-----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, KUTYFgZNdNLHCPp9jC5VuPv1N2JpLEeYU629IKGNC3yo3wAVCW76mEZuU/fLGo1A dLx6L2VXz0hP/81UN2ExFQ== 0000899652-96-000198.txt : 19961115 0000899652-96-000198.hdr.sgml : 19961115 ACCESSION NUMBER: 0000899652-96-000198 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11377 FILM NUMBER: 96662058 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 CINERGY 10-Q FOR 09/30/96 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, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 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, 1996, shares of Common Stock outstanding for each registrant were as listed: Company Shares Cinergy Corp., par value $.01 per share 157,679,129 The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086 PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701 The Union Light, Heat and Power Company, par value $15.00 per share 585,333 TABLE OF CONTENTS Item Page Number Number Glossary of Terms . . . . . . . . . . . . . . . . . . . PART I. FINANCIAL INFORMATION 1 Financial Statements Cinergy Corp. Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Changes in Common Stock Equity. . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . The Cincinnati Gas & Electric Company Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . PSI Energy, Inc. Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . The Union Light, Heat and Power Company Balance Sheets. . . . . . . . . . . . . . . . . . . . Statements of Income. . . . . . . . . . . . . . . . . Statements of Cash Flows. . . . . . . . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . Notes to Financial Statements . . . . . . . . . . . . . 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . PART II. OTHER INFORMATION 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 4 Submission of Matters to a Vote of Security Holders . . 5 Other Information . . . . . . . . . . . . . . . . . . . 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . Signatures. . . . . . . . . . . . . . . . . . . . . . . GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below: TERM DEFINITION_________________________ 1995 Form Combined 1995 Annual Report on Form 10-K filed separately by 10-K Cinergy, as amended, CG&E, PSI, and ULH&P AEP American Electric Power Company, Inc. Articles Amended Articles of Incorporation Avon Energy Avon Energy Partners Holdings, an Unlimited Liability Company and its wholly-owned subsidiary Avon Energy Partners PLC, a Limited Liability Company Bankruptcy Court United States Bankruptcy Court for the Southern District of Indiana Bruwabel Beheer-En Belegginsmaatschappij Bruwabel B.V., a subsidiary of Power International CAC Citizens Action Coalition of Indiana, Inc. CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) Cinergy or Cinergy Corp. Company Cinergy U.K. Formerly M.E. Holdings, Inc., (a subsidiary of Investments) which holds Cinergy's 50% investment in Avon Energy Clean Coal A joint arrangement by PSI and Destec Energy, Inc. for a Project 262-mw clean coal power generating facility located at Wabash River Generating Station, which was placed in service in November 1995 CWIP Construction work in progress D&P Duff & Phelps Credit Rating Co. DSM Demand-side management Eagle Eagle Coal Company Exxon Exxon Coal and Minerals Company FASB Financial Accounting Standards Board February 1995 An IURC order issued in February 1995 Order FERC Federal Energy Regulatory Commission FERC Order 888 FERC order which promotes wholesale competition through open access non-discriminatory transmission services by public utilities and recovery of stranded costs by public utilities and transmitting utilities FERC Order 889 FERC order which provides for open access same-time information system GLOSSARY OF TERMS (Continued) TERM DEFINITION_________________________ Fitch Fitch Investors Service, Inc. Gibson Gibson Generating Station GPU General Public Utilities Corporation IBEW International Brotherhood of Electrical Workers Investments Cinergy Investments, Inc. (a subsidiary of Cinergy) IURC Indiana Utility Regulatory Commission IUU Independent Utilities Union KO Transmission KO Transmission Company, a subsidiary of CG&E KPSC Kentucky Public Service Commission kwh Kilowatt-hour May 1992 Order A PUCO order issued in May 1992 Mcf Thousand cubic feet Mega-NOPR FERC's notice of proposed rulemaking which resulted in FERC Order 888 and 889 Merger Costs Merger transaction costs and costs to achieve merger savings Merger Order The FERC's order approving the merger of CG&E and Resources to form Cinergy Miami Fort Miami Fort Generating Station Midlands Midlands Electricity plc Money Pool Cinergy system companies with surplus short-term funds, whether from internal or external sources, provide short- term loans to other system companies at rates that reflect (1) the actual costs of the external borrowing and/or (2) the costs of the internal funds which are set at the 30- day Federal Reserve "AA" industrial commercial paper composite rate. Moody's Moody's Investors Service mw Megawatt NOPR A FERC Notice of Proposed Rulemaking Order 636 FERC order regarding gas purchases and transportation Power International Power International, Inc., a subsidiary of Investments PSI PSI Energy, Inc. (a subsidiary of Cinergy) PSI Recycling PSI Recycling, Inc. (a subsidiary of Investments) PUCO Public Utilities Commission of Ohio GLOSSARY OF TERMS (Continued) TERM DEFINITION_________________________ PUHCA Public Utility Holding Company Act of 1935 RUS Rural Utilities Service, previously called the Rural Electrification Administration S&P Standard & Poor's SEC Securities and Exchange Commission September 1996 An IURC order issued in September 1996 Order Statement 121 Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", issued in March 1995 by the FASB, is a new accounting standard requiring impairment losses on long-lived assets to be recognized when an asset's book value exceeds its expected future cash flows UCC The Indiana Office of the Utility Consumer Counselor ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) USWA United Steelworkers of America Woodsdale Woodsdale Generating Station WVPA Wabash Valley Power Association, Inc. Zimmer William H. Zimmer Generating Station CINERGY CORP. AND SUBSIDIARY COMPANIES CINERGY CORP. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1996 1995 (dollars in thousands) Utility Plant - Original Cost In service Electric $8 741 872 $8 617 695 Gas 699 566 680 339 Common 185 339 184 694 9 626 777 9 482 728 Accumulated depreciation 3 537 840 3 367 432 6 088 937 6 115 296 Construction work in progress 164 553 135 852 Total utility plant 6 253 490 6 251 148 Current Assets Cash and temporary cash investments 28 622 35 052 Restricted deposits 1 720 2 336 Accounts receivable less accumulated provision for doubtful accounts of $12,415 at September 30, 1996, and $10,360 at December 31, 1995 105 568 371 150 Materials, supplies, and fuel - at average cost Fuel for use in electric production 81 654 122 409 Gas stored for current use 37 215 21 493 Other materials and supplies 86 584 85 076 Property taxes applicable to subsequent year 29 206 116 822 Prepayments and other 26 299 32 347 396 868 786 685 Other Assets Regulatory assets Amounts due from customers - income taxes 380 519 423 493 Post-in-service carrying costs and deferred operating expenses 188 370 187 190 Phase-in deferred return and depreciation 96 469 100 388 Coal contract buyout costs 137 686 - Deferred DSM costs 134 832 129 400 Deferred merger costs 96 339 56 824 Unamortized costs of reacquiring debt 71 921 73 904 Other 95 393 74 911 Investment in Avon Energy 512 747 - Other 233 927 136 121 1 948 203 1 182 231 $8 598 561 $8 220 064 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements. CINERGY CORP. CAPITALIZATION AND LIABILITIES September 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 157,679,129 at September 30, 1996, and 157,670,141 at December 31, 1995 $ 1 577 $ 1 577 Paid-in capital 1 592 393 1 597 050 Retained earnings 993 039 950 216 Cumulative foreign currency translation adjustment (584) -___ Total common stock equity 2 586 425 2 548 843 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 194 235 227 897 Subject to mandatory redemption - 160 000 Long-term Debt 2 383 827 2 530 766 Total capitalization 5 164 487 5 467 506 Current Liabilities Long-term debt due within one year 140 400 201 900 Notes payable 817 454 165 800 Accounts payable 262 180 268 139 Litigation settlement 80 000 80 000 Accrued taxes 227 728 317 185 Accrued interest 46 269 55 995 Other 60 082 57 202 1 634 113 1 146 221 Other Liabilities Deferred income taxes 1 120 145 1 120 900 Unamortized investment tax credits 177 959 185 726 Accrued pension and other postretirement benefit costs 205 112 171 771 Other 296 745 127 940 1 799 961 1 606 337 $8 598 561 $8 220 064
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date Twelve Months Ended September 30 September 30 September 30 1996 1995 1996 1995 1996 1995 (in thousands, except per share amounts) Operating Revenues Electric $ 724 917 $ 731 903 $2 060 471 $1 973 393 $2 699 657 $2 550 913 Gas 40 787 33 591 306 062 265 777 451 137 376 978 765 704 765 494 2 366 533 2 239 170 3 150 794 2 927 891 Operating Expenses Fuel used in electric production 184 093 190 445 539 350 545 548 710 556 718 907 Gas purchased 17 133 13 155 150 313 130 235 226 328 189 469 Purchased and exchanged power 37 020 15 685 95 443 32 992 110 083 39 346 Other operation 129 009 131 453 423 769 371 983 572 376 550 039 Maintenance 45 903 39 851 137 709 127 834 192 055 184 931 Depreciation 70 811 68 680 211 603 210 351 281 011 286 304 Amortization of phase-in deferrals 3 399 3 409 10 198 5 682 13 607 5 682 Post-in-service deferred operating expenses - net (930) (71) (2 637) (2 140) (2 997) (3 500) Income taxes 65 456 69 952 172 459 173 170 220 718 191 224 Taxes other than income taxes 63 549 64 380 196 095 192 066 259 562 251 241 615 443 596 939 1 934 302 1 787 721 2 583 299 2 413 643 Operating Income 150 261 168 555 432 231 451 449 567 495 514 248 Other Income and Expenses - Net Allowance for equity funds used during construction 358 (1 159) 1 206 726 2 444 153 Post-in-service carrying costs 391 602 1 228 3 183 1 231 6 205 Phase-in deferred return 2 093 2 135 6 279 6 403 8 413 8 349 Income taxes 2 677 2 366 7 963 5 950 9 371 10 425 Other - net 4 117 707 (6 815) (2 224) (7 642) (21 306) 9 636 4 651 9 861 14 038 13 817 3 826 Income Before Interest and Other Charges 159 897 173 206 442 092 465 487 581 312 518 074 Interest and Other Charges Interest on long-term debt 46 522 54 154 143 678 160 654 196 935 215 645 Other interest 10 305 5 392 18 497 16 520 22 803 22 989 Allowance for borrowed funds used during construction (1 455) (2 027) (4 235) (6 324) (5 976) (9 191) Preferred dividend requirements of subsidiaries 6 495 6 770 19 941 24 084 26 710 32 742 61 867 64 289 177 881 194 934 240 472 262 185 Net Income $ 98 030 $ 108 917 $ 264 211 $ 270 553 $ 340 840 $ 255 889 Costs of reacquisition of preferred stock of subsidiary (Note 6) (18 175) - (18 175) - - (18 175) -___ Net Income Applicable to Common Stock $ 79 855 $ 108 917 $ 246 036 $ 270 553 $ 322 665 $ 255 889 Average Common Shares Outstanding 157 679 156 945 157 678 156 324 157 633 154 797 Earnings Per Common Share Net Income $ .63 $.69 $ 1.68 $1.73 $ 2.17 $1.62 Costs of reacquisition of preferred stock of subsidiary (Note 6) (.12) - (.12) - - (.12) -__ Net Income Applicable to Common Stock $ .51 $.69 $ 1.56 $1.73 $ 2.05 $1.62 Dividends Declared Per Common Share $ .43 $.43 $ 1.29 $1.29 $ 1.72 $1.65 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 (unaudited) Cumulative Foreign Currency Common Paid-in Retained Translation Total Common Stock Capital Earnings Adjustment Stock Equity (dollars in thousands) Quarter Ended September 30, 1996 Balance July 1, 1996 $1 577 $1 594 920 $ 981 003 $(567) $2 576 933 Net income 98 030 98 030 Dividends on common stock (see page 9 for per share amounts) (67 802) (67 802) Translation adjustments (17) (17) Costs of reacquisition of preferred stock of subsidiary (Note 6) (18 175) (18 175) Other ______ (2 527) (17) _____ (2 544) Balance September 30, 1996 $1 577 $1 592 393 $ 993 039 $(584) $2 586 425 Quarter Ended September 30, 1995 Balance July 1, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533 Net income 108 917 108 917 Issuance of 572,455 shares of common stock - net 6 14 597 14 603 Common stock issuance expenses (2) (2) Dividends on common stock (see page 9 for per share amounts) (67 359) (67 359) Other 2 _________ _____ 2 Balance September 30, 1995 $1 572 $1 585 470 $ 941 652 $ $2 528 694 Nine Months Ended September 30, 1996 Balance January 1, 1996 $1 577 $1 597 050 $ 950 216 $ $2 548 843 Net income 264 211 264 211 Issuance of 8,988 shares of common stock - net 311 311 Dividends on common stock (see page 9 for per share amounts) (203 402) (203 402) Translation adjustments (584) (584) Costs of reacquisition of preferred stock of subsidiary (Note 6) (18 175) (18 175) Other ______ (4 968) 189 _____ (4 779) Balance September 30, 1996 $1 577 $1 592 393 $ 993 039 $(584) $2 586 425 Nine Months Ended September 30, 1995 Balance January 1, 1995 $1 552 $1 535 658 $ 877 061 $ $2 414 271 Net income 270 553 270 553 Issuance of 1,941,748 shares of common stock - net 20 48 734 48 754 Common stock issuance expenses (191) (191) Dividends on common stock (see page 9 for per share amounts) (201 251) (201 251) Other ______ 1 269 (4 711) _____ (3 442) Balance September 30, 1995 $1 572 $1 585 470 $ 941 652 $ $2 528 694 Twelve Months Ended September 30, 1996 Balance October 1, 1995 $1 572 $1 585 470 $ 941 652 $ $2 528 694 Net income 340 840 340 840 Issuance of 539,343 shares of common stock - net 5 11 920 11 925 Common stock issuance expenses (38) (38) Dividends on common stock (see page 9 for per share amounts) (271 002) (271 002) Translation adjustments (584) (584) Costs of reacquisition of preferred stock of subsidiary (Note 6) (18 175) (18 175) Other ______ (4 959) (276) _____ (5 235) Balance September 30, 1996 $1 577 $1 592 393 $ 993 039 $(584) $2 586 425 Twelve Months Ended September 30, 1995 Balance October 1, 1994 $1 473 $1 359 477 $ 945 679 $ $2 306 629 Net income 255 889 255 889 Issuance of 9,705,354 shares of common stock - net 99 230 000 230 099 Common stock issuance expenses (5 298) (5 298) Dividends on common stock (see page 9 for per share amounts) (255 637) (255 637) Other 1 291 (4 279) _____ (2 988) Balance September 30, 1995 $1 572 $1 585 470 $ 941 652 $ $2 528 694 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 1996 1995 1996 1995 (in thousands) Operating Activities Net income $ 264 211 $ 270 553 $ 340 840 $ 255 889 Items providing (using) cash currently Depreciation 211 603 210 351 281 011 286 304 Deferred income taxes and investment tax credits - net 34 061 27 836 34 636 28 590 Allowance for equity funds used during construction (1 206) (726) (2 444) (153) Regulatory assets - net (27 444) (55) (26 363) (13 294) Changes in current assets and current liabilities Restricted deposits (357) 8 (1 400) 8 633 Accounts receivable, net of reserves on receivables sold 227 237 32 034 123 562 (1 880) Materials, supplies, and fuel 23 525 26 217 48 522 22 677 Accounts payable (5 959) (93 413) 89 126 (28 370) Accrued taxes and interest (8 734) 28 223 19 678 56 040 Other items - net (43 003) (15 531) (15 336) (976) Net cash provided by (used in) operating activities 673 934 485 497 891 832 613 460 Financing Activities Issuance of common stock 311 48 563 11 887 224 801 Issuance of long-term debt - 344 280 - 344 280 Funds on deposit from issuance of long-term debt 973 (75 316) 86 276 (68 630) Retirement of preferred stock of subsidiaries (209 559) (93 458) (209 567) (93 474) Redemption of long-term debt (207 583) (298 553) (307 863) (298 988) Change in short-term debt 651 654 55 100 533 454 (41 514) Dividends on common stock (203 402) (201 251) (271 002) (255 637) Net cash provided by (used in) financing activities 32 394 (220 635) (156 815) (189 162) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (203 977) (231 943) (296 939) (386 233) Deferred DSM costs - net (5 432) (17 356) (13 349) (34 697) Investment in Avon Energy (503 349) - (503 349) - - Equity investment in Argentine utility - - 19 799 (32) Net cash provided by (used in) investing activities (712 758) (249 299) (793 838) (420 962) Net increase (decrease) in cash and temporary cash investments (6 430) 15 563 (58 821) 3 336 Cash and temporary cash investments at beginning of period 35 052 71 880 87 443 84 107 Cash and temporary cash investments at end of period $ 28 622 $ 87 443 $ 28 622 $ 87 443 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, 1996. For information concerning the results of operations for each of the other registrants for the same quarter and nine months ended, see the discussion under the heading RESULTS OF OPERATIONS following the financial statements of each company. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 Kwh Sales Kwh sales increased 2.2% for the quarter ended September 30, 1996, from the comparable period of last year primarily reflecting increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Also, increased industrial sales primarily reflected growth in the primary metals sector. These increases were partially offset by a return to more normal weather for the third quarter of 1996, resulting in decreased residential and commercial sales. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the third quarter of 1996 increased 13.2% as compared to the same period in 1995. Increased residential and commercial gas sales reflected, in part, increases in the average number of customers. Higher gas transportation volumes reflected the continuing trend of industrial customers purchasing gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes mainly reflects demand for gas transportation services in the primary metals sector. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended September 30, 1996, decreased $7 million (1.0%) as compared to the same period last year primarily as a result of the decreased residential and commercial kwh sales previously discussed. This decrease was almost wholly offset by increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale as previously discussed. An analysis of electric operating revenues is shown below: Quarter Ended September 30 (in millions) Electric operating revenues - September 30, 1995 $732 Increase (Decrease) due to change in: Price per kwh Sales for resale Firm power obligations (3) Non-firm power transactions (1) Total change in price per kwh (4) Kwh sales Retail (19) Sales for resale Firm power obligations (2) Non-firm power transactions 17 Total change in kwh sales (4) Other 1 Electric operating revenues - September 30, 1996 $725 Gas Operating Revenues Gas operating revenues increased $7 million (21.4%) in the third quarter of 1996, when compared to the same period last year. This increase was primarily a result of the operation of fuel adjustment clauses reflecting a higher average cost of gas purchased and the previously discussed changes in gas sales and transportation volumes. Operating Expenses Gas Purchased Gas purchased for the quarter ended September 30, 1996, increased $4 million (30.2%) when compared to the same period last year reflecting a higher average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power increased $21 million for the quarter ended September 30, 1996, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing operations. Maintenance The $6 million (15.2%) increase in maintenance expenses for the third quarter of 1996 as compared to the same period of 1995 is primarily due to increased maintenance on CG&E's electric production and transmission facilities. Other Income and Expenses - Net Other - net Other - net increased $3 million for the three months ended September 30, 1996, from the same period of 1995 primarily due to Cinergy's equity in earnings of Avon Energy. The effects of expenses associated with CG&E's and ULH&P's sales of accounts receivables in 1996 and interest received in 1995 associated with a refund of an overpayment of Federal income taxes related to prior years partially offset this increase. Interest and Other Charges Interest on Long-term Debt Interest charges on long-term debt decreased $8 million (14.1%) for the three months ended September 30, 1996, from the same period of 1995 primarily due to the redemption of $161.5 million of long-term debt by CG&E and ULH&P during the period from January 1996 through May 1996 and the redemption of $110 million by PSI during the period from August 1995 through July 1996. Other Interest Other interest increased $5 million (91.1%) for the third quarter of 1996, as compared to the same period last year, primarily reflecting increased interest expense on short-term borrowings used to fund Cinergy's investment in Avon Energy. Costs of Reacquisition of Preferred Stock of Subsidiary Costs of reacquisition of preferred stock of subsidiary represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September of 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. (See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information.") RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Kwh Sales Kwh sales increased 8.4% for the nine months ended September 30, 1996, from the comparable period of last year primarily reflecting increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. The higher kwh sales levels reflected increased sales to all retail customer classes. The increase to retail sales reflects a higher average number of residential and commercial customers, while industrial sales increased primarily due to growth in the primary metals sector. These increases were partially offset by the return to more normal weather in the third quarter of 1996. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the first nine months of 1996 increased 13.9% as compared to the same period in 1995. Colder weather during the winter heating season, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to increased gas sales to residential and commercial customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes mainly reflects demand for gas transportation services in the primary metals sector. . Operating Revenues Electric Operating Revenues Compared to the same period last year, electric operating revenues for the nine months ended September 30, 1996, increased $87 million (4.4%) reflecting the increased kwh sales, as previously discussed. In addition, PSI's 4.3% retail rate increase approved in the February 1995 Order and a 1.9% increase for carrying costs on CWIP property which was approved by the IURC in March 1995 contributed to the increase. The return of approximately $13 million to PSI's customers in accordance with the February 1995 Order, which requires all retail operating income above a certain rate of return to be refunded to customers, slightly offset these increases. An analysis of electric operating revenues is shown below: Nine Months Ended September 30 (in millions) Electric operating revenues - September 30, 1995 $1 973 Increase (Decrease) due to change in: Price per kwh Retail (14) Sales for resale Firm power obligations (5) Non-firm power transactions 3 Total change in price per kwh (16) Kwh sales Retail 51 Sales for resale Firm power obligations 6 Non-firm power transactions 46 Total change in kwh sales 103 Electric operating revenues - September 30, 1996 $2 060 Gas Operating Revenues Gas operating revenues increased $40 million (15.2%) in the first nine months of 1996, when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales and transportation volumes. Also contributing to the increase was the operation of fuel adjustment clauses reflecting a higher cost of gas purchased. Operating Expenses Gas Purchased Gas purchased for the nine months ended September 30, 1996, increased $20 million (15.4%) when compared to the same period last year. This increase was attributable to an increase in volumes purchased and a higher average cost per Mcf of gas purchased as previously discussed. Purchased and Exchanged Power Purchased and exchanged power increased $62 million for the nine months ended September 30, 1996, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing operations. Other Operation Other operation expenses for the nine months ended September 30, 1996, increased $52 million (13.9%), as compared to the same period last year. This increase is due to a number of factors, including increased transmission expenses and higher administrative and general expenses reflecting, in part, charges of $17.4 million for early retirement and severance programs. Other factors include the recognition by PSI of postretirement benefit costs on an accrual basis, an increase in the ongoing level of DSM expenses, and the amortization of deferred postretirement benefit costs and deferred DSM costs, which are being recovered in revenues pursuant to the February 1995 Order. Maintenance The $10 million (7.7%) increase in maintenance expenses for the nine months ended September 30, 1996, as compared to the same period last year, is primarily attributable to increased maintenance on CG&E's electric production facilities. Maintenance on the Clean Coal Project which began commercial operation in November 1995 and increased transmission and distribution expenses also contributed to the higher level of maintenance expenses. Amortization of Phase-in Deferrals Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. In the first three years of the phase- in plan, rates charged to customers did not fully recover depreciation expense and return on investment. This deficiency was deferred and is being recovered over a seven-year period that began in May 1995. Other Income and Expenses - Net Post-in-service Carrying Costs Post-in-service carrying costs decreased $2 million (61.4%) for the nine months ended September 30, 1996, from the comparable period of 1995 as a result of PSI's discontinuing the accrual of post-in-service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects pursuant to the February 1995 Order. Other - net Other - net decreased $5 million from the same period in 1995 due to a number of factors, including the effects of interest received in 1995 on an income tax refund related to prior years and expenses associated with CG&E's and ULH&P's sales of accounts receivables in 1996, as previously mentioned. These decreases were partially offset by Cinergy's equity in the earnings of Avon Energy. Interest and Other Charges Interest on Long-term Debt Interest charges on long-term debt decreased $17 million (10.6%) for the nine months ended September 30, 1996, from the same period of 1995 primarily due to the refinancing by CG&E and ULH&P of over $330 million of long-term debt during the period from March 1995 through November 1995, the redemption of $161.5 million by CG&E and ULH&P during the period from January 1996 through May 1996, and the redemption of $110 million by PSI during the period from August 1995 through July 1996. Other Interest Other interest increased $2 million (12.0%) for the nine months ended September 30, 1996, as compared to the same period of 1995, primarily reflecting increased interest expense on short-term borrowings used to fund Cinergy's investment in Avon Energy. Preferred Dividend Requirements of Subsidiaries The decrease in the preferred dividend requirement of $4 million (17.2%) for the nine months ended September 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. Costs of Reacquisition of Preferred Stock of Subsidiary Costs of reacquisition of preferred stock of subsidiary represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September of 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. (See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information.") RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 Kwh Sales Kwh sales increased 9.1% for the twelve months ended September 30, 1996, from the comparable period of last year partially reflecting increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels were increased sales to residential and commercial customers as a result of colder weather during the fourth quarter of 1995 and the first quarter of 1996, and cooler than normal weather during the second quarter of 1996. Additionally, the increase reflects a higher average number of residential and commercial customers, while industrial sales increased primarily due to growth in the primary metals sector. These increases were partially offset by the return to more normal weather in the third quarter of 1996. