" means the 40-day restricted period as defined in Regulation S. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 144A Global Debenture" means the form of the Debentures initially sold to QIBs. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "Treasury Rate" means, with respect to the Optional Redemption Date (if any), the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Optional Redemption Date. "Unrestricted Global Debenture" means a permanent global Debenture in the form of Exhibit A-1 attached hereto that bears the Global Debenture Legend and that has the "Schedule of Exchanges of Interests in the Global Debenture" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Debentures that do not bear the Private Placement Legend. "Unrestricted Definitive Debenture" means one or more Definitive Debentures that do not bear and are not required to bear the Private Placement Legend. "U.S. Person" means (i) any individual resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any estate of which an executor or administrator is a U.S. Person (other than an estate governed by foreign law and of which at least one executor or administrator is a non-U.S. Person who has sole or shared investment discretion with respect to its assets), (iv) any trust of which any trustee is a U.S. Person (other than a trust of which at least one trustee is a non-U.S. Person who has sole or shared investment discretion with respect to its assets and no beneficiary of the trust (and no settler, if the trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign entity located in the United States, (vi) any non-discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. Person, (vii) any discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States (other than such an account held for the benefit or account of a non-U.S. Person), (viii) any partnership or corporation organized or incorporated under the laws of a foreign jurisdiction and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act (unless it is organized or incorporated and owned, by "accredited investors" within the meaning of Rule 501(a) under the Securities Act who are not natural persons, estates or trusts); provided that the term "U.S. Person" shall not include (A) a branch or agency of a U.S. Person that is located and operating outside the United States for valid business purposes as a locally regulated branch or agency engaged in the banking or insurance business, (B) any employee benefit plan established and administered in accordance with the law, customary practices and documentation of a foreign country and (C) the international organizations set forth in Section 902(o)(7) of Regulation S under the Securities Act and any other similar international organizations, and their agencies, affiliates and pension plans. ARTICLE TWO Terms of the Debentures; Payments by the Company Section 201. Establishment of the Debentures. There is hereby authorized a series of Securities designated the "6.20% Debentures due 2008," limited in aggregate principal amount to $150,000,000. The Debentures shall mature and the principal shall be due and payable together with all accrued and unpaid interest thereon on November 3, 2008 and shall be issued in the form of registered Global Securities without coupons, registered in the name of the Depositary or its nominee. The provisions of Section 305 of the Indenture applicable to Global Securities shall apply to the Debentures. Section 202. Terms of the Debentures. Interest on each of the Debentures shall be payable semiannually on May 3 and November 3 of each year, commencing May 3, 1999 (each an "Interest Payment Date"), at the rate per annum specified in the designation of the Debentures from November 3, 1998, 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 registered Holders of record on the Business Day immediately preceding such Interest Payment Date (each a "Regular Record 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. Any payment on the Debentures due on any day which is not a Business Day need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date and no interest shall accrue for the period from and after such date, unless such payment is a payment at Maturity or upon redemption, in which case interest shall accrue thereon at the stated rate for such additional days. Section 203. Payments by Company. All amounts due on the Debentures on any Interest Payment Date as Debt Service shall be paid by the Company to the Trustee three Business Days prior to such date. Section 204. Insurance. Timely payment of principal of and interest on the Debentures shall, at all times while any Debenture is Outstanding, be guaranteed by the Insurance Policy. Section 205. Payments. Subject to agreements with or the rules of The Depository Trust Company ("DTC") or any successor book-entry security system or similar system with respect to Global Securities, principal of and any premium and interest on the Debentures shall be payable at the office of the Paying Agent or Paying Agents as the Company may designate for such purpose from time to time, except that at the option of the Company payment of any interest may be made by check mailed to the address of the Person entitled thereto as such address appears in the Security Register. The corporate trust office of the Trustee in the City of Cincinnati, located at 38 Fountain Square Plaza, Cincinnati, Ohio 45263, is hereby designated as the Company's sole Paying Agent for payments with respect to the Debentures. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agent or approve a change in the office through which any Paying Agent acts, except that the Company shall maintain a Paying Agent in each Place of Payment for the Debentures. Section 206. Denominations. The Debentures shall be issued in denominations of $1,000 or any integral multiple of $1,000. Section 207. Legal Tender. Principal of, premium (if any) 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 208. Defeasance. With the prior consent of the Insurer, so long as the Insurance Policy is in effect and the Insurer is not in default of its obligation to make payments thereunder, the Debentures shall be subject to defeasance, at the Company's option, as provided for in Sections 1302 and 1303 of the Indenture. Section 209. No Sinking Fund. The Debentures will not be subject to any sinking fund. Section 210. Optional Redemption. Subject to the terms of Article Eleven of the Indenture, the Company shall have the right to redeem the Debentures, in whole but not in part, from time to time and at any time upon not less than 30 days' notice to the holders, at a redemption price equal to the sum of (A) the greater of (i) 100% of the principal amount of the Debentures to be redeemed or (ii) the sum of the present values of the Remaining Scheduled Payments thereon discounted to the Optional Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, less the Applicable Accrued Interest Amount plus (B) the Applicable Accrued Interest Amount. Section 211. Events of Default. Each of the following shall constitute an "Event of Default" with respect to the Debentures: (a) failure to pay principal of or any premium on any Debenture when due; (b) failure to pay any interest on any Debenture when due; (c) default in the performance, or breach, of any covenant or warranty of the Company in the Indenture or this Supplemental Indenture (other than a covenant or warranty included in the Indenture solely for the benefit of a series other than the Debentures), 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 Insurer or the Holders of at least 35% of the principal amount of the Outstanding Debentures a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" under this Supplemental Indenture; (d) those events specified in clauses (5) and (6) of Section 501 of the Indenture; (e) the Guaranty Agreement shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, or the Guarantor, or any person on behalf of the Guarantor, shall deny or disaffirm its obligations under the Guaranty Agreement; and (f) an event of default shall occur and be continuing under the Guaranty Agreement. Section 212. Collection of Indebtedness and Suits by Trustee. Paragraph (1) of Section 503 of the Indenture is hereby amended with respect to the Debentures to read as follows: (1) default is made in the payment of any interest on any Security when such interest becomes due and payable, or Section 213. Application of Money Collected. With respect to the Debentures, any money collected by the Trustee pursuant to Article Five of the Indenture and distributed pursuant to Section 506 thereof shall not be paid to the Company until (i) the Insurer has been fully reimbursed for any amounts paid pursuant to a claim on the Insurance Policy and has been paid any other amounts to which it is entitled and (ii) the Guarantor has been fully reimbursed for any amounts paid pursuant to the Guaranty Agreement. ARTICLE THREE The Debentures Section 301. Original Issue of Debentures. Debentures in the aggregate principal amount of $150,000,000 may, upon execution of this 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. Section 302. Form of the Debentures. (a) Global Debentures. Debentures issued in global form shall be substantially in the form of Exhibit A-1 attached hereto (including the Global Debenture Legend thereon and the "Schedule of Exchanges of Interests in the Global Debenture" attached thereto). Debentures issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Debenture Legend thereon and without the "Schedule of Exchanges of Interests in the Global Debenture" attached thereto). Each Global Debenture shall represent such of the outstanding Debentures as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Debentures from time to time endorsed thereon and that the aggregate principal amount of outstanding Debentures represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Debenture to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Debentures represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 303 hereof. (b) Temporary Global Debentures. Debentures offered and