EXHIBIT 10.1

EXECUTION VERSION

$330,000,000

LETTER OF CREDIT AGREEMENT

dated as of

September 19, 2008

among

Duke Energy Indiana, Inc.

and

Duke Energy Kentucky, Inc.,

as Borrowers,

The Banks Listed Herein,

Bank of America, N.A.,

as Administrative Agent,

Banco Bilbao Vizcaya Argentaria, S.A. — New York Branch,

as Syndication Agent

and

The Bank of Tokyo-Mitsubishi UFJ, Ltd.,

Intesa Sanpaolo S.p.A., New York Branch,

Mizuho Corporate Bank (USA), and

Wells Fargo Bank, National Association,

as Co-Documentation Agents

 

 

Banc of America Securities LLC,

Sole Lead Arranger and

Bookrunner

 

 

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TABLE OF CONTENTS

 

          Page    ARTICLE 1       DEFINITIONS   

Section 1.01.

   Definitions    1

Section 1.02.

   Accounting Terms and Determinations    6    ARTICLE 2       THE CREDITS   

Section 2.01.

   Fees    7

Section 2.02.

   Optional Termination or Reduction of Sublimits    7

Section 2.03.

   Mandatory Termination of Commitments    7

Section 2.04.

   General Provisions as to Payments    7

Section 2.05.

   Issuances of Letters of Credit.    7

Section 2.06.

   Increase In Commitments; Additional Banks    9

Section 2.07.

   Pledge of Bonds    10    ARTICLE 3       CONDITIONS   

Section 3.01.

   Effectiveness    11

Section 3.02.

   Conditions to Issuance of Letters of Credit    11    ARTICLE 4      
REPRESENTATIONS AND WARRANTIES   

Section 4.01.

   Organization and Power    12

Section 4.02.

   Corporate and Governmental Authorization; No Contravention    12

Section 4.03.

   Binding Effect    12

Section 4.04.

   Financial Information    12

Section 4.05.

   Regulation U    13

Section 4.06.

   Litigation    13

Section 4.07.

   Compliance with Laws    13

Section 4.08.

   Taxes    13    ARTICLE 5       COVENANTS   

Section 5.01.

   Information    13

Section 5.02.

   Payment of Taxes    14

Section 5.03.

   Maintenance of Property; Insurance    15

Section 5.04.

   Maintenance of Existence    15

Section 5.05.

   Compliance with Laws    15

Section 5.06.

   Books and Records    15

Section 5.07.

   Negative Pledge    15

Section 5.08.

   Consolidations, Mergers and Sales of Assets    16

Section 5.09.

   Use of Proceeds    16

Section 5.10.

   Indebtedness/Capitalization Ratio.    16    ARTICLE 6       DEFAULTS   

Section 6.01.

   Events of Default    17

Section 6.02.

   Notice of Default    18

Section 6.03.

   Cash Cover    18

 

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          Page    ARTICLE 7       THE ADMINISTRATIVE AGENT   

Section 7.01.

   Appointment and Authorization    18

Section 7.02.

   Administrative Agent and Affiliates.    18

Section 7.03.

   Action by Administrative Agent    18

Section 7.04.

   Consultation with Experts    18

Section 7.05.

   Liability of Administrative Agent    19

Section 7.06.

   Indemnification    19

Section 7.07.

   Credit Decision    19

Section 7.08.

   Successor Administrative Agent    19

Section 7.09.

   Administrative Agent’s Fee    20

Section 7.10.

   Other Agents    20    ARTICLE 8       CHANGE IN CIRCUMSTANCES   

Section 8.01.

   Increased Cost and Reduced Return    20

Section 8.02.

   Taxes    20

Section 8.03.

   Substitution of Bank; Termination Option    22    ARTICLE 9      
MISCELLANEOUS   

Section 9.01.

   Notices    22

Section 9.02.

   No Waivers    23

Section 9.03.

   Expenses; Indemnification    23

Section 9.04.

   Sharing of Set-offs    23

Section 9.05.

   Amendments and Waivers    23

Section 9.06.

   Successors and Assigns    23

Section 9.07.

   Collateral    24

Section 9.08.

   Confidentiality    24

Section 9.09.

   Governing Law; Submission to Jurisdiction    24

Section 9.10.

   Counterparts; Integration    25

Section 9.11.

   WAIVER OF JURY TRIAL    25

Section 9.12.

   USA Patriot Act    25

Section 9.13.

   No Advisory or Fiduciary Responsibility    25

COMMITMENT SCHEDULE

  

PRICING SCHEDULE

  

EXHIBIT A-1 -

   Opinion of Internal Counsel of the Borrower   

EXHIBIT A-2 -

   Opinion of Special Counsel for the Borrower   

EXHIBIT B -

   Opinion of Davis Polk & Wardwell, Special Counsel for the Agents   

EXHIBIT C -

   Assignment and Assumption Agreement   

EXHIBIT D -

   Notice of Issuance   

 

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LETTER OF CREDIT AGREEMENT

AGREEMENT dated as of September 19, 2008 among DUKE ENERGY INDIANA, INC. and
DUKE ENERGY KENTUCKY, INC., as Borrowers, the BANKS listed on the signature
pages hereof, BANK OF AMERICA, N.A., as Administrative Agent, and BANCO BILBAO
VIZCAYA ARGENTARIA, S.A. – NEW YORK BRANCH, as Syndication Agent, and THE BANK
OF TOKYO-MITSUBISHI UFJ, LTD., INTESA SANPAOLO S.P.A., NEW YORK BRANCH, MIZUHO
CORPORATE BANK (USA) and WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Co-Documentation Agents.

The parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:

“Additional Bank” means any financial institution that becomes a Bank for
purposes hereof pursuant to Section 2.06 or 8.03.

“Administrative Agent” means Bank of America in its capacity as administrative
agent for the Banks hereunder, and its successors in such capacity.

“Administrative Questionnaire” means, with respect to each Bank, the
administrative questionnaire in the form submitted to such Bank by the
Administrative Agent and submitted to the Administrative Agent (with a copy to
each Borrower) duly completed by such Bank.

“Affiliate” means, as to any Person (the “specified Person”), (i) any Person
that directly, or indirectly through one or more intermediaries, controls the
specified Person (a “Controlling Person”) or (ii) any Person (other than the
specified Person or a Subsidiary of the specified Person) which is controlled by
or is under common control with a Controlling Person. As used herein, the term
“control” means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

“Agent” means any of the Administrative Agent, the Syndication Agent or the
Co-Documentation Agents.

“Agent Parties” has the meaning set forth in Section 9.01(b).

“Aggregate Exposure” means, with respect to any Bank at any time, the aggregate
amount of its Borrower Exposures to all Borrowers at such time.

“Agreement” means this Agreement as the same may be amended from time to time.

“Applicable Rate” means, from time to time, the applicable percentage rate per
annum, determined in accordance with the Pricing Schedule.

“Appropriate Share” has the meaning set forth in Section 8.01(d).

“Approved Fund” means any Fund that is administered or managed by (i) a Bank,
(ii) an Affiliate of a Bank or (iii) an entity or an Affiliate of an entity that
administers or manages a Bank.

“Approved Officer” means the president, the chief financial officer, a vice
president, the treasurer, an assistant treasurer or the controller of the
Borrower or such other representative of the Borrower as may be designated by
any one of the foregoing with the consent of the Administrative Agent.

“Arranger” means Banc of America Securities LLC, in its capacity as sole lead
arranger and sole book manager.

“Assignee” has the meaning set forth in Section 9.06(c).

“Availability Percentage” means, with respect to each Borrower at any time, the
percentage which such Borrower’s Sublimit bears to the aggregate amount of the
Commitments, all determined as of such time.

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“Bank” means each bank or other financial institution listed on the signature
pages hereof, each Additional Bank, each Assignee which becomes a Bank pursuant
to Section 9.06(c), and their respective successors. Each reference herein to a
“Bank” shall, unless the context otherwise requires, include each Issuing Bank
in such capacity.

“Bank Bonds” has the meaning set forth in Section 2.07(a).

“Bank of America” means Bank of America, N.A.

“Base Rate” means for any day a fluctuating rate per annum equal to the higher
of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in
effect for such day as publicly announced from time to time by the
Administrative Agent as its “prime rate.” The “prime rate” is a rate set by the
Administrative Agent based upon various factors including the Administrative
Agent’s costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which may be priced at,
above, or below such announced rate. Any change in such rate announced by the
Administrative Agent shall take effect at the opening of business on the day
specified in the public announcement of such change.

“Bonds” means any tax-exempt variable rate demand bonds issued or to be issued
by the Borrowers and supported by a Letter of Credit.

“Borrower” means each of Duke Energy Indiana and Duke Energy Kentucky.
References herein to “the Borrower” in connection with any Letter of Credit
hereunder are to the particular Borrower for whose account such Letter of Credit
is issued or proposed to be issued.

“Borrower Exposure” means, with respect to any Bank and any Borrower at any
time, (i) an amount equal to the product of such Bank’s Percentage and such
Borrower’s Sublimit (whether used or unused) at such time or (ii) if such Bank’s
Commitment shall have terminated, either generally or with respect to such
Borrower, or if such Borrower’s Sublimit shall have been reduced to zero, the
aggregate amount of its Letter of Credit Liabilities in respect of such
Borrower.

“Borrower Materials” has the meaning set forth in Section 5.01.

“Business Day” means any day except a Saturday, Sunday or other day on which
commercial banks in New York City or in the State of North Carolina are
authorized by law to close.

“Co-Documentation Agent” means each of The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
Intesa Sanpaolo S.p.A., New York Branch, Mizuho Corporate Bank (USA) and Wells
Fargo Bank, National Association, in its capacity as documentation agent in
respect of this Agreement.

“Commitment” means (i) with respect to any Bank listed on the signature pages
hereof, the amount set forth opposite its name on the Commitment Schedule as its
Commitment and (ii) with respect to each Additional Bank or Assignee which
becomes a Bank pursuant to Sections 2.06, 8.03 and 9.06(c), the amount of the
Commitment thereby assumed by it, in each case as such amount may from time to
time be reduced pursuant to Sections 2.02, 2.03, 8.03 or 9.06(c) or increased
pursuant to Sections 2.06, 8.03 or 9.06(c).

“Commitment Schedule” means the Commitment Schedule attached hereto.

“Consolidated Capitalization” means, with respect to any Borrower, the sum,
without duplication, of (i) Consolidated Indebtedness of such Borrower,
(ii) consolidated common equityholders’ equity as would appear on a consolidated
balance sheet of such Borrower and its Consolidated Subsidiaries prepared in
accordance with generally accepted accounting principles, (iii) the aggregate
liquidation preference of preferred or priority equity interests (other than
preferred or priority equity interests subject to mandatory redemption or
repurchase) of such Borrower and its Consolidated Subsidiaries upon involuntary
liquidation, (iv) the aggregate outstanding amount of all Equity Preferred
Securities of such Borrower and (v) minority interests as would appear on a
consolidated balance sheet of such Borrower and its Consolidated Subsidiaries
prepared in accordance with generally accepted accounting principles.

“Consolidated Indebtedness” means, at any date, with respect to any Borrower,
all Indebtedness of such Borrower and its Consolidated Subsidiaries determined
on a consolidated basis in accordance with generally accepted accounting
principles; provided that Consolidated Indebtedness shall exclude, to the extent
otherwise reflected therein, Equity Preferred Securities of such Borrower and
its Consolidated Subsidiaries up to a maximum excluded amount equal to 15% of
Consolidated Capitalization of such Borrower.

 

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“Consolidated Subsidiary” means, for any Person, at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of such
Person in its consolidated financial statements if such statements were prepared
as of such date.

“DEC” means Duke Energy Corporation, a Delaware corporation.

“Default” means any condition or event which constitutes an Event of Default or
which with the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default.

“Defaulted Obligations” has the meaning set forth in Section 2.07(b).

“Duke Energy Indiana” means Duke Energy Indiana, Inc., an Indiana corporation.

“Duke Energy Kentucky” means Duke Energy Kentucky, Inc., a Kentucky corporation.

“Effective Date” means the date this Agreement becomes effective in accordance
with Section 3.01.

“Endowment” means the Duke Endowment, a charitable common law trust established
by James B. Duke by Indenture dated December 11, 1924.

“Environmental Laws” means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.

“Equity Preferred Securities” means, with respect to any Borrower, any trust
preferred securities or deferrable interest subordinated debt securities issued
by such Borrower or any Subsidiary or other financing vehicle of such Borrower
that (i) have an original maturity of at least twenty years and (ii) require no
repayments or prepayments and no mandatory redemptions or repurchases, in each
case, prior to the first anniversary of the Termination Date.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Group” means, with respect to any Borrower, such Borrower and all other
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with such
Borrower, are treated as a single employer under Section 414 of the Internal
Revenue Code.

“Event of Default” has the meaning set forth in Section 6.01.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided that (i) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (ii) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to Bank of America on
such day on such transactions as determined by the Administrative Agent.

“Fund” means any Person (other than a natural Person) that is (or will be)
engaged in making, purchasing, holding or otherwise investing in commercial
loans and similar extensions of credit in the ordinary course of its business.

“Hedging Agreement” means for any Person, any and all agreements, devices or
arrangements designed to protect such Person or any of its Subsidiaries from the
fluctuations of interest rates, exchange rates applicable to such party’s
assets, liabilities or exchange transactions, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
commodity swap agreements, forward rate currency or interest rate options, puts
and warrants. Notwithstanding anything herein to the contrary, “Hedging
Agreements” shall also include fixed-for-floating interest rate swap agreements
and similar instruments.

 

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“Increased Commitments” has the meaning set forth in Section 2.06.

“Indebtedness” of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all indebtedness of such
Person for the deferred purchase price of property or services purchased
(excluding current accounts payable incurred in the ordinary course of
business), (iii) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired, (iv) all
indebtedness under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases in respect
of which such Person is liable as lessee, (v) the face amount of all outstanding
letters of credit issued for the account of such Person (other than letters of
credit relating to indebtedness included in Indebtedness of such Person pursuant
to another clause of this definition) and, without duplication, the unreimbursed
amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on
property or assets of such Person, whether or not assumed (but in any event not
exceeding the fair market value of the property or asset), (vii) all direct
guarantees of Indebtedness referred to above of another Person, (viii) all
amounts payable in connection with mandatory redemptions or repurchases of
preferred stock or member interests or other preferred or priority equity
interests and (ix) any obligations of such Person (in the nature of principal or
interest) in respect of acceptances or similar obligations issued or created for
the account of such Person.