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the twelve months ended September 30, 1996, increased 18.8% as compared to the same period in 1995. Colder weather during the winter heating season and cooler than normal weather early in the second quarter of 1996 primarily contributed to this increase. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes, which more than offset the decline in industrial sales, mainly reflects demand for gas transportation services in the primary metals sector. Operating Revenues Electric Operating Revenues Compared to the same period last year, electric operating revenues for the twelve months ended September 30, 1996, increased $149 million (5.8%), reflecting increased kwh sales and PSI's rate increases, as previously discussed. The return of approximately $16 million to customers in accordance with the February 1995 Order, which requires all retail operating income above a certain rate of return to be refunded to customers, slightly offset these increases. An analysis of electric operating revenues is shown below: Twelve Months Ended September 30 (in millions) Electric operating revenues - September 30, 1995 $2 551 Increase (Decrease) due to change in: Price per kwh Retail (10) Sales for resale Firm power obligations (9) Non-firm power transactions 7 Total change in price per kwh (12) Kwh sales Retail 100 Sales for resale Firm power obligations 8 Non-firm power transactions 53 Total change in kwh sales 161 Electric operating revenues - September 30, 1996 $2 700 Gas Operating Revenues Gas operating revenues increased $74 million (19.7%) for the twelve months ended September 30, 1996, when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales and transportation volumes. Operating Expenses Gas Purchased Gas purchased for the twelve months ended September 30, 1996, increased $37 million (19.5%) when compared to the same period last year. This increase reflects higher volumes purchased and an increase in the average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power increased $71 million for the twelve months ended September 30, 1996, when compared to the same period of last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing operations. Amortization of Phase-in Deferrals As previously discussed, amortization of phase-in deferrals reflect the PUCO- ordered phase-in plan for Zimmer included in the May 1992 Order. Other Income and Expenses - Net Post-in-service Carrying Costs Post-in-service carrying costs decreased $5 million (80.2%) for the twelve months ended September 30, 1996, from the comparable period of last year. This decrease is a result of PSI's discontinuing the accrual of post-in- service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects pursuant to the February 1995 Order. Partially offsetting the decrease is the accrual of the aforementioned costs on the Clean Coal Project which began commercial operation in November 1995. Other - net Other - net increased $14 million (64.1%) for the twelve months ended September 30, 1996, from the comparable period of 1995, reflecting a $10 million gain on the sale of an Argentine utility, Cinergy's equity in the earnings of Avon Energy, and charges of $14 million in the fourth quarter of 1994 for merger-related and other expenditures which cannot be recovered from customers. These items were partially offset by a number of factors, including the effects of charges associated with winding-down certain non- utility activities during 1995, interest received in 1995 on an income tax refund related to prior years, and expenses associated with CG&E's and ULH&P's sales of accounts receivables in 1996. Interest and Other Charges Interest on Long-term Debt Interest charges on long-term debt decreased $19 million (8.7%) for the twelve months ended September 30, 1996, from the same period of 1995 primarily due to the refinancing of over $330 million of long-term debt by CG&E and ULH&P during the period from March 1995 through November 1995, the redemption of $161.5 million by CG&E and ULH&P during the period from January 1996 through May 1996, and the redemption of $110 million by PSI during the period from August 1995 through July 1996. Preferred Dividend Requirements of Subsidiaries The decrease in the preferred dividend requirement of $6 million (18.4%) for the twelve months ended September 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. Costs of Reacquisition of Preferred Stock of Subsidiary Costs of reacquisition of preferred stock of subsidiary represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September of 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. (See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information.") THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1996 1995 (dollars in thousands) Utility Plant - Original Cost In service Electric $4 624 135 $4 564 711 Gas 699 566 680 339 Common 184 067 183 422 5 507 768 5 428 472 Accumulated depreciation 1 838 745 1 730 232 3 669 023 3 698 240 Construction work in progress 84 915 77 661 Total utility plant 3 753 938 3 775 901 Current Assets Cash and temporary cash investments 16 718 6 612 Restricted deposits 1 171 1 144 Notes receivable from affiliated companies 54 480 24 715 Accounts receivable less accumulated provision for doubtful accounts of $12,042 at September 30, 1996, and $9,615 at December 31, 1995 47 531 292 493 Accounts receivable from affiliated companies 5 970 17 162 Materials, supplies, and fuel - at average cost Fuel for use in electric production 28 636 40 395 Gas stored for current use 37 215 21 493 Other materials and supplies 53 804 55 388 Property taxes applicable to subsequent year 29 206 116 822 Prepayments and other 22 981 30 572 297 712 606 796 Other Assets Regulatory assets Amounts due from customers - income taxes 347 670 397 155 Post-in-service carrying costs and deferred operating expenses 143 198 148 316 Phase-in deferred return and depreciation 96 469 100 388 Deferred DSM costs 29 628 19 158 Deferred merger costs 18 706 14 538 Unamortized costs of reacquiring debt 39 338 39 428 Other 25 483 41 025 Other 102 695 54 691 803 187 814 699 $4 854 837 $5 197 396 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 CAPITALIZATION AND LIABILITIES September 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at September 30, 1996, and December 31, 1995 $ 762 136 $ 762 136 Paid-in capital 536 128 339 101 Retained earnings 264 297 427 226 Total common stock equity 1 562 561 1 528 463 Cumulative Preferred Stock Not subject to mandatory redemption 21 145 40 000 Subject to mandatory redemption - 160 000 Long-term Debt 1 564 868 1 702 650 Total capitalization 3 148 574 3 431 113 Current Liabilities Long-term debt due within one year 130 000 151 500 Notes payable 82 100 - Notes payable to affiliated companies 1 500 - Accounts payable 125 503 138 735 Accounts payable to affiliated companies 91 20 468 Accrued taxes 164 402 250 189 Accrued interest 32 611 31 299 Other 43 836 40 409 580 043 632 600 Other Liabilities Deferred income taxes 782 084 795 385 Unamortized investment tax credits 124 307 129 372 Accrued pension and other postretirement benefit costs 142 625 117 641 Other 77 204 91 285 1 126 220 1 133 683 $4 854 837 $5 197 396
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1996 1995 1996 1995 (in thousands) Operating Revenues Electric Non-affiliated companies $ 382 718 $ 399 472 $1 109 300 $1 070 892 Affiliated companies 7 634 1 702 27 889 16 761 Gas Non-affiliated companies 40 787 33 591 306 062 265 777 Affiliated companies 4 - 5 - -___ 431 143 434 765 1 443 256 1 353 430 Operating Expenses Fuel used in electric production 82 449 84 101 267 007 252 638 Gas purchased 17 133 13 155 150 313 130 235 Purchased and exchanged power Non-affiliated companies 10 355 4 228 24 021 6 924 Affiliated companies 5 821 10 866 14 576 29 587 Other operation 66 786 69 834 235 513 204 557 Maintenance 22 844 18 994 68 745 63 973 Depreciation 40 322 39 836 120 557 119 060 Amortization of phase-in deferrals 3 399 3 409 10 198 5 682 Amortization of post-in-service deferred operating expenses 786 823 2 431 2 468 Income taxes 41 675 40 730 115 902 108 293 Taxes other than income taxes 49 820 50 358 154 733 151 345 341 390 336 334 1 163 996 1 074 762 Operating Income 89 753 98 431 279 260 278 668 Other Income and Expenses - Net Allowance for equity funds used during construction 358 269 1 206 1 146 Phase-in deferred return 2 093 2 135 6 279 6 403 Income taxes 819 (31) 4 299 2 796 Other - net (1 505) 4 446 (6 095) 4 851 1 765 6 819 5 689 15 196 Income Before Interest 91 518 105 250 284 949 293 864 Interest Interest on long-term debt 30 304 36 507 93 392 107 108 Other interest 522 679 1 466 2 926 Allowance for borrowed funds used during construction (813) (894) (2 598) (2 774) 30 013 36 292 92 260 107 260 Net Income 61 505 68 958 192 689 186 604 Preferred Dividend Requirement (3 475) (3 475) (10 423) (14 199) Costs of Reacquisition of Preferred Stock (Note 6) (18 175) - (18 175) - - Net Income Applicable to Common Stock $ 39 855 $ 65 483 $ 164 091 $ 172 405 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 1996 1995 (in thousands) Operating Activities Net income $ 192 689 $ 186 604 Items providing (using) cash currently Depreciation 120 557 119 060 Deferred income taxes and investment tax credits - net 31 408 24 597 Allowance for equity funds used during construction (1 206) (1 146) Regulatory assets - net 21 626 10 260 Changes in current assets and current liabilities Restricted deposits (27) (3) Accounts and notes receivable, net of reserves on receivables sold 201 972 54 133 Materials, supplies, and fuel (2 379) 9 499 Accounts payable (33 609) (41 110) Accrued taxes and interest 5 974 25 114 Other items - net (9 326) (30 186) Net cash provided by (used in) operating activities 527 679 356 822 Financing Activities Issuance of long-term debt - 344 280 Funds on deposit from issuance of long-term debt - (84 000) Retirement of preferred stock - (93 450) Redemption of long-term debt (157 583) (238 498) Change in short-term debt 83 600 12 000 Dividends on preferred stock (10 423) (14 199) Dividends on common stock (327 020) (162 950) Net cash provided by (used in) financing activities (411 426) (236 817) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (95 677) (99 661) Deferred DSM costs - net (10 470) (6 315) Net cash provided by (used in) investing activities (106 147) (105 976) Net increase (decrease) in cash and temporary cash investments 10 106 14 029 Cash and temporary cash investments at beginning of period 6 612 52 516 Cash and temporary cash investments at end of period $ 16 718 $ 66 545 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, 1996 Kwh Sales Kwh sales for the quarter ended September 30, 1996, decreased 2.5% from the same period of 1995. A return to more normal weather for the third quarter of 1996 resulted in decreased residential and commercial sales. These decreases were partially offset by increased industrial sales reflecting growth in the primary metals sector and increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the third quarter of 1996 increased 13.2% as compared to the same period in 1995. Increased residential and commercial gas sales reflected, in part, increases in the average number of customers. Higher gas transportation volumes reflected the continuing trend of industrial customers purchasing gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes mainly reflects demand for gas transportation services in the primary metals sector. Operating Revenues Electric Operating Revenues Electric operating revenues decreased $11 million (2.7%) for the quarter ended September 30, 1996, from the comparable period of 1995. This decrease was primarily attributable to the lower kwh sales as previously discussed. An analysis of electric operating revenues is shown below: Quarter Ended September 30 (in millions) Electric operating revenues - September 30, 1995 $401 Increase (Decrease) due to change in: Price per kwh Retail (5) Sales for resale Non-firm power transactions 6 Total change in price per kwh 1 Kwh sales Retail (12) Total change in kwh sales (12) Electric operating revenues - September 30, 1996 $390 Gas Operating Revenues Gas operating revenues increased $7 million (21.4%) in the third quarter of 1996, when compared to the same period last year. This increase was primarily a result of the operation of fuel adjustment clauses reflecting a higher average cost of gas purchased and the previously discussed changes in gas sales and transportation volumes. Operating Expenses Gas Purchased Gas purchased for the quarter ended September 30, 1996, increased $4 million (30.2%) when compared to the same period last year reflecting a higher average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power for the quarter ended September 30, 1996, increased $1 million (7.2%) over the comparable period of 1995 reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing operations. This increase is partially offset by decreased power purchases from PSI. Maintenance The $4 million (20.3%) increase in maintenance expenses for the third quarter of 1996, as compared to the same period of 1995, is primarily due to increased maintenance on electric production and transmission facilities. Other Income and Expenses - Net Other - net Other - net decreased $6 million primarily as a result of the effects of expenses associated with the CG&E's and ULH&P's sales of accounts receivables in 1996 and interest received in 1995 associated with a refund of an overpayment of Federal income taxes related to prior years. Interest Interest on Long-term Debt Interest charges decreased $6 million (17.0%) for the quarter ended September 30, 1996, from the same period of 1995 primarily due to the redemption of $161.5 million of long-term debt during the period from January 1996 through May 1996. Costs of Reacquisition of Preferred Stock Costs of reacquisition of preferred stock represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. (See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information.") RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Kwh Sales Kwh sales for the nine months ended September 30, 1996, increased 7.3% over the same period of 1995. This increase reflected higher kwh sales to all customer classes. Increased activity in Cinergy's power marketing operations led to higher non-firm power sales for resale, while an increase in the average number of residential and commercial customers and higher industrial sales, primarily reflecting growth in the primary metals sector, also contributed to the increase. These increases were partially offset by the return to more normal weather in the third quarter of 1996. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the first nine months of 1996 increased 13.9% as compared to the same period in 1995. Colder weather during the winter heating season, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to increased gas sales to residential and commercial customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes mainly reflects demand for gas transportation services in the primary metals sector. Operating Revenues Electric Operating Revenues Electric operating revenues increased $49 million (4.6%) for the nine months ended September 30, 1996, over the comparable period of 1995. This increase primarily reflects the higher kwh sales discussed above. An analysis of electric operating revenues is shown below: Nine Months Ended September 30 (in millions) Electric operating revenues - September 30, 1995 $1 088 Increase (Decrease) due to change in: Price per kwh Retail (3) Sales for resale Firm power transactions (3) Total change in price per kwh (6) Kwh sales Retail 40 Sales for resale Non-firm power transactions 15 Total change in kwh sales 55 Electric operating revenues - September 30, 1996 $1 137 Gas Operating Revenues Gas operating revenues increased $40 million (15.2%) in the first nine months of 1996, when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales and transportation volumes. Also contributing to the increase was the operation of fuel adjustment clauses reflecting a higher cost of gas purchased. Operating Expenses Fuel Used in Electric Production Fuel costs, CG&E's largest operating expense, increased $14 million (5.7%) for the nine months ended September 30, 1996, when compared to the same period last year as a result of an increase in kwh generation. Gas Purchased Gas purchased for the nine months ended September 30, 1996, increased $20 million (15.4%) when compared to the same period last year. This increase was attributable to an increase in volumes purchased and a higher average cost per Mcf of gas purchased as previously discussed. Purchased and Exchanged Power Purchased and exchanged power for the nine months ended September 30, 1996, increased $2 million (5.7%) over the comparable period of 1995. This increase primarily reflects increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing operations. This increase is partially offset by a decrease in purchases from PSI. Other Operation For the nine months ended September 30, 1996, other operation expenses increased $31 million (15.1%) due to a number of factors, including higher administrative and general expenses reflecting, in part, $16.2 million of early retirement and severance program costs and increased transmission expenses resulting from the formation of KO Transmission. Maintenance The $5 million (7.5%) increase in maintenance expenses for the nine months ended September 30, 1996, is primarily due to increased maintenance on electric production facilities. Amortization of Phase-in Deferrals Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. In the first three years of the phase- in plan, rates charged to customers did not fully recover depreciation expense and return on investment. This deficiency was deferred and is being recovered over a seven-year period that began in May 1995. Other - net Other - net decreased $11 million from the same period in 1995 due to a number of factors, including the effects of expenses associated with the sales of accounts receivables in 1996 and interest received in 1995 associated with a refund of an overpayment of Federal income taxes related to prior years, as previously mentioned. Interest Interest on Long-term Debt Interest charges decreased $14 million (12.8%) for the nine months ended September 30, 1996, from the same period of 1995 primarily due to the refinancing of over $330 million of long-term debt during the period from March 1995 through November 1995 and the redemption of $161.5 million of long- term debt during the period from January 1996 through May 1996. Preferred Dividend Requirement The decrease in the preferred dividend requirement of $4 million (26.6%) for the nine months ended September 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of the 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. Costs of Reacquisition of Preferred Stock Costs of reacquisition of preferred stock represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September of 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. (See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information.") PSI ENERGY, INC. AND SUBSIDIARY COMPANIES PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1996 1995 (dollars in thousands) Electric Utility Plant - Original Cost In service $4 117 737 $4 052 984 Accumulated depreciation 1 698 969 1 637 169 2 418 768 2 415 815 Construction work in progress 76 999 58 191 Total electric utility plant 2 495 767 2 474 006 Current Assets Cash and temporary cash investments 14 202 15 522 Restricted deposits 549 1 187 Notes receivable from affiliated companies 1 400 - Accounts receivable less accumulated provision for doubtful accounts of $202 at September 30, 1996, and $468 at December 31, 1995 53 121 73 419 Accounts receivable from affiliated companies 2 499 20 568 Materials, supplies, and fuel - at average cost Fuel 53 018 82 014 Other materials and supplies 32 779 29 462 Prepayments and other 2 871 1 234 160 439 223 406 Other Assets Regulatory assets Amounts due from customers - income taxes 32 849 26 338 Post-in-service carrying costs and deferred operating expenses 45 172 38 874 Coal contract buyout costs 137 686 - Deferred DSM costs 105 204 110 242 Deferred merger costs 77 633 42 286 Unamortized costs of reacquiring debt 32 583 34 476 Other 69 910 33 886 Other 128 178 92 056 629 215 378 158 $3 285 421 $3 075 570 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements. PSI ENERGY, INC. CAPITALIZATION AND LIABILITIES September 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - without par value; $.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at September 30, 1996, and December 31, 1995 $ 539 $ 539 Paid-in capital 402 945 403 253 Accumulated earnings subsequent to November 30, 1986, quasi-reorganization 627 354 625 275 Total common stock equity 1 030 838 1 029 067 Cumulative Preferred Stock Not subject to mandatory redemption 173 090 187 897 Long-term Debt 818 959 828 116 Total capitalization 2 022 887 2 045 080 Current Liabilities Long-term debt due within one year 10 400 50 400 Notes payable 209 354 165 800 Notes payable to affiliated companies 52 677 32 731 Accounts payable 128 455 116 817 Accounts payable to affiliated companies 5 420 - Litigation settlement 80 000 80 000 Accrued taxes 65 419 65 851 Accrued interest 12 661 24 696 Other 16 246 16 000 580 632 552 295 Other Liabilities Deferred income taxes 347 227 331 876 Unamortized investment tax credits 53 652 56 354 Accrued pension and other postretirement benefit costs 62 487 54 130 Other 218 536 35 835 681 902 478 195 $3 285 421 $3 075 570
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1996 1995 1996 1995 (in thousands) Operating Revenues Non-affiliated companies $342 199 $332 431 $951 171 $902 501 Affiliated companies 5 856 10 866 14 691 29 587 348 055 343 297 965 862 932 088 Operating Expenses Fuel 101 644 106 344 272 343 292 910 Purchased and exchanged power Non-affiliated companies 26 665 11 457 71 422 26 068 Affiliated companies 7 669 1 702 28 004 16 761 Other operation 62 434 61 595 188 443 167 354 Maintenance 23 059 20 857 68 964 63 861 Depreciation 30 489 28 844 91 046 91 291 Post-in-service deferred operating expenses - net (1 716) (894) (5 068) (4 608) Income taxes 23 445 29 222 55 597 64 877 Taxes other than income taxes 13 729 14 022 41 361 40 721 287 418 273 149 812 112 759 235 Operating Income 60 637 70 148 153 750 172 853 Other Income and Expenses - Net Allowance for equity funds used during construction - (1 428) - (420) Post-in-service carrying costs 391 602 1 228 3 183 Income taxes (2 438) 705 (3 332) 751 Other - net 3 280 545 1 420 (1 751) 1 233 424 (684) 1 763 Income Before Interest 61 870 70 572 153 066 174 616 Interest Interest on long-term debt 16 218 17 647 50 286 53 546 Other interest 3 790 4 162 10 386 12 035 Allowance for borrowed funds used during construction (642) (1 133) (1 637) (3 550) 19 366 20 676 59 035 62 031 Net Income 42 504 49 896 94 031 112 585 Preferred Dividend Requirement (3 020) (3 295) (9 518) (9 885) Net Income Applicable to Common Stock $ 39 484 $ 46 601 $ 84 513 $102 700 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 1996 1995 (in thousands) Operating Activities Net income $ 94 031 $ 112 585 Items providing (using) cash currently: Depreciation 91 046 91 291 Deferred income taxes and investment tax credits - net 5 145 5 342 Allowance for equity funds used during construction - 420 Regulatory assets - net (49 070) (10 315) Changes in current assets and current liabilities Restricted deposits (335) 16 Accounts and notes receivable, net of reserves on receivables sold 23 039 (35 442) Materials, supplies, and fuel 25 679 16 310 Accounts payable 17 058 (50 642) Accrued taxes and interest (12 467) 4 490 Other items - net (810) 12 150 Net cash provided by (used in) operating activities 193 316 146 205 Financing Activities Funds on deposit from issuance of long-term debt 973 8 684 Retirement of preferred stock (15 114) (8) Redemption of long-term debt (50 000) (60 055) Change in short-term debt 63 500 42 927 Dividends on preferred stock (9 609) (9 885) Dividends on common stock (82 363) - Capital contribution from parent company - 12 721 Net cash provided by (used in) financing activities (92 613) (5 616) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (107 061) (132 282) Deferred DSM costs - net 5 038 (11 041) Net cash provided by (used in) investing activities (102 023) (143 323) Net increase (decrease) in cash and temporary cash investments (1 320) (2 734) Cash and temporary cash investments at beginning of period 15 522 6 341 Cash and temporary cash investments at end of period $ 14 202 $ 3 607 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, 1996 Kwh Sales Kwh sales for the third quarter of 1996 decreased 1.9% as a return to more normal weather resulted in a decline in residential and commercial kwh sales, when compared to the same period last year. Partially offsetting the decrease was increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. An increase in industrial sales primarily reflects growth in the transportation equipment, bituminous coal mining and primary metals sectors. Operating Revenues Total operating revenues increased $5 million (1.4%) for the quarter ended September 30, 1996, when compared to the same period last year, reflecting, in part, the increased activity in Cinergy's power marketing operations previously discussed. Partially offsetting this increase was the previously mentioned decline in residential and commercial sales. An analysis of operating revenues is shown below: Quarter Ended September 30 (in millions) Operating revenues - September 30, 1995 $343 Increase (Decrease) due to change in: Price per kwh Retail 5 Sales for resale Firm power obligations (3) Non-firm power transactions 10 Total change in price per kwh 12 Kwh sales Retail (7) Sales for resale Firm power obligations (2) Non-firm power transactions 1 Total change in kwh sales (8) Other 1 Operating revenues - September 30, 1996 $348 Operating Expenses Fuel Fuel costs, PSI's largest operating expense, decreased $4 million (4.4%) for the third quarter of 1996 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, 1995 $106 Increase (Decrease) due to change in: Price of fuel 9 Kwh generation (13) Fuel expense - September 30, 1996 $102 Purchased and Exchanged Power For the quarter ended September 30, 1996, purchased and exchanged power increased $21 million, as compared to the same period last year, due, in part, to increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing operations and increased purchases from CG&E as a result of the coordination of PSI's and CG&E's electric dispatch systems. Maintenance The $2 million (10.6%) increase in maintenance expenses for the third quarter of 1996, as compared to the same period of 1995, is due, in part, to maintenance on the Clean Coal Project which began commercial operation in November 1995. Depreciation Depreciation expense increased $2 million (5.7%) for the quarter ended September 30, 1996, as compared to the third quarter of last year. This increase primarily reflects additions to utility plant in service. Post-in-service Deferred Operating Expenses - Net Post-in-service deferred operating expenses - net reflects the deferral of depreciation on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates, net of amortization of these deferrals as they are recovered. Other Income and Expenses - Net Other - net The increase of $3 million for other - net for the quarter ended September 30, 1996, as compared to the same period of 1995, is primarily attributable to amounts allowed by the IURC in its September 1996 Order which were not previously recorded. Interest Interest on Long-term Debt Interest on long-term debt decreased $1 million (8.1%) for the third quarter of 1996, as compared to the third quarter of 1995, primarily due to the redemption of $110 million of long-term debt during the period from August 1995 through July 1996. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Kwh Sales For the nine months ended September 30, 1996, kwh sales increased 8.8% when compared to the same period last year due, in large part, to increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Also contributing to the total kwh sales levels were increased sales to all retail customer classes resulting from an increase in the average number of residential and commercial customers while increased industrial sales reflects growth in the food products, primary metals, and transportation equipment sectors. These increases were partially offset by the return to more normal weather in the third quarter of 1996. Operating Revenues Total operating revenues increased $34 million (3.6%) for the nine months ended September 30, 1996, when compared to the same period last year. This increase primarily reflects the increase in kwh sales previously discussed. Also contributing to the increase was a 4.3% retail rate increase approved in the February 1995 Order and a 1.9% rate increase for carrying costs on CWIP property which was approved by the IURC in March 1995. Partially offsetting these increases was the return of approximately $13 million to customers in accordance with the February 1995 Order which requires all retail operating income above a certain rate of return to be refunded to customers. An analysis of operating revenues is shown below: Nine Months Ended September 30 (in millions) Operating revenues - September 30, 1995 $932 Increase (Decrease) due to change in: Price per kwh Retail (14) Sales for resale Firm power obligations (4) Non-firm power transactions 3 Total change in price per kwh (15) Kwh sales Retail 14 Sales for resale Firm power obligations 6 Non-firm power transactions 29 Total change in kwh sales 49 Operating revenues - September 30, 1996 $966 Operating Expenses Fuel Fuel costs for the nine months ended September 30, 1996, decreased $21 million (7.0%) 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, 1995 $293 Increase (Decrease) due to change in: Price of fuel (9) Kwh generation (12) Fuel expense - September 30, 1996 $272 Purchased and Exchanged Power For the nine months ended September 30, 1996, purchased and exchanged power increased $57 million, as compared to the same period last year, due, in part, to increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing operations and increased purchases from CG&E as a result of the coordination of PSI's and CG&E's electric dispatch systems. Other Operation Other operation expenses increased $21 million (12.6%) for the nine months ended September 30, 1996, as compared to the same period last year. This increase was due to a number of factors, including the recognition of postretirement benefit costs on an accrual basis, an increase in the ongoing level of DSM expenses, and the amortization of deferred postretirement benefit costs and deferred DSM costs, all of which are being recovered in revenues pursuant to the February 1995 Order. Increased transmission expenses also contributed to the higher level of other operation expenses. Maintenance Maintenance expenses for the first nine months of 1996, as compared to the same period last year, increased $5 million (8.0%) partially as a result of maintenance on the Clean Coal Project which began commercial operation in November 1995. Increased transmission and distribution expenses also contributed to the higher level of maintenance expenses. Other Income and Expenses - Net Post-in-service Carrying Costs Post-in-service carrying costs decreased $2 million (61.4%) for the nine months ended September 30, 1996, from the comparable period of 1995 as a result of discontinuing the accrual of post-in-service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects pursuant to the February 1995 Order. Other - net The increase of $3 million for other - net for the nine months ended September 30, 1996, as compared to the same period of 1995, is primarily attributable to amounts allowed by the IURC in its September 1996 Order which were not previously recorded. Interest Interest on Long-term Debt Interest on long-term debt decreased $3 million (6.1%) for the nine months ended September 30, 1996, as compared to the same period of 1995, due in part to the redemption of $110 million of long-term debt during the period from August 1995 through July 1996. THE UNION LIGHT, HEAT AND POWER COMPANY THE UNION LIGHT, HEAT & POWER COMPANY BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1996 1995 (dollars in thousands) Utility Plant - original cost In service Electric $193 903 $188 508 Gas 146 286 140 604 Common 19 026 19 068 359 215 348 180 Accumulated depreciation 120 500 112 812 238 715 235 368 Construction work in progress 7 936 7 863 Total utility plant 246 651 243 231 Current Assets Cash and temporary cash investments 2 787 1 750 Notes receivable from affiliated companies 1 501 - Accounts receivable less accumulated provision for doubtful accounts of $1,623 at September 30, 1996, and $1,140 at December 31, 1995 3 466 37 895 Accounts receivable from affiliated companies 14 - Materials, supplies, and fuel - at average cost Gas stored for current use 6 887 4 513 Other materials and supplies 1 462 1 215 Property taxes applicable to subsequent year 587 2 350 Prepayments and other 499 485 17 203 48 208 Other Assets Regulatory assets Deferred merger costs 1 785 1 785 Unamortized costs of reacquiring debt 3 803 2 526 Other 2 468 2 548 Other 6 439 1 499 14 495 8 358 $278 349 $299 797 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 & POWER COMPANY CAPITALIZATION AND LIABILITIES September 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at September 30, 1996, and December 31, 1995 $ 8 780 $ 8 780 Paid-in capital 18 839 18 839 Retained earnings 94 621 82 863 Total common stock equity 122 240 110 482 Long-term Debt 44 604 54 377 Total capitalization 166 844 164 859 Current Liabilities Long-term debt due within one year - 15 000 Notes payable to affiliated companies 21 593 23 043 Accounts payable 5 120 11 057 Accounts payable to affiliated companies 16 139 21 665 Accrued taxes 2 311 1 993 Accrued interest 940 1 549 Other 6 159 5 505 52 262 79 812 Other Liabilities Deferred income taxes 31 247 23 728 Unamortized investment tax credits 4 867 5 079 Accrued pension and other postretirement benefit costs 12 915 12 202 Income taxes refundable through rates 5 017 4 717 Other 5 197 9 400 59 243 55 126 $278 349 $299 797
THE UNION LIGHT, HEAT & POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1996 1995 1996 1995 (in thousands) Operating Revenues Electric $ 52 704 $ 57 171 $147 970 $144 553 Gas 5 660 5 995 50 794 45 870 58 364 63 166 198 764 190 423 Operating Expenses Electricity purchased from parent company for resale 39 850 42 124 109 337 109 099 Gas purchased 2 129 2 168 26 252 23 884 Other operation 7 268 7 428 23 664 22 481 Maintenance 1 093 903 3 445 3 040 Depreciation 3 013 2 907 8 887 8 553 Income taxes 1 067 1 612 7 824 5 573 Taxes other than income taxes 986 986 3 092 2 965 55 406 58 128 182 501 175 595 Operating Income 2 958 5 038 16 263 14 828 Other Income and Expense - Net Allowance for equity funds used during construction 42 22 21 78 Income taxes 4 (10) 31 (48) Other - net (436) (8) (1 079) 59 (390) 4 (1 027) 89 Income Before Interest 2 568 5 042 15 236 14 917 Interest Interest on long - term debt 881 1 721 3 135 5 674 Other interest 167 157 433 376 Allowance for borrowed funds used during construction (26) (24) (90) (120) 1 022 1 854 3 478 5 930 Net Income $ 1 546 $ 3 188 $ 11 758 $ 8 987 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 1996 1995 (in thousands) Operating Activities Net income $ 11 758 $ 8 987 Items providing (using) cash currently Depreciation 8 887 8 553 Deferred income taxes and investment tax credits - net 7 607 1 147 Allowance for equity funds used during construction (21) (78) Regulatory assets 80 128 Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 29 590 5 066 Materials, supplies, and fuel (2 621) 608 Accounts payable (11 463) 248 Accrued taxes and interest 1 446 (1 515) Other items - net (3 866) 1 969 Net cash provided by (used in) operating activities 41 397 25 113 Financing Activities Issuance of long-term debt - 14 704 Redemption of long-term debt (26 083) (37 036) Change in short-term debt (1 450) 12 000 Net cash provided by (used in) financing activities (27 533) (10 332) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (12 827) (14 350) Net cash provided by (used in) investing activities (12 827) (14 350) Net increase (decrease) in cash and temporary cash investment 1 037 431 Cash and temporary cash investments at beginning of period 1 750 1 071 Cash and temporary cash investments at end of period $ 2 787 $ 1 502 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, 1996 Kwh Sales Kwh sales for the quarter ended September 30, 1996, decreased 6.4% from the comparable period of 1995. A return to more normal weather in the third quarter of 1996 resulted in a decline in residential and commercial sales. An increase in the average number of residential and commercial customers partially offset the decline in sales. Operating Revenues Electric Operating Revenues Electric operating revenues decreased $4.5 million (7.8%) for the quarter ended September 30, 1996, from the comparable period of 1995. This decrease primarily reflects the previously discussed decline in kwh sales. Also, on July 3, 1996, the KPSC issued an order authorizing a decrease in electric rates of approximately $1.8 million annually to reflect a reduction in the cost of electricity purchased from CG&E. Gas Operating Revenues An increasing trend of industrial customers purchasing gas directly from producers and utilizing ULH&P facilities to transport the gas continues to put downward pressure on gas operating revenues. When ULH&P sells gas, the sales price reflects the cost of gas purchased by ULH&P to support the sale plus the costs to deliver the gas. When gas is transported, ULH&P does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues declined $.3 million (5.6%) in the third quarter of 1996, when compared to the same period of last year. This decrease was the result of the aforementioned trend toward increased transportation services. This decrease was slightly offset by the operation of adjustment clauses reflecting a higher average cost of gas purchased. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased expense, ULH&P's largest operating expense, decreased $2.3 million (5.4.%) for the quarter ended September 30, 1996, as compared to the same period last year. This decrease reflects the aforementioned reduction in the cost of electricity purchased from CG&E. Maintenance The $.2 million (21.0%) increase in maintenance expenses for the third quarter of 1996, as compared to the same period of 1995, is primarily due to increased maintenance expenses associated with gas and electric distribution facilities. Other Income and Expenses - Net Other - net The change of $.4 million for other - net for the quarter ended September 30, 1996, as compared to the same period of 1995, is primarily attributable to expenses associated with the sales of accounts receivables in 1996. Interest Interest on Long-term Debt Interest charges decreased $.8 million (48.8%) for the quarter ended September 30, 1996, as compared to the same period of 1995, primarily due to the redemption of $25 million of long-term debt from January 1996 to May 1996. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Kwh Sales Kwh sales for the nine months ended September 30, 1996, increased 5.3% as compared to the same period of 1995. This increase was due to higher kwh sales to all customer classes. Residential and commercial sales reflected an increase in the average number of customers. Industrial sales increased due to growth in the food products sector. These increases were partially offset by the return to more normal weather in the third quarter of 1996. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the nine months ended September 30, 1996, increased 13.8% as compared to the same period in 1995. Colder weather during the winter heating season, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to increases in gas sales to residential and commercial customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers using transportation services provided by ULH&P. The increase in transportation volumes, which more than offset the decline in industrial sales, was primarily a result of growth in the primary metals sector. Operating Revenues Electric Operating Revenues Electric operating revenues increased $3.4 million (2.4%) for the nine months ended September 30, 1996, over the comparable period of 1995. This increase primarily reflects the previously discussed increase in kwh sales. Partially offsetting this increase is a lower average cost of electricity purchased due, in part, to the aforementioned reduction in the cost of electricity purchased from CG&E retroactive to July 3, 1995. Gas Operating Revenues Gas operating revenues increased $4.9 million (10.7%) for the first nine months of 1996 when compared to the same period of last year. This increase was primarily a result of the previously discussed changes in gas sales volumes. Operating Expenses Gas Purchased Gas purchased increased $2.4 million (9.9%) for the nine months ended September 30, 1996, as compared to the prior year. This increase reflects higher volumes purchased. Other Operation The increase in other operation expenses of $1.2 million (5.3%) for the nine months ended September 30, 1996, from the same period of 1995 is due to a number of factors, including increased gas distribution expenses and higher administrative and general expenses. Maintenance Maintenance expenses for the nine months ended September 30, 1996, increased $.4 million (13.3%) when compared to the nine months ended September 30, 1995. This increase was due, in part, to higher expenses associated with gas distribution facilities. Other Income and Expenses - Net Other - net The change of $1.1 million for other - net for the nine months ended September 30, 1996, as compared to the same period of 1995, is primarily attributable to expenses associated with the sales of accounts receivables in 1996. Interest Interest on Long-term Debt Interest charges decreased $2.5 million (44.7%) for the nine months ended September 30, 1996, from the same period of 1995, primarily due to the redemption of $25 million during the period from January 1996 to May 1996. NOTES TO FINANCIAL STATEMENTS Cinergy, CG&E, PSI, and ULH&P 1. These Financial Statements reflect all adjustments (which include only normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1995 Form 10-K of the registrants. Certain amounts in the 1995 Financial Statements have been reclassified to conform to the 1996 presentation. Cinergy, CG&E, and ULH&P 2. In May 1996, ULH&P redeemed the entire $10 million principal amount of its 9 1/2% Series First Mortgage Bonds due December 1, 2008, at the redemption price of 104.35%. Cinergy and PSI PSI redeemed $50 million principal amount of its 9 3/4% Series First Mortgage Bonds on the maturity date of August 1, 1996. Cinergy and PSI A portion of PSI's 7.44% Series Cumulative Preferred Stock (591,000 shares representing 15%), totaling $15 million, was reacquired by PSI at per share prices of $25.50 and $25.65 in May 1996. Cinergy and PSI 3. On September 12, 1996, PSI's shelf registration for $250 million of debt securities was made effective by the SEC. On November 7, 1996, the City of Princeton, Indiana loaned the proceeds from the sale of its $24,600,000 Pollution Control Revenue Refunding Bonds, 1996 Series to PSI. The purpose of the sale is to refund the $19,600,000 City of Princeton, Indiana Pollution Control Revenue Bonds, 1973 Series and the $5,000,000 City of Princeton, Indiana Pollution Control Revenue Bonds, 1979 Series which were originally issued to finance PSI's costs of acquiring and constructing certain pollution control facilities at Gibson. These refunded bonds will be redeemed on December 16, 1996 at a price of 100% of the principal amount thereof, plus accrued interest to the redemption date. The 1996 Series bonds bear interest at a variable rate and will mature March 1, 2019, subject to redemption prior to maturity, including a mandatory sinking fund redemption of $19,600,000 aggregate principal amount on January 1, 2014. Pursuant to the loan agreement between PSI and Princeton, PSI will make loan payments sufficient to pay when due the principal of and interest on the 1996 Series bonds. Cinergy and PSI 4. As discussed in Cinergy's and PSI's 1995 Form 10-K, RUS requested a rehearing on the affirmation by the Seventh Circuit Court of Appeals of WVPA's plan of reorganization which had been approved by the United States Bankruptcy Court for the Southern District of Indiana and upheld by the United States District Court for the Southern District of Indiana. In April 1996, the Seventh Circuit Court of Appeals denied RUS' request for rehearing. RUS' request that the United States Supreme Court accept the appeal of this decision was denied November 4, 1996. There is a short period for reconsideration of the denial. PSI cannot predict whether RUS will request reconsideration of the denial or the outcome of any such request. If the United States Supreme Court denies reconsideration, or no reconsideration is requested by RUS, then Cinergy and WVPA will commence implementation of the settlement agreement upon final certification of the plan of reorganization by the Bankruptcy Court. Cinergy, CG&E, PSI, and ULH&P 5. In March 1995, the FASB issued Statement 121, which became effective in January 1996 for Cinergy and its subsidiaries. Statement 121, which addresses the identification and measurement of asset impairments for all enterprises, is particularly relevant for electric utilities as a result of the potential for deregulation of the generation segment of the business. Statement 121 requires recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. Based on the regulatory environment in which Cinergy's utility subsidiaries currently operate, compliance with the provisions of Statement 121 has not had nor is it expected to have an adverse effect on their financial condition or results of operations. However, this conclusion may change in the future as competitive pressures and potential restructuring influence the electric utility industry. Cinergy and CG&E 6. An amendment to the Articles of CG&E was adopted at a special meeting of shareholders of CG&E, held on September 18, 1996. The amendment removes a provision of the Articles that limits CG&E's ability to issue unsecured debt, including short-term debt. Concurrently with the solicitation of proxies for the special meeting, Cinergy commenced an offer to purchase, for cash, any and all outstanding shares of preferred stock of CG&E. The tender offer, which commenced August 20, 1996, and expired September 18, 1996, was conditioned upon, among other things, the proposed amendment being approved and adopted at the special meeting. Approximately 90% (1,788,544 of 2,000,000 shares) of the outstanding shares of preferred stock of CG&E was tendered pursuant to Cinergy's offer. The source of funds for Cinergy's purchase of the tendered shares was a special cash dividend paid by CG&E to Cinergy on September 24, 1996. Cinergy made a capital contribution to CG&E of all the shares it acquired and CG&E canceled these shares. The difference between the par value of the preferred stock tendered and the purchase price paid (including tender fees paid to dealer managers) by Cinergy totaled $18.2 million, which is reflected in "Costs of Reacquisition of Preferred Stock of Subsidiaries" in the Consolidated Statements of Income. The shares tendered and purchase price paid by Cinergy for each series of preferred stock are as follows: Series Shares Price Per (Par value $100 per share) Tendered Share__ 4% Series Cumulative Preferred Stock 100,165 $ 64.00 4.75% Series Cumulative Preferred Stock 88,379 $ 80.00 7.875% Series Cumulative Preferred Stock 800,000 $116.00 7.375% Series Cumulative Preferred Stock 800,000 $110.00 1,788,544 As a result of the tender offer and the subsequent cancellation of shares by CG&E, CG&E currently has a total of 211,456 shares of preferred stock outstanding, consisting of 169,835 shares of the 4% Series and 41,621 Shares of the 4.75% Series. The 4.75% Series no longer meets certain listing requirements of the New York Stock Exchange and has been delisted. (See "Part II - Other Information" - "Item 4. Submission of Matters to a Vote of Security Holders.") Cinergy, CG&E, PSI, and ULH&P 7. During 1996, Cinergy completed voluntary workforce reduction programs. Under these programs, 418 Cinergy exempt and non-bargaining unit employees and 201 PSI bargaining unit employees elected to terminate their employment with Cinergy. These elections resulted in a pre-tax cost for the non-bargaining unit program of approximately $38.2 million (allocated $19.1 million to CG&E and its subsidiaries, including ULH&P, and $19.1 million to PSI) and a pre-tax cost for the PSI bargaining unit program of approximately $14 million. Consistent with the merger savings sharing mechanisms previously approved by regulators, Cinergy has classified these costs as costs to achieve merger savings which resulted in approximately $14.6 million (pre-tax), allocable to Ohio electric jurisdictional customers, being charged to earnings in the second quarter of 1996. The remaining costs have been deferred for future recovery through rates as an offset against merger savings. A significant portion of these benefits is eligible for funding from qualified retirement plan assets. Additionally, voluntary workforce reduction programs similar to the programs described above have been announced for bargaining unit employees of CG&E and its subsidiaries, including ULH&P. Under these programs, there are 232 bargaining unit employees who meet certain age and service requirements that are eligible for enhanced retirement benefits. Eligible employees who do not meet age and service requirements will receive severance benefits upon resignation from their employment. Program costs will not be known until after the participation election periods end in December 1996. The costs will be treated as costs to achieve merger savings, with the majority being charged to fourth quarter earnings and the remaining portion being deferred for future recovery. Cinergy and PSI 8. On September 27, 1996, the IURC approved an overall average retail electric rate increase for PSI of 7.6% ($75.7 million annually). PSI had requested a retail rate increase of 10.5% ($104.8 million annually). Among other things, the IURC authorized a return on equity of 11.0% (before the 100 basis points additional common equity return allowed as a merger savings sharing mechanism) with an 8.21% overall rate of return on net original cost rate base, and the inclusion in rates of the Clean Coal Project, an ongoing level of DSM costs of $23 million, and a scrubber at Gibson. Consideration of the Company's requested increase in the ongoing level of DSM costs to $39 million was deferred to a separate currently pending proceeding specifically established to review PSI's current and proposed DSM programs. On October 17, 1996, the UCC and CAC filed with the IURC a Joint Petition for Reconsideration and Rehearing of the IURC's September 1996 Order. PSI has filed a response in opposition to the requested rehearing and reconsideration. PSI cannot predict what action the IURC may take with respect to the requested rehearing and reconsideration. Cinergy and CG&E 9. In October 1996, the PUCO concluded hearings on CG&E's gas rate increase request of 7.8% ($26.7 million annually). The increase is being requested, in part, to recover capital investments made since CG&E's last gas rate increase in 1993. In July 1996, the Staff of the PUCO issued its Report of Investigation on the rate request recommending that CG&E receive an annual increase in gas revenues ranging from $3.5 million to $6.3 million. The differences between the Staff's recommendation and CG&E's request are primarily attributable to a decrease in working capital allowance, a lower rate of return, and the disallowance of certain capitalized information systems development costs and deferred merger costs. An order in the rate proceeding is anticipated by the end of the first quarter of 1997; however, Cinergy cannot predict what action the PUCO may take with respect to the proposed rate increase. Cinergy and CG&E 10. On November 1, 1996, CG&E entered into a sale-leaseback agreement for certain equipment at Woodsdale. The lease is a capital lease with an initial lease term of five years. At the end of the initial lease term, the lease may be renewed at mutually agreed upon terms or the equipment may be repurchased by CG&E at the original sale amount. The monthly lease payment, comprised of interest only, will be based on the applicable LIBOR rate plus .30% and, therefore, the capital lease obligation will not be amortized over the initial lease term. The property under the capital lease will continue to be depreciated at the same rate as if the property were still owned by CG&E. CG&E will record a capital lease obligation of $21.6 million. Cinergy 11. Avon Energy, a 50/50 joint venture between Cinergy and GPU, completed its acquisition of all of the outstanding common stock of Midlands during the third quarter of 1996. The total consideration paid by Avon Energy was approximately $2.6 billion. The funds for the acquisition were obtained from Cinergy's and GPU's investment in Avon Energy of approximately $500 million each, with the remainder being obtained by Avon Energy through the issuance of non-recourse debt. Cinergy has used debt to fund its entire investment in Avon Energy. Based on a preliminary allocation of the purchase price, Avon Energy has recorded goodwill of approximately $1.9 billion in connection with this acquisition. Cinergy accounts for its investment in Avon Energy under the equity method. Avon Energy's results for the quarter ended September 30, 1996, include 100% of Midlands' results for the quarter as substantially all of the Midlands' stock had been acquired by Avon Energy as of the beginning of the quarter. Cinergy's equity in Avon Energy's earnings is 50%, the same as its ownership share. The pro forma financial information presented below assumes 100% of Midlands was acquired on the first day of each respective period. The pro forma adjustments include recognition of equity in the estimated earnings of Avon Energy, an adjustment for interest expense on debt associated with Cinergy's investment in Avon Energy, and related income taxes. The estimated earnings of Avon Energy include the historical earnings of Midlands prior to its acquisition by Avon Energy, adjusted for the estimated effect of purchase accounting (including the amortization of goodwill) and conversion to United States generally accepted accounting principles, interest expense on debt issued by Avon Energy associated with the acquisition, and related income taxes. Sales of electricity are affected by seasonal weather patterns and, therefore, the results of Avon Energy/Midlands will not be distributed evenly during the year. (Equity in earnings of Avon Energy has been converted using the average exchange rates for the nine month and twelve month periods of $1.549/, and $1.556/, respectively.) Nine Months Ended Twelve Months Ended September 30, 1996 September 30, 1996 Net Earnings Net Earnings Income Per Share* Income Per Share* (millions) (millions) (unaudited) Cinergy $264 $1.56 (1) $341 $2.05 (1) Pro forma adjustments: Equity in Earnings of Avon Energy 31 54 Interest expense (14) (23) Income taxes (6) (11) Pro forma result $275 $1.63 $361 $2.18 * Based on the average number of common shares outstanding for the period. (1) Earnings per share after a charge of $.12 per share for the cost of reacquiring preferred stock of CG&E through a tender offer. Cinergy and PSI 12. On August 7, 1996, PSI entered into a coal supply agreement with Eagle for the supply of approximately 3 million tons of coal per year. The agreement (which runs through December 31, 2000) provides for the payment by PSI of a buy-out fee of $179 million (including interest). This represents the fee paid by Eagle to Exxon to buy out the coal supply agreement between PSI and Exxon. Pursuant to the terms of the agreements, the price of coal paid by PSI will include a monthly buy-out charge which will be paid to Eagle through December 2000. As a result of the new coal supply agreement with Eagle, on the same day, PSI and the UCC entered into a settlement agreement which provides, in part, for PSI to recover the retail electric portion of the buy-out fee through the quarterly fuel adjustment clause, with carrying costs on unrecovered amounts, through December 2002. PSI and the UCC have filed a joint petition with the IURC for approval of this settlement agreement. In, addition, PSI filed a petition with the FERC for waiver of fuel adjustment clause regulations. PSI cannot predict what actions the IURC or the FERC may take with respect to these petitions. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Recent Developments Cinergy Joint Venture In May 1996, Cinergy, GPU, and Midlands announced the terms of a recommended cash offer for Midlands to be made by Avon Energy. Cinergy and GPU each own 50% of Avon Energy. Midlands, one of 12 regional electric companies in the United Kingdom, is headquartered in Birmingham, England. Midlands' principal business is the distribution of electricity to approximately 2.2 million customers. Avon Energy commenced the offer to acquire all of the shares of Midlands on the terms and subject to conditions set out in an offering document. On June 6, 1996, Cinergy and GPU announced that Avon Energy declared the cash offer wholly unconditional in all respects and thereby was committed to purchase all outstanding shares of Midlands. During the third quarter of 1996, Avon Energy completed the acquisition of all outstanding shares of Midlands. The total acquisition price of Midlands is approximately (Pound Sterling) 1.7 billion (or approximately $2.6 billion - U.S.). For further information, reference is made to Cinergy's Current Reports on Form 8-K dated May 7, 1996, and June 6, 1996, as amended. See Note 11 of the "Notes to Financial Statements" in "Part I. Financial Information" for pro forma financial information relating to the acquisition of Midlands. Cinergy, CG&E, PSI, and ULH&P Securities Ratings Following the announcement of the potential acquisition of Midlands, major credit rating agencies, D&P, Fitch, and S&P, affirmed the current ratings of Cinergy's operating subsidiaries, after their consideration of the effects of the potential acquisition. The other major credit rating agency, Moody's, placed the credit ratings of Cinergy's operating subsidiaries, CG&E, PSI, and ULH&P, under review for possible downgrade. Moody's indicated that its review will focus on the likelihood of the transaction being completed and will assess the operating strategies of the combined companies and the anticipated benefits of the transaction. It will also focus on the financial impact the transaction will have on Cinergy and its operating subsidiaries, including the credit implications. Cinergy cannot predict the outcome of this review. On September 27, 1996, Fitch raised its ratings of PSI's first mortgage bonds, secured medium-term notes, and secured pollution control revenue bonds to A from A- and PSI's unsecured pollution control notes to A- from BBB+. Additionally, the preferred stock ratings were reaffirmed at BBB+. Fitch stated that these ratings reflect PSI's competitive profile, which is based upon various factors that has prepared it to compete effectively in an unregulated electric marketplace. Cinergy, CG&E, PSI, and ULH&P Competitive Pressures As discussed in the 1995 Form 10-K, the primary factor influencing the future profitability of Cinergy is the changing competitive environment for energy services, including the impact of emerging technologies, and the related commoditization of electric power markets. Changes in the industry include increased competition in wholesale power markets and ongoing pressure for "customer choice" by large industrial customers, and ultimately, by all retail customers. Cinergy supports increased competition in the electric utility industry and has chosen to take a leadership role in state and Federal debates on industry reform. As the electric utility industry moves toward a competitive environment, Cinergy is reassessing its corporate structure, including the issue of whether to remain vertically integrated. As a first step toward "unbundling" the business for a competitive environment, Cinergy has reorganized into strategic business units. This functional reorganization separated Cinergy's utility businesses into an energy services business unit, an energy delivery business unit, and an energy commodities business unit. Cinergy continues to analyze what benefits, if any, may exist in the future for its various stakeholders of separating the business units into different corporations. Cinergy, CG&E, PSI, and ULH&P Contract Negotiations As previously reported, members of IBEW Local No. 1393 ratified a new labor agreement with PSI effective May 24, 1996, and expiring April 30, 1999. Additionally, members of IBEW Local No. 1347, USWA Local Nos. 12049 and 14214, and the IUU approved new contracts with CG&E expiring April 1, 2001, May 15, 2002, and April 1, 2001, respectively. Regulatory Matters Cinergy, CG&E, PSI, and ULH&P FERC Orders 888 and 889 In April 1996, the FERC issued final orders relating to its previously issued mega-NOPR. The unanimously-passed final rules, which contain essentially the same provisions as the mega-NOPR, provide for mandatory filing of open access/comparability transmission tariffs, provide for functional unbundling of all services, require utilities to use the filed tariffs for their own bulk power transactions, establish an electronic bulletin board for transmission availability and pricing information, and establish a contract-based approach to recovering any potential stranded costs as a result of customer choice at the wholesale level. The FERC expects the rules to "accelerate competition and bring lower prices and more choices to energy customers." The final rules became effective in July 1996. CG&E, PSI, and ULH&P have made compliance filings with the FERC and are now operating under open access/comparability tariffs. Concurrent with the issuance of the final orders, the FERC also issued a related NOPR which establishes a new system for utilities to use in reserving capacity on their own and others' transmission systems. Cinergy has filed formal comments with the FERC which, generally, support several of the broad policy goals of the NOPR but raise implementation and prioritization issues. The FERC proposed in the NOPR that a capacity reservation tariff replace open access tariffs by December 31, 1997. Cinergy and CG&E Legislation On June 18, 1996, House Bill 476 (HB 476) was signed into law by the Governor of Ohio. HB 476 addresses regulatory reform of the natural gas industry at the state level and thus, is an extension of Order 636 for local distribution companies. The Ohio law, among other things, provides that natural gas commodity sales services may be exempted from PUCO regulation and that the PUCO allow alternative ratemaking methodologies in connection with other regulated services. The PUCO has initiated a rulemaking proceeding to promulgate administrative rules necessary to implement the law. Cinergy and PSI PSI's Retail Rate Proceeding See Note 8 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy and CG&E CG&E's Gas Rate Proceeding See Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information." Accounting Issues Cinergy, CG&E, PSI, and ULH&P New Accounting Standard See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information." CAPITAL REQUIREMENTS Cinergy and CG&E Preferred Stock Tender Offer See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information." Other Commitments Cinergy and PSI WVPA Litigation See Note 4 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy, CG&E, PSI, and ULH&P 1996 Voluntary Workforce Reduction Programs See Note 7 of the "Notes to Financial Statements" in "Part I. Financial Information." CAPITAL RESOURCES Cinergy, CG&E, PSI, and ULH&P Long-term Debt and Preferred Stock For information regarding recent securities redemptions, see Notes 2, 3, and 6 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy, CG&E, PSI, and ULH&P Short-term Debt The operating subsidiary companies of Cinergy have the following short-term debt authorizations and lines of credit: Committed Unused Authorized Lines__ Lines (in millions) Cinergy & Subsidiaries $838 $280 $64 CG&E & Subsidiaries 435 80 11 PSI 400 200 53 ULH&P 35 - - Additionally, Cinergy has established a $600 million credit facility, which expires in May 2001, of which $96 million remained unused as of November 11, 1996. This new credit facility was established, in part, to fund the acquisition of Midlands through Avon Energy ($500 million has been designated for this purpose) with the remaining portion available for general corporate purposes. The prior $100 million credit facility, which would have expired in September 1997, has been terminated. In addition, Cinergy U.K. entered into a $40 million non-recourse credit agreement, of which $27 million is outstanding as of November 11, 1996. This new credit agreement was also used to fund the acquisition of Midlands. Cinergy has borrowed approximately $500 million under the two agreements to fund its equity investment in Avon Energy. Cinergy, CG&E, PSI, and ULH&P Sales of Accounts Receivables As discussed in each registrant's 1995 Form 10- K, in January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a revolving basis, undivided percentage interests in certain of their accounts receivables. Under the agreement, the companies have the authority to sell up to an aggregate maximum of $350 million of which $257 million has been sold as of October 31, 1996. RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I. FINANCIAL INFORMATION." PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Cinergy, CG&E, and PSI Merger Litigation The United States Court of Appeals for the District of Columbia Circuit will hear oral arguments in connection with AEP's petition for review of the FERC's Merger Order. AEP has objected to the Merger Order alleging that the post-merger operations of Cinergy would require the use of AEP's transmission facilities on a continuous basis without compensation. AEP contends that the FERC, in issuing the Merger Order, did not adequately evaluate the impact on AEP or whether the need to use AEP's transmission facilities would interfere with Cinergy achieving merger benefits. In addition, AEP claims that the FERC failed to evaluate the extent to which the merged facilities' operations would be consistent with the integrated public utility concept of the PUHCA. CG&E and PSI have intervened in this action. At this time, Cinergy, CG&E, and PSI cannot predict the outcome of the appeal. Additionally, see Notes 4, 8, 9, and 12 of the "Notes to Financial Statements" in "Part I. Financial Information." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS CG&E (a) A special meeting of shareholders of CG&E was held September 18, 1996 in Cincinnati, Ohio. (c) An amendment to CG&E's Articles was approved. The amendment removes a provision of the Articles that limited the amount of unsecured debt, including short-term debt, that could be incurred by CG&E. There were 89,663,086 common shares that voted for the amendment. There were 1,800,315 affirmative votes of preferred stock, 35,677 negative votes, and 21,077 abstentions. A two-thirds affirmative vote of both common and preferred shares, each voting as a separate class, was required to approve the amendment. ITEM 5. OTHER INFORMATION Cinergy On June 25, 1996, Power International sold its ownership interest in Bruwabel and its subsidiaries, including Power Development s.r.o. which owns the Vytopna Kromeriz Heating Plant. Power International (formerly Enertech Associates International, Inc.) had acquired Bruwabel and its subsidiaries in July 1994 for the purpose of pursuing design, engineering, and development work involving energy privatization projects, primarily in the Czech Republic. Cinergy, CG&E, and ULH&P KO Transmission acquired a 32.67% interest in a 90-mile interstate natural gas pipeline and began flowing gas June 1, 1996, from southeast Kentucky northward to the service territories of CG&E and ULH&P. Cinergy, CG&E, and PSI In August 1996, Cinergy sold its ownership interests in PSI Recycling which recycled metal from CG&E and paper, metal, and other materials from PSI. Cinergy and CG&E In October 1996, Cinergy sold certain electric generating equipment for removal from Miami Fort. Cinergy, CG&E, PSI, and ULH&P Additionally, refer to the "Recent Developments" and "Regulatory Matters" sections in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in "Part I. Financial Information" for information concerning new contracts between CG&E (including ULH&P), PSI and certain of the union organizations, Cinergy's Joint Venture, the status of the CG&E gas rate proceeding, and the Company's functional restructuring. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit Designation Nature of Exhibit CG&E 3-a Amended Articles of Incorporation of CG&E effective October 23, 1996. PSI 3-b By-laws of PSI, as amended on October 22, 1996. Cinergy and PSI 4-a Loan Agreement between PSI and the City of Princeton, Indiana dated November 7, 1996. Cinergy 10-a Amendment to Cinergy's Stock Option Plan, adopted on October 22, 1996. 10-b Amendment to Cinergy's Performance Shares Plan, adopted on October 22, 1996. 10-c Amendment to Cinergy's 1996 Long-Term Incentive Compensation Plan adopted on October 22, 1996. 10-d Amendment to Cinergy's Employee Stock Purchase and Savings Plan, adopted on October 22, 1996. 10-e Amendment to Cinergy's Directors' Deferred Compensation Plan, adopted on October 22, 1996. Cinergy, CG&E, PSI, and ULH&P 27 Financial Data Schedules (included in electronic submission only). Cinergy (b) No reports on Form 8-K were filed during the quarter. 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 only normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY PSI ENERGY, INC. THE UNION LIGHT, HEAT AND POWER COMPANY Registrants Date: November 12, 1996 J. Wayne Leonard _________ Duly Authorized Officer Date: November 12, 1996 Charles J. Winger __ Chief Accounting Officer EX-4.A 2 LOAN AGREEMENT between CITY OF PRINCETON, INDIANA and PSI ENERGY, INC. _______________________________ $24,600,000 City of Princeton, Indiana Pollution Control Revenue Refunding Bonds, 1996 Series (PSI Energy, Inc. Project) _______________________________ Dated as of November 1, 1996 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.1. Use of Defined Terms Section 1.2. Definitions Section 1.3. Interpretation Section 1.4. Captions and Headings ARTICLE II REPRESENTATIONS Section 2.1. Representations of the Issuer Section 2.2. No Warranty by Issuer of Condition or Suitability of the Project Section 2.3. Representations and Covenants of the Company ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS Section 3.1. Acquisition, Construction and Installation Section 3.2. Project Description Section 3.3. Issuance of the Bonds; Application of Proceeds Section 3.4. Investment of Fund Moneys Section 3.5. Rebate Fund ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY Section 4.1. Loan Repayment Section 4.2. Additional Payments Section 4.3. Place of Payments Section 4.4. Obligations Unconditional Section 4.5. Assignment of Revenues and Agreement Section 4.6. Credit Facility; Alternate Credit Facility; Cancellation Section 4.7. Company's Option to Elect Rate Period Section 4.8. Company's Obligation to Purchase Bonds ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1. Right of Inspection Section 5.2. Maintenance Section 5.3. Removal of Portions of the Project Facilities Section 5.4. Operation of Project Facilities Section 5.5. Insurance Section 5.6. Workers' Compensation Coverage Section 5.7. Damage; Destruction and Eminent Domain Section 5.8. Company to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted Section 5.9. Indemnification Section 5.10. Company Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For Federal Income Tax Purposes Section 5.11. Use of Project Facilities Section 5.12. Assignment by Company ARTICLE VI REDEMPTION Section 6.1. Optional Redemption Section 6.2. Extraordinary Optional Redemption Section 6.3. Mandatory Redemption Section 6.4. Notice of Redemption Section 6.5. Actions by Issuer ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1. Events of Default Section 7.2. Remedies on Default Section 7.3. No Remedy Exclusive Section 7.4. Agreement to Pay Attorneys' Fees and Expenses Section 7.5. No Waiver Section 7.6. Notice of Default ARTICLE VIII MISCELLANEOUS Section 8.1. Term of Agreement Section 8.2. Amounts Remaining in Funds Section 8.3. Notices Section 8.4. Extent of Covenants of the Issuer; No Personal Liability Section 8.5. Binding Effect Section 8.6. Amendments and Supplements Section 8.7. References to Credit Facility Section 8.8. Execution Counterparts Section 8.9. Severability Section 8.10. Governing Law LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into as of November 1, 1996 between the CITY OF PRINCETON, INDIANA (the "Issuer"), a municipal corporation organized and existing under the laws of the State of Indiana, and PSI ENERGY, INC. (the "Company"), a public utility and corporation duly organized and validly existing under the laws of the State of Indiana. Capitalized terms used in the following recitals are used as defined in Article I of this Agreement. Pursuant to Indiana Code, Title 36, Article 7, Chapters 11.9 and 12, and Indiana Code, Title 5, Article 1, Chapter 5 (collectively, the "Act"), the Issuer has determined to issue, sell and deliver the Bonds, and to lend the proceeds derived from the sale thereof to the Company to assist in the refunding of the Refunded Bonds as defined below. The Refunded Bonds were originally issued to provide funds to make loans to the Company to assist in the financing of its portion of the costs of the Project as defined below. The Company and the Issuer each have full right and lawful authority to enter into this Agreement and to perform and observe the provisions hereof on their respective parts to be performed and observed. NOW THEREFORE, in consideration of the premises and the mutual representations and agreements hereinafter contained, the Issuer and the Company agree as follows (provided that any obligation of the Issuer or the State created by or arising out of this Agreement shall never constitute a general debt of the Issuer or the State or give rise to any pecuniary liability of the Issuer or the State but shall be payable solely out of Revenues, including the Loan Payments made pursuant hereto and moneys drawn under any Credit Facility): ARTICLE I DEFINITIONS Section I.1. Use of Defined Terms. In addition to the words and terms defined elsewhere in this Agreement or by reference to another document, the words and terms set forth in Section 1.2 hereof shall have the meanings set forth therein unless the context or use clearly indicates another meaning or intent. Such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms defined therein. Section I.2. Definitions. As used herein: "Act" means, collectively, Indiana Code, Title 36, Article 7, Chapters 11.9 and 12, and Title 5, Article 1, Chapter 5 as amended. "Additional Payments" means the amounts required to be paid by the Company pursuant to the provisions of Section 4.2 hereof. "Administration Expenses" means the compensation (which compensation shall not be greater than that typically charged in similar circumstances) and reimbursement of reasonable expenses and advances payable to the Trustee, the Registrar, the Remarketing Agent, any Paying Agent and any Authenticating Agent. "Agreement" means this Loan Agreement, as amended or supplemented from time to time. "Alternate Credit Facility" means an Alternate Credit Facility as defined in the Indenture. "Authenticating Agent" means the Authenticating Agent as defined in the Indenture. "Bank" means the Bank as defined in the Indenture. "Bond Fund" means the Bond Fund created in the Indenture. "Bond Purchase Fund" means the Bond Purchase Fund as defined in the Indenture. "Bond Resolution" means the ordinance of the Issuer providing for the issuance of the Bonds and approving this Agreement, the Indenture and related matters, as amended or supplemented from time to time. "Bond Service Charges" means, for any period or time, the principal of, premium, if any, and interest due on the Bonds for that period or payable at that time whether due at maturity or upon acceleration or redemption or otherwise. "Bonds" means the $24,600,000 Pollution Control Revenue Refunding Bonds, 1996 Series (PSI Energy, Inc. Project), issued by the Issuer pursuant to the Bond Resolution and the Indenture. "Bonds Outstanding" or "Outstanding Bonds" means Outstanding Bonds as defined in the Indenture. "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to the Code and Sections of the Code include relevant applicable regulations and proposed regulations thereunder and under the Internal Revenue Code of 1954, as amended, and any successor provisions to those Sections, regulations or proposed regulations and, in addition, all applicable official rulings and judicial determinations under the foregoing applicable to the Bonds. "Conversion Date" means the Conversion Date as defined in the Indenture. "Credit Facility" means a Credit Facility as defined in the Indenture. "Credit Facility Account" means the Credit Facility Account as defined in the Indenture. "Credit Facility Issuer" means a Credit Facility Issuer as defined in the Indenture. "Eligible Investments" means Eligible Investments as defined in the Indenture. "Engineer" means an engineer (who may be an employee of the Company) or engineering firm qualified to practice the profession of engineering under the laws of the State and who or which is acceptable to the Trustee. "EPA" means the Department of Environmental Management of the State and any successor body, agency, commission or department. "Event of Default" means any of the events described as an Event of Default in Section 7.1 hereof. "Force Majeure" means any of the causes, circumstances or events described as constituting Force Majeure in Section 7.1 hereof. "Government Obligations" means Government Obligations as defined in the Indenture. "Holder" or "Holder of a Bond" means the Person in whose name a Bond is registered on the Register. "Indenture" means the Trust Indenture, dated as of the same date as this Agreement, between the Issuer and the Trustee, as amended or supplemented from time to time. "Interest Rate for Advances" means the interest rate per year payable on the Bonds. "Letter of Credit" means the Letter of Credit as defined in the Indenture. "Loan" means the loan by the Issuer to the Company of the proceeds received from the sale of the Bonds. "Loan Payment Date" means any date on which any Bond Service Charges are due and payable. "Loan Payments" means the amounts required to be paid by the Company in repayment of the Loan pursuant to Section 4.1 hereof. "1954 Code" means the Internal Revenue Code of 1954 as amended from time to time through the date of enactment of the Code. References to the 1954 Code and Sections of the 1954 Code include relevant applicable regulations (including temporary regulations) and proposed regulations thereunder and any successor provisions to those Sections, regulations or proposed regulations. "Notice Address" means: (a) As to the Issuer: City of Princeton, Indiana City Building Princeton, Indiana 47670 Attention: Mayor (b) As to the Company: PSI Energy, Inc. 1000 East Main Street Plainfield, Indiana 46168 Attention: Treasurer with a copy to: PSI Energy, Inc. 139 East Fourth Street Cincinnati, Ohio 45202 Attention: Treasurer (c) As to the Trustee: The Fifth Third Bank of Central Indiana Fifth Third Center 38 Fountain Square Cincinnati, Ohio 45263 Attention: Corporate Trust Administration or such additional or different address, notice of which is given under Section 8.3 hereof. "Opinion of Bond Counsel" means a written opinion of nationally recognized bond counsel selected by the Company and acceptable to the Trustee who is experienced in matters relating to the exclusion from gross income for federal income tax purposes of interest on obligations issued by states and their political subdivisions. Bond Counsel may be counsel to the Trustee or the Company. "Original Purchaser" means the Original Purchaser as defined in the Indenture. "Paying Agent" means the Paying Agent as defined in the Indenture. "Person" or words importing persons mean firms, associations, partnerships (including without