Exhibit 10.1

PEP Divestiture Incentive Program

Purpose
The Peoples Energy Production Company ("PEP" or the "Company") Divestiture
Incentive Program (the "Program") provides a means to reward PEP personnel for
maximizing the value achieved in the sale of PEP to an unrelated purchaser. The
purpose of the Program is to maximize performance of the business unit prior to
its sale and to maximize the sale price.
 
Eligibility
Personnel may qualify for benefits under this Program if they were an employee
of PEP on February 21, 2007 (the day that the plan to sell PEP was publicly
announced) and remain an employee through the day that the sale closes
("Participant"). Employees who are involuntarily terminated without cause, die
or become disabled prior to the day that the sale closes will be eligible for
benefits under the Program. Employees who are involuntarily terminated for cause
prior to the closing of the sale will not be eligible for benefits under this
Program. Employees who voluntary terminate employment with PEP including
retiring prior to the closing of the sale will not be eligible for benefits
under this Program.
 
Incentive Funds
The total dollars available for payment of Incentive Awards will be determined
per the Guidelines for Determining Incentive Funds ("Incentive Funds"). The
incentive Funds available from this Program will not be reduced in the event of
employee terminations either for cause or voluntary terminations including
retirement.
 
Incentive Awards
The "Incentive Award" means the award granted to each Participant as determined
hereunder. The Incentive Award for the President of PEP, assuming satisfaction
of the eligibility requirement above, will be (1) 34% of the first $1 million of
the Incentive Funds, and (2) 20% of the remainder of the Incentive Funds. The
percentages for the President may be adjusted upward in the event of employee
terminations. The Incentive Award for all other Participants will be determined
by the President of PEP using objective criteria such as grade level, salary,
prior long term incentive compensation awards, length of service and actual or
anticipated contribution in the
 

 
 

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success of PEP and/or the sale of PEP. This determination will be made in
consultation with the CEO and/or the Chief Human Resources Officer of Integrys
Energy Group, Inc. No Participant will have a right to an Incentive Award unless
the President of PEP, in consultation with the CEO and/or Chief Human Resources
Officer of Integrys Energy Group, Inc. ("Integrys"), has determined that the
Participant has satisfied the criteria for an Incentive Award and (with respect
to all employees other than the President of PEP), the amount of the Incentive
Award.

The Incentive Award will be paid within 30 days of the closing of the sale of
PEP or, if later, the date on which the Participant's executed release and
waiver of claims has been delivered to the Company and the Participant has not
revoked the release during the seven day revocation period. In the event an
eligible employee does not deliver an executed release and waiver to the Company
within 60 days of the closing of the sale of PEP, such Participant's benefits
under this Program shall be forfeited.

In the event that there are alleged environmental or title defects, the
Incentive Funds will not include any portion of the Adjusted Sales Price that is
(1) withheld or delivered by the Buyer into an escrow account pending
post-closing curative efforts related to such environmental or title defects, or
(2) subject to title or environmental dispute arbitration. If, at the conclusion
of the cure period or the arbitration proceeding, any additional payments are
received by Integrys, the Incentive Funds shall be adjusted based upon the
amount of additional payments received by Integrys (net of any costs incurred by
Integrys in curing the defect or in connection with the arbitration proceeding),
and the incremental Incentive Award amount that is applicable to each
Participant will be paid to such Participant within 30 business days of such
event.

The Incentive Award will be reflected as a bonus payment subject to appropriate
tax withholdings. It will be direct deposited into the employee's primary
account and will not be considered earnings for pension, 401(k), change in
control or retention agreement payments, or other employee benefit purposes.
 
Guidelines for Determining Incentive Funds
The Incentive Funds will be determined based on the Adjusted Sales Price using
the Baseline Value Matrix.

The Baseline Value is the value of the PEP plant, property and equipment
(excluding hedges) as initially determined on February 21, 2007, and thereafter
increased as described below. The Baseline Value is used in the matrix to
determine the level of Incentive Funds. The Baseline Value was $581.6 million on
February 21, 2007, the day the plan to sell PEP was announced. The Baseline
Value will be increased (1) on the 21st day of each succeeding month by $6.25
million if the 21St of such month occurs on
 

 
 

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or prior to the date final bids are due (anticipated to be mid to late July,
2007), and (2) on the date final bids are due in order to reflect any partial
month from the most recent 21st day of a month through the date final bids are
due. The increase for the final partial month period will be prorated.
 