“Initial Sublimit” means, with respect to each Borrower, the amount set forth
opposite its name in the table below:

 

Borrower

   Initial Sublimit

Duke Energy Indiana

   $ 278,640,000

Duke Energy Kentucky

   $ 51,360,000

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or
any successor statute.

“Investment Grade Status” exists as to any Person at any date if all senior
long-term unsecured debt securities of such Person outstanding at such date
which had been rated by S&P or Moody’s are rated BBB- or higher by S&P or Baa3
or higher by Moody’s, as the case may be, or if such Person does not have a
rating of its long-term unsecured debt securities, then if the corporate credit
rating of such Person, if any exists, from S&P is BBB- or higher or the issuer
rating of such Person, if any exists, from Moody’s is Baa3 or higher.

“Issuer Documents” means with respect to any Letter of Credit, any Notice of
Issuance, and any other document, agreement and instrument entered into by an
Issuing Bank and a Borrower or in favor of an Issuing Bank and relating to such
Letter of Credit.

“Issuing Bank” means (i) each of Bank of America and Wells Fargo and (ii) any
other Bank that may agree to issue letters of credit hereunder, in each case as
issuer of a Letter of Credit hereunder. No Issuing Bank shall be obligated to
issue any Letter of Credit hereunder if, after giving effect thereto, the
aggregate Letter of Credit Liabilities in respect of all Letters of Credit
issued by such Issuing Bank hereunder would exceed (i) in the case of Bank of
America, $278,640,000 (as such amount may be modified from time to time by
agreement between the Borrowers and Bank of America), (ii) in the case of Wells
Fargo, $51,360,000 (as such amount may be modified from time to time by
agreement between the Borrowers and such Issuing Bank) or (iii) with respect to
any other Issuing Bank, such amount (if any) as may be agreed for this purpose
from time to time by such Issuing Bank and the Borrowers. For avoidance of
doubt, the limitations in the preceding sentence are for the exclusive benefit
of the respective Issuing Banks, are incremental to the other limitations
specified herein on the availability of Letters of Credit and do not affect such
other limitations.

“Letter of Credit” means a letter of credit to be issued hereunder by an Issuing
Bank in accordance with Section 2.05.

“Letter of Credit Liabilities” means, for any Bank and at any time, such Bank’s
ratable participation in the sum of (x) the amounts then owing by all Borrowers
in respect of amounts drawn under Letters of Credit and (y) the aggregate amount
then available for drawing under all Letters of Credit.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, any Borrower or any of its Subsidiaries shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.

“Loan Documents” means this Agreement, each Issuer Document and the fee letter
agreement, dated as of August 26, 2008, among the Borrowers, the Administrative
Agent and the Arranger.

 

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“Material Debt” means, with respect to any Borrower, Indebtedness of such
Borrower or any of its Material Subsidiaries in an aggregate principal amount
exceeding $150,000,000.

“Material Plan” has the meaning set forth in Section 6.01(i).

“Material Subsidiary” means at any time, with respect to any Borrower, any
Subsidiary of such Borrower that is a “significant subsidiary” (as such term is
defined on the Effective Date in Regulation S-X of the Securities and Exchange
Commission (17 CFR 210.1-02(w)), but treating all references therein to the
“registrant” as references to such Borrower).

“Moody’s” means Moody’s Investors Service, Inc.

“Mortgage Indenture” means, in the case of each of Duke Energy Indiana and Duke
Energy Kentucky, the PSI Energy First Mortgage Trust Indenture or ULH&P First
Mortgage Trust Indenture, respectively.

“Notice of Issuance” has the meaning set forth in Section 2.05(b).

“Obligations” has the meaning set forth in Section 2.07(a).

“Parent” means, with respect to any Bank, any Person controlling such Bank.

“Participant” has the meaning set forth in Section 9.06(b).

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.

“Percentage” means, with respect to any Bank at any time, the percentage which
the amount of its Commitment at such time represents of the aggregate amount of
all the Commitments at such time.

“Person” means an individual, a corporation, a partnership, an association, a
trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.

“Plan” means at any time an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Internal Revenue Code and is either (i) maintained by a member of the
ERISA Group for employees of a member of the ERISA Group or (ii) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which a member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions.

“Platform” has the meaning set forth in Section 5.01.

“Pricing Schedule” means the Pricing Schedule attached hereto.

“PSI Energy First Mortgage Trust Indenture” means the first mortgage trust
indenture, dated as of September 1, 1939, between Duke Energy Indiana and
LaSalle Bank National Association (formerly known as LaSalle National Bank
Company and successor, as trustee, to First National Bank of Chicago), as
trustee, as amended, modified or supplemented from time to time, and any
successor or replacement mortgage trust indenture.

“Quarterly Payment Date” means the first Business Day of each January, April,
July and October.

“Regulation U” means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.

“Reimbursement Obligation” means, at any time, the obligation of the Borrower
then outstanding under Section 2.05 to reimburse the Issuing Bank for amounts
paid by the Issuing Bank in respect of any one or more drawings under a Letter
of Credit.

“Required Banks” means, at any time, Banks having at least 51% in aggregate
amount of the Aggregate Exposures at such time.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc.

 

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“Subsidiary” means, as to any Person, any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person; unless otherwise
specified, “Subsidiary” means a Subsidiary of a Borrower.

“Substantial Assets” means, with respect to any Borrower, assets sold or
otherwise disposed of in a single transaction or a series of related
transactions representing 25% or more of the consolidated assets of such
Borrower and its Consolidated Subsidiaries, taken as a whole.

“Sublimit” means, with respect to each Borrower, its Initial Sublimit, as the
same may be modified from time to time pursuant to Sections 2.02 and 2.06.

“Syndication Agent” means Banco Bilbao Vizcaya Argentaria, S.A. – New York
Branch, in its capacity as syndication agent in respect of this Agreement.

“Termination Date” means September 19, 2011.

“Trust” means The Doris Duke Trust, a trust established by James B. Duke by
Indenture dated December 11, 1924 for the benefit of certain relatives.

“ULH&P First Mortgage Trust Indenture” means the first mortgage trust indenture,
dated as of February 1, 1949, between Duke Energy Kentucky and The Bank of New
York (successor to Irving Trust Company), as trustee, as amended, modified or
supplemented from time to time, and any successor or replacement mortgage trust
indenture.

“Unfunded Vested Liabilities” means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.

“United States” means the United States of America, including the States and the
District of Columbia, but excluding its territories and possessions.

“Utilization Limits” means the requirements that (i) for any Bank, the aggregate
amount of its Letter of Credit Liabilities shall at no time exceed the amount of
its Commitment and (ii) for any Borrower, the aggregate amount of Letter of
Credit Liabilities in respect of Letters of Credit issued for its account shall
at no time exceed its Sublimit.

“Wells Fargo” means Wells Fargo Bank, National Association.

Section 1.02. Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time, applied on a basis
consistent (except for changes concurred in by the relevant Borrower’s
independent public accountants) with the most recent audited consolidated
financial statements of such Borrower and its Consolidated Subsidiaries
delivered to the Banks.

 

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ARTICLE 2

THE CREDITS

Section 2.01. Fees. (a) Unused Commitment Fee. Each Borrower shall pay to the
Administrative Agent, for the account of the Banks ratably in proportion to
their Percentages, an unused commitment fee on the unused amounts of the
Commitments for such Borrower (with such unused amounts calculated as the
difference between (i) the Sublimit for such Borrower and (ii) the Letter of
Credit Liabilities of such Borrower at a rate per annum equal to the Applicable
Rate for such Borrower. Such unused commitment fee shall accrue for each day
from and including the Effective Date but excluding the day on which the
Commitments have terminated, either generally or with respect to such Borrower
or when such Borrower’s Sublimit shall have been reduced to zero, calculated on
the basis of the actual number of days elapsed in a year of 365 days.

(b) Utilization Fee and Fronting Fee. Each Borrower shall pay to the
Administrative Agent (i) for the account of the Banks ratably a letter of credit
fee accruing daily on the aggregate amount then available for drawing under all
outstanding Letters of Credit that are issued upon the request of such Borrower
at a rate per annum equal to the Applicable Rate for such Borrower, calculated
on the basis of the actual number of days elapsed in a year of 360 days, and
(ii) for the account of each Issuing Bank a letter of credit fronting fee
accruing daily on the aggregate amount then available for drawing under all
Letters of Credit that are issued upon the request of such Borrower issued by
such Issuing Bank at a rate per annum of 0.125%, calculated on the basis of the
actual number of days elapsed in a year of 360 days (or such other rate as may
be mutually agreed from time to time by the Borrower and such Issuing Bank).

(c) Payments. Accrued fees under this Section for the account of any Bank shall
be payable quarterly in arrears on each Quarterly Payment Date and upon the
Termination Date.

Section 2.02. Optional Termination or Reduction of Sublimits. Each Borrower may,
upon at least three Business Days’ notice to the Administrative Agent, reduce
its Sublimit (i) to zero, if no Letter of Credit Liabilities for its account are
outstanding or (ii) by an amount of $1,000,000 or any larger multiple of
$1,000,000 so long as, after giving effect to such reduction, its Sublimit is
not less than the aggregate Letter of Credit Liabilities outstanding for its
account. Upon any reduction in the Sublimit of a Borrower to zero pursuant to
this Section 2.02, such Borrower shall cease to be a Borrower hereunder. The
aggregate amount of the Commitments will be automatically and simultaneously
reduced by the amount of each reduction in any Sublimit pursuant to this
Section 2.02 or pursuant to Section 6.01.

Section 2.03. Mandatory Termination of Commitments. The Commitment of each Bank
shall terminate on the Termination Date.

Section 2.04. General Provisions as to Payments. (a) The Borrower shall make
each payment of principal of, and interest on, Letter of Credit Liabilities and
of fees payable hereunder not later than 1:00 P.M. (Eastern time) on the date
when due, in Federal or other funds immediately available in New York City, to
the Administrative Agent at its address referred to in Section 9.01(a) and
without reduction by reason of any set-off, counterclaim or deduction of any
kind. The Administrative Agent will promptly distribute to each Bank in like
funds its ratable share of each such payment received by the Administrative
Agent for the account of the Banks. Whenever any payment of principal of, or
interest on, Letter of Credit Liabilities or of fees shall be due on a day which
is not a Business Day, the date for payment thereof shall be extended to the
next succeeding Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.

(b) Unless the Administrative Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Administrative Agent may assume
that the Borrower has made such payment in full to the Administrative Agent on
such date and the Administrative Agent may, in reliance upon such assumption,
cause to be distributed to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent that the Borrower shall not have
so made such payment, each Bank shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Administrative Agent, at the
Federal Funds Rate.

Section 2.05. Issuances of Letters of Credit.

(a) Subject to the terms and conditions hereof, each Issuing Bank agrees to
issue Letters of Credit hereunder from time to time before the tenth Business
Day prior to the Termination Date upon the request and for the account of any
Borrower; provided that, immediately after each Letter of Credit is issued, the
Utilization Limits shall not be exceeded.

 

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Upon the date of issuance by the Issuing Bank of a Letter of Credit, the Issuing
Bank shall be deemed, without further action by any party hereto, to have sold
to each Bank, and each Bank shall be deemed, without further action by any party
hereto, to have purchased from the Issuing Bank, a participation to the extent
of its Percentage in such Letter of Credit and the related Letter of Credit
Liabilities.

(b) The Borrower shall give the Issuing Bank notice at least three Business Days
prior to the requested issuance of a Letter of Credit, specifying the date such
Letter of Credit is to be issued and describing the terms of such Letter of
Credit (such notice, including any such notice given in connection with the
extension of a Letter of Credit, a “Notice of Issuance”), substantially in the
form of Exhibit D, appropriately completed. Upon receipt of a Notice of
Issuance, the Issuing Bank shall promptly notify the Administrative Agent, and
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of the amount of such Bank’s participation in such Letter of Credit. The
issuance by the Issuing Bank of each Letter of Credit shall, in addition to the
conditions precedent set forth in Article 3, be subject to the conditions
precedent that such Letter of Credit shall be denominated in U.S. dollars and
shall be in such form and contain such terms as shall be reasonably satisfactory
to the Issuing Bank. Unless otherwise notified by the Administrative Agent, the
Issuing Bank may, but shall not be required to, conclusively presume that all
conditions precedent set forth in Article 3 have been satisfied. The Borrower
shall also pay to each Issuing Bank for its own account issuance, drawing,
amendment and extension charges in the amounts and at the times as agreed
between the Borrower and such Issuing Bank. Except for non-substantive
amendments to any Letter of Credit for the purpose of correcting errors or
ambiguities or to allow for administrative convenience (which amendments each
Issuing Bank may make in its discretion with the consent of the Borrower), the
amendment, extension or renewal of any Letter of Credit shall be deemed to be an
issuance of such Letter of Credit. If any Letter of Credit contains a provision
pursuant to which it is deemed to be automatically renewed unless notice of
termination is given by the Issuing Bank of such Letter of Credit, the Issuing
Bank shall timely give notice of termination if (i) as of close of business on
the seventeenth day prior to the last day upon which the Issuing Bank’s notice
of termination may be given to the beneficiaries of such Letter of Credit, the
Issuing Bank has received a notice of termination from the Borrower or a notice
from the Administrative Agent that the conditions to issuance of such Letter of
Credit cannot be satisfied on the day such Letter of Credit is to be renewed or
(ii) the renewed Letter of Credit would have a term not permitted by subsection
(c) below.

(c) No Letter of Credit shall have a term extending beyond the fifth Business
Day prior to the Termination Date.

(d) Upon receipt from the beneficiary of any applicable Letter of Credit of any
notice of a drawing under such Letter of Credit, the Issuing Bank shall notify
the Administrative Agent and the Administrative Agent shall promptly notify the
Borrower and each other Bank as to the amount to be paid as a result of such
demand or drawing and the payment date. The Borrower shall be irrevocably and
unconditionally obligated forthwith to reimburse the Issuing Bank within two
(2) Business Days for any amounts paid by the Issuing Bank upon any drawing
under any Letter of Credit without presentment, demand, protest or other
formalities of any kind. All such amounts paid by the Issuing Bank and remaining
unpaid by the Borrower shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the Base Rate for such day plus, if such
amount remains unpaid for more than two Business Days, 1%. In addition, each
Bank will pay to the Administrative Agent, for the account of the applicable
Issuing Bank, immediately upon such Issuing Bank’s demand at any time during the
period commencing after such drawing until reimbursement therefor in full by the
Borrower, an amount equal to such Bank’s ratable share of such drawing (in
proportion to its participation therein), together with interest on such amount
for each day from the date of the Issuing Bank’s demand for such payment (or, if
such demand is made after 12:00 Noon (Eastern time) on such date, from the next
succeeding Business Day) to the date of payment by such Bank of such amount at a
rate of interest per annum equal to the Federal Funds Rate and, if such amount
remains unpaid for more than five Business Days after the Issuing Bank’s demand
for such payment, at a rate of interest per annum equal to the Base Rate plus
1%. The Issuing Bank will pay to each Bank ratably all amounts received from the
Borrower for application in payment of its reimbursement obligations in respect
of any Letter of Credit, but only to the extent such Bank has made payment to
the Issuing Bank in respect of such Letter of Credit pursuant hereto.