limitation, general and limited partnerships), limited liability entities, joint ventures, societies, estates, trusts, corporations, public or governmental bodies, other legal entities and natural persons. "Plant" means the Gibson Generating Station. "Pollution Control Facility" or "Pollution Control Facilities" means those facilities which are pollution control facilities as defined in Section 9 of Chapter 11.9 of the Act. "Project" or "Project Facilities" means the real, personal or real and personal property, including undivided or other interests therein, identified in the Project Description, financed with the proceeds of the Series 1973 Bonds and Series 1979 Bonds, respectively. "Project Description" means collectively the description of the Project Facilities financed with the proceeds of the Series 1973 Bonds and the Project Facilities financed with the proceeds of the Series 1979 Bonds, attached hereto as Exhibit A, as the same may be amended in accordance with this Agreement. "Project Purposes" means the purposes of Pollution Control Facilities as described in the Act and as particularly described in Exhibit A hereto. "Project Site" means the Gibson Generating Station in Princeton, Indiana. "Rate Period" means a Rate Period as defined in the Indenture. "Rebate Fund" means the Rebate Fund created in the Indenture. "Refunded Bonds" means collectively the Series 1973 Bonds and the Series 1979 Bonds. "Refunded Bonds Indenture" means collectively the Series 1973 Indenture for the Series 1973 Bonds and the Series 1979 Indenture for the Series 1979 Bonds. "Refunded Bonds Loan Agreement" means collectively the Series 1973 Loan Agreement and the Series 1979 Loan Agreement. "Refunded Bonds Trustee" means Bank One, Indianapolis, National Association (as successor to American Fletcher National Bank and Trust Company), as trustee under the Refunded Bonds Indenture. "Refunding Fund" means the Refunding Fund created in the Indenture. "Register" means the books kept and maintained for the registration and transfer of Bonds pursuant to Section 3.05 of the Indenture. "Registrar" means the Registrar as defined in the Indenture. "Reimbursement Agreement" means the Reimbursement Agreement as defined in the Indenture. "Remarketing Agent" means the Remarketing Agent as defined in the Indenture. "Revenues" means (a) the Loan Payments, (b) all other moneys received or to be received by the Issuer (excluding the Issuer Fee) or the Trustee in respect of repayment of the Loan, including without limitation, all moneys and investments in the Bond Fund, (c) any moneys and investments in the Refunding Fund, and (d) all income and profit from the investment of the foregoing moneys. The term "Revenues" does not include any moneys or investments in the Rebate Fund or the Bond Purchase Fund. "Series 1973 Bonds" means the City of Princeton, Indiana Pollution Control Revenue Bonds 1973 Series (Public Service Company of Indiana, Inc. Project A). "Series 1979 Bonds" means the City of Princeton, Indiana Pollution Control Revenue Bonds 1979 Series (Public Service Company of Indiana, Inc. Project B). "Series 1973 Indenture" means the Trust Indenture dated as of December 15, 1973 between Bank One, Indianapolis, National Association (as successor to American Fletcher National Bank and Trust Company) and Public Service Company of Indiana, Inc. "Series 1979 Indenture" means the Trust Indenture dated as of March 1, 1979 between Bank One, Indianapolis, National Association (as successor to American Fletcher National Bank and Trust Company) and Public Service Company of Indiana, Inc. "Series 1973 Loan Agreement" means the Loan Agreement dated as of December 15, 1973 between the City of Princeton, Indiana and Public Service Company of Indiana, Inc. "Series 1979 Loan Agreement" means the Loan Agreement dated as of March 1, 1979 between the City of Princeton, Indiana and Public Service Company of Indiana, Inc. "State" means the State of Indiana. "Term Rate Period" means a Term Rate Period as defined in the Indenture. "Trustee" means The Fifth Third Bank of Central Indiana located in Indianapolis, Indiana, a corporation duly organized and validly existing under the laws of the State, until a successor Trustee shall have become such pursuant to the applicable provisions of the Indenture, and thereafter "Trustee" shall mean the successor Trustee. "Principal Office" of the Trustee shall mean the principal corporate trust office of the Trustee, which office at the date of issuance of the Bonds is located at its Notice Address. "Unassigned Issuer Rights" means all of the rights of the Issuer to receive Additional Payments under Section 4.2 hereof, to inspection pursuant to Section 5.1 hereof, to be held harmless and indemnified under Section 5.9 hereof, to be reimbursed for attorney's fees and expenses under Section 7.4 hereof and to give or withhold consent to amendments, changes, modifications, alterations and termination of this Agreement under Section 8.6 hereof and its right to enforce such rights. "Variable Rate" means a Variable Rate as defined in the Indenture. Section I.3. Interpretation. Any reference herein to the State, to the Issuer or to any member or officer of either includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions. Any reference to a section or provision of the Constitution of the State or the Act, or to a section, provision or chapter of the Indiana Code, or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time; provided, that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way an impairment of the rights or obligations of the Issuer, the State, the Holders, the Trustee, the Registrar, an Authenticating Agent, a Paying Agent, the Credit Facility Issuer, the Remarketing Agent, or the Company under this Agreement, the Indenture or the Bonds. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Agreement; and the term "hereafter" means after, and the term "heretofore" means before, the date of delivery of the Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. Section I.4. Captions and Headings. The captions and headings in this Agreement are used solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs or subparagraphs or clauses hereof. (End of Article I) ARTICLE II REPRESENTATIONS Section II.1. Representations of the Issuer. The Issuer represents that: (a) it is a municipal corporation duly organized and validly existing under the laws of the State; (b) it has duly accomplished all conditions necessary to be accomplished by it prior to the issuance and delivery of the Bonds and the execution and delivery of this Agreement and the Indenture; (c) it is not in violation of or in conflict with any provisions of the laws of the State which would impair its ability to carry out its obligations contained in this Agreement or the Indenture; (d) it is empowered to enter into the transactions contemplated by this Agreement and the Indenture; (e) it has duly authorized the execution, delivery and performance of this Agreement and the Indenture; (f) it will do all things in its power in order to maintain its existence or assure the assumption of its obligations under this Agreement and the Indenture by any successor municipal corporation; and (g) following reasonable notice, a public hearing was held on October 21, 1996 with respect to the issuance of the Bonds as required by Section 147(f) of the Code. Section II.2. No Warranty by Issuer of Condition or Suitability of the Project. The Issuer makes no warranty, either express or implied, as to the suitability or utilization of the Project for the Project Purposes, or as to the condition of the Project Facilities or that the Project Facilities are or will be suitable for the Company's purposes or needs. Section II.3. Representations and Covenants of the Company. The Company represents that: (a) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State, with power and authority (corporate and other) to own its properties and conduct its business, to execute and deliver this Agreement and to perform its obligations under this Agreement. (b) This Agreement has been duly authorized, executed and delivered by the Company and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (c) The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of law or regulation applicable to the Company, or of any writ or decree of any court or governmental instrumentality, or of the Articles of Incorporation, as amended, or the Regulations of the Company, or of any mortgage, indenture, contract, agreement or other undertaking to which the Company is a party or which purports to be binding upon the Company or upon any of its assets. (d) Substantially all (at least 90%) of the proceeds of each of the Series 1973 Bonds and the Series 1979 Bonds were used to provide "pollution control facilities" within the meaning of Section 103(b)(4)(F) of the 1954 Code, the original use of which facilities commenced with the Company, and which facilities were described in inducement resolutions adopted by the Issuer on August 27, 1973 with respect to those facilities financed with the proceeds of the Series 1973 Bonds and on January 19, 1976 with respect to those facilities financed with the proceeds of the Series 1979 Bonds. Construction of the cooling lake financed with the proceeds of the Series 1973 Bonds was commenced by the Company prior to August 31, 1972 and such cooling lake was not placed in service by the Company prior to August 27, 1973. Construction of the other pollution control facilities financed with the proceeds of the Series 1973 Bonds and the construction of the pollution control facilities financed with the proceeds of the Series 1979 Bonds was not commenced prior to August 27, 1973 and January 19, 1976, respectively. All of the proceeds of the Series 1973 Bonds have been spent for the Series 1973 Bonds portion of the Project pursuant to the Series 1973 Loan Agreement or to pay costs of issuance of the Series 1973 Bonds, and all of the proceeds of the Series 1979 Bonds have been spent for the Series 1979 Bonds portion of the Project pursuant to the Series 1979 Loan Agreement or to pay costs of issuance of the Series 1979 Bonds. The proceeds of the Bonds (other than any accrued interest thereon) will be used exclusively to refund the Refunded Bonds; any investment earnings thereon will be used to pay principal, premium or interest on the Refunded Bonds; and none of the proceeds of the Bonds will be used to pay for any costs of issuance of the Bonds. The Refunded Bonds were issued prior to August 16, 1986. The principal amount of the Bonds does not exceed the outstanding principal amount of the Refunded Bonds. The proceeds of the Bonds will be used to retire the Refunded Bonds not later than 90 days after the date of issuance of the Bonds. (e) It has caused the Project to be substantially completed. The Project constitutes Pollution Control Facilities under the Act and is consistent with the purposes of the Act. The Project is being, and the Company will cause the Project to be, operated and maintained in such manner to conform with all applicable zoning, planning, building, environmental and other applicable governmental regulations and all permits, variances and orders issued or granted pursuant thereto, including the permit-to-install for the Project, which permits, variances and orders have not been withdrawn or otherwise suspended, and to be consistent with the Act. (f) It has used or operated or has caused to be used or operated, and presently intends to use or operate or cause to be used or operated the Project Facilities in a manner consistent with the Project Purposes until the date on which the Bonds have been fully paid and knows of no reason why the Project Facilities will not be so operated. The Company does not intend to sell or otherwise dispose of the Project or any portion thereof. (g) None of the proceeds of the Refunded Bonds were used and none of the proceeds of the Bonds will be used to provide any airplane, skybox or other private luxury box, or health club facility, any facility primarily used for gambling or any store the principal business of which is the sale of alcoholic beverages for consumption off premises. (h) Less than 25% of the proceeds of the Series 1973 Bonds and less than 25% of the proceeds of the Series 1979 Bonds have been used and less than 25% of the proceeds of the Bonds will be used directly or indirectly to acquire land or any interest therein, and none of such proceeds has been or will be used to provide land which is to be used for farming purposes. (i) No portion of the proceeds of the Refunded Bonds has been used and no portion of the proceeds of the Bonds will be used to acquire existing property or any interest therein unless the first use of such property was by the Company and was pursuant to and followed such acquisition. (j) After the expiration of any applicable temporary period under Section 148(d)(3) of the Code, at no time during any bond year will the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments (within the meaning of Section 148(b) of the Code) exceed 150 percent of the debt service on the Bonds for such bond year and the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments, if any, will be promptly and appropriately reduced as the outstanding amount of the Bonds is reduced, provided however that the foregoing shall not require the sale or disposition of any investments in higher yielding investments if such sale or disposition would result in a loss which exceeds the amount which would be paid to the United States (but for such sale or disposition) at the time of such sale or disposition if a payment were due at such time. At no time will any funds constituting gross proceeds of the Bonds be used in a manner as would constitute failure of compliance with Section 148 of the Code. The terms "bond year", "gross proceeds", "higher yielding investments", "yield", and "debt service" have the meanings assigned to them for purposes of Section 148 of the Code. (k) The Refunded Bonds were not, and the Bonds will not be, "federally guaranteed" within the meaning of Section 149(b) of the Code. (l) It is not anticipated that as of the date hereof, there will be created any "replacement proceeds", within the meaning of Section 1.148-1(c) of the Treasury Regulations, with respect to the Bonds; however, in the event that any such replacement proceeds are deemed to have been created, such amounts will be invested in compliance with Section 148 of the Code. (m) On the dates of issuance and delivery of each of the Series 1973 Bonds and the Series 1979 Bonds, the Company reasonably expected that at least 85% of the spendable proceeds of each of the Series 1973 Bonds and the Series 1979 Bonds would be expended to carry out the respective governmental purpose of each such issue within the 3-year period beginning on the respective date each such issue was issued. All of the spendable proceeds of the Refunded Bonds have been expended as of the date of issuance of the Bonds. None of the proceeds of either the Series 1973 Bonds or the Series 1979 Bonds were invested in nonpurpose investments having a substantially guaranteed yield for four years or more. (n) The average maturity of the Bonds does not exceed 120% of the average reasonably expected economic life of the Project Facilities financed by the proceeds of the Refunded Bonds (determined under Section 147(b) of the Code). (o) The information furnished by the Company and used by the Issuer in preparing the certifications and statements pursuant to Sections 148 and 149(e) of the Code or their statutory predecessors with respect to the Refunded Bonds was accurate and complete as of the respective dates of issuance of the Refunded Bonds, and the information furnished by the Company and used by the Issuer in preparing the certification pursuant to Section 148 of the Code and in preparing the information statement pursuant to Section 149(e) of the Code, both referred to in the Bond Resolution, will be accurate and complete as of the date of issuance of the Bonds. (p) The Project Facilities do not include any office except for offices (i) located on the Project Site and (ii) not more than a de minimis amount of the functions to be performed at which is not directly related to the day-to-day operations of the Project Facilities. (End of Article II) ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS Section III.1. Acquisition, Construction and Installation. The Company represents that it has caused the Project Facilities to be acquired, constructed and installed on the Project Site, substantially in accordance with the Project Description and in conformance with all applicable zoning, planning, building and other similar regulations of all governmental authorities having jurisdiction over the Project and all permits, variances and orders issued in respect of the Project by EPA, and that the proceeds derived from the Refunded Bonds, including any investment thereof, were expended in accordance with the Refunded Bonds Indenture and the Refunded Bonds Loan Agreement. Section III.2. Project Description. The Project Description may be changed from time to time by, or with the consent of, the Company provided that any such change shall also be filed with the Issuer and provided further that no change in the Project Description shall materially change the function of the Project Facilities unless the Trustee shall have received (i) an Engineer's certificate that such changes will not impair the significance or character of the Project Facilities as Pollution Control Facilities and (ii) an Opinion of Bond Counsel or ruling of the Internal Revenue Service to the effect that such amendment will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. Section III.3. Issuance of the Bonds; Application of Proceeds. To provide funds to make the Loan to the Company to assist the Company in the refunding of the Refunded Bonds, the Issuer will issue, sell and deliver the Bonds to the Original Purchaser. The Bonds will be issued pursuant to the Indenture in the aggregate principal amount, will bear interest, will mature and will be subject to redemption as set forth therein. The Company hereby approves the terms and conditions of the Indenture and the Bonds, and the terms and conditions under which the Bonds will be issued, sold and delivered. The Company hereby requests that the Issuer notify the Refunded Bonds Trustee (unless the Refunded Bonds Trustee has already received such notice), pursuant to the Refunded Bonds Indenture, that the entire outstanding principal amount of the Refunded Bonds is to be redeemed on December 16, 1996 at a redemption price of 100% of the principal amount thereof plus accrued interest to that redemption date. The proceeds from the sale of the Bonds (other than any accrued interest) shall be loaned to the Company to assist the Company in refunding the Refunded Bonds in order to reduce the interest cost payable by the Company; those proceeds shall be deposited in the Refunding Fund. On December 13, 1996 all moneys on deposit in the Refunding Fund shall be disbursed by the Trustee as provided in Section 5.02 of the Indenture to the Refunded Bonds Trustee for deposit in the Bond Fund created in the Series 1973 Indenture and the Series 1979 Indenture and applied by the Refunded Bonds Trustee to the payment of principal of and interest on the Series 1973 Bonds and the Series 1979 Bonds on their redemption on December 16, 1996. Pending disbursement pursuant to this Section, the proceeds so deposited in the Refunding Fund, together with any investment earnings thereon, shall constitute a part of the Revenues assigned by the Issuer to the Trustee for the payment of Bond Service Charges. Any accrued interest shall be deposited in the Bond Fund. Section III.4. Investment of Fund Moneys. At the oral (confirmed promptly in writing) or written request of the Company, any moneys held as part of the Bond Fund, the Refunding Fund or the Rebate Fund shall be invested or reinvested by the Trustee in Eligible Investments; provided, that such moneys shall be invested or reinvested by the Trustee only in Eligible Investments which shall mature, or which shall be subject to redemption by the holder thereof at the option of such holder, not later than the date upon which the moneys so invested are needed to make payments from those Funds. The Issuer (to the extent it retained or retains direction or control) and the Company each hereby represents that the investment and reinvestment and the use of the proceeds of the Refunded Bonds were restricted in such manner and to such extent as was necessary so that the Refunded Bonds would not constitute arbitrage bonds under the statutory predecessor of the Code and each hereby covenants that it will restrict that investment and reinvestment and the use of the proceeds of the Bonds in such manner and to such extent, if any, as may be necessary so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code. The Company shall provide the Issuer with, and the Issuer may base its certificate and statement, each as authorized by the Bond Resolution, on a certificate of an appropriate officer, employee or agent of or consultant to the Company for inclusion in the transcript of proceedings for the Bonds, setting forth the reasonable expectations of the Company on the date of delivery of and payment for the Bonds regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which those expectations are based. Section III.5. Rebate Fund. To the extent required by Section 5.08 of the Indenture, within five days after the end of the fifth Bond Year (as defined in the Indenture) and every fifth Bond Year thereafter, and within five days after payment in full of all outstanding Bonds, the Company shall calculate the amount of Excess Earnings (as defined in the Indenture) as of the end of that Bond Year or the date of such payment and shall notify the Trustee of that amount. If the amount then on deposit in the Rebate Fund created under the Indenture is less than the amount of Excess Earnings (computed by taking into account the amount or amounts, if any, previously paid to the United States pursuant to Section 5.08 of the Indenture and this Section), the Company shall, within five days after the date of the aforesaid calculation, pay to the Trustee for deposit in the Rebate Fund an amount sufficient to cause the Rebate Fund to contain an amount equal to the Excess Earnings. The obligation of the Company to make such payments shall remain in effect and be binding upon the Company notwithstanding the release and discharge of the Indenture. The Company shall obtain and keep such records of the computations made pursuant to this Section as are required under Section 148(f) of the Code. (End of Article III) ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY Section IV.1. Loan Repayment. Upon the terms and conditions of this Agreement, the Issuer agrees to make the Loan to the Company. The proceeds of the Loan shall be deposited with the Trustee pursuant to Section 3.3 hereof. In consideration of and in repayment of the Loan, the Company shall make, as Loan Payments, to the Trustee for the account of the Issuer, payments which correspond, as to time, and are equal in amount as of the Loan Payment Date, to the corresponding Bond Service Charges payable on the Bonds. All Loan Payments received by the Trustee shall be held and disbursed in accordance with the provisions of the Indenture and this Agreement for application to the payment of Bond Service Charges. The Company shall be entitled to a credit against the Loan Payments required to be made on any Loan Payment Date to the extent that the balance of the Bond Fund is then in excess of amounts required (a) for the payment of Bonds theretofore matured or theretofore called for redemption, or to be called for redemption pursuant to Section 6.1 hereof (b) for the payment of interest for which checks or drafts have been drawn and mailed by the Trustee or Paying Agent, and (c) to be deposited in the Bond Fund by the Indenture for use other than for the payment of Bond Service Charges due on that Loan Payment Date. The Company's obligation to make Loan Payments shall be reduced to the extent of any payments made by any Credit Facility Issuer to the Trustee in respect of the principal of, premium, if any, or interest on the Bonds when due pursuant to any Credit Facility, provided, that the Credit Facility Issuer has been reimbursed for such payments in accordance with the terms of the Reimbursement Agreement. Except for such interest of the Company as may hereafter arise pursuant to Section 8.2 hereof or Sections 5.06 or 5.07 of the Indenture, the Company and the Issuer each acknowledge that neither the Company, the State nor the Issuer has any interest in the Bond Fund or the Bond Purchase Fund, and any moneys deposited therein shall be in the custody of and held by the Trustee in trust for the benefit of the Holders. Section IV.2. Additional Payments. The Company shall pay to the Issuer, as Additional Payments hereunder, any and all costs and expenses incurred or to be paid by the Issuer in connection with the issuance and delivery of the Bonds or otherwise related to actions taken by the Issuer under this Agreement or the Indenture. The Company shall pay the Administration Expenses to the Trustee, the Registrar, the Remarketing Agent, and any Paying Agent or Authenticating Agent, as appropriate, as Additional Payments hereunder. The Company may, without creating a default hereunder, contest in good faith the reasonableness of any such cost or expense incurred or to be paid by the Issuer and any Administration Expenses claimed to be due to the Trustee, the Registrar, the Remarketing Agent, any Paying Agent or any Authenticating Agent. In the event the Company should fail to pay any Loan Payments, Additional Payments or Administration Expenses when due, the payment in default shall continue as an obligation of the Company until the amount in default shall have been fully paid together with interest thereon during the default period at the Interest Rate for Advances. Section IV.3. Place of Payments. The Company shall make all Loan Payments directly to the Trustee at its Principal Office. Additional Payments shall be made directly to the person or entity to whom or to which they are due. Section IV.4. Obligations Unconditional. The obligations of the Company to make Loan Payments, Additional Payments and any payments required of the Company under Section 5.09 of the Indenture shall be absolute and unconditional, and the Company shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim which the Company may have or assert against the Issuer, the Trustee, the Registrar, the Remarketing Agent or any other Person. Section IV.5. Assignment of Revenues and Agreement. To secure the payment of Bond Service Charges, the Issuer shall, by the Indenture, (a) absolutely and irrevocably assign to the Trustee, its successors in trust and its and their assigns forever, (1) all right, title and interest of the Issuer in and to all moneys and investments (including, without limitation, the proceeds of the Credit Facility) in the Bond Fund and (2) all of the Issuer's rights and remedies under this Agreement (except for the Unassigned Issuer Rights), and (b) grant a security interest to the Trustee, its successors in trust and its and their assigns forever, in all of its rights to and interest in the Revenues including, without