Baseline Value Matrix
This matrix provides the guideline for computing the Incentive Funds. The
Incentive Funds will equal the sum of the amounts separately calculated with
respect to each increment of the Adjusted Sales Price.
 
Adjusted Sales Price
Increments
in $ millions
Applicable
Incentive
Funds
Applicable
Sharing
Percentage
$0 < BV-10
$1.0 M
 
$BV-10 < BV
$0.5 M
 
$BV < BV+10
$0.5 M
 
$BV+10 < BV+20
$0.5 M
 
$BV+20 < BV+30
$0.5 M
 
$ BV+30 < BV+40
$0.5 M
 
$ BV+40 < BV+90*
$1.0 M
5%
$ BV+90 < BV+140
 
6%
$ BV+140 < BV+190
 
8%
$ BV+190 < BV+240
 
9%
> BV+240
 
12%

 
Adjusted Sales Price
The "Adjusted Sales Price" used in the Baseline Value Matrix will be the
Purchase Price as set forth in the executed Stock Purchase Agreement, subject to
the following adjustments. The Adjusted Sales Price will be adjusted (reduced)
for title and environmental defects and adjusted (increased) for increases in
Net Revenue Interest, if such adjustments to the Purchase Price are made under
the Stock Purchase Agreement. In addition, the Adjusted Sales Price will be
reduced by the actual amount paid or payable by Integrys Energy Group, Inc. or
Peoples Energy Corporation to PEP employees pursuant to (i) retention
agreements, (ii) cash performance awards under the

________________
* At an Adjusted Sales Price of $40 million in excess of Baseline Value, the
incremental Incentive Funds earned will be $1 million. Thereafter, with respect
to the portion of the Adjusted Sales Price that is more than $40 million but not
more than $90 million in excess of the Baseline Value, the Incentive Funds will
be increased by 5% of the portion of the Adjusted Sales Price that is between
these parameters.

 
 

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Peoples Energy Corporation Long Term Incentive Plan for Diversified Business
Units and (iii) change in control cash benefits pursuant to the Amended and
Restated Severance Agreements with the officers of PEP, up to a maximum of $13.5
million. The Adjusted Sales Price will not be adjusted for any other items,
e.g., hedges, working capital and capital expenditures, whether or not there is
an adjustment to the Purchase Price for such items provided in the Stock
Purchase Agreement.
 
Incentive Funds Calculation
 
Example:

For purposes of this Example the Baseline Value is $610 million and the Adjusted
Sales Price is $800 million (mid-point of JPMorgan range).

Incentive Funds from Adjusted Sales Price up to and including $650 million (the
Baseline Value plus $40 million) are $4,500,000.

Incentive Funds for Adjusted Sales Price from $650 million to $700 million (the
increment between Baseline Value plus $40 million and Baseline Value plus $90
million) are
$50,000,000 x .05 = $2,500,000

Incentive Funds for Adjusted Sales Price from $700 million to $750 million (the
increment between Baseline Value plus $90 million and Baseline Value plus $140
million) are
$50 million x .06 = $3,000,000

Incentive Funds for Adjusted Sales Price from $750 million to $800 million (the
increment between Baseline Value plus $140 million and Baseline Value plus $190
million) are
$50 million x .08 = $4,000,000

Total Incentive Funds = $14,000,000
 
Terms and Conditions
All the following terms and conditions apply for awards under this Program:
 
1)  
Participants who are terminated for cause as defined in Peoples Energy
Corporation's Employee Handbook prior to the close of the sale or Participants

 

 
 

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who voluntarily terminate employment or retire prior to the close of the sale of
PEP will forfeit any Incentive Award.
 
2)  
Participants must comply with all Integrys policies and agreements, including
but not limited to policies concerning confidentiality, non-solicitation and
non-competition. Integrys policies include all applicable PEC and PEP policies.

 
3)  
Participants must demonstrate performance supportive of achieving the goals of
selling PEP, including maximizing performance of the business unit through the
closing date.

 
4)  
The provision or explicit offer of any Incentive Award under this Program is not
a contract of employment by the Company and does not alter the "at will" status
of any Participant.

 
5)  
Participants in and the administration of this Program must comply with fair
employment practices, Company and Integrys policies, and all federal, state and
local laws governing such programs.