(e) The obligations of the Borrower and each Bank under subsection 2.05(d) above
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under all circumstances
whatsoever, including without limitation the following circumstances:

(i) the use which may be made of the Letter of Credit by, or any acts or
omission of, a beneficiary of a Letter of Credit (or any Person for whom the
beneficiary may be acting);

(ii) the existence of any claim, set-off, defense or other rights that the
Borrower may have at any time against a beneficiary of a Letter of Credit (or
any Person for whom the beneficiary may be acting), the Banks (including the
Issuing Bank) or any other Person, whether in connection with this Agreement or
the Letter of Credit or any document related hereto or thereto or any unrelated
transaction;

 

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(iii) any statement or any other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever;

(iv) payment under a Letter of Credit to the beneficiary of such Letter of
Credit against presentation to the Issuing Bank of a draft or certificate that
does not comply with the terms of the Letter of Credit; provided that the
determination by the Issuing Bank to make such payment shall not have been the
result of its willful misconduct or gross negligence; or

(v) any other act or omission to act or delay of any kind by any Bank (including
the Issuing Bank), the Administrative Agent or any other Person or any other
event or circumstance whatsoever that might, but for the provisions of this
subsection (v), constitute a legal or equitable discharge of the Borrower’s or
the Bank’s obligations hereunder.

(f) The Borrower hereby indemnifies and holds harmless each Bank (including the
Issuing Bank) and the Administrative Agent from and against any and all claims,
damages, losses, liabilities, costs or expenses which such Bank or the
Administrative Agent may incur (including, without limitation, any claims,
damages, losses, liabilities, costs or expenses which the Issuing Bank may incur
by reason of or in connection with (i) the failure of any other Bank to fulfill
or comply with its obligations to such Issuing Bank hereunder (but nothing
herein contained shall affect any rights the Borrower may have against such
defaulting Bank) or (ii) any litigation arising with respect to this Agreement
(whether or not the Issuing Bank shall prevail in such litigation)), and none of
the Banks (including the Issuing Bank) nor the Administrative Agent nor any of
their officers or directors or employees or agents shall be liable or
responsible, by reason of or in connection with the execution and delivery or
transfer of or payment or failure to pay under any Letter of Credit, including
without limitation any of the circumstances enumerated in subsection 2.05(e)
above, as well as (i) any error, omission, interruption or delay in transmission
or delivery of any messages, by mail, cable, telegraph, telex or otherwise,
(ii) any loss or delay in the transmission of any document required in order to
make a drawing under a Letter of Credit and (iii) any consequences arising from
causes beyond the control of the Issuing Bank, including, without limitation,
any government acts or any other circumstances whatsoever, in making or failing
to make payment under such Letter of Credit; provided that the Borrower shall
not be required to indemnify the Issuing Bank for any claims, damages, losses,
liabilities, costs or expenses, and the Borrower shall have a claim for direct
(but not consequential) damage suffered by it, to the extent found by a court of
competent jurisdiction to have been caused by (x) the willful misconduct or
gross negligence of the Issuing Bank in determining whether a request presented
under any Letter of Credit complied with the terms of such Letter of Credit or
(y) the Issuing Bank’s failure to pay under any Letter of Credit after the
presentation to it of a request strictly complying with the terms and conditions
of the Letter of Credit. Nothing in this subsection 2.05(f) is intended to limit
the obligations of the Borrower under any other provision of this Agreement. To
the extent the Borrower does not indemnify the Issuing Bank as required by this
subsection, the Banks agree to do so ratably in accordance with their
Commitments.

(g) The Issuing Bank shall act on behalf of the Banks with respect to any
Letters of Credit issued by it and the documents associated therewith, and the
Issuing Bank shall have all of the benefits and immunities (i) provided to the
Administrative Agent in Article 7 (other than Sections 7.08 and 7.09) with
respect to any acts taken or omissions suffered by the Issuing Bank in
connection with Letters of Credit issued by it or proposed to be issued by it
and the applications and agreements for letters of credit pertaining to such
Letters of Credit as fully as if the term “Administrative Agent” as used in
Article 7 included the Issuing Bank with respect to such acts or omissions and
(ii) as additionally provided herein with respect to the Issuing Bank.

Section 2.06. Increase In Commitments; Additional Banks. (a) Subsequent to the
Effective Date, the Borrowers may, upon at least 30 days’ notice to the
Administrative Agent (which shall promptly provide a copy of such notice to the
Banks), propose to increase the aggregate amount of the Commitments, provided
that after giving effect to any such increase, the total Commitments shall not
exceed $450,000,000 (the amount of any such increase, the “Increased
Commitments”). Such notice by the Borrowers will set forth the amounts by which
the Borrowers are proposing that the respective Sublimit of each Borrower be
increased.

(b) The Borrowers may designate another bank or other lenders (which may be, but
need not be, one or more of the existing Banks) which at the time agree to
(i) in the case of any such lender that is an existing Bank, increase its
Commitment and (ii) in the case of any other such lender (an “Additional Bank”),
become a party to this Agreement; provided that the consent of the
Administrative Agent and of each Issuing Bank is required for an Additional Bank
to become party to this Agreement (with such consent not to be unreasonably
withheld or delayed). The sum of the increases in the Commitments of the
existing Banks pursuant to this subsection (b) plus the Commitments of the
Additional Banks shall not in the aggregate exceed the unsubscribed amount of
the Increased Commitments.

 

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(c) An increase in the aggregate amount of the Commitments pursuant to this
Section 2.06 shall become effective upon the receipt by the Administrative Agent
of an agreement in form and substance satisfactory to the Administrative Agent
signed by the Borrowers, by each Additional Bank and by each other Bank whose
Commitment is to be increased, setting forth the new Commitments of such Banks
and setting forth the agreement of each Additional Bank to become a party to
this Agreement and to be bound by all the terms and provisions hereof, together
with such evidence of appropriate corporate authorization on the part of the
Borrowers with respect to the Increased Commitments and such opinions of counsel
for the Borrowers with respect to the Increased Commitments as the
Administrative Agent may reasonably request. Upon any increase in the aggregate
amount of the Commitments pursuant to this Section 2.06, the respective Letter
of Credit Liabilities of the Banks shall be redetermined as of the effective
date of such increase.

Section 2.07. Pledge of Bonds. (a) Each of the Borrowers hereby pledges,
assigns, hypothecates, transfers and delivers to the Administrative Agent, for
the account of the Banks, all of its right, title and interest to, and hereby
grants to the Administrative Agent, for the account of the Banks, a first lien
on, and security interest in, all right, title and interest of such Borrower in
and to the following (the “Collateral”):

(i) all Bonds which may from time to time have been purchased with proceeds of
drawings under a Letter of Credit (the “Bank Bonds”);

(ii) all income, earnings, profits, interest, premium or other payments in
whatever form in respect of the Bank Bonds;

(iii) upon the occurrence and during the continuance of any Event of Default,
all proceeds (cash and non-cash) arising out of the sale, exchange, collection,
enforcement or other disposition of all or any portion of the Bank Bonds;

as collateral security for the prompt and complete payment when due of all
obligations of such Borrower for (i) reimbursement of amounts drawn under such
Letter of Credit, (ii) accrued interest on such amounts as provided in
Section 2.05(d) and (iii) expense reimbursement and indemnity obligations as
provided in Section 9.03 relating to such Letter of Credit (the “Obligations”).
The Bank Bonds shall be held by the trustee or other custodian appointed
pursuant to the definitive documentation relating to such Bank Bonds.

(b) Upon the occurrence of an Event of Default specified in Section 6.01(a) with
respect to the Obligations of a Borrower (the “Defaulted Obligations”), the
Administrative Agent shall, if requested by Banks having more than 66- 2/3% in
aggregate amount of the Letter of Credit Liabilities with respect to such
Borrower, by notice to such Borrower for the account of the Banks and without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon such Borrower or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may forthwith
collect, receive, appropriate and realize upon the Collateral securing the
Defaulted Obligations, or any part thereof, and/or may forthwith sell, assign,
give option or options to purchase, contract to sell or otherwise dispose of and
deliver said Collateral, or any part thereof, in one or more parcels at public
or private sale or sales, at any exchange, broker’s board or at any of the
Administrative Agent’s offices or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk, with the right of
any Bank upon any such sale or sales, public or private, to purchase the whole
or any part of said Collateral so sold, free of any right or equity of
redemption in such Borrower, which right or equity is hereby expressly waived or
released. The Administrative Agent shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any and all of the
Collateral or in any way relating to the rights of the Administrative Agent
hereunder, including reasonable attorney’s fees and legal expenses, to the
payment in whole or in part of the Defaulted Obligations in such order as the
Administrative Agent may elect, such Borrower remaining liable for any
deficiency remaining unpaid after such application, and, after so applying such
net proceeds, the surplus, if any, to be provided to such Borrower after the
payment by the Administrative Agent of any other amount required by any
provision of law, including, without limitation, Section 9-504(1) of the Uniform
Commercial Code. Such Borrower agrees that the Administrative Agent need not
give more than 10 days’ notice of the time and place of any public sale or of
the time after which a private sale or other intended disposition is to take
place and that such notice is reasonable notification of such matters. No
notification need be given to any Borrower if it has signed after default a
statement renouncing or modifying any right to notification of sale or other
intended disposition. In addition to the rights and remedies granted to the
Administrative Agent herein and in any other instrument or agreement securing,
evidencing or relating to any of the Defaulted Obligations, the Administrative
Agent, for the account of the Banks, shall have all the rights and remedies of a
secured party under the Uniform Commercial Code of the State of Indiana against
Duke Energy Indiana, and shall have all the rights and remedies of a secured
party under the Uniform Commercial Code of the State of Kentucky against Duke
Energy Kentucky, except to the extent the remedial provisions of some other
state laws are applicable.

 

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(c) Each Borrower covenants that the Collateral will not be subject to a prior
pledge, lien, mortgage, hypothecation, security interest, charge, option or
encumbrance or to any agreement purporting to grant to any third party a
security interest in the property or assets of such Borrower which would include
the Collateral, except as may be created by the documents relating to the Bank
Bonds. Each Borrower covenants and agrees that it will defend the Administrative
Agent’s right, title and security interest in and to the Collateral and the
proceeds thereof against the claims and demands of all persons whomsoever.

(d) Bank Bonds and related Collateral purchased with proceeds of drawings under
a Letter of Credit shall be released from the security interest created
hereunder automatically without any further action upon satisfaction of the
Obligations with respect to such Letter of Credit.

ARTICLE 3

CONDITIONS

Section 3.01. Effectiveness. This Agreement shall become effective on the date
that each of the following conditions shall have been satisfied (or waived in
accordance with Section 9.05).

(a) receipt by the Administrative Agent of counterparts hereof signed by each of
the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Administrative Agent in
form satisfactory to it of telegraphic, telecopy, telex or other written
confirmation from such party of execution of a counterpart hereof by such
party);

(b) receipt by the Administrative Agent of (i) an opinion of internal counsel of
each Borrower, substantially in the form of Exhibit A-1 hereto and (ii) an
opinion of Robinson, Bradshaw & Hinson, P.A., special counsel for the Borrowers,
substantially in the form of Exhibit A-2 hereto, and, in each case, covering
such additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;

(c) receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell,
special counsel for the Agents, substantially in the form of Exhibit B hereto
and covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request;

(d) receipt by the Administrative Agent of a certificate signed by a Vice
President, the Treasurer, an Assistant Treasurer or the Controller of each of
the Borrowers, dated the Effective Date, to the effect set forth in clauses
(c) and (d) of Section 3.02;

(e) receipt by the Administrative Agent of all documents it may have reasonably
requested prior to the date hereof relating to the existence of the Borrowers,
the corporate authority for and the validity of this Agreement, and any other
matters relevant hereto, all in form and substance satisfactory to the
Administrative Agent;

(f) receipt by the Administrative Agent for the account of the Banks of
participation fees as heretofore mutually agreed by the Borrowers and the
Administrative Agent;

provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
September 19, 2008. The Administrative Agent shall promptly notify the Borrowers
and the Banks of the Effective Date, and such notice shall be conclusive and
binding on all parties hereto.

Section 3.02. Conditions to Issuance of Letters of Credit. The obligation of any
Issuing Bank to issue (or renew or extend the term of) any Letter of Credit at
the request of any Borrower is subject to the satisfaction of the following
conditions:

(a) receipt by the Issuing Bank of a Notice of Issuance as required by
Section 2.05(b);

(b) the fact that, immediately after issuance of such Letter of Credit, the
Utilization Limits shall not be exceeded;

(c) the fact that, immediately after issuance of such Letter of Credit, no
Default with respect to such Borrower shall have occurred and be continuing; and

 

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(d) the fact that the representations and warranties of such Borrower contained
in this Agreement (except the representations and warranties set forth in
Sections 4.04(c) and 4.06) shall be true on and as of the date of issuance of
such Letter of Credit.

Each issuance of a Letter of Credit hereunder shall be deemed to be a
representation and warranty by such Borrower on the date of such issuance as to
the facts specified in clauses (b), (c) and (d) of this Section.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Each Borrower, severally but not jointly, represents and warrants that:

Section 4.01. Organization and Power. Such Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and is duly qualified to do business in each
jurisdiction where such qualification is required, except where the failure so
to qualify would not have a material adverse effect on the business, financial
position or results of operations of such Borrower and its Consolidated
Subsidiaries, considered as a whole.

Section 4.02. Corporate and Governmental Authorization; No Contravention. The
execution, delivery and performance by such Borrower of this Agreement are
within such Borrower’s powers, have been duly authorized by all necessary
company action, require no action by or in respect of, or filing with, any
governmental body, agency or official (except for consents, authorizations or
filings which have been obtained or made, as the case may be, and are in full
force and effect) and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the articles of incorporation,
by-laws, certificate of formation or the limited liability company agreement of
such Borrower or of any agreement, judgment, injunction, order, decree or other
instrument binding upon such Borrower or result in the creation or imposition of
any Lien on any asset of such Borrower or any of its Material Subsidiaries.