limitation, all Loan Payments and other amounts receivable by or on behalf of the Issuer under the Agreement in respect of repayment of the Loan (other than the Credit Facility Account, all moneys and investments therein and the proceeds of the Credit Facility). The Company hereby agrees and consents to those assignments and that grant of a security interest. Section IV.6. Credit Facility; Alternate Credit Facility; Cancellation. (a) The Company agrees to provide for the payment of the principal of and interest on the Bonds and for payment of the purchase price of Bonds delivered to the Trustee or Paying Agent pursuant to the Indenture by causing the Letter of Credit to be delivered to the Trustee on the date of the delivery of the Bonds. The Company hereby authorizes and directs the Trustee to draw moneys under the Letter of Credit, in accordance with its terms and the terms of the Indenture, to the extent necessary to pay the principal of and interest on the Bonds when due and to pay the purchase price of Bonds as provided in the Indenture. The Company may, at its election and with the consent of the Bank, provide for one or more extensions of the Letter of Credit beyond its then stated date of expiration. (b) Upon satisfaction of the requirements contained in Section 14.03 of the Indenture, the Company may provide for the delivery of an Alternate Credit Facility. (c) Upon satisfaction of the conditions contained in Section 14.02 of the Indenture, the Company may cancel any Credit Facility in effect at such time and direct the Trustee in writing to surrender such Credit Facility to the Credit Facility Issuer by which it was issued in accordance with the Indenture; provided, that no such cancellation shall become effective and no such surrender shall take place until all Bonds subject to purchase pursuant to Section 4.07(d) of the Indenture have been so purchased or redeemed with the proceeds of such Credit Facility. Section .1. Company's Option to Elect Rate Period. The Company shall have, and is hereby granted, the option to elect to convert on any Conversion Date the interest rate borne by the Bonds to another Variable Rate to be effective for a Rate Period pursuant to the provisions of Article II of the Indenture and subject to the terms and conditions set forth therein. To exercise such options, the Company shall give the written notice required by the Indenture. Section .2. Company's Obligation to Purchase Bonds. The Company hereby agrees to pay or cause to be paid to the Trustee or the Paying Agent, on or before each day on which Bonds may be or are required to be tendered for purchase, amounts equal to the amounts to be paid by the Trustee or the Paying Agent with respect to the Bonds tendered for purchase on such dates pursuant to Article IV of the Indenture; provided, however, that the obligation of the Company to make any such payment under this Section shall be reduced by the amount of (A) moneys paid by the Remarketing Agent as proceeds of the remarketing of such Bonds by the Remarketing Agent, (B) moneys drawn under any Credit Facility, for the purpose of paying such purchase price and (C) other moneys made available by the Company, as set forth in Section 4.08(b)(ii) of the Indenture. (End of Article IV) ARTICLE I ADDITIONAL AGREEMENTS AND COVENANTS Section I.1. Right of Inspection. The Company agrees that, subject to reasonable security and safety regulations and to reasonable requirements as to notice, the Issuer and the Trustee and their or any of their respective duly authorized agents shall have the right at all reasonable times to enter upon the Project Site to examine and inspect the Projects. Section I.2. Maintenance. The Company shall use its best efforts to keep and maintain the Project Facilities, including all appurtenances thereto and any personal property therein or thereon, in good repair and good operating condition so that the Project Facilities will continue to constitute Pollution Control Facilities, for the purposes of the operation thereof as required by Section 5.4 hereof. So long as such shall not be in violation of the Act or impair the character of the Project Facilities as Pollution Control Facilities, and provided there is continued compliance with applicable laws and regulations of governmental entities having jurisdiction thereof, the Company shall have the right to remodel the Project Facilities or make additions, modifications and improvements thereto, from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, the cost of which remodeling, additions, modifications and improvements shall be paid by the Company and the same shall, when made, become a part of the Project Facilities. Section I.3. Removal of Portions of the Project Facilities. The Company shall not be under any obligation to renew, repair or replace any inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary portions of the Project Facilities, except that, subject to Section 5.4 hereof, it will use its best efforts to ensure the continued character of the Project Facilities as Pollution Control Facilities. The Company shall have the right from time to time to substitute personal property or fixtures for any portions of the Project Facilities, provided that the personal property or fixtures so substituted shall not impair the character of the Project Facilities as Pollution Control Facilities. Any such substituted property or fixtures shall, when so substituted, become a part of the Project Facilities. The Company shall also have the right to remove any portion of the Project Facilities, without substitution therefor; provided, that the Company shall deliver to the Trustee a certificate signed by an Engineer describing said portion of the Project Facilities and stating that the removal of such property or fixtures will not impair the character of the Project Facilities as Pollution Control Facilities. Section I.4. Operation of Project Facilities. The Company will, subject to its obligations and rights to maintain, repair or remove portions of the Project Facilities, as provided in Sections 5.2 and 5.3 hereof, use its best efforts to continue operation of the Project Facilities so long as and to the extent that operation thereof is required to comply with laws or regulations of governmental entities having jurisdiction thereof or unless the Issuer shall have approved the discontinuance of such operation (which approval shall not be unreasonably withheld). The Company agrees that it will, within the design capacities thereof, use its best efforts to operate and maintain the Project Facilities in accordance with all applicable, valid and enforceable rules and regulations of governmental entities having jurisdiction thereof; provided, that the Company reserves the right to contest in good faith any such laws or regulations. Nothing in this Agreement shall prevent or restrict the Company, in its sole discretion, at any time, from discontinuing or suspending either permanently or temporarily its use of any facility of the Company served by the Project Facilities and in the event such discontinuance or suspension shall render unnecessary the continued operation of the Project Facilities, the Company shall have the right to discontinue the operation of the Project Facilities during the period of any such discontinuance or suspension. Section I.5. Insurance. The Company shall cause the Project Facilities to be kept insured against fire or other casualty to the extent that property of similar character is usually so insured by companies similarly situated and operating like properties, to a reasonable amount by reputable insurance companies or, in lieu of or supplementing such insurance in whole or in part, adopt some other method or plan of protection against loss by fire or other casualty at least equal in protection to the method or plan of protection against loss by fire or other casualty of companies similarly situated and operating properties subject to similar or greater fire or other hazards or on which properties an equal or higher primary fire or other casualty insurance rate has been set by reputable insurance companies. Section I.6. Workers' Compensation Coverage. Throughout the term of this Agreement, the Company shall comply, or cause compliance, with applicable workers' compensation laws of the State. Section I.7. Damage; Destruction and Eminent Domain. If, during the term of this Agreement, the Project Facilities or any portion thereof is destroyed or damaged in whole or in part by fire or other casualty, or title to, or the temporary use of, the Project Facilities or any portion thereof shall have been taken by the exercise of the power of eminent domain, the Company (unless it shall have exercised its option to prepay the Loan Payments pursuant to Section 6.2 hereof) shall promptly repair, rebuild or restore the portion of the Project Facilities so damaged, destroyed or taken with such changes, alterations and modifications (including the substitution and addition of other property) as may be necessary or desirable for the administration and operation of the Project Facilities as Pollution Control Facilities and as shall not impair the character or significance of the Project Facilities as furthering the purposes of the Act. Section I.8. Company to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted. The Company agrees that, during the term of this Agreement, it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided that the Company may, without violating its agreement contained in this Section, consolidate with or merge into another corporation, or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, provided the surviving, resulting or transferee corporation, as the case may be (if other than the Company), is a corporation organized and existing under the laws of one of the states of the United States, and assumes in writing all of the obligations of the Company herein, and, if not an Indiana corporation, is qualified to do business in the State. If consolidation, merger or sale or other transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. Section I.9. Indemnification. The Company releases the Issuer from, agrees that the Issuer shall not be liable for, and indemnifies the Issuer against, all liabilities, claims, costs and expenses imposed upon or asserted against the Issuer on account of: (a) any loss or damage to property or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to the construction, maintenance, operation and use of the Project Facilities; (b) any breach or default on the part of the Company in the performance of any covenant or agreement of the Company under this Agreement or any related document, or arising from any act or failure to act by the Company, or any of its agents, contractors, servants, employees or licensees; (c) the authorization, issuance and sale of the Bonds, and the provision of any information furnished in connection therewith concerning the Project Facilities or the Company (including, without limitation, any information furnished by the Company for inclusion in any certifications made by the Issuer under Section 3.4 hereof or for inclusion in, or as a basis for preparation of, the Form 8038 information statement to be filed by the Issuer); and (d) any claim or action or proceeding with respect to the matters set forth in (a), (b) and (c) above brought thereon. The Company agrees to indemnify the Trustee, the Paying Agent, the Remarketing Agent and the Registrar (each hereinafter referred to in this section as an "indemnified party") for and to hold each of them harmless against all liabilities, claims, costs and expenses incurred without negligence or willful misconduct on the part of the indemnified party, on account of any action taken or omitted to be taken by the indemnified party in accordance with the terms of this Agreement, the Bonds or the Indenture or any action taken at the request of or with the consent of the Company, including the costs and expenses of the indemnified party in defending itself against any such claim, action or proceeding brought in connection with the exercise or performance of any of its powers or duties under this Agreement, the Bonds or the Indenture. In case any action or proceeding is brought against the Issuer or an indemnified party in respect of which indemnity may be sought hereunder, the party seeking indemnity promptly shall give notice of that action or proceeding to the Company, and the Company upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided, that failure of a party to give that notice shall not relieve the Company from any of its obligations under this Section unless that failure prejudices the defense of the action or proceeding by the Company. At its own expense, an indemnified party may employ separate counsel and participate in the defense; provided, however, where it is ethically inappropriate for one firm to represent the interests of the Issuer and any other indemnified party or parties, the Company shall pay the Issuer's legal expenses in connection with the Issuer's retention of separate counsel. The Company shall not be liable for any settlement made without its consent. The indemnification set forth above is intended to and shall include the indemnification of all affected officials, directors, officers and employees of the Issuer, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively. That indemnification is intended to and shall be enforceable by the Issuer, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively, to the full extent permitted by law. Section I.10. Company Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For Federal Income Tax Purposes. The Company hereby covenants and represents that it has taken and caused to be taken and shall take and cause to be taken all actions that may be required of it for the interest on the Bonds to be and remain excluded from the gross income of the Holders for federal income tax purposes, and that it has not taken or permitted to be taken on its behalf, and covenants that it will not take, or permit to be taken on its behalf, any action which, if taken, would adversely affect that exclusion under the provisions of the Code. Section I.11. Use of Project Facilities. The Issuer agrees that it will not take any action, or cause any action to be taken on its behalf, to interfere with the Company's ownership interest in the Project or to prevent the Company from having possession, custody, use and enjoyment of the Project other than pursuant to Article VII of this Agreement or Article VII of the Indenture. Section I.12. Assignment by Company. This Agreement may be assigned in whole or in part by the Company without the necessity of obtaining the consent of either the Issuer or the Trustee, subject, however, to each of the following conditions: (a) No assignment (other than pursuant to Section 5.8 hereof) shall relieve the Company from primary liability for any of its obligations hereunder, and in the event of any such assignment the Company shall continue to remain primarily liable for the payment of the Loan Payments and Additional Payments and for performance and observance of the agreements on its part herein provided to be performed and observed by it. (b) Any assignment by the Company must retain for the Company such rights and interests as will permit it to perform its obligations under this Agreement, and any assignee from the Company shall assume the obligations of the Company hereunder to the extent of the interest assigned. (c) The Company shall, within 30 days after execution thereof, furnish or cause to be furnished to the Issuer and the Trustee a true and complete copy of each such assignment together with any instrument of assumption. (d) Any assignment from the Company shall not materially impair fulfillment of the Project Purposes to be accomplished by operation of the Project as herein provided. (End of Article V) ARTICLE II REDEMPTION Section II.1. Optional Redemption. Provided no Event of Default shall have occurred and be subsisting, at any time and from time to time, the Company may deliver moneys to the Trustee in addition to Loan Payments or Additional Payments required to be made and direct the Trustee to use the moneys so delivered for the purpose of calling Bonds for optional redemption in accordance with the applicable provisions of the Indenture providing for optional redemption at the redemption price stated in the Indenture. Pending application for those purposes, any moneys so delivered shall be held by the Trustee in a special account in the Bond Fund and delivery of those moneys shall not, except as set forth in Section 4.1 hereof, operate to abate or postpone Loan Payments or Additional Payments otherwise becoming due or to alter or suspend any other obligations of the Company under this Agreement. Section II.2. Extraordinary Optional Redemption. The Company shall have, subject to the conditions hereinafter imposed, the option during a Term Rate Period to direct the redemption of the Bonds in whole in accordance with the applicable provisions of the Indenture upon the occurrence of any of the following events: (a) The Project or the Plant shall have been damaged or destroyed to such an extent that (1) the Project or the Plant cannot reasonably be expected to be restored, within a period of six consecutive months, to the condition thereof immediately preceding such damage or destruction or (2) the Company is reasonably expected to be prevented from carrying on its normal use and operation of the Project or the Plant for a period of six consecutive months. (b) Title to, or the temporary use of, all or a significant part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain to such an extent (1) that the Project or the Plant cannot reasonably be expected to be restored within a period of six consecutive months to a condition of usefulness comparable to that existing prior to the taking or (2) the Company is reasonably expected to be prevented from carrying on its normal use and operation of the Project or the Plant for a period of six consecutive months. (c) As a result of any changes in the Constitution of the State, the Constitution of the United States of America or any state or federal laws or as a result of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after any contest thereof by the Issuer or the Company in good faith, this Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed in this Agreement. (d) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Company with respect to the Project or the Plant or the operation thereof, including, without limitation, the imposition of federal, state or other ad valorem, property, income or other taxes other than ad valorem taxes at the rates presently levied upon privately owned property used for the same general purpose as the Project or the Plant. (e) Changes in the economic availability of raw materials, operating supplies, energy sources or supplies or facilities (including, but not limited to, facilities in connection with the disposal of industrial wastes) necessary for the operation of the Project or the Plant for the Project Purposes occur or technological or other changes occur which the Company cannot reasonably overcome or control and which in the Company's reasonable judgment render the Project or the Plant uneconomic or obsolete for the Project Purposes. (f) Any court or administrative body shall enter a judgment, order or decree, or shall take administrative action, requiring the Company to cease all or any substantial part of its operations served by the Project or the Plant to such extent that the Company is or will be prevented from carrying on its normal operations at the Project or the Plant for a period of six consecutive months. (g) The termination by the Company of operations at the Plant. The amount payable by the Company in the event of its exercise of the option granted in this Section shall be the sum of the following: (i) An amount of money which, when added to the moneys and investments held to the credit of the Bond Fund, will be sufficient pursuant to the provisions of the Indenture to pay, at 100% of the principal amount thereof plus accrued interest to the redemption date, and discharge, all Outstanding Bonds on the earliest applicable redemption date, that amount to be paid to the Trustee, plus (ii) An amount of money equal to the Additional Payments relating to those Bonds accrued and to accrue until actual final payment and redemption of those Bonds, that amount or applicable portions thereof to be paid to the Trustee or to the Persons to whom those Additional Payments are or will be due. The requirement of (ii) above with respect to Additional Payments to accrue may be met if provisions satisfactory to the Trustee and the Issuer are made for paying those amounts as they accrue. The rights and options granted to the Company in this Section may be exercised whether or not the Company is in default hereunder; provided, that such default will not relieve the Company from performing those actions which are necessary to exercise any such right or option granted hereunder. Section II.3. Mandatory Redemption. The Company shall deliver to the Trustee the moneys needed to redeem the Bonds in accordance with any mandatory redemption provisions relating thereto as may be set forth in Sections 4.01(b) and 4.01(d) of the Indenture. Section II.4. Notice of Redemption. In order to exercise an option granted in, or to consummate a redemption required by, this Article VI, the Company shall, within 180 days following the event authorizing the exercise of such option, or at any time during the continuation of the condition referred to in paragraphs (c), (d) or (e) of Section 6.2 hereof, or at any time that optional redemption of the Bonds is permitted under the Indenture as provided in Section 6.1 hereof, or promptly upon the occurrence of a Determination of Taxability (as defined in the Indenture), give written notice to the Issuer and the Trustee that it is exercising its option to direct the redemption of Bonds, or that the redemption thereof is required by Section 4.01(b) of the Indenture due to the occurrence of a Determination of Taxability, as the case may be, in accordance with the Agreement and the Indenture, and shall specify therein the date on which such redemption is to be made, which date shall not be more than 180 days from the date such notice is mailed. No notice from the Company will be required in connection with a redemption of Bonds pursuant to the mandatory sinking fund redemption pursuant to Section 4.01(d) of the Indenture. The Company shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption to the Holders of the Bonds, in which arrangements the Issuer shall cooperate. Section II.5. Actions by Issuer. At the request of the Company or the Trustee, the Issuer shall take all steps required of it under the applicable provisions of the Indenture or the Bonds to effect the redemption of all or a portion of the Bonds pursuant to this Article VI. (End of Article VI) ARTICLE III EVENTS OF DEFAULT AND REMEDIES Section III.1. Events of Default. Each of the following shall be an Event of Default: (a) The occurrence of an event of default as defined in Section 7.01 (a), (b), (c) or (d) of the Indenture; (b) The Company shall fail to observe and perform any other agreement, term or condition contained in this Agreement, other than such failure as will have resulted in an event of default described in (a) above and the continuation of that failure for a period of 90 days after notice thereof shall have been given to the Company by the Issuer or the Trustee, or for such longer period as the Issuer and the Trustee may agree to in writing; provided, that failure shall not constitute an Event of Default so long as the Company institutes curative action within the applicable period and diligently pursues that action to completion within 150 days after the expiration of initial cure period as determined above, or within such longer period as the Issuer and the Trustee may agree to in writing; and (c) By decree of a court of competent jurisdiction the Company shall be adjudicated a bankrupt, or an order shall be made approving a petition or answer filed seeking reorganization or readjustment of the Company under the federal bankruptcy laws or other law or statute of the United States of America or of the state of incorporation of the Company or of any other state, or, by order of such a court, a trustee in bankruptcy, a receiver or receivers shall be appointed of all or substantially all of the property of the Company, and any such decree or order shall have continued unstayed on appeal or otherwise and in effect for a period of sixty (60) days; and (d) The Company shall file a petition in voluntary bankruptcy or shall make an assignment for the benefit of creditors or shall consent to the appointment of a receiver or receivers of all or any part of its property, or shall file a petition seeking reorganization or readjustment under the Federal bankruptcy laws or other law or statute of the United States of America or any state thereof, or shall file a petition to take advantage of any debtors' act. Notwithstanding the foregoing, if, by reason of Force Majeure, the Company is unable to perform or observe any agreement, term or condition hereof which would give rise to an Event of Default under subsection (b) hereof, the Company shall not be deemed in default during the continuance of such inability. However, the Company shall promptly give notice to the Trustee and the Issuer of the existence of an event of Force Majeure and shall use its best efforts to remove the effects thereof; provided that the settlement of strikes or other industrial disturbances shall be entirely within its discretion. The term Force Majeure shall mean the following: (i) acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the State or any of their departments, agencies, political subdivisions or officials, or any civil or military authority; insurrections; civil disturbances; riots; epidemics; landslides; lightning; earthquakes; fires; hurricanes; tornados; storms; droughts; floods; arrests; restraint of government and people; explosions; breakage, nuclear accidents or other malfunction or accident to facilities, machinery, transmission pipes or canals; partial or entire failure of a utility serving the Project; shortages of labor, materials, supplies or transportation; or (ii) any cause, circumstance or event not reasonably within the control of the Company. The exercise of remedies hereunder shall be subject to any applicable limitations of federal bankruptcy law affecting or precluding that declaration or exercise during the pendency of or immediately following any bankruptcy, liquidation or reorganization proceedings. Section III.2. Remedies on Default. Whenever an Event of Default shall have happened and be subsisting, either or both of the following remedial steps may be taken: (a) The Issuer or the Trustee may have access to, inspect, examine and make copies of the books, records, accounts and financial data of the Company, only, however, insofar as they pertain to the Project; or (b) The Issuer or the Trustee may pursue all remedies now or hereafter existing at law or in equity to recover all amounts, including all Loan Payments and Additional Payments and under Section 4.8 hereof the purchase price of Bonds tendered for purchase, then due and thereafter to become due