sold in reliance on Regulation S shall be issued initially in the form of Exhibit A-2 attached hereto, which shall be deposited on behalf of the purchasers of the Debentures represented thereby with the Trustee, at its Cincinnati office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as herein provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Debenture (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a Rule 144A Global Debenture, all as contemplated by Section 303 hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Debenture shall be exchanged for beneficial interests in Regulation S Permanent Global Debentures pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Debentures, the Trustee shall cancel the Regulation S Temporary Global Debenture. The aggregate principal amount of the Regulation S Temporary Global Debenture and the Regulation S Permanent Global Debentures may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (c) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Debenture and the Regulation S Permanent Global Debentures that are held by Participants through Euroclear or Cedel Bank. (d) General. The terms and provisions contained in the Debentures shall constitute, and are hereby expressly made, a part of this Supplemental Indenture and the Company and the Trustee, by their execution and delivery of this Supplemental Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provisions of any Debenture conflicts with the express provisions of this Supplemental Indenture, the provisions of this Supplemental Indenture shall govern and be controlling. Section 303. Transfer and Exchange of Debentures. (a) Transfer and Exchange of Global Debentures. A Global Debenture may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Debentures will be exchanged by the Company for Definitive Debentures if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Debentures (in whole but not in part) should be exchanged for Definitive Debentures and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Debenture be exchanged by the Company for Definitive Debentures prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act or (iii) there shall have occurred and be continuing a default or an Event of Default and the Trustee receives a request from the Depositary to issue Definitive Debentures. Upon the occurrence of any of the preceding events, Definitive Debentures shall be issued in such names as the Depositary shall instruct the Trustee. Global Debentures also may be replaced, in whole or in part, as provided in Sections 304 and 306 of the Indenture. Every Debenture authenticated and delivered in exchange for, or in lieu of, a Global Debenture or any portion thereof, pursuant to this Section 303 or Sections 304 or 306 of the Indenture, shall be authenticated and delivered in the form of, and shall be, a Global Debenture. A Global Debenture may not be exchanged for another Debenture other than as provided in this Section 303(a), however, beneficial interests in a Global Debenture may be transferred and exchanged as provided in Section 303(b) or (c) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Debentures. The transfer and exchange of beneficial interests in the Global Debentures shall be effected through the Depositary, in accordance with the provisions of this Supplemental Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Debentures shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Debentures also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Debenture. Beneficial interests in any Restricted Global Debenture may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Debenture in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Regulation S Global Debentures may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Debenture may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture. No written orders or instructions shall be required to be delivered to the Security Registrar to effect the transfers described in this Section 303(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Debentures. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 303(b)(i) above, the transferor of such beneficial interest must deliver to the Security Registrar either (A)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Debenture in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Debenture in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Security Registrar containing information regarding the Person in whose name such Definitive Debenture shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Debentures be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Debenture prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Debentures contained in this Supplemental Indenture and the Debentures or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Debenture(s) pursuant to Section 303(g) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Debenture. A beneficial interest in any Restricted Global Debenture may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Debenture if the transfer complies with the requirements of Section 303(b)(ii) above and the Security Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the Rule 144A Global Debenture, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Debenture or the Regulation S Global Debenture, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Debenture for Beneficial Interests in the Unrestricted Global Debenture. A beneficial interest in any Restricted Global Debenture may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Debenture or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture if the exchange or transfer complies with the requirements of Section 303(b)(ii) above and the Security Registrar receives the following: (A) if the holder of such beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Debenture, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (B) if the holder of such beneficial interest in a Restricted Global Debenture proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in (A) and (B) above, if the Security Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Security Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to this subparagraph (iv) at a time when an Unrestricted Global Debenture has not yet been issued, the Company shall issue and the Trustee shall authenticate, pursuant to Section 614 of the Indenture, one or more Unrestricted Global Debentures in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to this subparagraph (iv). Beneficial interests in an Unrestricted Global Debenture cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Debenture. (c) Transfer or Exchange of Beneficial Interests for Definitive Debentures. (i) Beneficial Interests in Restricted Global Debentures to Restricted Definitive Debentures. If any holder of a beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a Restricted Definitive Debenture or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Debenture, then, upon receipt by the Security Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a Restricted Definitive Debenture, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to the Company or any of its subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Debenture to be reduced accordingly pursuant to Section 303(g) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Debenture in the appropriate principal amount. Any Definitive Debenture issued in exchange for a beneficial interest in a Restricted Global Debenture pursuant to this Section 303(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Debentures to the Persons in whose names such Debentures are so registered. Any Definitive Debenture issued in exchange for a beneficial interest in a Restricted Global Debenture pursuant to this Section 303(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Restrictions on Exchanges of Regulation S Temporary Global Securities. Notwithstanding Sections 303(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Debenture may not be exchanged for a Definitive Debenture or transferred to a Person who takes delivery thereof in the form of a Definitive Debenture prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903 under the Securities Act except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Debentures to Unrestricted Definitive Debentures. A holder of a beneficial interest in a Restricted Global Debenture may exchange such beneficial interest for an Unrestricted Definitive Debenture or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Debenture only if the Security Registrar receives the following: (A) if the holder of such beneficial interest in a Restricted Global Debenture proposes to exchange such beneficial interest for a Definitive Debenture that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (B) if the holder of such beneficial interest in a Restricted Global Debenture proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Debenture that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case if the Security Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Security Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) Beneficial Interests in Unrestricted Global Debentures to Unrestricted Definitive Debentures. If any holder of a beneficial interest in an Unrestricted Global Debenture proposes to exchange such beneficial interest for a Definitive Debenture or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Debenture, then, upon satisfaction of the conditions set forth in Section 303(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Debenture to be reduced accordingly pursuant to Section 303(g) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Debenture in the appropriate principal amount. Any Definitive Debenture issued in exchange for a beneficial interest pursuant to this Section 303(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Debentures to the Persons in whose names such Debentures are so registered. Any Definitive Debenture issued in exchange for a beneficial interest pursuant to this Section 303(c)(iv) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Debentures