Section 4.03. Binding Effect. This Agreement constitutes a valid and binding
agreement of such Borrower, enforceable in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency or similar laws affecting
creditors’ rights generally and by general principles of equity.

Section 4.04. Financial Information. (a) The consolidated balance sheet of such
Borrower and its Consolidated Subsidiaries as of December 31, 2007 and the
related consolidated statements of income, cash flows, capitalization and
retained earnings for the fiscal year then ended, reported on by Deloitte &
Touche, copies of which have been delivered to each of the Banks by using such
Borrower’s IntraLinks site or otherwise made available, fairly present, in
conformity with generally accepted accounting principles, the consolidated
financial position of such Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such fiscal
year, except with respect to the following: Duke Energy Indiana’s financial
statements contain an error relating to the actuarially-computed Other Post
Employee Benefits (OPEB) liability. Retiree medical and dental care costs
comprise the majority of OPEB liability. These costs have been accrued each year
based on studies by the actuarial firm of Hewitt and Associates. Past
calculations of OPEB incorporated incorrect assumptions regarding benefits paid
to retiree’s spouses. The impact of the error at Duke Energy Indiana is a
reduction of OPEB liability of $19 million as of June 30, 2008 and $18 million
as of December 31, 2007.

(b) The unaudited consolidated balance sheet of such Borrower and its
Consolidated Subsidiaries as of June 30, 2008 and the related unaudited
consolidated statements of income and cash flows for the six month period then
ended, copies of which have been delivered to each of the Banks by using such
Borrower’s IntraLinks site or otherwise made available, fairly present, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of such Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such six-month period (subject
to normal year-end adjustments and the absence of footnotes), except with
respect to the following: Duke Energy Indiana’s financial statements contain an
error relating to the actuarially-computed Other Post Employee Benefits (OPEB)
liability. Retiree medical and dental care costs comprise the majority of OPEB
liability. These costs have been accrued each year based on studies by the
actuarial firm of Hewitt and Associates. Past calculations of OPEB incorporated
incorrect assumptions regarding benefits paid to retiree’s spouses. The impact
of the error at Duke Energy Indiana is a reduction of OPEB liability of $19
million as of June 30, 2008 and $18 million as of December 31, 2007.

 

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(c) Since December 31, 2007, there has been no material adverse change in the
business, financial position or results of operations of such Borrower and its
Consolidated Subsidiaries, considered as a whole, except that each of the
Borrowers incurred significant windstorm damage to its utility system on
September 14, 2008. The Borrowers’ preliminary estimates of the amount of such
damages are still being developed but the Borrowers do not expect such amount to
cause a material adverse change to the Borrowers’ respective financial
positions.

Section 4.05. Regulation U. Such Borrower and its Material Subsidiaries are not
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System) and no issuance of Letters of Credit
for the account of such Borrower will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock. Not more than 25% of the value of the assets of such Borrower
and its Material Subsidiaries is represented by margin stock.

Section 4.06. Litigation. Except as disclosed in the Borrower’s annual report on
Form 10-K for the fiscal year ended December 31, 2007, its quarterly report on
Form 10-Q for the period ended March 31, 2008 and its quarterly report on Form
10-Q for the period ended June 30, 2008, there is no action, suit or proceeding
pending against, or to the knowledge of such Borrower threatened against or
affecting, such Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official which would be likely to
be decided adversely to such Borrower or such Subsidiary and, as a result, have
a material adverse effect upon the business, consolidated financial position or
results of operations of such Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner draws into question the validity
of this Agreement.

Section 4.07. Compliance with Laws. Such Borrower and each of its Material
Subsidiaries is in compliance in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including, without limitation, ERISA and Environmental Laws) except where
(i) non-compliance would not have a material adverse effect on the business,
financial position or results of operations of such Borrower and its
Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of
compliance therewith is contested in good faith by appropriate proceedings.

Section 4.08. Taxes. Such Borrower and its Material Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by such Borrower or any such
Material Subsidiary except (i) where nonpayment would not have a material
adverse effect on the business, financial position or results of operations of
such Borrower and its Consolidated Subsidiaries, considered as a whole, or
(ii) where the same are contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of such Borrower and its Material
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of such Borrower, adequate.

ARTICLE 5

COVENANTS

Each Borrower, severally but not jointly, agrees that, so long as any Bank has
any Commitment hereunder with respect to such Borrower or any amount payable
hereunder remains unpaid by such Borrower or any Letter of Credit Liabilities
remain outstanding:

Section 5.01. Information. Such Borrower will deliver to each of the Banks:

(a) as soon as available and in any event within 120 days after the end of each
fiscal year of such Borrower, a consolidated balance sheet of such Borrower and
its Consolidated Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, cash flows, capitalization and retained
earnings for such fiscal year, setting forth in each case in comparative form
the figures for the previous fiscal year, all reported on in a manner consistent
with past practice and with applicable requirements of the Securities and
Exchange Commission by Deloitte & Touche or other independent public accountants
of nationally recognized standing;

(b) as soon as available (and in any event within 60 days in the case of Duke
Energy Indiana and 75 days in the case of Duke Energy Kentucky) after the end of
each of the first three quarters of each fiscal year of such Borrower, a
consolidated balance sheet of such Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
cash flows for such quarter and for the portion of such Borrower’s fiscal year
ended at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding

 

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quarter and the corresponding portion of such Borrower’s previous fiscal year,
all certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by an
Approved Officer of such Borrower;

(c) within the maximum time period specified for the delivery of each set of
financial statements referred to in clauses (a) and (b) above, a certificate of
an Approved Officer of such Borrower (i) setting forth in reasonable detail the
calculations required to establish whether such Borrower was in compliance with
the requirements of Section 5.10 on the date of such financial statements and
(ii) stating whether any Default exists on the date of such certificate and, if
any Default then exists, setting forth the details thereof and the action which
such Borrower is taking or proposes to take with respect thereto;

(d) within five days after any officer of such Borrower with responsibility
relating thereto obtains knowledge of any Default, if such Default is then
continuing, a certificate of an Approved Officer of such Borrower setting forth
the details thereof and the action which such Borrower is taking or proposes to
take with respect thereto;

(e) promptly upon the filing thereof, copies of all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents)
which such Borrower shall have filed with the Securities and Exchange
Commission;

(f) if and when any member of such Borrower’s ERISA Group (i) gives or is
required to give notice to the PBGC of any “reportable event” (as defined in
Section 4043 of ERISA) with respect to any Material Plan which might constitute
grounds for a termination of such Plan under Title IV of ERISA, or knows that
the plan administrator of any Material Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such reportable
event given or required to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or notice that
any Material Plan is in reorganization, is insolvent or has been terminated, a
copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA
of an intent to terminate, impose material liability (other than for premiums
under Section 4007 of ERISA) in respect of, or appoint a trustee to administer
any Plan, a copy of such notice; (iv)applies for a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code, a copy of such
application; (v) gives notice of intent to terminate any Material Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Material Plan pursuant to
Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment
or contribution to any Material Plan or makes any amendment to any Material Plan
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security, a certificate of the chief financial officer or the
chief accounting officer of such Borrower setting forth details as to such
occurrence and action, if any, which such Borrower or applicable member of the
ERISA Group is required or proposes to take;

(g) promptly, notice of any change in the ratings of such Borrower referred to
in the Pricing Schedule; and

(h) from time to time such additional information regarding the financial
position or business of such Borrower and its Subsidiaries as the Administrative
Agent, at the request of any Bank, may reasonably request.

Information required to be delivered pursuant to these Sections 5.01(a), 5.01(b)
and 5.01(e) shall be deemed to have been delivered on the date on which such
information has been posted on the Securities and Exchange Commission website on
the Internet at sec.gov/edaux/searches.htm, on such Borrower’s IntraLinks or
Syndtrak site or at another website identified in a notice from such Borrower to
the Banks and accessible by the Banks without charge; provided that (i) a
certificate delivered pursuant to Section 5.01(c) shall also be deemed to have
been delivered upon being posted to such Borrower’s IntraLinks or Syndtrak site
and (ii) such Borrower shall deliver paper copies of the information referred to
in Sections 5.01(a), 5.01(b) and 5.01(e) to any Bank which requests such
delivery.

Each Borrower hereby acknowledges that the Administrative Agent and/or the
Arranger may make available to the Banks materials and/or information provided
by or on behalf of the Borrowers hereunder (collectively, “Borrower Materials”)
by posting the Borrower Materials on IntraLinks or another similar electronic
system (the “Platform”).

Section 5.02. Payment of Taxes. Such Borrower will pay and discharge, and will
cause each of its Material Subsidiaries to pay and discharge, at or before
maturity, all their tax liabilities, except where (i) nonpayment would not have
a material adverse effect on the business, financial position or results of
operations of such Borrower and its Consolidated Subsidiaries, considered as a
whole, or (ii) the same may be contested in good faith by appropriate
proceedings, and will maintain, and will cause each of its Material Subsidiaries
to maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.

 

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Section 5.03. Maintenance of Property; Insurance. (a) Such Borrower will keep,
and will cause each of its Material Subsidiaries to keep, all property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted.

(b) Such Borrower will, and will cause each of its Material Subsidiaries to,
maintain (either in the name of such Borrower or in such Subsidiary’s own name)
with financially sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts and against at least such
risks (and with such risk retention) as are usually insured against by companies
of established repute engaged in the same or a similar business; provided that
self-insurance by such Borrower or any such Material Subsidiary, shall not be
deemed a violation of this covenant to the extent that companies engaged in
similar businesses and owning similar properties self-insure; and will furnish
to the Banks, upon request from the Administrative Agent, information presented
in reasonable detail as to the insurance so carried.

Section 5.04. Maintenance of Existence. Such Borrower will preserve, renew and
keep in full force and effect, and will cause each of its Material Subsidiaries
to preserve, renew and keep in full force and effect their respective corporate
or other legal existence and their respective rights, privileges and franchises
material to the normal conduct of their respective businesses; provided that
nothing in this Section 5.04 shall prohibit the termination of any right,
privilege or franchise of such Borrower or any such Material Subsidiary or of
the corporate or other legal existence of any such Material Subsidiary, or the
change in form of organization of such Borrower or any such Material Subsidiary,
if such Borrower in good faith determines that such termination or change is in
the best interest of such Borrower, is not materially disadvantageous to the
Banks and, in the case of a change in the form of organization of such Borrower,
the Administrative Agent has consented thereto.

Section 5.05. Compliance with Laws. Such Borrower will comply, and cause each of
its Material Subsidiaries to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, ERISA and Environmental
Laws) except where (i) noncompliance would not have a material adverse effect on
the business, financial position or results of operations of such Borrower and
its Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of
compliance therewith is contested in good faith by appropriate proceedings.

Section 5.06. Books and Records. Such Borrower will keep, and will cause each of
its Material Subsidiaries to keep, proper books of record and account in which
full, true and correct entries shall be made of all financial transactions in
relation to its business and activities in accordance with its customary
practices; and will permit, and will cause each such Material Subsidiary to
permit, representatives of any Bank at such Bank’s expense (accompanied by a
representative of such Borrower, if such Borrower so desires) to visit any of
their respective properties, to examine any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all
upon such reasonable notice, at such reasonable times and as often as may
reasonably be desired.

Section 5.07. Negative Pledge. Such Borrower will not create, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired by it, except:

(a) Liens granted by such Borrower existing as of the Effective Date securing
Indebtedness outstanding on the date of this Agreement in an aggregate principal
amount not exceeding $100,000,000;

(b) the Lien of such Borrower’s Mortgage Indenture (if any) securing
Indebtedness outstanding on the Effective Date or issued hereafter;

(c) any Lien on any asset of any Person existing at the time such Person is
merged or consolidated with or into such Borrower and not created in
contemplation of such event;

(d) any Lien existing on any asset prior to the acquisition thereof by such
Borrower and not created in contemplation of such acquisition;

(e) any Lien on any asset securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset;
provided that such Lien attaches to such asset concurrently with or within 180
days after the acquisition thereof;

 

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(f) any Lien arising out of the refinancing, extension, renewal or refunding of
any Indebtedness secured by any Lien permitted by any of the foregoing clauses
of this Section; provided that such Indebtedness is not increased and is not
secured by any additional assets;

(g) Liens for taxes, assessments or other governmental charges or levies not yet
due or which are being contested in good faith by appropriate proceedings and
with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with generally accepted accounting principles;

(h) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
materialmen and other Liens imposed by law, created in the ordinary course of
business and for amounts not past due for more than 60 days or which are being
contested in good faith by appropriate proceedings which are sufficient to
prevent imminent foreclosure of such Liens, are promptly instituted and
diligently conducted and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with generally
accepted accounting principles;

(i) Liens incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal bonds) in connection
with workers’ compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations or arising as a result of progress payments under
government contracts;

(j) easements (including, without limitation, reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and other restrictions, charges or encumbrances
(whether or not recorded) affecting the use of real property;

(k) Liens with respect to judgments and attachments which do not result in an
Event of Default;

(l) Liens, deposits or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases (permitted
under the terms of this Agreement), public or statutory obligations, surety,
stay, appeal, indemnity, performance or other obligations arising in the
ordinary course of business;

(m) other Liens including Liens imposed by Environmental Laws arising in the
ordinary course of its business which (i) do not secure Indebtedness, (ii) do
not secure any obligation in an amount exceeding $100,000,000 at any time at
which Investment Grade Status does not exist as to such Borrower and (iii) do
not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business;

(n) Liens securing obligations under Hedging Agreements entered into to protect
against fluctuations in interest rates or exchange rates or commodity prices and
not for speculative purposes, provided that such Liens run in favor of a Bank
hereunder or a Person who was, at the time of issuance, a Bank; and

(o) Liens not otherwise permitted by the foregoing clauses of this Section on
assets of such Borrower securing obligations in an aggregate principal or face
amount at any date not to exceed $150,000,000.

Section 5.08. Consolidations, Mergers and Sales of Assets. Such Borrower will
not (i) consolidate or merge with or into any other Person or (ii) sell, lease
or otherwise transfer, directly or indirectly, Substantial Assets to any Person
(other than a Subsidiary of such Borrower); provided that such Borrower may
merge with another Person if such Borrower is the Person surviving such merger
and, after giving effect thereto, no Default shall have occurred and be
continuing.