under this Agreement, or to enforce the performance and observance of any other obligation or agreement of the Company under this Agreement. Notwithstanding the foregoing, the Issuer shall not be obligated to take any step which in its opinion will or might cause it to expend time or money or otherwise incur liability unless and until a satisfactory indemnity bond has been furnished to the Issuer at no cost or expense to the Issuer. Any amounts collected as Loan Payments or applicable to Loan Payments and any other amounts which would be applicable to payment of Bond Service Charges collected pursuant to action taken under this Section shall be paid into the Bond Fund and applied in accordance with the provisions of the Indenture or, if the outstanding Bonds have been paid and discharged in accordance with the provisions of the Indenture, shall be paid as provided in Section 5.07 of the Indenture for transfers of remaining amounts in the Bond Fund. The provisions of this Section are subject to the further limitation that the rescission and annulment by the Trustee of its declaration that all of the Bonds are immediately due and payable also shall constitute a rescission and annulment of any corresponding declaration made pursuant to this Section and a rescission and annulment of the consequences of that declaration and of the Event of Default with respect to which that declaration has been made, provided that no such rescission and annulment shall extend to or affect any subsequent or other default or impair any right consequent thereon. Section III.3. No Remedy Exclusive. No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, or now or hereafter existing at law, in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair that right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than any notice required by law or for which express provision is made herein. Section III.4. Agreement to Pay Attorneys' Fees and Expenses. If an Event of Default should occur and the Issuer or the Trustee should incur expenses, including attorneys' fees, in connection with the enforcement of this Agreement or the collection of sums due hereunder, the Company shall be required, to the extent permitted by law, to reimburse the Issuer and the Trustee, as applicable, for the expenses so incurred upon demand. Section III.5. No Waiver. No failure by the Issuer or the Trustee to insist upon the strict performance by the Company of any provision hereof shall constitute a waiver of their right to strict performance and no express waiver shall be deemed to apply to any other existing or subsequent right to remedy the failure by the Company to observe or comply with any provision hereof. Section III.6. Notice of Default. The Company shall notify the Trustee immediately if it becomes aware of the occurrence of any Event of Default hereunder or of any fact, condition or event which, with the giving of notice or passage of time or both, would become an Event of Default. (End of Article VII) ARTICLE IV MISCELLANEOUS Section IV.1. Term of Agreement. This Agreement shall be and remain in full force and effect from the date of delivery of the Bonds to the Original Purchaser until such time as (i) all of the Bonds shall have been fully paid (or provision made for such payment) and the Indenture has been released pursuant to Section 9.01 thereof and (ii) all other sums payable by the Company under this Agreement shall have been paid. Section IV.2. Amounts Remaining in Funds. Any amounts in the Bond Fund remaining unclaimed by the Holders of Bonds for four years after the due date thereof (whether at stated maturity, by redemption, upon acceleration or otherwise), at the option of the Company, shall be deemed to belong to and shall be paid, subject to Section 5.06 of the Indenture, at the written request of the Company, to the Company by the Trustee. With respect to that principal of and any premium and interest on the Bonds to be paid from moneys paid to the Company pursuant to the preceding sentence, the Holders of the Bonds entitled to those moneys shall look solely to the Company for the payment of those moneys. Further, any amounts remaining in the Bond Fund and any other special funds or accounts created under this Agreement or the Indenture, except the Rebate Fund, after all of the Bonds shall be deemed to have been paid and discharged under the provisions of the Indenture and all other amounts required to be paid under this Agreement and the Indenture have been paid, shall be paid to the Company to the extent that those moneys are in excess of the amounts necessary to effect the payment and discharge of the Outstanding Bonds. Section IV.3. Notices. All notices, certificates, requests or other communications hereunder shall be in writing, except as provided in Section 3.4 hereof, and shall be deemed to be sufficiently given when mailed by registered or certified mail, postage prepaid, and addressed to the appropriate Notice Address. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Company, any Credit Facility Issuer or the Trustee shall also be given to the others. The Company, the Issuer, any Credit Facility Issuer and the Trustee, by notice given hereunder, may designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section IV.4. Extent of Covenants of the Issuer; No Personal Liability. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any present or future member, officer, agent or employee of the Issuer in other than his official capacity, and neither the members of the Issuer nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture. Section IV.5. Binding Effect. This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Issuer, the Company and their respective permitted successors and assigns provided that this Agreement may not be assigned by the Company (except as permitted under Sections 5.8 or 5.12 hereof) and may not be assigned by the Issuer except to (i) the Trustee pursuant to the Indenture or as otherwise may be necessary to enforce or secure payment of Bond Service Charges or (ii) any successor public body to the Issuer. Section IV.6. Amendments and Supplements. Except as otherwise expressly provided in this Agreement or the Indenture, subsequent to the issuance of the Bonds and prior to all conditions provided for in the Indenture for release of the Indenture having been met, this Agreement may not be effectively amended, changed, modified, altered or terminated by the parties hereto except with the consents required by, and in accordance with, the provisions of Article XI of the Indenture, as applicable. Section IV.7. References to Credit Facility. During such time or times as no Credit Facility is in effect, and during the continuation of any event of default under the Indenture due to a failure by the Credit Facility Issuer to honor a drawing by the Trustee under the Credit Facility then in effect in accordance with the terms thereof, references herein to the Credit Facility Issuer shall be ineffective. Section IV.8. Execution Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument. Section IV.9. Severability. If any provision of this Agreement, or any covenant, obligation or agreement contained herein is determined by a judicial or administrative authority to be invalid or unenforceable, that determination shall not affect any other provision, covenant, obligation or agreement, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. That invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each such provision, covenant, obligation or agreement shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. Section IV.10. Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State. (End of Article VIII) IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be duly executed in their respective names, all as of the date hereinbefore written. CITY OF PRINCETON, INDIANA By: /s/ George B. Taylor Mayor Attest: /s/ Shirley Robb Clerk-Treasurer PSI ENERGY, INC. By: /s/ William L. Sheafer Treasurer Exhibit A DESCRIPTION OF POLLUTION CONTROL FACILITIES AT GIBSON GENERATING STATION Financed by Series 1973 Bonds Financed by Series 1979 Bonds EX-10.C 3 Adopted by the Cinergy Corp. Board of Directors on October 22, 1996 NOVEMBER 1, 1996 AMENDMENT TO THE CINERGY CORP. 1996 LONG-TERM INCENTIVE COMPENSATION PLAN (Effective November 1, 1996) The Cinergy Corp. 1996 Long-Term Incentive Compensation Plan, as adopted on January 25, 1996, is hereby amended effective November 1, 1996, pursuant to Article 16 thereof, with respect to the modification of Sections 4.1, 4.2, 5.2, and 8.6, and Articles 7 and 18. (1) Explanation of Amendments Currently, Section 4.1, Committee as Administrator, of the Plan provides that the Plan shall be administered by the Compensation Committee of Cinergy's Board of Directors which committee is composed of at least three "disinterested persons" under Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"). The revised Rule 16b-3 regulations have replaced the concept of at least three "disinterested persons" with the concept of at least two "non-employee directors." Thus, the Plan is being amended to substitute "non-employee directors" for "disinterested persons," and reduced, by one, the minimum number of required committee members. Currently, Section 4.2, Committee Authority, confers on the Committee final authority for making all determinations and taking all actions under the Plan. The revised Rule 16b-3 permits more flexibility with respect to the administration of the Plan, and Section 4.2 is amended to enable Cinergy's Board of Directors to take advantage of this flexibility with respect to determinations and actions taken under the Plan. Section 5.2, Designation by Committee, is amended to permit either the Committee or Cinergy's Board of Directors (and not solely the Committee, as currently provided) to grant awards under the Plan. Article 7, Adjustment in the Number of Shares and in Option Price, is amended to clarify that if there is a declaration of a stock dividend, stock split, spin-off or other event that affects Cinergy's capital structure, then, in addition to adjustments that the Committee or Cinergy's Board of Directors shall make to the number of shares available for awards under the Plan and the number of shares subject to outstanding awards and price thereof, the Committee or Cinergy's Board of Directors shall also make adjustments to the maximum number of shares available for grants of awards of options or stock appreciation rights to any employee in any calendar year. The Section of the Plan establishing this maximum already provides that this limitation is subject to adjustment pursuant to Article 7. Section 8.6, Payment, is amended to clarify and to provide additional methods of payment of the purchase price in order exercise options under the Plan. Currently, the Plan allows options to be exercised (i) with cash, (ii) with shares of Cinergy common stock already owned by the optionee (a stock exchange or stock swap), or a combination of such shares and cash, or, (iii) except for officers or directors covered by Section 16 of the 1934 Act, by delivering a properly executed exercise notice together with irrevocable instructions to a broker to deliver to Cinergy the total option price in cash and, if desired, the amount of any taxes to be withheld from the optionee's compensation as a result of withholding tax obligations (a broker-financed transaction). The Section would be modified to allow options to be purchased with (i) cash, (ii) a stock exchange or stock swap using shares of Cinergy common stock already owned by the optionee or owned jointly by the optionee and his or her spouse (with the spouse's permission), (iii) a broker-financed transaction (for any employee, officer or director), (iv) by withholding from the shares of Cinergy common stock issued on exercise, shares of common stock whose value equals the purchase price, (v) any other legal consideration that the Compensation Committee deems appropriate, or (vi) any combination of these methods. Provisions of this Section made obsolete by the new Rule 16b-3 regulations are deleted. Article 18, Transferability, is amended to provide that options or stock appreciation rights are not transferable otherwise than by will or the laws of descent and distribution except as otherwise allowed by the Committee. This amendment is in response to the revised Rule 16b-3 regulations. (2) Section 4.1 as Amended Section 4.1, as hereby amended, reads as follows: "4.1 Committee as Administrator. The Plan shall be administered by the Committee which shall be comprised of not fewer than two members of Cinergy's Board of Directors. Members of the Committee shall be members of Cinergy's Board of Directors who are non-employee directors under Rule 16b-3 promulgated under the 1934 Act and successor rules ("Rule 16b-3") and, with respect to Covered Employees, outside directors under Code Subsection 162(m). Subject to the Plan's terms, the Committee shall have the exclusive authority to grant Awards to Employees under the Plan, to select the Employees to receive Awards, to determine the type, size and terms of the Awards to be made to each Employee selected, to determine the time when Awards to Employees will be granted, and to prescribe the form of the Award Agreements embodying Awards made under the Plan. The provisions and conditions of the grants of Awards, which shall be set forth in Award Agreements, need not be the same with respect to each Employee selected or with respect to each Award." (3) Section 4.2 as Amended Section 4.2, as hereby amended, reads as follows: "4.2 Committee Authority. Unless otherwise determined by Cinergy's Board of Directors, the Committee is authorized to establish any rules and regulations and appoint any agent as it deems appropriate for the Plan's proper administration and to make any determinations under and to take any steps in connection with the Plan as it deems necessary or advisable. Each determination or other action made or taken pursuant to the Plan, including interpretation of the Plan and the specific conditions and provisions of the Awards granted under the Plan by the Committee shall be final and conclusive for all purposes and upon all persons including, without limitation, each Employer and each Employer's board of directors, and the affected Employee, beneficiary, legal representative, and any other interested parties." (4) Section 5.2 as Amended Section 5.2, as hereby amended, reads as follows: "5.2 Designation by Committee or Board. From time to time, Cinergy's Chief Executive Officer may recommend to the Committee the granting of Awards to any eligible Employee. After reviewing the recommendations, and after considering the duties of each recommended Employee, his or her present and potential contribution to the success of his or her Employer, his or her other compensation provided by his or her Employer and any other factors as it deems relevant, the Committee or Cinergy's Board of Directors shall determine whether to grant Awards to the recommended Employee." (5) Article 7 as Amended Article 7, as hereby amended, reads as follows: "ARTICLE 7 ADJUSTMENT IN THE NUMBER OF SHARES AND IN OPTION PRICE If there is any change in the shares of Common Stock through the declaration of stock dividends, stock splits, through recapitalization, merger, consolidation, combination of shares, spin-off, other significant distribution assets, or otherwise, the Committee or Cinergy's Board of Directors shall make an adjustment, if any, as it may deem appropriate in the number of shares of Common Stock available for Awards or the number of shares of Common Stock subject to any outstanding Award and the Option Price thereof, and the maximum number of shares of Common Stock subject to Option or Stock Appreciation Rights granted to any Employee during any calendar year. Any adjustment may provide for the elimination of any fractional shares that might otherwise become subject to any Award without payment therefor." (6) Section 8.6 as Amended Section 8.6, as hereby amended, reads as follows: "8.6 Payment. (a) The Option Price shall be paid in full at the time of exercise. No share shall be issued or transferred until full payment has been received therefor. Payment may be in (i) cash, (ii) nonforfeitable, unrestricted shares of Common Stock that are already owned by the Optionee or jointly owned by the Optionee and the Optionee's spouse (provided that the spouse's written consent is first obtained) and have a value at the time of exercise that is equal to the Option Price, (iii) by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to Cinergy the total Option price in cash and, if desired, the amount of any taxes to be withheld from the Optionee's compensation as a result of the Employer's withholding tax obligation, as specified in the notice, or (iv) by withholding from the shares of Common Stock issued on exercise, shares of Common Stock whose value equals the Option price, and, if desired, the amount of any taxes to be withheld from the Optionee's compensation as a result of the Employer's withholding tax obligation, (v) any other legal consideration that the Committee may deem appropriate, including without limitation any form of consideration authorized under Subsection 8.6 (b), on such basis as the Committee may determine in accordance with the Plan, and (vi) any combination of the foregoing. Cash payment for the shares purchased under an NSO may be offset by the amount of any Cash Award, as provided in Article 12 (Cash Awards), approved by the Committee. If payment is made by the delivery of shares of Common Stock, the value of the shares delivered shall be computed upon the basis of the average of the high and low sales prices at which shares of Common Stock shall have been sold on the date the Optionee exercises an Option, or on the preceding trading day if that date was not a trading day as reported on the "NYSE - Composite Transactions" as reported in The Wall Street Journal. (b) Any grant of an NSO shall provide that payment of the Option Price may also be made in whole or in part in the form of shares of Restricted Stock or other Common Stock that are subject to risk of forfeiture or restrictions on transfer. Unless otherwise determined by the Committee on or after the Date of Grant, whenever any Option Price is paid in whole or in part by means of any of the forms of consideration specified in this subsection, the Common Stock received by the Optionee upon the exercise of the NSO shall be subject to the same risk of forfeiture or restrictions on transfer as those that applied to the consideration surrendered by the Optionee. However, the risks of forfeiture and restrictions on transfer shall apply only to the same number of shares of Common Stock received by the Optionee as applied to the forfeitable or restricted Common Stock surrendered by the Optionee." (7) Article 18 as Amended Article 18, as hereby amended, reads as follows: "ARTICLE 18 TRANSFERABILITY Except with the prior approval of and upon conditions established by the Committee, no Option or other derivative security (as that term is defined in Rule 16b-3) granted pursuant to the Plan shall be transferable otherwise than by will or by the laws of descent and distribution. During the lifetime of an Optionee, the Option and Stock Appreciation Rights shall be exercisable only by the Optionee personally or, in the event of the Employee's legal incapacity, by the Employee's guardian or legal representative acting in a fiduciary capacity on behalf of the Employee under applicable state law and judicial supervision. The Committee, in its sole discretion, may provide for the transferability of particular Awards under the Plan so long as the provisions will not disqualify the exemption for other Awards under Rule 16b-3. Any grant made under the Plan may provide that all or any part of the shares of Common Stock that are to be issued or transferred by Cinergy upon the exercise of Options or Stock Appreciation Rights or in payment of Performance Shares on Performance Awards, Dividend Equivalents or Other Stock-Based Awards, or that are no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Article 10 (Restricted Stock), shall be subject to further restrictions upon transfer." This Amendment is executed and approved by the duly authorized officers of Cinergy Corp., effective as of November 1, 1996. CINERGY CORP. By: _________James E. Rogers________ Vice Chairman, President, and Chief Executive Officer Dated: October 25, 1996 APPROVED: By: ____Jerome A. Vennemann____ Associate General Counsel and Assistant Corporate Secretary Dated: October 25, 1996 EX-10.B 4 Adopted by the Cinergy Corp. Board of Directors on October 22, 1996 NOVEMBER 1, 1996 AMENDMENT TO THE CINERGY CORP. PERFORMANCE SHARES PLAN (Effective November 1, 1996) The Cinergy Corp. Performance Shares Plan, as adopted on October 18, 1994, is hereby amended effective November 1, 1996, pursuant to Article 18 thereof, with respect to the modification of Section 1.27, Articles 9, 12, 15, and 20. (1) Explanation of Amendments Section 1.27, the definition of "Performance Period", is amended to provide that no new Performance Period shall commence subsequent to January 1, 1996, that the fifth Performance Period shall be shortened to three years, and that the sixth Performance Period shall be shortened to one year. Article 9, Distribution, is amended to provide that upon Plan termination, Cinergy's Board of Directors may direct that payment of any performance awards under the Plan be made in such manner as it deems appropriate under the circumstances, and that, in this regard, payment with respect to the sixth Performance Period will be paid in one lump sum. This amendment will facilitate distribution of performance awards under existing performance periods that will be truncated in contemplation of the Plan's termination. This Article is also amended to provide that the shares of common stock distributed under the Plan shall be valued for tax purposes as of the date the restrictions, if any, under Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act") lapse. This amendment is in response to the revised Rule 16b-3 regulations issued under the 1934 Act. Article 12, Transferability Restrictions, is amended to provide that Performance Awards under the Plan are not transferable except by will or the laws of descent and distribution or unless otherwise provided by the Compensation Committee. Currently, Articles 15, Administration, and 20, Executive Officers, provide that the Plan shall be administered by the Compensation Committee of Cinergy's Board of Directors which Committee is composed of "disinterested persons" under Rule 16b-3 under the 1934 Act. The revised Rule 16b-3 regulations have replaced the concept of "disinterested persons" with the concept of "non-employee directors." Thus, the Plan is being amended to substitute "non-employee directors" for "disinterested persons." In addition, to take advantage of the flexibility available under the revised Rule 16b-3 regulations, the Plan is amended to permit CINergy's Board of Directors, or such other entity as the Board may determine, to administer the Plan with respect to awards not intended to be covered under Section 162(m) of the Internal Revenue Code of 1986, as amended, (i.e., performance based grants to executives subject to the one million dollar cap on deductibility). (2) Section 1.27 as Amended Section 1.27, as hereby amended, reads as follows: "1.27 `Performance Period' means the period of time over which performance with respect to a Corporate Target Goal or an Individual Goal is measured. The Plan is designed so that eventually each Performance Period under an Employer's Long- Term Program shall consist of a four year period and each Performance Period will eventually overlap each preceding Performance Period by two years. However, the initial Performance Period of each Employer's Long-Term Program shall be a three year Performance Period and the second Performance Period shall be a two year Performance Period. Beginning with the third Performance Period, each Performance Period of an Employer's Long-Term Program shall be for a four year period with each new Performance Period beginning on the first day of January and ending four years later on the 31st day of December so that, beginning with the fourth Performance Period, each Performance Period will begin every two years allowing Performance Periods to overlap by two years. Notwithstanding any provision of the Plan to the contrary, (a) no Performance Period shall commence subsequent to January 1, 1996, and (b) the fifth Performance Period shall be a three year Performance Period, and the sixth Performance Period shall be a one year Performance Period. The term `Performance Period' includes any performance period in effect under the `PSI Resources, Inc. Performance Shares Plan,' as amended from time to time, and the `PSI Energy, Inc. Performance Shares Plan,' as amended from time to time, as of the Effective Time of the Mergers." (3) Article 9 as Amended Article 9, as hereby amended, reads as follows: "ARTICLE 9 DISTRIBUTION After the determination and approval have been made under Article 7 (Contingent Grant and Performance Award) as to the number of Performance Shares which was in fact vested with respect to a Participant at the end of an Employer's Performance Period, the resulting Performance Award shall be paid in a combination of whole shares of Common Stock and cash. All payments made in Common Stock shall be made by the Employer either in shares of Common Stock purchased on the open market or in shares of Common Stock newly issued for the purpose of meeting the requirements of the Employer's obligations under the Plan as determined by the Employer's Board of Directors and with the approval of CINergy's Committee. Except as otherwise provided below, no Participant shall be entitled to receive payment of the Performance Award in one lump sum. Instead, the Performance Award shall be payable in two equal installments with the first installment being paid to the Participant on the first February 1 (or as soon thereafter as administratively feasible) following the end of the Performance Period for which the Performance Award was made and the second installment of the Performance Award being paid on the second February 1 (or as soon thereafter as administratively feasible) following the end of the Performance Period for which the Performance Award was made. However, in the event the Plan is modified or terminated, CINergy's Board of Directors may direct that distribution of any Performance Awards under the Plan be made in such manner and at such time or times as it deems appropriate under the circumstances. In that regard, the Performance Award payable to Participants at the end of the sixth Performance Period shall be payable in one lump sum payment at such time in 1999 as the Committee may determine. The portion of each installment of the Performance Award allocated to Common Stock shall be made in whole shares. However, cash shall always be distributed in lieu of any fractional interest in shares distributable under the Plan. The portion of the Performance Award allocated to cash shall approximate the amount needed to pay federal, state, and local income taxes on each installment of the Performance Award. The portion of the second installment of the Performance Award which is payable in cash shall be augmented by the amount of dividends, if