for Beneficial Interests. (i) Restricted Definitive Debentures to Beneficial Interests in Restricted Global Debentures. If any Holder of a Restricted Definitive Debenture proposes to exchange such Debenture for a beneficial interest in a Restricted Global Debenture or to transfer such Restricted Definitive Debentures to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Debenture, then, upon receipt by the Security Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Debenture proposes to exchange such Debenture for a beneficial interest in a Restricted Global Debenture, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Definitive Debenture is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Debenture is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Debenture is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof, or (E) if such Restricted Definitive Debenture is being transferred to the Company or any of its subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (F) if such Restricted Definitive Debenture is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Debenture, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Debenture, in the case of clause (B) above, the Rule 144A Global Debenture, and in the case of clause (C) above, the Regulation S Global Debenture. (ii) Restricted Definitive Debentures to Beneficial Interests in Unrestricted Global Debentures. A Holder of a Restricted Definitive Debenture may exchange such Debenture for a beneficial interest in an Unrestricted Global Debenture or transfer such Restricted Definitive Debenture to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture only if the Security Registrar receives the following: (A) If the Holder of such Definitive Debentures proposes to exchange such Debentures for a beneficial interest in the Unrestricted Global Debenture, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (B) If the Holder of such Definitive Debentures proposes to transfer such Debentures to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Debenture, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (ii), and if the Security Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Security Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 303(d)(ii), the Trustee shall cancel the Definitive Debentures and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Debenture. (iii) Unrestricted Definitive Debentures to Beneficial Interests in Unrestricted Global Debentures. A Holder of an Unrestricted Definitive Debenture may exchange such Debenture for a beneficial interest in an Unrestricted Global Debenture or transfer such Definitive Debentures to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Debenture at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Debenture and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Debentures. If any such exchange or transfer from a Definitive Debenture to a beneficial interest is effected pursuant to subparagraphs (ii) or (iii) above at a time when an Unrestricted Global Debenture has not yet been issued, the Company shall issue and the Trustee shall authenticate, pursuant to Section 614 of the Indenture, one or more Unrestricted Global Debentures in an aggregate principal amount equal to the principal amount of Definitive Debentures so transferred. (e) Transfer and Exchange of Definitive Debentures for Definitive Debentures. Upon request by a Holder of Definitive Debentures and such Holder's compliance with the provisions of this Section 303(e), the Security Registrar shall register the transfer or exchange of Definitive Debentures. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Security Registrar the Definitive Debentures duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Security Registrar duly executed by such Holder or by the Holder's attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 303(e). (i) Restricted Definitive Debentures to Restricted Definitive Debentures. Any Restricted Definitive Debenture may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Debenture if the Security Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Debentures to Unrestricted Definitive Debentures. Any Restricted Definitive Debenture may be exchanged by the Holder thereof for an Unrestricted Definitive Debenture or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Debenture if the Security Registrar receives the following: (A) if the Holder of such Restricted Definitive Debentures proposes to exchange such Debentures for an Unrestricted Definitive Debenture, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (B) if the Holder of such Restricted Definitive Debentures proposes to transfer such Debentures to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Debenture, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and in each such case set forth in this subparagraph (ii), if the Security Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Debentures to Unrestricted Definitive Debentures. A Holder of Unrestricted Definitive Debentures may transfer such Debentures to a Person who takes delivery thereof in the form of an Unrestricted Definitive Debenture. Upon receipt of a request to register such a transfer, the Security Registrar shall register the Unrestricted Definitive Debentures pursuant to the instructions from the Holder thereof. (f) Legends. The following legends shall appear on the face of all Global Debentures and Definitive Debentures issued under this Supplemental Indenture unless specifically stated otherwise in the applicable provisions of this Supplemental Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Debenture and each Definitive Debenture (and all Debentures issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT HAS ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE FIRST SUPPLEMENTAL INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING." (B) Notwithstanding the foregoing, any Global Debenture or Definitive Debenture issued pursuant to subparagraphs (b)(iv), (c)(iii), (d)(ii), (d)(iii), (e)(ii) or (e)(iii) to this Section 303 (and all Debentures issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Debenture Legend. Each Global Debenture shall bear a legend in substantially the following form: "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (iii) Regulation S Temporary Global Debenture Legend. The Regulation S Temporary Global Debenture shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED SECURITIES, ARE AS SPECIFIED IN THE FIRST SUPPLEMENTAL INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (g) Cancellation and/or Adjustment of Global Debentures. At such time as all beneficial interests in a particular Global Debenture have been exchanged for Definitive Debentures or a particular Global Debenture has been redeemed, repurchased or canceled in whole and not in part, each such Global Debenture shall be returned to or retained and canceled by the Trustee in accordance with Section 309 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Debenture is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Debenture or for Definitive Debentures, the principal amount of Debentures represented by such Global Debenture shall be reduced accordingly and an endorsement shall be made on such Global Debenture by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Debenture, such other Global Debenture shall be increased accordingly and an endorsement shall be made on such Global Debenture by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. ARTICLE FOUR Paying Agent and Security Registrar; Depositary Section 401. Paying Agent and Security Registrar. The Fifth Third Bank is hereby appointed the Paying Agent and Security Registrar for the Debentures. Section 402. Depositary. DTC is hereby appointed the Depositary fo the Debentures. ARTICLE FIVE Insurer Provisions Section 501. Rights of Insurer Controlling. Anything herein to the contrary notwithstanding, if the Insurance Policy is in effect with respect to the Debentures and the Insurer is not in default of its obligation to make payments thereunder, the Insurer shall be deemed to be the owner of all Debentures then Outstanding for all voting purposes (including, without limitation, all approvals, consents, waivers, and the institution of any action), and shall have the exclusive right to exercise or direct the exercise of remedies on behalf of the Holders of the Debentures in accordance with the terms hereof following an Event of Default, and the principal of all the Debentures Outstanding may not be declared to be due and payable immediately without the prior written consent of the Insurer. Notwithstanding the foregoing, the Insurer may not modify in any manner the terms and provisions of Sections 201 and 202 hereof. Section 502. Payments Under the Insurance Policy. (a) If, on the second Business Day next preceding any date on which payment of principal of or interest on the Debentures is due, the Trustee has not received payments from the Company pursuant to this Supplemental Indenture or from the Guarantor pursuant to the Guaranty Agreement, in such amounts so that sufficient moneys are available to pay all principal and interest coming due on the Debentures on the next succeeding Interest Payment Date or the Maturity Date, as the case may be, the Trustee shall immediately notify the Insurer or its designee by telephone or facsimile transmission, confirmed in writing by registered or certified mail, of the amount of the deficiency and that the Trustee is making a claim for that amount under the Insurance Policy. (b) If the deficiency is made up in whole or in part prior to or on the Interest Payment Date or Maturity Date, the Trustee shall so notify the Insurer or its designee. (c) In addition, if the Trustee has notice that any of the Holders have been required to disgorge payments of principal or interest on the Debentures to the Company or to the trustee in bankruptcy for creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes a voidable preference to such Holders within the meaning of any applicable bankruptcy laws, then the Trustee shall notify the Insurer or its designee