Section 5.09. Use of Proceeds. Letters of Credit may be issued hereunder as
irrevocable direct pay letters of credit to support various series of tax-exempt
variable rate demand bonds issued or to be issued by the Borrowers. Letters of
Credit will not be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any “margin stock”
within the meaning of Regulation U.

Section 5.10. Indebtedness/Capitalization Ratio. The ratio of Consolidated
Indebtedness of such Borrower to Consolidated Capitalization of such Borrower
will at no time exceed 65%.

 

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ARTICLE 6

DEFAULTS

Section 6.01. Events of Default. If one or more of the following events (“Events
of Default”) with respect to a particular Borrower shall have occurred and be
continuing:

(a) such Borrower shall fail to pay when due any principal of any Reimbursement
Obligation owed by it or shall fail to pay, within five days of the due date
thereof, any interest, fees or any other amount payable by it hereunder;

(b) such Borrower shall fail to observe or perform any covenant contained in
Sections 5.04 or 5.07 through 5.10, inclusive;

(c) such Borrower shall fail to observe or perform any covenant or agreement
contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after notice thereof has been given to such Borrower by
the Administrative Agent at the request of any Bank;

(d) any representation, warranty, certification or statement made by such
Borrower in this Agreement or in any certificate, financial statement or other
document delivered pursuant to this Agreement shall prove to have been incorrect
in any material respect when made (or deemed made);

(e) such Borrower or any of its Material Subsidiaries shall fail to make any
payment in respect of Material Debt (other than Reimbursement Obligations of
such Borrower hereunder) when due or within any applicable grace period;

(f) any event or condition shall occur and shall continue beyond the applicable
grace or cure period, if any, provided with respect thereto so as to result in
the acceleration of the maturity of Material Debt;

(g) such Borrower or any of its Material Subsidiaries shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall admit in writing its inability to, or shall
fail generally to, pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;

(h) an involuntary case or other proceeding shall be commenced against such
Borrower or any of its Material Subsidiaries seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against such Borrower or any of its Material
Subsidiaries under the federal bankruptcy laws as now or hereafter in effect;

(i) any member of such Borrower’s ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $25,000,000 which it shall have
become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice
of intent to terminate a Plan or Plans of such ERISA Group having aggregate
Unfunded Vested Liabilities in excess of $50,000,000 (collectively, a “Material
Plan”) shall be filed under Title IV of ERISA by any member of such ERISA Group,
any plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a trustee
to be appointed to administer any such Material Plan or a proceeding shall be
instituted by a fiduciary of any such Material Plan against any member of such
ERISA Group to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding
shall not have been dismissed within 90 days thereafter; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Material Plan must be terminated;

(j) a judgment or other court order for the payment of money in excess of
$50,000,000 shall be rendered against such Borrower or any of its Material
Subsidiaries and such judgment or order shall continue without being vacated,
discharged, satisfied or stayed or bonded pending appeal for a period of 45
days; or

(k) any person or group of persons (within the meaning of Section 13 or 14 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) other than
trustees and participants in employee benefit plans of DEC and its Subsidiaries
or the Endowment or Trust, shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission
under the Exchange Act) of 50% or more of the outstanding

 

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shares of common stock of DEC; during any period of twelve consecutive calendar
months, individuals who were directors of DEC on the first day of such period
(together with any successors nominated or appointed by such directors in the
ordinary course) shall cease to constitute a majority of the board of directors
of DEC; or in the case of any Borrower, such Borrower shall cease to be a
Subsidiary of DEC;

then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 66- 2/3% in aggregate amount of the Commitments, by
notice to such Borrower terminate the Commitments as to such Borrower and they
shall thereupon terminate, and such Borrower shall no longer be entitled to
cause Letters of Credit to be issued hereunder, and the Sublimit of such
Borrower shall be reduced to zero, and (ii) if requested by Banks holding more
than 66- 2/3% in aggregate principal amount of the Reimbursement Obligations of
such Borrower, by notice to such Borrower declare such Reimbursement Obligations
(together with accrued interest thereon) to be, and such Reimbursement
Obligations (together with accrued interest thereon) shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by each Borrower; provided that in
the case of any of the Events of Default specified in clause (g) or (h) above
with respect to such Borrower, without any notice to such Borrower or any other
act by the Administrative Agent or the Banks, the Commitments shall thereupon
terminate with respect to such Borrower and the Reimbursement Obligations of
such Borrower (together with accrued interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by each Borrower.

Section 6.02. Notice of Default. The Administrative Agent shall give notice to a
Borrower under Section 6.01(c) promptly upon being requested to do so by any
Bank and shall thereupon notify all the Banks and the Issuing Banks thereof.

Section 6.03. Cash Cover. Each Borrower agrees, in addition to the provisions of
Section 6.01 hereof, that upon the occurrence and during the continuance of any
Event of Default with respect to such Borrower, it shall, if requested by the
Administrative Agent upon the instruction of the Banks having at least 66 2/3%
in the aggregate amount of the Commitments (or, if the Commitments shall have
been terminated, holding at least 66 2/3% of the Letter of Credit Liabilities
for the account of such Borrower), deposit with the Administrative Agent an
amount in immediately available funds (which funds shall be held as collateral
pursuant to arrangements mutually satisfactory to the Administrative Agent and
such Borrower) equal to the aggregate amount available for drawing under all
Letters of Credit issued for the account of such Borrower then outstanding at
such time; provided that upon the occurrence of any Event of Default specified
in Section 6.01(g) or 6.01(h) with respect to such Borrower, such Borrower shall
pay such amount forthwith without any notice or demand or any other act by the
Administrative Agent or the Banks.

ARTICLE 7

THE ADMINISTRATIVE AGENT

Section 7.01. Appointment and Authorization. Each Bank irrevocably appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.

Section 7.02. Administrative Agent and Affiliates. Bank of America shall have
the same rights and powers under this Agreement as any other Bank and may
exercise or refrain from exercising the same as though it were not the
Administrative Agent, and Bank of America and its affiliates may accept deposits
from, lend money to, and generally engage in any kind of business with any
Borrower or any Subsidiary or affiliate of any Borrower as if it were not the
Administrative Agent hereunder.

Section 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.

Section 7.04. Consultation with Experts. The Administrative Agent may consult
with legal counsel (who may be counsel for a Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.

 

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Section 7.05. Liability of Administrative Agent. Neither the Administrative
Agent nor any of its affiliates nor any of their respective directors, officers,
agents or employees shall be liable to any Bank for any action taken or not
taken by it in connection herewith (i) with the consent or at the request of the
Required Banks or (ii) in the absence of its own gross negligence or willful
misconduct. Neither the Administrative Agent nor any of its affiliates nor any
of their respective directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any issuance of a Letter of Credit hereunder; (ii) the performance or observance
of any of the covenants or agreements of any Borrower; (iii) the satisfaction of
any condition specified in Article 3, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement or any other instrument or writing furnished in
connection herewith. The Administrative Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex or similar writing) believed by it in
good faith to be genuine or to be signed by the proper party or parties. Without
limiting the generality of the foregoing, the use of the term “agent” in this
Agreement with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom and is intended to create or reflect only an administrative
relationship between independent contracting parties.

Section 7.06. Indemnification. Each Bank shall, ratably in accordance with its
Commitment, indemnify the Administrative Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrowers) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss, penalties or liability (except
such as result from such indemnitees’ gross negligence or willful misconduct)
that such indemnitees may suffer or incur in connection with this Agreement or
any action taken or omitted by such indemnitees thereunder.

Section 7.07. Credit Decision. Each Bank acknowledges that it has, independently
and without reliance upon any Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance upon any Agent or any other
Bank, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
any action under this Agreement.

Section 7.08. Successor Administrative Agent. The Administrative Agent may
resign at any time by giving notice thereof to the Banks and the Borrowers. Upon
any such resignation, (i) the Borrowers, with the consent of the Required Banks
(such consent not to be unreasonably withheld or delayed), or (ii) if an Event
of Default has occurred and is continuing, then the Required Banks, shall have
the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$250,000,000; provided that if the Administrative Agent notifies the Borrowers
and the Banks that no qualifying Person has accepted such appointment, then such
resignation shall nonetheless become effective in accordance with such notice
and (i) the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder and under the other Loan Documents (except that in the
case of any collateral security held by the Administrative Agent on behalf of
the Banks under any of the Loan Documents, the retiring Administrative Agent
shall continue to hold such collateral security until such time as a successor
Administrative Agent is appointed) and (ii) all payments, communications and
determinations to be made by, to or through the Administrative Agent shall
instead be made by or to each Bank directly, until such time as a successor
Administrative Agent is appointed pursuant to this Section 7.08. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder; provided that if such successor
Administrative Agent is appointed without the consent of the Borrowers, such
successor Administrative Agent may be replaced by the Borrowers with the consent
of the Required Banks so long as no Event of Default has occurred and is
continuing at the time. After any retiring Administrative Agent’s resignation
hereunder as Administrative Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent. Any resignation by Bank of America as Administrative Agent
pursuant to this Section 7.08 shall also constitute its resignation as Issuing
Bank, and it shall be discharged from all of its duties and obligations
hereunder or under the other Loan Documents to issue any new Letters of Credit;
provided that it shall remain responsible, as an Issuing Bank hereunder, for the
Letters of Credit, if any, issued by it and outstanding at the time of
resignation. Upon the acceptance of a successor’s appointment as Administrative
Agent hereunder, such successor shall succeed to and become vested with all of
the rights, powers, privileges and duties of the retiring Issuing Bank for all
Letters of Credit issued after the time of such succession.

 

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Section 7.09. Administrative Agent’s Fee. The Borrowers shall pay to the
Administrative Agent for its own account fees in the amounts and at the times
previously agreed upon between the Borrowers and the Administrative Agent.

Section 7.10. Other Agents. Neither the Syndication Agent nor any of the
Co-Documentation Agents, in their respective capacities as such, shall have any
duties or obligations of any kind under this Agreement.

ARTICLE 8

CHANGE IN CIRCUMSTANCES

Section 8.01. Increased Cost and Reduced Return. (a) If on or after the date of
this Agreement, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (the terms “Bank” and “Issuing Bank” shall
include, for purposes of this Section 8.01, the holding company of any Issuing
Bank) with any request or directive (whether or not having the force of law)
issued on or after such date of any such authority, central bank or comparable
agency shall impose, modify or deem applicable any reserve, special deposit or
similar requirement (including, without limitation, any such requirement imposed
by the Board of Governors of the Federal Reserve System) against assets of,
deposits with or for the account of, or credit extended by, any Bank or shall
impose on any Bank any other condition (other than in respect of Taxes or Other
Taxes) affecting obligations hereunder in respect of Letters of Credit and the
result of any of the foregoing is to increase the cost to such Bank of issuing
or participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Bank under this Agreement with respect thereto,
by an amount deemed by such Bank to be material, then, within 15 days after
demand by such Bank (with a copy to the Administrative Agent), each Borrower
shall pay to such Bank its Appropriate Share of such additional amount or
amounts as will compensate such Bank for such increased cost or reduction;
provided that no such amount shall be payable with respect to any period
commencing more than 90 days prior to the date such Bank first notifies the
Borrowers of its intention to demand compensation therefor under this
Section 8.01(a).

(b) If any Bank shall have determined that, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency given or made after the date of this Agreement, has or would
have the effect of reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank’s obligations hereunder to a level below
that which such Bank (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 15 days after demand by such Bank (with a copy to
the Administrative Agent), each Borrower shall pay to such Bank its Appropriate
Share of such additional amount or amounts as will compensate such Bank (or its
Parent) for such reduction; provided that no such amount shall be payable with
respect to any period commencing less than 30 days after the date such Bank
first notifies the Borrowers of its intention to demand compensation under this
Section 8.01(b).

(c) Each Bank will promptly notify the Borrowers and the Administrative Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section. A certificate of any
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.

(d) The “Appropriate Share” of a Borrower with respect to any amount payable
hereunder is the sum of (i) to the extent such amount is properly allocable to
Letters of Credit hereunder, the portion of such amount properly allocable to
any such Letter of Credit to or for the account of such Borrower, and (ii) to
the extent such amount is not properly allocable to Letters of Credit hereunder,
the Appropriate Share shall be the product of the Availability Percentage of
such Borrower and such amount.

Section 8.02. Taxes. (a) For purposes of this Section 8.02 the following terms
have the following meanings:

“Taxes” means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by a Borrower
pursuant to this Agreement, and all liabilities with respect thereto, excluding
(i) in the case of each Bank and the Administrative Agent, taxes imposed on its
income, net worth or gross receipts and franchise or similar taxes imposed on it
by a jurisdiction under the laws of which such Bank or the Administrative Agent
(as

 

20

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the case may be) is organized or in which its principal executive office is
located and (ii) in the case of each Bank, any United States withholding tax
imposed on such payments except to the extent that such Bank is subject to
United States withholding tax by reason of a U.S. Tax Law Change.

“Other Taxes” means any present or future stamp or documentary taxes and any
other excise or property taxes, or similar charges or levies, which arise from
any payment made pursuant to this Agreement or from the execution or delivery
of, or otherwise with respect to, this Agreement.

“U.S. Tax Law Change” means with respect to any Bank or Participant the
occurrence (x) in the case of each Bank listed on the signature pages hereof,
after the date of its execution and delivery of this Agreement and (y) in the
case of any other Bank, after the date such Bank shall have become a Bank
hereunder, and (z) in the case of each Participant, after the date such
Participant became a Participant hereunder, of the adoption of any applicable
U.S. federal law, U.S. federal rule or U.S. federal regulation relating to
taxation, or any change therein, or the entry into force, modification or
revocation of any income tax convention or treaty to which the United States is
a party.

(b) Any and all payments by any Borrower to or for the account of any Bank or
the Administrative Agent hereunder shall be made without deduction for any Taxes
or Other Taxes; provided that, if any Borrower shall be required by law to
deduct any Taxes or Other Taxes from any such payments, (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 8.02) such Bank or the Administrative Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions, (iii) such
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) such Borrower
shall furnish to the Administrative Agent, at its address referred to in
Section 9.01(a), the original or a certified copy of a receipt evidencing
payment thereof.

(c) Each Borrower agrees to indemnify each Bank and the Administrative Agent for
its Appropriate Share of the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 8.02) paid by such Bank or
the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be paid within 15 days after such Bank or the
Administrative Agent (as the case may be) makes demand therefor.