 
6)  
Payment of benefits under any retention agreement, and payment of cash
performance awards under the Peoples Energy Corporation Long-Term Incentive Plan
for Diversified Business Units, will be paid within 30 days of the closing date
of the sale of PEP. This Program replaces and supersedes any Percentage Interest
award that an employee may have under the Peoples Energy Corporation Long-Term
Incentive Plan for Diversified Business Units. Each Participant who has received
a Percentage Interest award shall, at the Company's request, consent to the
termination of such award.

 
7)  
Each of Integrys and Company has agreed that the sale of PEP will result in
payment of cash and in-kind benefits under the Amended and Restated Severance
Agreements with the officers of PEP. These payments will be due upon closing of
the sale of PEP and will be paid six months and one day after the closing date
of the sale as required by Section 409A of the Internal Revenue Code. As
permitted by the Final Regulations under Code Section 409A, (i) amounts paid to
subsidize COBRA benefits will not be subject to this limitation, and (ii) all
payments made more than eighteen months following the Employee's termination
date will be paid in accordance with the requirements for reimbursements under
such Final Regulations.

 
8)  
No payments will be made under this Program (or any of the other programs
referenced in paragraphs 6 or 7 above) until the date on which the Participant's
executed Release of Claims and Covenant Not to Sue, substantially in the form

 
 

 
 

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of Exhibit A, has been delivered to the Company and the seven day revocation
period has expired without the employee having revoked the release.
 
9)  
Except to the extent that Integrys reasonably determines that disclosure is
required under applicable law, the Program nor any details regarding
participation, payments or otherwise will not be disclosed to anyone including,
but not limited to, the Buyer or any prospective Buyer of PEP.

 
Administration
 
Authority and Process
 
Integrys has obtained all necessary approvals for the Program.

The Program cannot be changed or modified without the express written consent of
each of the undersigned, unless such change or modification is necessary in
order to comply with applicable law. The terms of the Program as set forth
herein supersede any prior agreements whether written or oral.

Termination

The Program will terminate and be of no further force and effect in the event
that (a) a Stock Purchase Agreement is not executed on or prior to December 31,
2007, or (b) a Stock Purchase Agreement is executed on or prior to December 31,
2007 but the sale transaction does not close and the Stock Purchase Agreement
expires or is terminated in accordance with its terms (including any amendment
extending the Stock Purchase Agreement) or by agreement of the parties to the
Stock Purchase Agreement.

Funding
 
All benefits under the Program will be paid by Integrys or Peoples Energy
Corporation, and the payment obligation will not be assigned to any other party
including, but not limited to, the Buyer or PEP.

Taxes

Neither the Company nor Integrys nor any affiliate will be responsible for any
taxes including excise taxes, in excess of the commitment on excise taxes
contained in the severance agreements with certain officers that may be owed by
the employee due to receiving this award. If excess parachute payments would be
subject to excise taxes, then the payments could be reduced to a level of one
dollar less than the maximum

 
 

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allowed by the IRS Code without an excise tax, at the employee's discretion. In
the event this provision conflicts with the terms of an individual agreement
between the Company and an employee, this provision shall not apply to such
employee.

Section 409A Compliance

This Program is classified as a deferred compensation plan within the meaning of
Internal Revenue Code Section 409A. For purposes of Section 409A, the Company
has determined that (i) the sale of PEP will result in a "change in control" for
purposes of the Treasury Regulations issued under Section 409A, and (ii) all
payments will be made to participants only in connection with such change in
control. While payments will be made to individuals who have separated from
service due to death, disability and termination without cause, no amounts will
be paid under this Program as a result of a "separation from service," as
defined in the Treasury Regulations issued under Section 409A. In addition, this
Program will be administered in accordance with the requirements of Section
409A.

Agreed to this   17th   day of   July  , 2007.

/s/ Larry L. Weyers
Larry L. Weyers
Chief Executive Officer
Integrys Energy Group, Inc.

/s/ Bernard J. Treml
Bernard J. Treml
Chief Human Resources Officer
Integrys Energy Group, Inc.

/s/ S. W. Nance
Steven W. Nance
President
Peoples Energy Production Company

 
 

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EXHIBIT A
 
RELEASE OF CLAIMS
 
AND
 
COVENANT NOT TO SUE

THIS RELEASE OF CLAIMS AND COVENANT NOT TO SUE (the "Release") is executed and
delivered by(the "Employee"), to Integrys Energy Group, Inc. its subsidiaries,
and affiliates (collectively referred to as the "Company").