of such fact by telephone or facsimile transmission, confirmed in writing by registered or certified mail. (d) The Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for Holders of the Debentures as follows: (i) if and to the extent there is a deficiency in amounts required to pay interest on the Debentures, the Trustee shall (A) execute and deliver to State Street Bank and Trust Company, N.A., or its successors under the Insurance Policy (the "Insurance Paying Agent"), in form satisfactory to the Insurance Paying Agent, an instrument appointing the Insurer as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (B) receive as designee of the respective Holders (and not as Trustee) in accordance with the tenor of the Insurance Policy payment from the Insurance Paying Agent with respect to the claims for interest so assigned and (C) disburse the same to such respective Holders; and (ii) if and to the extent of a deficiency in amounts required to pay principal of the Debentures, the Trustee shall (A) execute and deliver to the Insurance Paying Agent an instrument appointing the Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Debentures surrendered to the Insurance Paying Agent of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Trustee and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent is received), (B) receive as designee of the respective Holders (and not as Trustee) in accordance with the tenor of the Insurance Policy payment therefor from the Insurance Paying Agent and (C) disburse the same to such Holders. (e) Payments with respect to claims for interest on and principal of the Debentures disbursed by the Trustee from proceeds of the Insurance Policy shall not be considered to discharge the obligation of the Company with respect to such Debentures as set forth in Article One hereof, and the Insurer shall become the owner of such unpaid Debentures and claims for interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. (f) Irrespective of whether any such assignment is executed and delivered, the Company and the Trustee hereby agree for the benefit of the Insurer that: (i) they recognize that to the extent the Insurer makes payments, directly or indirectly (as by paying through the Trustee), on account of principal of or interest on the Debentures, the Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the Company, with interest thereon as provided in this Supplemental Indenture and the Debentures; and (ii) they will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Insurance Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Supplemental Indenture and the Debentures, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Debentures to Holders and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest. (g) No amendment or supplement shall be made to this Supplemental Indenture without the prior written consent of the Insurer so long as the Insurance Policy is in effect and the Insurer is not in default of its obligations to make payments thereunder. Copies of any amendments or supplements made to the documents executed in connection with the issuance of the Debentures which are consented to by the Insurer shall be sent to Moody's Investors Service, Inc. or any successor thereto and to Standard & Poor's Ratings Service, a division of the McGraw-Hill Companies, Inc. or any successor thereto. (h) So long as the Insurance Policy is in effect and the Insurer is not in default of its obligations to make payments thereunder, the Insurer shall receive notice of the resignation or removal of the Trustee and any successor trustee must be approved by the Insurer. (i) So long as the Insurance Policy is in effect and the Insurer is not in default of its obligations to make payments thereunder, the Insurer shall receive copies of all notices required to be delivered to the Holders and, on an annual basis, copies of the Guarantor's audited financial statements. (j) So long as the Insurance Policy is in effect and the Insurer is not in default of its obligations to make payments thereunder, the Insurer shall be notified (i) immediately upon the occurrence of an Event of Default or of any event that with notice and/or with the lapse of time could become an Event of Default, and (ii) of any redemption of the Debentures at the same time that the Holders of the Debentures are notified. All notices, reports and certificates to be delivered to or by the Trustee, or to a Holder of the Debentures or available at the request of the Holders shall also be provided to the Insurer. In addition, all opinions to be delivered to or by the Trustee, or to a Holder of the Debentures shall also be addressed to the Insurer. All notices required to be given to the Insurer under this Supplemental Indenture shall be in writing and shall be sent by registered or certified mail addressed to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504, Attention: Insured Portfolio Management -- PCF. (k) Notwithstanding any other provision to the contrary herein, so long as the Insurance Policy is in effect and the Insurer is not in default of its obligations to make payments thereunder, the Insurer is an express third-party beneficiary and may enforce this Supplemental Indenture as if a party hereto. (l) Notwithstanding any other provision to the contrary herein, so long as the Insurance Policy is in effect and the Insurer is not in default of its obligations to make payments thereunder, any defeasance of Debentures pursuant to Section 208 hereof requires the prior written consent of the Insurer. (m) Prior to satisfaction and discharge of this Supplemental Indenture and the Indenture pursuant to Article Four thereof, any amounts drawn under the Insurance Policy shall be reimbursed to the Insurer. So long as the Insurance Policy is in effect and the Insurer is not in default of its obligations to make payments thereunder, any certificates or opinions to be delivered to the Trustee pursuant to Article Four or Sections 1304 or 1305 of the Indenture shall be delivered concurrently to the Insurer. (n) Paragraph (1) of Section 401 of the Indenture is hereby amended with respect to the Debentures to read as follows: (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, (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 and (iii) the Insurer has been fully reimbursed for any amounts paid pursuant to a claim on the Insurance Policy and has been paid any other amounts to which it is entitled; 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; ARTICLE SIX Sundry Provisions Section 601. Defined Terms. Except as otherwise expressly provided in this 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 602. Indenture Ratified and Confirmed. The Indenture, as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed, and this Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. Section 603. Notices. All notices to be delivered to the Company hereunder or under the Indenture and this Supplemental Indenture shall be delivered concurrently to Cinergy Corp. at 139 East Fourth Street, Cincinnati, Ohio 45202, Attention: Treasurer. ------------------ 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 Supplemental Indenture to be duly executed as of the date first above written. CINERGY GLOBAL RESOURCES, INC. By /s/ William L. Sheafer William L. Sheafer Vice President and Treasurer THE FIFTH THIRD BANK, as Trustee By /s/ Kerry R. Byrne Kerry R. Byrne Vice President EXHIBIT A-1 ------------------ (FORM OF FACE OF DEBENTURE) No. R-1 $__________ CUSIP No. CINERGY GLOBAL RESOURCES, INC. 6.20% DEBENTURE DUE 2008 [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]1 THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT HAS ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE FIRST SUPPLEMENTAL INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING. - -------- 1 This should be added only if the Debenture is being issued in global form. CINERGY GLOBAL RESOURCES, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of One Hundred Fifty Million and No/100 Dollars ($150,000,000) on November 3, 2008, and to pay, on May 3 and November 3 of each year, commencing May 3, 1999 (each an "Interest Payment Date"), interest thereon from November 3, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for at the rate of 6.20% 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 Business Day immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this 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. Subject to agreements with or the rules of DTC or any successor book-entry security system or similar system with respect to Global Securities, 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. Payments of principal of (and premium, if any) and interest on this Security have been unconditionally guaranteed pursuant to a Guaranty Agreement between Cinergy Corp. and the Trustee, and payments of principal and interest have further been guaranteed by MBIA Insurance Corporation pursuant to an unconditional and irrevocable policy of financial guaranty insurance. Any payment on this Security due on any day which is not a Business Day need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date and no interest shall accrue for the period from and after such date, unless such payment is a payment at maturity or upon redemption, in which case interest shall accrue thereon at the stated rate for such additional days. As used herein, "Business Day" means any day, other than a Saturday or Sunday, or a day on which banking institutions in the City of New York or the City of Cincinnati are authorized or obligated by law or executive order to be closed. 