(d) Each Bank organized under the laws of a jurisdiction outside the United
States, on or prior to the date of its execution and delivery of this Agreement
in the case of each Bank listed on the signature pages hereof and on or prior to
the date on which it becomes a Bank in the case of each other Bank, and from
time to time thereafter as required by law (but only so long as such Bank
remains lawfully able to do so), shall provide the Borrowers two completed and
duly executed copies of Internal Revenue Service form W-8BEN or W-8ECI, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
or other documentation reasonably requested by the Borrowers, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.

(e) For any period with respect to which a Bank has failed to provide the
Borrowers with the appropriate form pursuant to Section 1.01(d) (unless such
failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to
indemnification under Section 1.01(b) or 1.01(c) with respect to any Taxes or
Other Taxes which would not have been payable had such form been so provided;
provided that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrowers shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes (it
being understood, however, that the Borrowers shall have no liability to such
Bank in respect of such Taxes).

(f) If any Borrower is required to pay additional amounts to or for the account
of any Bank pursuant to this Section 1.01, then such Bank will take such action
as in the good faith judgment of such Bank (i) will eliminate or reduce any such
additional payment which may thereafter accrue and (ii) is not otherwise
disadvantageous to such Bank.

(g) If any Bank or the Administrative Agent receives a refund (including a
refund in the form of a credit against taxes that are otherwise payable by the
Bank or the Administrative Agent) of any Taxes or Other Taxes for which any
Borrower has made a payment under Section 1.01(b) or (c) and such refund was
received from the taxing authority which originally imposed such Taxes or Other
Taxes, such Bank or the Administrative Agent agrees to reimburse such Borrower
to the

 

21

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extent of such refund; provided that nothing contained in this paragraph
(g) shall require any Bank or the Administrative Agent to seek any such refund
or make available its tax returns (or any other information relating to its
taxes which it deems to be confidential).

Section 8.03. Substitution of Bank; Termination Option. If (i) any Bank has
demanded compensation under Section 8.01 or 8.02 or (ii) Investment Grade Status
ceases to exist as to any Bank, then:

(a) the Borrowers shall have the right, with the assistance of the
Administrative Agent, to designate a substitute bank or banks (which may be one
or more of the Banks) mutually satisfactory to the Borrowers, the Administrative
Agent, and the Issuing Banks (whose consent shall not be unreasonably withheld
or delayed) to assume the Commitment and Letter of Credit Liabilities of such
Bank, pursuant to an Assignment and Assumption Agreement in substantially the
form of Exhibit D hereto, without recourse to or warranty by, or expense to,
such Bank, for a purchase price equal to the principal amount of all of such
Bank’s funded Letter of Credit Liabilities plus any accrued but unpaid interest
thereon and the accrued but unpaid fees in respect of such Bank’s Commitment
hereunder and all other amounts payable by the Borrowers to such Bank hereunder;
and

(b) if at the time Investment Grade Status exists as to the Borrowers, the
Borrowers may elect to terminate this Agreement as to such Bank; provided that
(i) the Borrowers notify such Bank through the Administrative Agent of such
election at least three Business Days before the effective date of such
termination, (ii) the Borrowers pay any accrued but unpaid fees in respect of
such Bank’s Commitment hereunder plus all other amounts payable by the Borrowers
to such Bank hereunder, not later than the effective date of such termination
and (iii) if at the effective date of such termination, any Letter of Credit
Liabilities are outstanding, the conditions specified in Section 3.02 would be
satisfied (after giving effect to such termination) were the related Letters of
Credit issued on such date. Upon satisfaction of the foregoing conditions, the
Commitment of such Bank shall terminate on the effective date specified in such
notice, its participation in any outstanding Letters of Credit shall terminate
on such effective date and the participations of the other Banks therein shall
be redetermined as of such date as if such Letters of Credit had been issued on
such date.

ARTICLE 9

MISCELLANEOUS

Section 9.01. Notices. (a) All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party: (w) in the
case of any Borrower, at its address or telecopy or telex number set forth on
the signature pages hereof, (x) in the case of the Administrative Agent, for
notices regarding payments and requests for credit extensions, at Bank of
America N.A., Mail Code: TX1-492-14-11, Bank of America Plaza, 901 Main Street,
Dallas, TX 75202-3714, Attention: Mary Porter, Fax: (214) 290-9674 and, for all
other communications, at Bank of America, N.A., Mail Code: NC1-001-15-14, One
Independence Center, 101 N Tryon St., Charlotte, NC 28255-0001, Attention:
Kimberly D. (Kim) Williams, Fax: (704) 409-0650, (y) in the case of any Bank, at
its address or telecopy or telex number set forth in its Administrative
Questionnaire or (z) in the case of any party, such other address or telecopy or
telex number as such party may hereafter specify for the purpose by notice to
the Administrative Agent and the Borrowers. Each such notice, request or other
communication shall be effective (i) if given by telecopy or telex, when such
telecopy or telex is transmitted to the telecopy or telex number specified in
this Section and the appropriate answerback or confirmation slip, as the case
may be, is received or (ii) if given by any other means, when delivered at the
address specified in this Section; provided that notices to the Administrative
Agent or any Issuing Bank under Article 2 or Article 8 shall not be effective
until delivered.

(b) THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS
DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER
MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR
ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR
FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN
CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the
Administrative Agent, any of its Affiliates or any of their partners, directors,
officers, employees, agents, trustees and advisors (collectively, the “Agent
Parties”) have any liability to the Borrowers, any Bank or any other Person for
losses, claims, damages, liabilities or expenses of any kind (whether in tort,
contract or otherwise) arising out of the Borrowers’ or the Administrative
Agent’s transmission of Borrower Materials through the Internet, except to the
extent that such losses, claims, damages, liabilities or expenses are determined
by a court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of such Agent Party; provided, however, that in no event
shall any Agent Party have any liability to the Borrowers, any Bank or any other
Person for indirect, special, incidental, consequential or punitive damages (as
opposed to direct or actual damages).

 

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Section 9.02. No Waivers. No failure or delay by the Administrative Agent or any
Bank in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.

Section 9.03. Expenses; Indemnification. (a) Each Borrower shall pay (i) its
Appropriate Share of all reasonable out-of-pocket expenses of the Administrative
Agent, including reasonable fees and disbursements of special counsel for the
Agents, in connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any Default or alleged Default with
respect to such Borrower hereunder and (ii) if an Event of Default with respect
to such Borrower occurs, all reasonable out-of-pocket expenses incurred by the
Administrative Agent or any Bank, including reasonable fees and disbursements of
counsel, in connection with such Event of Default and collection and other
enforcement proceedings resulting therefrom.

(b) Each Borrower agrees to indemnify each Agent and each Bank, their respective
affiliates and the respective directors, officers, agents and employees of the
foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and
against any and all liabilities, losses, penalties, damages, costs and expenses
of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) relating to or arising out
of this Agreement, in each case to the extent of such Borrower’s Appropriate
Share; provided that no Indemnitee shall have the right to be indemnified
hereunder for such Indemnitee’s own gross negligence or willful misconduct as
determined by a court of competent jurisdiction.

Section 9.04. Sharing of Set-offs. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount then due with respect to the Letter of
Credit Liabilities held by it which is greater than the proportion received by
any other Bank in respect of the aggregate amount then due with respect to the
Letter of Credit Liabilities held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Letter
of Credit Liabilities held by the other Banks, and such other adjustments shall
be made, as may be required so that all such payments with respect to the Letter
of Credit Liabilities held by the Banks shall be shared by the Banks pro rata;
provided that nothing in this Section shall impair the right of any Bank to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of a Borrower
other than its indebtedness under this Agreement.

Section 9.05. Amendments and Waivers. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by each Borrower, the Administrative Agent and the Required Banks (and,
if the rights or duties of any Agent or any Issuing Bank are affected thereby,
by such Person); provided that no such amendment or waiver shall (x) unless
signed by each affected Bank, (i) increase the Commitment of any Bank or subject
any Bank to any additional obligation, (ii) reduce the amount to be reimbursed
in respect of any Letter of Credit or any interest thereon or any fees hereunder
or (iii) postpone the date fixed for reimbursement in respect of any Letter of
Credit or interest thereon or any fees hereunder or for termination of any
Commitment or (y) unless signed by all Banks, (i) change the definition of
Required Banks or the provisions of this Section 9.05 or (ii) change the
provisions of Section 2.04.

Section 9.06. Successors and Assigns. (a) The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns and each Indemnitee, except that no Borrower
may assign or otherwise transfer any of its rights under this Agreement without
the prior written consent of all Banks.

(b) Any Bank may, with the consent (unless an Event of Default then exists) of
the Borrowers (such consent not to be unreasonably withheld or delayed), at any
time grant to one or more banks or other institutions (each a “Participant”)
participating interests in its Commitment or any or all of its Letter of Credit
Liabilities; provided that any Bank may, without the consent of any Borrower, at
any time grant participating interests in its Commitment or any or all of its
Letter of Credit Liabilities to another Bank, an Approved Fund or an Affiliate
of such transferor Bank. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Administrative Agent, such Bank shall remain responsible for the performance of
its obligations hereunder, and the Borrowers, the Issuing Banks and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank’s rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrowers hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (x) (i), (ii) or (iii) of Section 9.05
without the consent of the

 

23

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Participant. Each Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
8 with respect to its participating interest, subject to the performance by such
Participant of the obligations of a Bank thereunder. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).

(c) Any Bank may at any time assign to one or more banks or other financial
institutions (each an “Assignee”) all, or a proportionate part (equivalent to an
initial Commitment of not less than $10,000,000 (unless the Borrowers and the
Administrative Agent shall otherwise agree)) of all, of its rights and
obligations under this Agreement, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement in substantially
the form of Exhibit C hereto executed by such Assignee and such transferor Bank,
with (and only with and subject to) the prior written consent of the Issuing
Banks, the Administrative Agent (which shall not be unreasonably withheld or
delayed) and, so long as no Event of Default has occurred and is continuing, the
Borrowers (which shall not be unreasonably withheld or delayed); provided that
unless such assignment is of the entire right, title and interest of the
transferor Bank hereunder, after making any such assignment such transferor Bank
shall have a Commitment of at least $10,000,000 (unless the Borrowers and the
Administrative Agent shall otherwise agree). Each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Bank’s rights
and obligations under this Agreement. Upon execution and delivery of such
instrument of assumption and payment by such Assignee to such transferor Bank of
an amount equal to the purchase price agreed between such transferor Bank and
such Assignee, such Assignee shall be a Bank party to this Agreement and shall
have all the rights and obligations of a Bank with a Commitment as set forth in
such instrument of assumption, and the transferor Bank shall be released from
its obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. If the Assignee is not incorporated under
the laws of the United States of America or a state thereof, it shall, prior to
the first date on which interest or fees are payable hereunder for its account,
deliver to the Borrowers and the Administrative Agent certification as to
exemption from deduction or withholding of any United States federal income
taxes in accordance with Section 8.02. All assignments (other than assignments
to Affiliates) shall be subject to a transaction fee established by, and payable
by the transferor Bank to, the Administrative Agent for its own account (which
shall not exceed $5,000).

(d) Any Bank may at any time assign all or any portion of its rights under this
Agreement to a Federal Reserve Bank. No such assignment shall release the
transferor Bank from its obligations hereunder or modify any such obligations.

(e) No Assignee, Participant or other transferee of any Bank’s rights shall be
entitled to receive any greater payment under Section 8.01 or 1.01 than such
Bank would have been entitled to receive with respect to the rights transferred.

Section 9.07. Collateral. Each of the Banks represents to the Administrative
Agent and each of the other Banks that it in good faith is not relying upon any
“margin stock” (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.

Section 9.08. Confidentiality. Each Agent and each Bank agrees to keep any
information delivered or made available by any Borrower pursuant to this
Agreement confidential from anyone other than persons employed or retained by
such Bank and its affiliates who are engaged in evaluating, approving,
structuring or administering the credit facility contemplated hereby; provided
that nothing herein shall prevent any Bank from disclosing such information
(a) to any other Bank or any Agent, (b) to any other Person if reasonably
incidental to the administration of the credit facility contemplated hereby,
(c) upon the order of any court or administrative agency, (d) upon the request
or demand of any regulatory agency or authority, (e) which had been publicly
disclosed other than as a result of a disclosure by any Agent or any Bank
prohibited by this Agreement, (f) in connection with any litigation to which any
Agent, any Bank or its subsidiaries or Parent may be a party, (g) to the extent
necessary in connection with the exercise of any remedy hereunder, (h) to such
Bank’s or any Agent’s legal counsel and independent auditors, (i) subject to
provisions substantially similar to those contained in this Section 2.08, to any
actual or proposed Participant or Assignee, (j) to any direct, indirect, actual
or prospective counterparty (and its advisor) to any swap, derivative or
securitization transaction related to the obligations under this Agreement and
(k) as required by law, regulation or legal process.

Section 9.09. Governing Law; Submission to Jurisdiction. This Agreement shall be
construed in accordance with and governed by the law of the State of New York.
Each Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
State court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. Each Borrower irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.

 

24

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Section 9.10. Counterparts; Integration. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement constitutes the entire agreement and understanding among the parties
hereto and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof.

Section 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENTS, THE
ISSUING BANKS AND THE BANKS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12. USA Patriot Act. Each Bank hereby notifies each Borrower that
pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56
(signed into law October 26, 2001) (the “Act”), it is required to obtain, verify
and record information that identifies such Borrower, which information includes
the name and address of such Borrower and other information that will allow such
Bank to identify such Borrower in accordance with the Act.

Section 9.13. No Advisory or Fiduciary Responsibility. In connection with all
aspects of each transaction contemplated hereby (including in connection with
any amendment, waiver or other modification hereof or of any other Loan
Document), each Borrower acknowledges and agrees that: (i) (A) the arranging and
other services regarding this Agreement provided by the Administrative Agent and
the Arranger are arm’s-length commercial transactions between the Borrowers, on
the one hand, and the Administrative Agent and the Arranger, on the other hand,
(B) each Borrower has consulted its own legal, accounting, regulatory and tax
advisors to the extent it has deemed appropriate, and (C) each Borrower is
capable of evaluating, and understands and accepts, the terms, risks and
conditions of the transactions contemplated hereby and by the other Loan
Documents; (ii) (A) the Administrative Agent and the Arranger each is and has
been acting solely as a principal and, except as expressly agreed in writing by
the relevant parties, has not been, is not, and will not be acting as an
advisor, agent or fiduciary for the Borrowers or any of their Affiliates, or any
other Person and (B) neither the Administrative Agent nor the Arranger has any
obligation to the Borrowers or any of their Affiliates with respect to the
transactions contemplated hereby except those obligations expressly set forth
herein and in the other Loan Documents; and (iii) the Administrative Agent and
the Arranger and their respective Affiliates may be engaged in a broad range of
transactions that involve interests that differ from those of the Borrowers and
their Affiliates, and neither the Administrative Agent nor the Arranger has any
obligation to disclose any of such interests to the Borrowers or any of their
Affiliates. To the fullest extent permitted by law, each Borrower hereby waives
and releases any claims that it may have against the Administrative Agent and
the Arranger with respect to any breach or alleged breach of agency or fiduciary
duty in connection with any aspect of any transaction contemplated hereby,
except as expressly agreed in writing by the relevant parties.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

DUKE ENERGY INDIANA, INC.