any, which would have been payable on the portion of the second installment of the Performance Award which is payable in Common Stock if the Common Stock had, in fact, been distributed to the Participant on the first February 1 following the end of the Performance Period for which the Performance Award was made. If the distribution of shares of Common Stock to a Participant under the Plan constitutes a transfer of property pursuant to Code Subsection 83(b), then each Participant will be notified of his right to elect to have the shares of Common Stock valued for tax purposes as of the date of distribution. If the election provided under Code Subsection 83(b) is not made by a Participant, the shares of Common Stock shall be valued for tax purposes as of the date the restrictions, if any, under Rule 16b-3 under the 1934 Act lapse. If the fair market value of the shares of Common Stock on that date is materially different from the value of shares of Common Stock on the distribution date, an adjustment to the federal, state, and local income taxes previously withheld on the distribution date shall be made by the Employer." (4) Article 12 as Amended Article 12, as hereby amended, reads as follows: "ARTICLE 12 TRANSFERABILITY RESTRICTIONS Except with the prior approval of and upon conditions established by the Committee, no Performance Award under the Plan shall be transferable otherwise than by will or by the laws of descent and distribution." (5) Article 15 as Amended Article 15, as hereby amended, reads as follows: "ARTICLE 15 ADMINISTRATION (a) Unless otherwise determined by CINergy's Board of Directors, the Plan shall be administered by CINergy's Committee which shall consist of two or more members of CINergy's Board of Directors who are non-employee directors under Rule 16b-3 promulgated under the 1934 Act and successor rules and, with respect to Covered Employees, outside directors under Code Subsection 162(m). CINergy's Committee is authorized to establish all rules and regulations and to appoint any agents as it deems appropriate for the Plan's proper administration and to make any determinations under and to take any steps in connection with the Plan for the benefits provided under the Plan as it deems necessary or advisable. (b) Unless otherwise determined by CINergy's Board of Directors, CINergy's Committee shall have exclusive discretionary authority and right to approve eligibility for participation in the Plan and to interpret, construe, and regulate the Plan. The decision of CINergy's Committee with respect to any questions arising as to the Executive Employees selected to participate in the Plan, the amount, form and time of payment of benefits under the Plan or any other matters concerning the Plan, including its interpretation, construction, or regulation shall be final, conclusive, and binding on each Employer, each Employer's Board of Directors, Participants, and Beneficiaries." (6) Article 20 as Amended Article 20, as hereby amended, reads as follows: "ARTICLE 20 EXECUTIVE OFFICERS Notwithstanding any provision of the Plan to the contrary, this Article will govern the terms of the Performance Awards granted to Executive Officers. This Article is designed to comply with Code Subsection 162(m) to the extent applicable. All provisions in this Article, and any other applicable provision of the Plan shall be construed in a manner to so comply. (a) With respect to Executive Officers, the Plan shall be administered by a committee (the "Performance Shares Plan Committee") consisting of two or more persons each of whom is an "outside director" for purposes of Code Subsection 162(m) and a "non-employee director" for purposes of Rule 16b-3 under the Exchange Act. The Performance Shares Plan Committee and CINergy's Committee may be the same committee provided that the membership of CINergy's Committee satisfies the conditions set forth in the preceding sentence. (b) With respect to Participants who are Executive Officers as of the beginning of a Performance Period, the Performance Shares Plan Committee shall establish the Corporate Target Goals for each Performance Period within the time necessary to satisfy the requirements of Code Subsection 162(m). Corporate Target Goals shall be based on objective performance criteria pertaining to an Employer's performance, efficiency, or profitability including, but without limitation, stock price, market share, sales, earnings per share, costs, net operating income, cash flow, fuel cost per million BTU, cost per kilowatt- hour, retained earnings, or return on equity. Individual Goals shall be based on objective or, with respect to separate awards under the Plan, subjective performance criteria pertaining to an Executive Officer's individual effort as to enhancement of either individual performance or achievement or attainment of Corporate Target Goals or other Individual Goals. Further, in the case of Participants who are Covered Employees as of the end of the Performance Period, unless otherwise determined by the Performance Shares Plan Committee, or unless otherwise designated as separate awards based on subjective performance criteria, such payments shall be made only after achievement of the applicable performance goals has been certified by the Performance Shares Plan Committee. In no event shall payment during any calendar year with respect to Performance Awards based on Corporate Target Goals and objective Individual Goals granted with respect to a Performance Period be made to a Participant who is a Covered Employee as of a Performance Period in amounts that exceed 150 percent of the Participant's Annual Base Salary." This Amendment is executed and approved by the duly authorized officers of Cinergy Corp., effective as of November 1, 1996. CINERGY CORP. By: _________James E. Rogers______ Vice Chairman, President, and Chief Executive Officer Dated: October 25, 1996 APPROVED: By: ______Jerome A. Vennemann____ Associate General Counsel and Assistant Corporate Secretary Dated: October 25, 1996 EX-10.A 5 Adopted by the Cinergy Corp. Board of Directors on October 22, 1996 NOVEMBER 1, 1996 AMENDMENT TO THE CINERGY CORP. STOCK OPTION PLAN (Effective November 1, 1996) The Cinergy Corp. Stock Option Plan, as adopted on October 18, 1994, is hereby amended effective November 1, 1996, pursuant to Article 13 thereof, with respect to the modification of Articles 10 and 15, and Sections 5.1, 6.2, 9.2 and 18.8. (1) Explanation of Amendments Currently, Section 5.1, Committee as Administrator, of the Plan provides that the Plan shall be administered by the Compensation Committee of Cinergy's Board of Directors which committee is composed of at least three "disinterested persons" under Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"). The revised Rule 16b-3 regulations have replaced the concept of at least three "disinterested persons" with the concept of at least two "non-employee directors." Thus, the Plan is being amended to substitute "non-employee directors" for "disinterested persons", and to reduce by one, the minimum number of required committee members. Section 6.2, Designation by Committee, is amended to permit either the Compensation Committee or Cinergy's Board of Directors (and not solely the Committee as currently provided) to grant options, cash awards, or stock appreciation rights. Section 9.2, Payment, is amended to clarify and to provide additional methods of payment of the purchase price in order to exercise options under the Plan. Currently, the Plan allows options to be exercised (i) with cash, (ii) with shares of Cinergy common stock already owned by the optionee (a stock exchange or stock swap), or a combination of such shares and cash, or, (iii) except for officers or directors covered by Section 16 of the 1934 Act, by delivering a properly executed exercise notice together with irrevocable instructions to a broker to deliver to Cinergy the total option price in cash and, if desired, the amount of any taxes to be withheld from the optionee's compensation as a result of withholding tax obligations (a broker-financed transaction). The Section would be modified to allow options to be purchased with (i) cash, (ii) a stock exchange or stock swap using shares of Cinergy common stock already owned by the optionee or owned jointly by the optionee and his or her spouse (with the spouse's permission), (iii) a broker-financed transaction (for any employee, officer or director), (iv) by withholding from the shares of Cinergy common stock issued on exercise, shares of common stock whose value equals the purchase price, (v) any other legal consideration that the Compensation Committee deems appropriate, or (vi) any combination of these methods. Provisions of this Section made obsolete by the new Rule 16b-3 regulations are deleted. Article 10, Stock Appreciation Rights, is amended to delete provisions made obsolete by the revised Rule 16b-3 regulations. This involves the deletion of a window period for the exercise of stock appreciation rights. Article 15, Nontransferability of Option and Stock Appreciation Right, is amended to provide that options or stock appreciation rights are not transferable otherwise than by will or the laws of descent and distribution except as otherwise allowed by the Committee. This amendment is in response to the revised Rule 16b-3 regulations. Section 18.8, Withholding Taxes, is amended to permit, without requiring Committee approval, optionees to use shares of common stock otherwise received upon exercise of options and stock appreciation rights for the payment of the employer's withholding tax obligation upon the exercise of options and stock appreciation rights and to delete the window period applicable thereto. This amendment is in response to revised Rule 16b-3. (2) Section 5.1 as Amended Section 5.1, as hereby amended, reads as follows: "5.1 Committee as Administrator. The Plan shall be administered by the Committee which shall be comprised of not fewer than two members of CINergy's Board of Directors. Members of the Committee shall be members of CINergy's Board of Directors who are non-employee directors under Rule 16b-3 promulgated under the 1934 Act and successor rules and, with respect to Covered Employees, outside directors under Code Subsection 162(m). Subject to the Plan's terms, the Committee shall determine the Eligible Employees to whom, and the time or times at which, Options, Cash Awards (as defined in Article 11 (Cash Awards)), and Stock Appreciation Rights will be granted, the number of shares to be subject to each Option, the amount of Cash Awards, the Option price of each Option, the duration of each Option or Stock Appreciation Right, the time or times within which the Option or Stock Appreciation Right may be exercised, whether the Option, Cash Award or Stock Appreciation Right shall be canceled (subject to the terms of the Plan), whether an Option is an ISO or an NSO, and all other conditions of the grant of the Option, Cash Award, or Stock Appreciation Right. The provisions and conditions of the grants of Options, Cash Awards, and Stock Appreciation Rights, which shall be set forth in an agreement, need not be the same with respect to each Optionee or with respect to each Option, Cash Award, or Stock Appreciation Right." (3) Section 6.2 as Amended Section 6.2, as hereby amended, reads as follows: "6.2 Designation by Committee. From time to time, CINergy's Chief Executive Officer may recommend to the Committee the granting of Options, Cash Awards, or Stock Appreciation Rights to any Eligible Employee. After reviewing the recommendations, and after considering the duties of each recommended Eligible Employee, his present and potential contribution to the success of his Employer, his other compensation provided by his Employer and any other factors as it deems relevant, the Committee or CINergy's Board of Directors shall determine whether to grant Options, Cash Awards, or Stock Appreciation Rights to the recommended Eligible Employee." (4) Section 9.2 as Amended Section 9.2, as hereby amended, reads as follows: "9.2 Payment. The Option price shall be paid in full at the time of exercise. No share shall be issued or transferred until full payment has been received therefor. Payment may be in (a) cash, or, (b) nonforfeitable , unrestricted shares of Common Stock that are already owned by the Optionee or jointly owned by the Optionee and the Optionee's spouse (provided that the spouse's written consent is first obtained) and have a value at the time of exercise that is equal to the Option price, or (c) by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to CINergy the total Option price in cash and, if desired, the amount of any taxes to be withheld from the Optionee's compensation as a result of the Employer's withholding tax obligation, as specified in the notice, or (d) by withholding from the shares of Common Stock issued on exercise, shares of Common Stock whose value equals the Option price, and, if desired, the amount of any taxes to be withheld from the Optionee's compensation as a result of the Employer's withholding tax obligation, or (e) any other legal consideration that the Committee may deem appropriate on such basis as the Committee may determine in accordance with the Plan, or (f) any combination of the foregoing. Cash payment for the shares purchased under an NSO may be offset by the amount of any Cash Award approved by the Committee. If payment is made by the delivery of shares of Common Stock, the value of the shares delivered shall be computed upon the basis of the average of the high and low sales prices at which shares of Common Stock shall have been sold on the date the Optionee exercises an Option, or on the preceding trading day if that date was not a trading day as reported on the `NYSE - Composite Transactions" as reported in The Wall Street Journal.' " (5) Article 10 as Amended Article 10, as hereby amended, reads as follows: "ARTICLE 10` STOCK APPRECIATION RIGHTS The Committee may, at any time and in its discretion, grant to any Eligible Employee who is awarded or who holds any outstanding Option or any other outstanding stock option granted by an Employer the right to surrender the Option (in whole or in part to the extent any Option is otherwise exercisable) and to receive from his Employer a payment equal in value to the excess, if any, of the fair market value of the Common Stock with respect to which the Option or other stock option is surrendered on the date of surrender over the Option price of the Option surrendered. Payment by the Employer of the amount receivable upon any exercise of a Stock Appreciation Right may be made by the delivery of Common Stock or cash or any combination of Common Stock and cash. No fractional shares shall be issued. The Committee may provide for the elimination of fractional shares of Common Stock without adjustment or for the payment of the value of fractional shares in cash. Shares of Common Stock delivered to the Optionee upon exercise of a Stock Appreciation Right and the surrender of the Option or stock option shall be valued at the fair market value of a share of Common Stock on the date the right is exercised and the Option or stock option is surrendered, which value shall be the average of the high and low sales prices of a share of Common Stock, as reported by the `NYSE - Composite Transactions' published in The Wall Street Journal on the date the Option or the stock option is surrendered or on the preceding trading day, if that date is not a trading day. Notwithstanding any other provisions of the Plan, the Committee shall have the sole discretion either (a) to determine the form in which payment of the Stock Appreciation Right will be made (i.e., cash, Common Stock, or any combination thereof), or (b) to consent to or disapprove the election of the Optionee to receive cash in full or partial settlement of the Stock Appreciation Right. The consent or disapproval may be given at any time after the election to which it relates. The Committee may limit the period or periods during which the Stock Appreciation Rights may be exercised and may provide any other terms and conditions (which need not be the same with respect to each Optionee) under which a Stock Appreciation Right may be granted and/or exercised. A Stock Appreciation Right may be exercised only as long as the related Option is exercisable. In no event may a Stock Appreciation Right be exercised more than ten years after the date of the grant of the related Option or stock option. To the extent a Stock Appreciation Right is exercised, the related Option or stock option shall be deemed to have been exercised." (6) Article 15 as Amended Article 15, as hereby amended, reads as follows: "ARTICLE 15 NONTRANSFERABILITY OF OPTION AND STOCK APPRECIATION RIGHT Except with the prior approval of and upon conditions established by the Committee, no Option or Stock Appreciation Right granted pursuant to the Plan shall be transferable otherwise than by will or by the laws of descent and distribution. During the lifetime of an Optionee, the Option and Stock Appreciation Rights shall be exercisable only by the Optionee personally." (7) Section 18.8 as Amended Section 18.8, as hereby amended, reads as follows: "18.8 Withholding Taxes. Whenever shares of Common Stock are to be issued in satisfaction of an Option exercised under the Plan or a Stock Appreciation Right is exercised, the Employer shall have the power either to withhold from an Optionee's other cash compensation or require the recipient of the Common Stock to remit to his Employer an amount sufficient to satisfy federal, state, and local tax withholding requirements or to deduct from a cash payment pursuant to a Stock Appreciation Right an amount sufficient to satisfy any tax withholding requirements. Notwithstanding the foregoing, an Optionee may make a written election to have shares of Common Stock having an aggregate fair market value, as determined by the Committee, consistent with the requirements of Treasury Regulation Section 20.2031-2, sufficient to satisfy the applicable withholding taxes, withheld from the shares otherwise to be received upon the exercise of an NSO or Stock Appreciation Right. Elections by Optionees to have shares withheld for this purpose must be made prior to the date as of which the amount of tax withheld is determined (the `Tax Date'), and will be irrevocable." This Amendment is executed and approved by the duly authorized officers of Cinergy Corp., effective as of November 1, 1996. CINERGY CORP. By: ________James E. Rogers__________ James E. Rogers Vice Chairman, President, and Chief Executive Officer Dated: October 25, 1996 APPROVED: By: _____Jerome A. Vennemann______ Jerome A. Vennemann Associate General Counsel and Assistant Corporate Secretary Dated: October 25, 1996 EX-10.E 6 Adopted by the Cinergy Corp. Board of Directors on October 22, 1996 NOVEMBER 1, 1996 AMENDMENT TO THE CINERGY CORP. DIRECTORS' DEFERRED COMPENSATION PLAN (Effective November 1, 1996) The Cinergy Corp. Directors' Deferred Compensation Plan, as adopted on October 18, 1994, is hereby amended effective November 1, 1996, pursuant to Article 11 thereof, with respect to Article 13. (1) Explanation of Amendment Currently, Article 13, Administration, of the Plan provides that the Plan shall be administered by the Compensation Committee of Cinergy's board of directors which committee is composed of "disinterested persons" under Rule 16b-3 under the Securities Exchange Act of 1934. The revised Rule 16b-3 regulations have replaced the concept of "disinterested persons" with the concept of "non-employee directors" and, as revised, provide additional flexibility as to Plan administration. Thus, the Plan is being amended to substitute "non- employee directors" for "disinterested persons" and to enable Cinergy's board of directors to change the entity authorized to administer the Plan. (2) Article 13 as Amended Article 13, as hereby amended, reads as follows: "ARTICLE 13 ADMINISTRATION Unless otherwise determined by CINergy's Board of Directors, the Plan shall be administered by the Committee. Members of the Committee shall be members of CINergy's Board of Directors who are non-employee directors under Rule 16 b-3 promulgated under the 1934 Act and successor rules. The Committee may employ agents, attorneys, accountants, or other persons (who also may be employees of an Employer) and allocate or delegate to them powers, rights, and duties, all as the Committee may consider necessary or advisable to properly carry out the administration of the Plan. The Committee may adopt rules and regulations as it deems appropriate to assist in administering and enforcing the Plan. The Committee shall have the discretionary authority to regulate and interpret the Plan's provisions. Unless otherwise determined by CINergy's Board of Directors, the interpretation and construction by the Committee of any provisions of the Plan, and any determination by the Committee pursuant to any provision of the Plan shall be final and conclusive." This Amendment is executed and approved by the duly authorized officers of Cinergy Corp., effective as of November 1, 1996. CINERGY CORP. By: ________James E. Rogers________ Vice Chairman, President, and Chief Executive Officer Dated: October 25, 1996 APPROVED: By: ____Jerome A. Vennemann______ Associate General Counsel and Assistant Corporate Secretary Dated: October 25, 1996 EX-10.D 7 Adopted by the Cinergy Corp. Board of Directors on October 22, 1996 NOVEMBER 1, 1996 AMENDMENT TO THE CINERGY CORP. EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN (Effective November 1, 1996) The Cinergy Corp. Employee Stock Purchase and Savings Plan, as adopted on October 18, 1994, and as amended effective as of January 1, 1995, and January 1, 1996, is hereby further amended effective November 1, 1996, pursuant to Article 11 thereof, with respect to the modification of Articles 4 and 6, and Section 9.11. (1) Explanation of Amendments Currently, Article 4, Administration, of the Plan provides that the Plan shall be administered by the Compensation Committee of Cinergy's board of directors which committee is composed of "disinterested persons" under Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"). The revised Rule 16b-3 regulations have replaced the concept of "disinterested persons" with the concept of "non-employee directors" and, as revised, provide additional flexibility as to Plan administration. Thus, the Plan is being amended to substitute "non-employee directors" for "disinterested persons" and to enable Cinergy's board of directors to change the entity authorized to administer the Plan. Article 6, Eligibility, is amended by deleting the requirement that an employee must have been employed by his employer for at least nine months immediately prior to the first date of an offering period in order to participate in the Plan. Section 9.11, Restrictions on Transferability, is amended by deleting the prohibition on transferability of shares purchased under the plan as to those individuals who may be subject to liability under Section 16(b) of the 1934 Act. The revised Rule 16b regulations have deleted this requirement. (2) Article 4 as Amended Article 4, as hereby amended, reads as follows: "ARTICLE 4 ADMINISTRATION The Plan shall be administered by the Committee. Unless otherwise determined by CINergy's Board of Directors, members of the Committee shall be members of CINergy's Board of Directors who are non-employee directors under Rule 16 b-3 promulgated under the 1934 Act and successor rules. The Committee may employ agents, attorneys, accountants, or other persons (who also may be Employees of an Employer) and allocate or delegate to them powers, rights, and duties, all as the Committee may consider necessary or advisable to properly carry out the administration of the Plan. The Committee may adopt rules and regulations as it deems appropriate to assist in administering and enforcing the Plan. The Committee shall have the discretionary authority to regulate and interpret the Plan's provisions. Unless otherwise determined by CINergy's Board of Directors, the interpretation and construction by the Committee of any provisions of the Plan, the terms and conditions of an offering and of Employee participation, and any determination by the Committee pursuant to any provisions of the Plan shall be final and conclusive. No member of CINergy's Board of Directors or the Committee shall be liable for any action or determination made in good faith under the Plan." (3) Article 6 as Amended Article 6, as hereby amended, reads as follows: "ARTICLE 6 ELIGIBILITY All Employees of an Employer shall be eligible to participate in an offering under the Plan except (a) any Employee who normally works less than 20 hours a week; (b) any Employee who normally works less than five months a year; (c) any full officer of CINergy, CINergy Services, PSI, CG&E, or any other participating Employer who is a highly compensated employee within the meaning of Code Subsection 414 (q); and (d) any Employee who receives a grant of an option or a stock appreciation right under the CINergy Stock Option Plan, any successor plan, or any other stock option plan sponsored by CINergy. Service with CG&E prior to the Effective Time of the Mergers shall be applied in determining eligibility; provided, however, that notwithstanding the preceding provisions of this Article 6, unless otherwise determined by CINergy, no person who was employed by CG&E or any of its subsidiaries immediately prior to the Effective Time of the Mergers shall be eligible to participate in the Plan prior to the end of the 90-day period immediately following the Effective Time of the Mergers. As of the commencement of his participation in the Plan, an Employee who was employed by CG&E or any of its subsidiaries as of the Effective Time of the Mergers shall be eligible to participate in the remaining period of any offering under the Plan in effect as of the Effective Time of the Mergers." (4) Section 9.11 as Amended Section 9.11, as hereby amended, reads as follows: "SECTION 9.11 RESTRICTIONS ON TRANSFERABILITY If, at the time of the purchase of shares under the Plan, in the opinion of counsel for CINergy, it is necessary or desirable, in order to comply with any applicable laws or regulations relating to the sale of securities, that the Eligible Employee purchasing the shares shall agree not to dispose of the shares otherwise than in compliance with the Securities Act of 1935, as amended, and interpretive rulings and regulations, the Employee will, upon the request of CINergy, execute and deliver to CINergy an agreement to that effect." This Amendment is executed and approved by the duly authorized officers of Cinergy Corp., effective as of November 1, 1996. CINERGY CORP. By: _________James E. Rogers________ Vice Chairman, President, and Chief Executive Officer Dated: October 25, 1996 APPROVED: By: ______Jerome A. Vennemann_____ Associate General Counsel and Assistant Corporate Secretary Dated: October 25, 1996 EX-27 8 CINERGY 09/30/96 10-Q
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1996 JAN-01-1996 SEP-30-1996 9-MOS PER-BOOK 6,253,490 0 396,868 1,201,529 746,674 8,598,561 1,577 1,592,393 992,455 2,586,425 0 194,235 2,383,827 817,454 0 0 140,400 0 0 0 2,476,220 8,598,561 2,366,533 172,459 1,761,843 1,934,302 432,231 9,861 442,092 157,940 284,152 19,941 246,036 203,402 143,678 673,934 1.56 1.56 -----END PRIVACY-ENHANCED MESSAGE-----