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. CINERGY GLOBAL RESOURCES, 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 October 15, 1998 (the "Base Indenture") between the Company and The Fifth Third Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), as supplemented by a First Supplemental Indenture dated as of October 15, 1998 between the Company and the Trustee (the "Supplemental Indenture" and, together with the Base Indenture, 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 $150,000,000. Timely payment of principal of and interest on the Securities of this series shall, at all times while any Security is Outstanding, be guaranteed by an unconditional and irrevocable policy of financial guaranty insurance (the "Insurance Policy") issued by MBIA Insurance Corporation (the "Insurer"). The Securities of this series will not be subject to any sinking fund. The Securities of this series are subject to optional redemption, in whole but not in part, from time to time and at any time (such redemption, an "Optional Redemption", and the date thereof, the "Optional Redemption Date") upon not less than 30 days' notice to the holders, at a redemption price equal to the sum of (A) the greater of (i) 100% of the principal amount of the Securities of this series to be redeemed or (ii) the sum of the present values of the Remaining Scheduled Payments thereon discounted to the Optional Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, less the Applicable Accrued Interest Amount plus (B) the Applicable Accrued Interest Amount. "Applicable Accrued Interest Amount" means, at the Optional Redemption Date, the amount of interest accrued and unpaid from the prior interest payment date to the Optional Redemption Date on the Securities of this series subject to the Optional Redemption determined at the rate per annum shown in the title hereof, computed on the basis of a 360-day year of twelve 30-day months. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series to be redeemed pursuant to the Optional Redemption. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to the Optional Redemption Date, the average of the Reference Treasury Dealer Quotations for such Optional Redemption Date. "Reference Treasury Dealer" means a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"). "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. "Remaining Scheduled Payments" means, with respect to any Securities of this series, the remaining scheduled payments of principal thereof to be redeemed and interest thereon that would be due after the Optional Redemption Date but for the Optional Redemption. "Treasury Rate" means, with respect to the Optional Redemption Date (if any), the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Optional Redemption Date. The Indenture contains provisions for defeasance at any time of the entire indebtedness of the Securities of this series or certain restrictive covenants and Events of Default with respect to the Securities of this series 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 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 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. If the Insurance Policy is in effect with respect to the Securities of this series and the Insurer is not in default of its obligation to make payments thereunder, the Insurer shall be deemed to be the owner of all Securities of this series then Outstanding for all voting purposes (including, without limitation, all approvals, consents, waivers, and the institution of any action), and shall have the exclusive right to exercise or direct the exercise of remedies on behalf of the Holders of the Securities of this series in accordance with the terms of the Supplemental Indenture following an Event of Default, and the principal of all the Securities of this series Outstanding may not be declared to be due and payable immediately without the prior written consent of the Insurer. 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 Supplemental Indenture unless otherwise indicated. STATEMENT OF INSURANCE The MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at The Fifth Third Bank, Cincinnati, Ohio. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to The Fifth Third Bank or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $150,000,000 CINERGY GLOBAL RESOURCES, INC. 6.20% DEBENTURES DUE 2008 Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non-cancelable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint ___________________________________________________ to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Security) Signature Guarantee: [SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL DEBENTURE]2 [The following exchanges of a part of this Global Debenture for an interest in another Global Debenture or for a Definitive Debenture, or exchanges of a part of another Global Debenture or Definitive Debenture, for an interest in this Global Debenture, have been made: Principal Amount of Amount of Amount of this Signature of decrease in increase in Global authorized Principal Principal Debenture officer of Trustee Amount of this Amount of this following such or Debenture Date of Global Global decrease (or Custodian] Exchange Debenture Debenture increase)
- -------------------- 2 This should be included only if the Debenture is issued in global form. EXHIBIT A-2 (FACE OF REGULATION S TEMPORARY GLOBAL DEBENTURE) The form of this Debenture shall be the same as Exhibit A-1, except that the following new paragraph shall be added immediately prior to the first paragraph thereof: THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED SECURITIES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Cinergy Global Resources, Inc. 139 East Fourth Street Cincinnati, Ohio 45202 The Fifth Third Bank 38 Fountain Square Plaza Cincinnati, Ohio 45263 Re: 6.20% Debentures due 2008 of Cinergy Global Resources, Inc., a Delaware corporation Reference is hereby made to the First Supplemental Indenture dated as of October 15, 1998 among Cinergy Global Resources, Inc. (the "Company") and The Fifth Third Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the First Supplemental Indenture. ______________, (the "Transferor") owns and proposes to transfer the Debenture[s] or interest in such Debenture[s] specified in Annex A hereto, in the principal amount of $___________ in such Debenture[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. |_| Check if Transferee will take delivery of a beneficial interest in the 144A Global Debenture or a Definitive Debenture Pursuant to Rule 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Debenture is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Debenture for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable Blue Sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the First Supplemental Indenture, the transferred beneficial interest or Definitive Debenture will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Rule 144A Global Debenture and/or the Definitive Debenture and in the First Supplemental Indenture and the Securities Act. 2. |_| Check if Transferee will take delivery of a beneficial interest in the Temporary Regulation S Global Debenture, the Regulation S Global Debenture or a Definitive Debenture pursuant to Regulation S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore Securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Debenture will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Debenture, the Temporary Regulation S Global Debenture and/or the Definitive Debenture and in the First Supplemental Indenture and the Securities Act. 3. |_| Check and complete if Transferee will take delivery of a beneficial interest in a Definitive Debenture pursuant to any provision of the Securities Act other than Rule 144A or Regulation S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Debentures and Restricted Definitive Debentures and pursuant to and in accordance with the Securities Act and any applicable Blue Sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) |_| such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) |_| such Transfer is being effected to the Company or a subsidiary thereof; or (c) |_| such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act. 4. |_| Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Debenture or an Unrestricted Definitive Debenture. (a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the First Supplemental Indenture and any applicable Blue Sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the First Supplemental Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the First Supplemental Indenture, the transferred beneficial interest or Definitive Debenture will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Debentures, on Restricted Definitive Debentures and in the First Supplemental Indenture. (b) |_| Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the First Supplemental Indenture and any applicable Blue Sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the First Supplemental Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the First Supplemental Indenture, the transferred beneficial interest or Definitive Debenture will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Debentures, on Restricted Definitive Debentures and in the First Supplemental Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. [Insert Name of Transferor] By: Name: Title: Dated: ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) |_| a beneficial interest in the: (i) |_| 144A Global Debenture (CUSIP __________), or (ii) |_| Regulation S Global Debenture (CUSIP __________); or (b) |_| a Restricted Definitive Debenture. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) |_| a beneficial interest in the: (i) |_| 144A Global Debenture (CUSIP __________), or (ii) |_| Regulation S Global Debenture (CUSIP __________), or (iii) |_| Unrestricted Global Debenture without Transfer restrictions (CUSIP __________); or (b) |_| a Restricted Definitive Debenture; or (c) |_| an Unrestricted Definitive Debenture, in accordance with the terms of the First Supplemental Indenture. EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Cinergy Global Resources, Inc. 139 East Fourth Street Cincinnati, Ohio 45202 The Fifth Third Bank 38 Fountain Square Plaza Cincinnati, Ohio 45263 Re: 6.20% Debentures due 2008 of Cinergy Global Resources, Inc., a Delaware corporation (CUSIP: ) Reference is hereby made to the First Supplemental Indenture dated as of October 15, 1998 among Cinergy Global Resources, Inc. (the "Company") and The Fifth Third Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the First Supplemental Indenture. ____________________, (the "Owner") owns and proposes to exchange the Debenture[s] or interest in such Debenture[s] specified herein, in the principal amount of $_______________ in such Debenture[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. Exchange of Restricted Definitive Debentures or Beneficial Interests in a Restricted Global Debenture for Unrestricted Definitive Debentures or Beneficial Interests in an Unrestricted Global Debenture (a) |_| Check if Exchange is from beneficial interest in a Restricted Global Debenture to beneficial interest in an Unrestricted Global Debenture. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Debenture for a beneficial interest in an Unrestricted Global Debenture in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Debentures and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the First Supplemental Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Debenture is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. (b) |_| Check if Exchange is from beneficial interest in a Restricted Global Debenture to Unrestricted Definitive Debenture. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Debenture for an Unrestricted Definitive Debenture, the Owner hereby certifies (i) the Definitive Debenture is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Debentures and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the First Supplemental Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Debenture is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. (c) |_| Check if Exchange is from Restricted Definitive Debenture to beneficial interest in an Unrestricted Global Debenture. In connection with the Owner's Exchange of a Restricted Definitive Debenture for a beneficial interest in an Unrestricted Global Debenture, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Debentures and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the First Supplemental Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. (d) |_| Check if Exchange is from Restricted Definitive Debenture to Unrestricted Definitive Debenture. In connection with the Owner's Exchange of a Restricted Definitive Debenture for an Unrestricted Definitive Debenture, the Owner hereby certifies (i) the Unrestricted Definitive Debenture is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Debentures and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the First Supplemental Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Debenture is being acquired in compliance with any applicable Blue Sky securities laws of any state of the United States. 2. Exchange of Restricted Definitive Debentures or Beneficial Interests in Restricted Global Debentures for Restricted Definitive Debentures or Beneficial Interests in Restricted Global Debentures. (a) |_| Check if Exchange is from beneficial interest in a Restricted Global Debenture to Restricted Definitive Debenture. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Debenture for a Restricted Definitive Debenture with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Debenture is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the First Supplemental Indenture, the Restricted Definitive Debenture issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Debenture and in the First Supplemental Indenture and the Securities Act. (b) |_| Check if Exchange is from Restricted Definitive Debenture to beneficial interest in a Restricted Global Debenture. In connection with the Exchange of the Owner's Restricted Definitive Debenture for a beneficial interest in the [CHECK ONE] "144A Global Debenture," "Regulation S Global Debenture," with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Debentures and pursuant to and in accordance with the Securities Act, and in compliance with any applicable Blue Sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the First Supplemental Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Debenture and in the First Supplemental Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer. [Insert Name of Owner] By: Name: Title: EX-10 4 EMPLOYMENT AGREEMENT--ROGERS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT made and entered into as of the 22nd day of September, 1998, by and among Cinergy Corp., a Delaware corporation ("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI Energy"), and James E. Rogers (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Agreement collectively as the "Company." WHEREAS, the Executive is currently serving as Vice Chairman, President and Chief Executive Officer of the Company, and the Company desires to secure the continued employment of the Executive in accordance herewith; WHEREAS, PSI entered into an employment agreement with the Executive dated May 17, 1990 (the "1990 Employment Agreement"); WHEREAS, PSI, CG&E and CINergy Corp., an Ohio corporation, entered into an employment agreement with the Executive dated December 11, 1992 (the "1992 Employment Agreement"); WHEREAS, PSI entered into a severance agreement (the "Severance Agreement") with the Executive as of December 11, 1992; WHEREAS, pursuant to the Amended and Restated Agreement and Plan of Reorganization (the "Merger Agreement"), dated as of July 2, 1993, among PSI Resources, Inc., an Indiana corporation, PSI, CG&E, Cinergy, and CINergy Sub, Inc., an Ohio corporation, the parties thereto agreed to merge pursuant to the terms thereof; WHEREAS, the parties amended the 1990 Employment Agreement and the 1992 Employment Agreement to conform to the terms of the Merger Agreement and entered into an Amended and Restated Employment Agreement dated as of July 2, 1993 (the "1993 Employment Agreement"), as amended by a First Amendment dated effective as of July 2, 1993, and a Second Amendment dated effective as of March 24, 1998; WHEREAS, the Executive is willing to commit himself to remain in the employ of the Company on the terms and conditions herein set forth and thus to forego opportunities elsewhere; and WHEREAS, the parties desire to enter into this agreement amending, merging, and restating the 1993 Employment Agreement and the Severance Agreement, in each case, as of the date first set forth above, setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as hereinafter defined); -1- NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. Employment and Term. (a) The Company, and any successor thereto, agree to employ the Executive, and the Executive agrees to remain in the employ of the Company in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period"). (b) The Employment Period of the 1993 Employment Agreement commenced as of the consummation date (the "Effective Date") of the merger (the "Merger") pursuant to the terms of the Merger Agreement and continued until the third anniversary of the Effective Date; provided, however, that on each anniversary date of the Effective Date (the "Anniversary Date"), the term of the 1993 Agreement was automatically extended for one (1) additional year because neither the Company nor the Executive gave written notice to the other of its intent to terminate the 1993 Employment Agreement at least fifteen (15) days prior to any Anniversary Date. The Employment Period of the Executive shall continue uninterrupted under this Agreement until the Anniversary Date next following the commencement date ("Commencement Date") of this Agreement; provided however, that on each Anniversary Date, the term of this Agreement shall automatically be extended for one (1) additional year if, prior to such Anniversary Date, neither the Company nor the Executive shall have given written notice to the other of its intent to terminate this Agreement. For that portion of the Employment Period prior to, but not including, the Commencement Date, the 1993 Employment Agreement, as amended, shall remain in full force and effect. As of the Commencement Date, the 1993 Employment Agreement shall terminate and be of no force and effect. The parties hereto agree that Cinergy shall be responsible for all the premises, covenants, and agreements set forth in this Agreement. 2. Duties and Powers of Executive. (a) Position; Location. Until the end of the Employment Period, the Executive shall serve as President and Chief Executive Officer of Cinergy. During the Employment Period, the Executive shall have such authority, duties and responsibilities as are set forth in Annex A hereto. Such titles, authority, duties, and responsibilities may be changed from time to time only by mutual written agreement of the parties, unless otherwise provided in Annex A hereto. During the Employment Period, the Executive shall, without compensation other than that herein provided, also serve and continue to serve, if and when elected and reelected, as the Vice Chairman of the Board of Directors of Cinergy (the "Board"). (b) From the Commencement Date until the end of the Employment Period, the Company shall annually in connection with the annual meeting of shareholders of Cinergy cause the Executive to be nominated as Vice Chairman of the Board. 3. Compensation. The Executive shall receive the following compensation for his services hereunder to the Company: (a) Salary. The Executive's annual base salary ("Annual Base Salary"), payable not less often than biweekly, shall be at the annual rate of not less than the greater of $810,000 and the amount in effect as of the day before the Commencement Date. The Board may from time to -2- time direct such upward adjustments in 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. Annual Base Salary shall not be reduced after any increase thereof. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Annual Incentive Plan Benefit. The Executive shall be paid by the Company an annual benefit of up to 90% of the Executive's Annual Base Salary, which benefit shall be determined and paid pursuant to the terms of Cinergy's Annual Incentive Plan. (c) Long-Term Incentive Plan. The Executive shall be a participant in the Company's Long-Term Incentive Plan (the "LTIP") implemented under the Company's 1996 Long-Term Incentive Compensation Plan. The LTIP consists of two parts: a Value Creation Plan involving shares of restricted common stock of Cinergy and options to purchase shares of common stock of Cinergy. The Executive's annualized target award opportunity under the LTIP shall be equal to no less than 100% of his Annual Base Salary. (d) Stock Option. Cinergy established a stock option plan (the "Stock Option Plan") that took effect when the Merger was consummated. The Executive was granted options to purchase shares of common stock of Cinergy pursuant to the terms of the Stock Option Plan and agreement in grants made prior to the Commencement Date of this Agreement. (e) Retirement, Incentive and Welfare Benefit Plans. During the Employment Period and so long as the Executive is employed by the Company, he shall be eligible to participate in all incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Company, including the Annual Incentive Plan, the Performance Shares Plan, the Executive Supplemental Life Insurance Program, the 1996 Long-Term Incentive Compensation Plan, the 401(k) Excess Plan, the Nonqualified Deferred Incentive Compensation Plan, the Pension Plan, the Supplemental Retirement Plan, the Excess Benefit Plan, or any successors thereto, except with respect to any benefits under any plan, practice, policy or program to which the Executive has waived his rights in writing; provided, however, that benefits paid pursuant to the terms of the Annual Incentive Plan shall be determined in accordance with (but not in addition to the benefit described in) Section 3(b) of this Agreement. In addition, the Company shall assume and continue, the Split Dollar Insurance Agreement, dated October 7, 1992, between the Executive and PSI ("Split Dollar Agreement"), and the Deferred Compensation Agreement, effective as of January 1, 1992, between the Executive and PSI ("Deferred Compensation Agreement"). Notwithstanding anything in this Agreement to the contrary, in the event that the Company or any successor thereto shall fail to assume, shall breach, or, at any time during their respective terms, shall terminate, modify, amend or in any way affect, to the Executive's detriment and without the Executive's consent, the Split Dollar Agreement or the Deferred Compensation Agreement, then the Executive shall be entitled to: (i) in the case of the Deferred Compensation Agreement, such amounts as are described in Section 16 of the Deferred Compensation Agreement; and (ii) in the case of the Split Dollar Agreement, such amounts as are described in Sections 12 of the Split Dollar Agreement. During the Employment Period, the Executive shall participate in the Company's Supplemental Retirement Plan in accordance with its terms, except that effective as of the Executive's fiftieth (50th) birthday, the Executive shall be credited with and vested in twenty-five (25) full "Years of Participation" (as that term is defined in the Company's Supplemental Retirement Plan), and shall be credited with and vested in an additional two (2) Years of Participation on each birthday thereafter for the following five (5) years provided that he is -3- employed by the Company as of each such birthday. If the Executive retires on or after having attained age fifty-five (55), the Executive shall be entitled to receive from the Company total annual retirement income for his lifetime equal to the greater of (i) sixty percent (60%) of the Executive's "Highest Average Earnings" (as such term is defined in Cinergy's Pension Plan) or (ii) sixty percent (60%) of the Executive's "Earnings" (as such term is defined in the Pension Plan) for the final twelve (12) calendar months immediately prior to the Executive's effective date of retirement. Thus, in addition to the Executive's retirement benefits under Cinergy's Pension Plan, its Supplemental Retirement Plan, and its Excess Benefit Plan, or any successors thereto, the Executive shall receive an annual amount known as the "Supplemental Executive Retirement Benefit" (a non-qualified benefit paid from the Company's general assets) that is equal to the difference between the greater of (i) sixty percent (60%) of the Executive's "Highest Average Earnings" (as such term is defined in Cinergy's Pension Plan) or (ii) sixty percent (60%) of the Executive's "Earnings" (as such term is defined in Cinergy's Pension Plan) for the final twelve (12) calendar months immediately prior to the Executive's effective date of retirement, and the sum of the amounts payable to the Executive under Cinergy's Pension Plan, its Supplemental Retirement Plan, and its Excess Benefit Plan, or any successors thereto. Upon his retirement on or after having attained age fifty-five (55), the Executive shall be eligible for comprehensive medical and dental insurance pursuant to the terms of Cinergy's Retirees' Medical Plan and its Retirees' Dental Plan, or any successors thereto. However, the Executive shall receive the full subsidy provided by the Company to retirees for purposes of determining the amount of monthly premiums due from the Executive. Notwithstanding anything in this Agreement to the contrary, in the event that the Executive's employment is terminated following a Change in Control, the Executive shall immediately be credited with and vested in thirty-five (35) full "Years of Participation" (as that term is defined in the Company's Supplemental Retirement Plan), and the word "fifty (50)" shall be substituted for the word "fifty-five (55)" in each of the first sentences of the third and fourth paragraphs of this Section 3(e). (f) Expenses. The Company agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with policies established from time to time by the Board. (g) Fringe Benefits. During the Employment Period and so long as the Executive is employed by the Company, he shall be entitled to the following fringe benefits: (i) the Company shall pay the annual dues, assessments and other membership charges of the Executive with respect to the Executive's membership in the clubs and associations of the Executive's choice that are used for business purposes; (ii) the Company shall furnish to the Executive financial planning and tax preparation services; (iii) the Company shall furnish an automobile to the Executive and pay all of the related expenses for gasoline, insurance, maintenance and repairs; and (iv) the Company shall provide paid vacation for four (4) weeks per year -4- (or longer if permitted by Company policy). In each case of paragraphs (i) through (iv), the Executive shall be entitled to fringe benefits on a basis substantially equivalent to such fringe benefits provided to the Executive in the past. In addition, the Executive shall be entitled to receive fringe benefits in accordance with the plans, practices, programs and policies of the Company from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Company. 4. Termination of Employment. (a) Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. (b) By the Company for Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement "Cause" shall mean the conviction of the Executive for the commission of a felony which, at the time of such commission, has a materially adverse effect on the Company. (c) By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Agreement, the Executive's Annual Incentive Plan benefit as specified in Section 3(b) of this Agreement, or any other benefit or payment described in Section 3 of this Agreement; (ii) the change without his consent of the Executive's title, authority, duties or responsibilities as specified in Section 2(a) of this Agreement; (iii) the Company requiring the Executive without his consent to be based at any office or location other than the location where the Executive is currently employed; (iv) any breach by the Company of any other material provision of this Agreement; or (v) any event that constitutes a "Change in Control" as defined in Section 4(f) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, by the Executive for Good Reason, or by the Company after a Change in Control during the Employment Period, shall be communicated by Notice of Termination to the other party hereto in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination," means a written notice that: (i) indicates the specific termination provision in this Agreement relied upon; (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's -5- employment under the provision so indicated; and (iii) if the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights under this Agreement. A Notice of Termination for Cause after a Change in Control has occurred is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of Cinergy's Board at a meeting of Cinergy's Board that was called and held for the purpose of considering such termination finding that, in the good faith opinion of Cinergy's Board, the Executive was guilty of conduct set forth in the definition of Cause, and specifying the particulars thereof in detail. (e) Date of Termination. "Date of Termination" means: (i) if the Executive's employment is terminated by the Company for Cause or after a Change in Control, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, the date on which the Company notifies the Executive of such termination; and (iii) if the Executive's employment is terminated by reason of death, the date of death. (f) Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Commencement Date: (i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or (ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, other than (1) a merger or consolidation that would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to -6- represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or (iii) During any period of two consecutive years, individuals who at the beginning of that period constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by the Board or nomination for election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board; or (iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportion as their ownership of Cinergy immediately prior to such sale. (g) Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) The