By:  

 

  Title:   Assistant Treasurer   Address:  

526 South Church Street

Charlotte, NC 28202-1904

  Attention:   M. Allen Carrick   Telecopy number:   704-382-3288   Taxpayer ID:
  35-0594457

 

DUKE ENERGY KENTUCKY, INC.

By:  

 

  Title:   Assistant Treasurer   Address:  

526 South Church Street

Charlotte, NC 28202-1904

  Attention:   M. Allen Carrick   Telecopy number:   704-382-3288   Taxpayer ID:
  31-0473080

--------------------------------------------------------------------------------

BANK OF AMERICA, N.A., as
Administrative Agent and as a Bank

By:  

 

  Name:     Title:  

 

2

--------------------------------------------------------------------------------

WELLS FARGO BANK,
NATIONAL ASSOCIATION, as
Co-Documentation Agent and as a Bank

By:  

 

  Name:     Title:  

 

3

--------------------------------------------------------------------------------

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as
Co-Documentation Agent and as a Bank

By:  

 

  Name:     Title:  

 

4

--------------------------------------------------------------------------------

BANCO BILBAO VIZCAYA ARGENTARIA,
S.A. – NEW YORK BRANCH, as
Syndication Agent and as a Bank

By:  

 

  Name:     Title:  

 

5

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MIZUHO CORPORATE BANK (USA), as
Co-Documentation Agent and as a Bank

By:  

 

  Name:     Title:  

 

6

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INTESA SANPAOLO S.P.A.,
NEW YORK BRANCH, as
Co-Documentation Agent and as a Bank

By:  

 

  Name:     Title:  

 

7

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COMMITMENT SCHEDULE

 

Bank

   Commitment

Banco Bilbao Vizcaya Argentaria, S.A. – New York Branch

   $ 110,000,000

Mizuho Corporate Bank (USA)

   $ 60,000,000

Bank of America, N.A.

   $ 45,000,000

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

   $ 45,000,000

Intesa Sanpaolo S.p.A., New York Branch

   $ 45,000,000

Wells Fargo Bank, National Association

   $ 25,000,000       

Total:

   $ 330,000,000.00

 

8

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Pricing Schedule

“Applicable Rate” means, for purposes of each of Section 2.01(a) and
Section 2.01(b) and for any date, the rate set forth below in the applicable row
and column corresponding to the credit rating of the applicable Borrower that
exists on such date:

(basis points per annum)

 

Borrower’s Credit Rating

   at least A
by S&P or
A2 by
Moody’s    at least A-
by S&P or
A3 by
Moody’s    at least
BBB+ by
S&P or
Baa1 by
Moody’s    at least
BBB by
S&P or
Baa2 by
Moody’s    at least
BBB- by
S&P or
Baa3 by
Moody’s    less than BBB-
by S&P and
less than Baa3
by Moody’s

Applicable Rate for Section 2.01(a) (Unused Commitment Fee)

   10.0    12.5    15.0    17.5    20.0    25.0

Applicable Rate for Section 2.01(b) (Utilization Fee)

   65.0    70.0    75.0    87.5    125.0    175.0

Each Borrower must obtain a long-term unsecured credit rating from two leading
rating agencies, to include at a minimum either Standard & Poor’s, a division of
the McGraw-Hill Companies, together with its successors (“S&P”), or Moody’s
Investors Service (“Moody’s”), or if such a credit rating is not available, then
a corporate credit rating from S&P or an issuer rating from Moody’s, and
formally notify the Administrative Agent of the current ratings. The Applicable
Rates applicable to each Borrower will be based upon such Borrower’s credit
rating. The ratings in effect for any day are those in effect at the close of
business on such day. A change in credit rating will result in an immediate
change in the applicable pricing. In the case of split ratings from S&P and
Moody’s, the rating to be used to determine the applicable pricing will be the
higher of the two; provided that if the rating differential is more than one
notch, the applicable pricing will be based on a rating one notch lower than the
higher of the two.

--------------------------------------------------------------------------------

EXHIBIT A-1

OPINION OF INTERNAL COUNSEL OF THE BORROWER

[Effective Date]

To the Banks and the Administrative Agent

Referred to Below

c/o Bank of America, N.A.

as Administrative Agent

One Independence Center

101 N Tryon St.

Charlotte, NC 28255-0001

Ladies and Gentlemen:

I am [title of internal counsel] of [Duke Energy Indiana, Inc.] [Duke Energy
Kentucky, Inc.] (the “Borrower”) and have acted as its counsel in connection
with the Letter of Credit Agreement (the “Credit Agreement”), dated as of
September 19, 2008, among Duke Energy Indiana, Inc., Duke Energy Kentucky, Inc.
(the “Borrowers”), the banks listed on the signature pages thereof, Bank of
America, N.A., as Administrative Agent, and the other Agents party thereto.
Capitalized terms defined in the Credit Agreement are used herein as therein
defined. This opinion letter is being delivered pursuant to Section 3.01(b) of
the Credit Agreement.

In such capacity, I or attorneys under my direct supervision have examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact and law as I
have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, I am of the opinion that:

1. The Borrower is [an Indiana corporation] [a Kentucky corporation], validly
existing and in good standing under the laws of [Indiana] [Kentucky].

2. The execution, delivery and performance by the Borrower of the Credit
Agreement are within the Borrower’s corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any governmental body, agency or official (except for [list
exceptions], which have been obtained or made, as the case may be, and are in
full force and effect) and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the articles of incorporation or
by-laws of the Borrower or, to my knowledge, of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Borrower or, to
my knowledge, result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Material Subsidiaries.

3. The Credit Agreement has been duly executed and delivered by the Borrower.

4. Except as disclosed in the Borrower’s annual report on Form 10-K for the
fiscal year ended December 31, 2007 and its quarterly reports on Form 10-Q for
the periods ended March 31, 2008 and June 30, 2008, to my knowledge (but without
independent investigation), there is no action, suit or proceeding pending or
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official, which
would be likely to be decided adversely to the Borrower or such Subsidiary and,
as a result, to have a material adverse effect upon the business, consolidated
financial position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or which in any manner draws
into question the validity of the Credit Agreement.

The phrase “to my knowledge”, as used in the foregoing opinion, refers to my
actual knowledge without any independent investigation as to any such matters.

I am a member of the Bar of the State of [Indiana] [Kentucky] and do not express
any opinion herein concerning any law other than the law of the State of
[Indiana] [Kentucky] and the federal law of the United States of America.

 

2

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The opinions expressed herein are limited to the matters expressly stated
herein, and no opinion is to be inferred or may be implied beyond the matters
expressly so stated. This opinion is rendered to you in connection with the
above-referenced matter and may not be relied upon by you for any other purpose,
or relied upon by, or furnished to, any other Person, firm or corporation
without my prior written consent, except for Additional Banks and Assignees. My
opinions expressed herein are as of the date hereof, and I undertake no
obligation to advise you of any changes of applicable law or any other matters
that may come to my attention after the date hereof that may affect my opinions
expressed herein.

Very truly yours,

 

3

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EXHIBIT A-2

OPINION OF

ROBINSON, BRADSHAW & HINSON, P.A.,

SPECIAL COUNSEL FOR THE BORROWER

[Effective Date]

To the Banks and the Administrative Agent

Referred to Below

c/o Bank of America, N.A.

as Administrative Agent

One Independence Center

101 N Tryon St.

Charlotte, NC 28255-0001

Ladies and Gentlemen:

We have acted as counsel to [Duke Energy Indiana, Inc., an Indiana corporation]
[Duke Energy Kentucky, Inc., a Kentucky corporation] (the “Borrower”), in
connection with the Letter of Credit Agreement (the “Credit Agreement”), dated
as of September 19, 2008, among Duke Energy Indiana, Inc., Duke Energy Kentucky,
Inc. (the “Borrowers”), the banks listed on the signature pages thereof, Bank of
America, N.A., as Administrative Agent, and the other Agents party thereto.
Capitalized terms used herein and not defined shall have the meanings given to
them in the Credit Agreement. This opinion letter is being delivered pursuant to
Section 3.01(b) of the Credit Agreement.

In connection with this opinion, we also examined originals, or copies
identified to our satisfaction, of such other documents and considered such
matters of law and fact as we, in our professional judgment, have deemed
appropriate to render the opinions contained herein. Where we have considered it
appropriate, as to certain facts we have relied, without investigation or
analysis of any underlying data contained therein, upon certificates or other
comparable documents of public officials and officers or other appropriate
representatives of the Borrower.

In rendering the opinions contained herein, we have assumed, among other things,
that the Credit Agreement (i) is within the Borrower’s corporate powers,
(ii) has been duly authorized by all necessary corporate action, (iii) has been
duly executed and delivered, (iv) requires no action by or in respect of, or
filing with, any governmental body, agency of official and (v) does not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the Borrower’s certificate of incorporation or by-laws or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrower or result in the creation or imposition of any Lien on any asset of
the Borrower. In addition, we have assumed that the Credit Agreement fully
states the agreement between the Borrower and the Banks with respect to the
matters addressed therein, and that the Credit Agreement constitutes a legal,
valid and binding obligation of each Bank, enforceable in accordance with its
respective terms.

The opinions set forth herein are limited to matters governed by the laws of the
State of North Carolina and the federal laws of the United States, and no
opinion is expressed herein as to the laws of any other jurisdiction. For
purposes of our opinions, we have disregarded the choice of law provisions in
the Credit Agreement and, instead, have assumed with your permission that the
Credit Agreement is governed exclusively by the internal, substantive laws and
judicial interpretations of the State of North Carolina. We express no opinion
concerning any matter respecting or affected by any laws other than laws that a
lawyer in North Carolina exercising customary professional diligence would
reasonably recognize as being directly applicable to the Borrower.

Based upon and subject to the foregoing and the further limitations and
qualifications hereinafter expressed, it is our opinion that the Credit
Agreement constitutes the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms.

The opinions expressed above are subject to the following qualifications and
limitations:

1. Enforcement of the Credit Agreement is subject to the effect of applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
similar laws affecting the enforcement of creditors’ rights generally.

2. Enforcement of the Credit Agreement is subject to the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law) by which a court with proper jurisdiction may deny rights of specific
performance, injunction, self-help, possessory remedies or other remedies.

--------------------------------------------------------------------------------

3. We do not express any opinion as to the enforceability of any provisions
contained in the Credit Agreement that (i) purport to excuse a party for
liability for its own acts, (ii) purport to make void any act done in
contravention thereof, (iii) purport to authorize a party to act in its sole
discretion, (iv) require waivers or amendments to be made only in writing,
(v) purport to effect waivers of constitutional, statutory or equitable rights
or the effect of applicable laws, (vi) impose liquidated damages, penalties or
forfeiture, or (vii) purport to indemnify a party for its own negligence or
willful misconduct. Indemnification provisions in the Credit Agreement are
subject to and may be rendered unenforceable by applicable law or public policy,
including applicable securities law.

4. We do not express any opinion as to the enforceability of any provisions
contained in the Credit Agreement purporting to require a party thereto to pay
or reimburse attorneys’ fees incurred by another party, or to indemnify another
party therefor, which may be limited by applicable statutes and decisions
relating to the collection and award of attorneys’ fees, including but not
limited to North Carolina General Statutes § 6-21.2.

5. We do not express any opinion as to the enforceability of any provisions
contained in the Credit Agreement purporting to waive the right of jury trial.
Under North Carolina General Statutes § 22B-10, a provision for the waiver of
the right to a jury trial is unconscionable and unenforceable.

6. We do not express any opinion as to the enforceability of any provisions
contained in the Credit Agreement concerning choice of forum or consent to the
jurisdiction of courts, venue of actions or means of service of process.

7. It is likely that North Carolina courts will enforce the provisions of the
Credit Agreement providing for interest at a higher rate resulting from a
Default or Event of Default (a “Default Rate”) which rate is higher than the
rate otherwise stipulated in the Credit Agreement. The law, however, disfavors
penalties, and it is possible that interest at the Default Rate may be held to
be an unenforceable penalty, to the extent such rate exceeds the rate applicable
prior to a default under the Credit Agreement. Also, since North Carolina
General Statutes § 24-10.1 expressly provides for late charges, it is possible
that North Carolina courts, when faced specifically with the issue, might rule
that this statutory late charge preempts any other charge (such as default
interest) by a bank for delinquent payments. The only North Carolina case which
we have found that addresses this issue is a 1978 Court of Appeals decision,
which in our opinion is of limited precedential value, North Carolina National
Bank v. Burnette, 38 N.C. App. 120, 247 S.E.2d 648 (1978), rev’d on other
grounds, 297 N.C. 524, 256 S.E.2d 388 (1979). While the court in that case did
allow interest after default (commencing with the date requested in the
complaint) at a rate six percent in excess of pre-default interest, we are
unable to determine from the opinion that any question was raised as to this
being penal in nature, nor does the court address the possible question of the
statutory late charge preempting a default interest surcharge. Therefore, since
the North Carolina Supreme Court has not ruled in a properly presented case
raising issues of its possible penal nature and those of North Carolina General
Statutes § 24-10.1, we are unwilling to express an unqualified opinion that the
Default Rate of interest prescribed in the Credit Agreement is enforceable.

8. We do not express any opinion as to the enforceability of any provisions
contained in the Credit Agreement relating to evidentiary standards or other
standards by which the Credit Agreement are to be construed.

This opinion letter is delivered solely for your benefit in connection with the
Credit Agreement and, except for any Additional Bank or any Assignee which
becomes a Bank pursuant to Section 2.06 or 2.06(c) of the Credit Agreement, may
not be used or relied upon by any other Person or for any other purpose without
our prior written consent in each instance. Our opinions expressed herein are as
of the date hereof, and we undertake no obligation to advise you of any changes
of applicable law or any other matters that may come to our attention after the
date hereof that may affect our opinions expressed herein.

Very truly yours,

 

2

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EXHIBIT B

OPINION OF

DAVIS POLK & WARDWELL, SPECIAL COUNSEL

FOR THE AGENTS

[Effective Date]

To the Banks and the Administrative Agent

        Referred to Below

c/o Bank of America, N.A.

        as Administrative Agent

One Independence Center

101 N Tryon St.

Charlotte, NC 28255-0001

Dear Sirs:

We have participated in the preparation of the Letter of Credit Agreement (the
“Credit Agreement”) dated as of September 19, 2008 among Duke Energy Indiana,
Inc., an Indiana corporation and Duke Energy Kentucky, Inc., a Kentucky
corporation (the “Borrowers”, each individually, a “Borrower”), the banks listed
on the signature pages thereof (the “Banks”), Bank of America, N.A., as
Administrative Agent (the “Administrative Agent”), and the other Agents party
thereto, and have acted as special counsel for the Agents for the purpose of
rendering this opinion pursuant to Section 3.01(c)of the Credit Agreement. Terms
defined in the Credit Agreement are used herein as therein defined.

We have examined originals or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion.

In rendering the opinion contained herein, we have assumed, among other things,
that the Credit Agreement (i) is within each Borrower’s corporate powers,
(ii) has been duly authorized by all necessary corporate action, (iii) has been
duly executed and delivered, (iv) requires no action by or in respect of, or
filing with, any governmental body, agency of official and (v) does not
contravene, or constitute a default under, any provision of applicable law or
regulation or of any Borrower’s certificate of incorporation or by-laws or any
agreement, judgment, injunction, order, decree or other instrument binding upon
any Borrower or result in the creation or imposition of any Lien on any asset of
any Borrower.

Upon the basis of the foregoing, we are of the opinion that the Credit Agreement
constitutes a valid and binding agreement of each Borrower, except as the same
may be limited by bankruptcy, insolvency or similar laws affecting creditors’
rights generally and by general principles of equity.

In giving the foregoing opinion, we express no opinion as to the effect (if any)
of any law of any jurisdiction (except the State of New York) in which any Bank
is located which limits the rate of interest that such Bank may charge or
collect.

This opinion is rendered solely to you in connection with the above matter. This
opinion may not be relied upon by you for any other purpose or relied upon by or
furnished to any other person, firm or corporation without our prior written
consent, except for Additional Banks and all Participants.

Very truly yours,

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EXHIBIT C

ASSIGNMENT AND ASSUMPTION AGREEMENT

This Assignment and Assumption Agreement (the “Assignment and Assumption”) is
dated as of the Effective Date set forth below and is entered into by and
between [the][each] Assignor identified in item 1 below ([the][each, an]
“Assignor”) and [the][each] Assignee identified in item 2 below ([the][each, an]
“Assignee”). [It is understood and agreed that the rights and obligations of
[the Assignors][the Assignees] hereunder are several and not joint.] Capitalized
terms used but not defined herein shall have the meanings given to them in the
Credit Agreement identified below (the “Credit Agreement”), receipt of a copy of
which is hereby acknowledged by the Assignee. The Standard Terms and Conditions
set forth in Annex 1 attached hereto are hereby agreed to and incorporated
herein by reference and made a part of this Assignment and Assumption as if set
forth herein in full. Attached is an Administrative Questionnaire duly completed
by the Assignee.

For an agreed consideration, [the][each] Assignor hereby irrevocably sells and
assigns to [the Assignee][the respective Assignees], and [the][each] Assignee
hereby irrevocably purchases and assumes from [the Assignor][the respective
Assignors], subject to and in accordance with the Standard Terms and Conditions
and the Credit Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below (i) all of [the Assignor’s][the
respective Assignors’] rights and obligations in [its capacity as a Bank][their
respective capacities as Banks] under the Credit Agreement and any other
documents or instruments delivered pursuant thereto to the extent related to the
amount and percentage interest identified below and (ii) to the extent permitted
to be assigned under applicable law, all claims, suits, causes of action and any
other right of [the Assignor (in its capacity as a Bank)][the respective
Assignors (in their respective capacities as Banks)] against any Person, whether
known or unknown, arising under or in connection with the Credit Agreement, any
other documents or instruments delivered pursuant thereto or in any way based on
or related to any of the foregoing, including, but not limited to, contract
claims, tort claims, malpractice claims, statutory claims and all other claims
at law or in equity related to the rights and obligations sold and assigned
pursuant to clause (i) above (the rights and obligations sold and assigned by
[the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and
(ii) above being referred to herein collectively as [the][an] “Assigned
Interest”). Each such sale and assignment is without recourse to [the][any]
Assignor and, except as expressly provided in this Assignment and Assumption,
without representation or warranty by [the][any] Assignor.

 

1. Assignor[s]:

 

 

 

 

2. Assignee[s]:      

 

 

 

[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Bank]]

 

3. Borrowers: Duke Energy Indiana, Inc. and Duke Energy Kentucky, Inc.

 

4. Administrative Agent: Bank of America, N.A., as the administrative agent
under the Credit Agreement

 

5. Credit Agreement: Credit Agreement, dated as of September 19, 2008, among
Duke Energy Indiana, Inc. and Duke Energy Kentucky, Inc., the Banks from time to
time party thereto, and Bank of America, N.A., as Administrative Agent

 

6. Assigned Interest[s]:

 

Assignor[s]

 

Assignee[s]

   Aggregate
Amount of
Commitment
for all Banks    Amount of
Commitment    Percentage
Assigned of
Commitment     CUSIP
Number      $                 $                              %        $      $  
                %        $      $                   %  

Effective Date:                            , 20     [TO BE INSERTED BY
ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF
TRANSFER IN THE REGISTER THEREFOR.]

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The terms set forth in this Assignment and Assumption are hereby agreed to:

 

[ASSIGNOR]

By:

 

 

  Title:

[ASSIGNEE]

By:

 

 

  Title:

[DUKE ENERGY KENTUCKY, INC.]

By:

 

 

  Title:

[DUKE ENERGY INDIANA, INC.]

By:

 

 

  Title:

BANK OF AMERICA, N.A., as Administrative Agent

By:

 

 

  Title:

 

2

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ANNEX 1 TO ASSIGNMENT AND ASSUMPTION AGREEMENT

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is
the legal and beneficial owner of [the][[the relevant] Assigned Interest,
(ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or
other adverse claim and (iii) it has full power and authority, and has taken all
action necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby; and (b) assumes no
responsibility with respect to (i) any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document,
(ii) the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Documents or any collateral thereunder, (iii) the financial
condition of the Borrowers, any of their Subsidiaries or Affiliates or any other
Person obligated in respect of any Loan Document or (iv) the performance or
observance by the Borrowers, any of their Subsidiaries or Affiliates or any
other Person of any of their respective obligations under any Loan Document.

1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has
full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Bank under the Credit Agreement, (ii) it
meets any requirements to be an assignee under Section 9.06 of the Credit
Agreement (subject to such consents, if any, as may be required), (iii) from and
after the Effective Date, it shall be bound by the provisions of the Credit
Agreement as a Bank thereunder and, to the extent of [the][the relevant]
Assigned Interest, shall have the obligations of a Bank thereunder, (iv) it is
sophisticated with respect to decisions to acquire assets of the type
represented by [the][such] Assigned Interest and either it, or the Person
exercising discretion in making its decision to acquire [the][such] Assigned
Interest, is experienced in acquiring assets of such type, (v) it has received a
copy of the Credit Agreement, and has received or has been accorded the
opportunity to receive copies of the most recent financial statements delivered
pursuant to Section 5.01 thereof, as applicable, and such other documents and
information as it deems appropriate to make its own credit analysis and decision
to enter into this Assignment and Assumption and to purchase [the][such]
Assigned Interest and (vi) it has, independently and without reliance upon the
Administrative Agent or any other Bank and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Assignment and Assumption and to purchase
[the][such] Assigned Interest; and (b) agrees that (i) it will, independently
and without reliance upon the Administrative Agent, [the][any] Assignor or any
other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, and (ii) it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Bank.

2. Payments. From and after the Effective Date, the Administrative Agent shall
make all payments in respect of [the][each] Assigned Interest (including
payments of principal, interest, fees and other amounts) to [the][the relevant]
Assignor for amounts which have accrued to but excluding the Effective Date and
to [the][the relevant] Assignee for amounts which have accrued from and after
the Effective Date.

3. General Provisions. This Assignment and Assumption shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns. This Assignment and Assumption may be executed in any number of
counterparts, which together shall constitute one instrument. Delivery of an
executed counterpart of a signature page of this Assignment and Assumption by
telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of New York.

 

3

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EXHIBIT D

NOTICE OF ISSUANCE

Date:

To:    Bank of America, N.A., as Administrative Agent                 , as
Issuing Bank From:    [Duke Energy Indiana, Inc.] [Duke Energy Kentucky, Inc.]

 

Re: Letter of Credit Agreement dated as of September 19, 2008 (as amended from
time to time, the “Credit Agreement”) among Duke Energy Indiana, Inc., Duke
Energy Kentucky, Inc. (the “Borrowers”, each individually, a “Borrower”), the
Banks party thereto, Bank of America, N.A., as Administrative Agent and the
other Agents party thereto

[Duke Energy Indiana, Inc.] [Duke Energy Kentucky, Inc.] hereby gives notice
pursuant to Section 2.05(b) of the Credit Agreement that it requests the
above-named Issuing Bank to issue on or before             a Letter of Credit
containing the terms attached hereto as Schedule I (the “Requested Letter of
Credit”).

The Requested Letter of Credit will be subject to [UCP 500] [ISP98].

[Duke Energy Indiana, Inc.] [Duke Energy Kentucky, Inc.] hereby represents and
warrants to the Issuing Bank, the Administrative Agent and the Banks that:

 

  (a) immediately after the issuance of the Requested Letter of Credit, the
Utilization Limits are not exceeded;

 

  (b) immediately after the issuance of the Requested Letter of Credit, no
Default shall have occurred and be continuing; and

 

  (c) the representations and warranties contained in the Credit Agreement
(except the representations and warranties set forth in Section 4.04(c) and 4.06
of the Credit Agreement) shall be true on and as of the date of issuance of the
Requested Letter of Credit.

[Duke Energy Indiana, Inc.] [Duke Energy Kentucky, Inc.] hereby authorizes the
Issuing Bank to issue the Requested Letter of Credit with such variations from
the above terms as the Issuing Bank may, in its discretion, determine are
necessary and are not materially inconsistent with this Notice of Issuance. The
opening of the Requested Letter of Credit and [Duke Energy Indiana, Inc.] [Duke
Energy Kentucky, Inc.]’s responsibilities with respect thereto are subject to
[UCP 500] [ISP98] as indicated above and the terms and conditions set forth in
the Credit Agreement.

Terms used herein and not otherwise defined herein have the meanings assigned to
them in the Credit Agreement.

 

[DUKE ENERGY INDIANA, INC.] [DUKE ENERGY KENTUCKY, INC.]

By:

 

 

Title:

 

 

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SCHEDULE I

Application and Agreement for

Irrevocable Standby Letter of Credit

To:                                                   (“Bank”)

Please TYPE information in the fields below. We reserve the right to return
illegible applications for clarification.

 

Date:        

The undersigned Applicant hereby requests Bank to issue and transmit by:

q Overnight Carrier    q Teletransmission    q Mail    q Other:

 

 

L/C No.

  

(Bank Use Only)

 

  

Explain:

 

an Irrevocable Standby Letter of Credit (the “Credit”) substantially as set
forth below. In issuing the Credit, Bank is expressly authorized to make such
changes from the terms herein below set forth as it, in its sole discretion, may
deem advisable.

 

 

Applicant (Full name & address)   Advising Bank (Designate name & address only,
if desired)       Beneficiary (Full name & address)  

Currency and amount in figures:

 

   

Currency and amount in words:

 

   

Expiration Date:

 

Charges: the Bank’s charges are for our account; all other banking charges are
to be paid by beneficiary.

 

 

Credit to be available for payment against Beneficiary’s draft(s) at sight drawn
on Bank or its correspondent at Bank’s option accompanied by the following
documents:

 

¨     Statement, purportedly signed by the Beneficiary, reading as follows
(please state below exact wording to appear on the statement):

 

 

¨     Other Documents

 

 

¨     Special Conditions (including, if Applicant has a preference, selection of
UCP as herein defined or ISP98 as herein defined).

 

 

--------------------------------------------------------------------------------

¨ Issue substantially in form of attached specimen. (Specimen must also be
signed by applicant.)

 

 

 

 

Complete only when the Beneficiary (Foreign Bank, or other Financial
Institution) is to issue its undertaking based on this Credit.

¨ Request Beneficiary to issue and deliver their (specify type of
undertaking)                     in favor of                     for an amount
not exceeding the amount specified above, effective immediately relative to
(specify contract number or other pertinent reference) to expire on
                    . (This date must be at least 15 days prior to expiry date
indicated above.) It is understood that if the Credit is issued in favor of any
bank or other financial or commercial entity which has issued or is to issue an
undertaking on behalf of the Applicant of the Credit in connection with the
Credit, the Applicant hereby agrees to remain liable under this Application and
Agreement in respect of the Credit (even after its stated expiry date) until
Bank is released by such bank or entity.

Each Applicant signing below affirms that it has fully read and agrees to this
Application. (Note: If a bank, trust company, or other financial institution
signs as Applicant or joint and several co-Applicant for its customer, or if two
Applicants jointly and severally apply, both parties sign below.) Documents may
be forwarded to the Bank by the beneficiary, or the negotiating bank, in one
mail. Bank may forward documents to Applicant’s customhouse broker, or Applicant
if specified above, in one mail. Applicant understands and agrees that this
Credit will be subject to the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce currently in effect, and in use
by Bank (“UCP”) or to the International Standby Practices of the International
Chamber of Commerce, Publication 590 or any subsequent version currently in
effect and in use by Bank (“ISP98”).

 

 

(Print or type name of Applicant)

    

 

(Print or type name of Applicant)

 

(Address)

    

 

(Address)

 

Authorized Signature (Title)

    

 

Authorized Signature (Title)

 

Authorized Signature (Title)

    

 

Authorized Signature (Title)

Customer Contact:

    

Phone:

 

BANK USE ONLY

NOTE: Application will NOT be processed if this section is not complete.

Approved (Authorized Signature)

 

 

Date:

 

Approved (Print name and title)

 

 

City:

 

Customer SIC Code:

 

 

Borrower Default Grade:

 

 

Telephone:

 

Charge DDA#:

 

 

Fee:

 

  RC #:

 

 

CLAS Bank #:

 

 

CLAS Obligor #:

 

Other (please explain):