Company or any of its subsidiaries; (ii) A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries; (iii) An underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Company. -7- 5. Obligations of the Company upon Termination. (a) Termination Other Than for Cause. During the Employment Period, if the Company shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason, or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"): (i) the Company shall pay to the Executive a lump sum amount in cash equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (2) an amount equal to the Annual Incentive Plan benefit described in Section 3(b) of this Agreement for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365); (3) an amount equal to his vested accrued benefit under the Company's Value Creation Plan of the Company's LTIP; 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) and (3) shall be hereinafter referred to as the "Accrued Obligations"). The Accrued Obligations shall be paid to the Executive within thirty (30) days after the Date of Termination; and (ii) prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then: (1) the Company shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary and the Annual Incentive Plan benefit described in Section 3(b) of this Agreement payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, paid within 30 days of the Date of Termination; (2) the Company shall pay to the Executive the present value (discounted at the Prime Rate) of all benefits to which the Executive would have been entitled had he remained in employment with the Company 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 Company's -8- Value Creation Plan of the Company's LTIP, the Company's Performance Shares Plan, and the Company's Executive Supplemental Life Insurance Program, minus the present value (discounted at the Prime Rate) of the benefits to which he is actually entitled under the above mentioned plans and programs; (3) the Company 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 Company shall continue medical and welfare benefits to the Executive and/or the Executive's family at least equal to those that would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Company as in effect and applicable generally to other senior executives of the Company and their families during the ninety (90) day period immediately preceding the Date of Termination or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives of the Company (but on a prospective basis only unless and then only to the extent, such more favorable M&W Plans are by their terms retroactive); provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii) from and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement: (1) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of: (A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and (B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the 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 -9- (2) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person. (b) Termination by the Company for Cause or by the Executive Other than for Good Reason. Subject to the provisions of Section 5(c) and Section 6 of this Agreement, if the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, the Company shall have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent previously unpaid. (c) Split Dollar and Deferred Compensation Agreements. Notwithstanding anything in this Agreement to the contrary, but subject to the last sentence of the first paragraph of Section 3(e) and the second, third, fourth, and fifth paragraphs of Section 3(e) hereof, upon the termination of the Executive's employment for any reason, he shall be entitled to receive all benefits provided for him or his beneficiaries under the terms of the Split Dollar and Deferred Compensation Agreements, all vested and accrued benefits under the terms of the Pension Plan, the Supplemental Retirement Plan, the Excess Benefit Plan, or any successors thereto, and the Supplemental Executive Retirement Benefit described in the third paragraph of Section 3(e), and the post-retirement medical and dental benefits described in the fourth paragraph of Section 3(e). (e) Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive an additional amount (the "Gross-up Payment") such that the net amount -10- retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state, and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax; (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) shall be treated as "parachute payments" within the meaning of Code Section 280G(b)(2), and all "excess parachute payments" within the meaning of Code Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Code Section 280G(b)(4)(A), or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Code Section 280G(b)(4)(B) of the Code, in excess of the "Base Amount" as defined in Code Section 280G(b)(3) 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 Code Section 280G(b)(1) (after applying clause (i) above; and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Code Section 280G(d)(3) and (4). 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 could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Code Section 1274(b)(2)(B). In the event that the Excise Tax is determined to exceed the amount taken into account -11- hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. (f) Other Fees and Expenses. The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination that entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the Commencement Date with the Company. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, policy, practice or program of, or any contract or agreement entered into after the date hereof with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement; Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Company, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to this Agreement), the Company agrees to pay all legal fees and expenses that the Executive may reasonably incur as a result of any such dispute. 8. Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers' compensation claims) arising out of or relating in any way to the Executive's employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such dispute is arbitrable, shall be -12- settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party shall bear its own expenses in the arbitration for arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, shall be borne equally by the parties. 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret, confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and that shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its businesses and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such assumption and agreement prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. -13- 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return-receipt requested, postage prepaid, addressed as follows: If to the Executive: James E. Rogers 6 Noel Lane Cincinnati, Ohio 45243 If to the Company: Vice President, General Counsel and Secretary Cinergy Corp. 221 East Fourth Street P.O. Box 960 Cincinnati, Ohio 45201-0960 or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have under this Agreement, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Company to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This instrument contains the entire agreement of the Executive and the -14- Company with respect to the subject matter hereof, and, subject to any agreements evidencing the stock option grants described in Section 3(d) hereof, all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and superseded hereby. IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the day and year first above written. CINERGY CORP.; CINERGY SERVICES, INC.; THE CINCINNATI GAS & ELECTRIC COMPANY; AND PSI ENERGY, INC. By:___/s/ Van P. Smith_________________ Name: Van P. Smith Title: Chairman, Compensation Committee EXECUTIVE ______/s/ James E. Rogers_______________ James E. Rogers -15- Annex A DUTIES OF EXECUTIVE Vice-Chairman The Vice-Chairman of the Board shall be a director and shall preside at meetings of the Board of Directors or meetings of shareholders in the absence or inability to act of the Chairman of the Board. The Vice-Chairman shall perform such duties as may from time-to-time be assigned to him by the Board of Directors. The Vice-Chairman shall be a member of the Executive Committee and the Nominating Committee. Chief Executive Officer The Chief Executive Officer shall be a director and shall preside at all meetings of the shareholders, shall submit a report of the operations of the corporation for the fiscal year to the shareholders at their annual meeting and from time-to-time shall report to the Board of Directors all matters within his knowledge which the interests of the corporation may require be brought to their notice. The Chief Executive Officer shall be the chairman of the Executive Committee and an ex officio member of all standing committees. The President and the Internal Auditing Department will report directly to the Chief Executive Officer. President and Chief Operating Officer The President shall be a director and shall be the Chief Operating Officer of the Corporation. The President shall have general and active management and direction of the affairs of the Corporation, shall have supervision of all departments and of all officers of the Corporation, shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect, and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. All corporate officers and functions except those reporting to the Chief Executive Officer shall report directly to the President. -17- EX-27 5 CINERGY FDS
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 PER-BOOK 6,303,782 502,623 1,158,862 1,033,651 438,699 9,437,617 1,585 1,600,776 939,988 2,542,349 0 92,648 2,210,488 1,185,486 0 0 186,000 0 0 0 3,220,646 9,437,617 1,976,486 44,127 1,771,919 1,816,046 160,440 11,306 171,746 60,950 110,796 1,365 109,431 71,340 48,778 545,905 0.69 0.69
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