1.  Release and Covenant.
 
In consideration of the payments described in paragraph 4 below, the Employee,
of his own free volition, forever waives and releases any and all claims the
Employee, his dependents, relatives, heirs, executors, administrators,
successors and assigns has or may have against the Company, its directors,
officers, employees, agents, stockholders, successors and assigns (both
individually and in their official capacities with the. Company) of any kind or
nature whatsoever arising from facts, assertions, circumstances, omissions or
matters occurring on or before the date hereof, including all claims arising
from or relating in any way to the Employee's employment with the Company
(whether such claims are presently known or hereafter discovered). This release
includes, but is not limited to, a release of any claims in tort or contract,
including claims for wrongful discharge, breach of any employment contract or
any other agreement, contract, practice or policy, including, without
limitation, benefits as described in the Merger Transition Severance Plan for
Eligible Employees of Integrys Energy Group, Inc. and Participating Affiliates,
[benefits under any Percentage Interest Award or Equity Interest Award relating
to the sale or divestiture or initial public offering of Peoples Energy
Production Company or a subsidiary or affiliate thereof,]* or benefits under any
of the programs specifically identified in this Release of Claims and Covenant
Not to Sue different than or in excess of the specific payment amount identified
herein. In addition to any other claims, the Employee specifically waives,
releases, and covenants not to sue with respect to any and all claims against
the Company under the Americans With Disabilities Act, the Age Discrimination in
Employment Act, Title VII (or any other title) of the Civil Rights Act of 1964
(including all claims of sex, race, national origin, and religious
discrimination), Section 1981 of the Civil Rights Act, the Federal Equal Pay
Act, the Employee Retirement Income Security Act, the Family Medical and Leave
Act, or any other federal, state or local statute, law, regulation, ordinance,
or doctrine of common law or public policy, contract or tort law having any
bearing whatsoever on the Employee's employment. The Employee acknowledges that,
in his
 
_________________
*Bracketed language to be included for employees who had previously received
Percentage Interest and/or Equity Interest Awards.

 
 

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decision to enter into this Release, he has not relied on any representations,
promises or agreements of any kind, including oral statements by representatives
of the Company, except as set forth in this Release.

2.  Due Care.

This Release contains a release of all claims under the Age Discrimination in
Employment Act ("ADEA") and, therefore, pursuant to the requirements of the
ADEA, the Employee acknowledges that he has been advised (i) that this release
includes, but is not limited to, all claims under the ADEA arising up to and
including the date of execution of this release; (ii) to consult with an
attorney and or other advisor of his choosing concerning his rights and
obligations under this release; (iii) to fully consider this release before
executing it, and that he has been offered ample time and opportunity, in excess
of 21 days, to do so; and (iv) that this release shall become effective and
enforceable 7 days following execution of this Release by the Employee, during
which 7-day period the Employee may revoke his acceptance of this Release by
delivering written notice to: Corporate Secretary, Integrys Energy Group, Inc.,
130 East Randolph Drive, Chicago, Illinois 60601.

3.  No Assignment of Claims.

The Employee represents and warrants that there has been no assignment or other
transfer of any interest in any claim which the Employee may have against the
Company. The Employee agrees to indemnify and hold the Company harmless from any
liability, claims, demands, damages, cost, expenses and attorney's fees incurred
as a result of any person asserting such assignment or transfer of any rights or
claims under any such assignment or transfer. It is the intention of the
Employee and the Company that this indemnity does not require payment as a
condition precedent to recovery by the Company from the Employee under this
indemnity.

4.  Payments to the Employee

In consideration for Employee's execution of this Release of Claims and Covenant
Not to Sue, the Employee will receive the following payments:

(a)    $_____, less applicable withholding, in satisfaction of the Employee's
interest in the PEP Divestiture Incentive Program,
 

 
 

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(b)*   $_____, less applicable withholding, in satisfaction of the Employee's
interest under the Peoples Energy Corporation Long Term Incentive Plan for
Diversified Business Units;

(c)  $_____, less applicable withholding, in satisfaction of the Employee's
interest under the Employee's Change in Control Severance Agreement; and

(d)    $_____, less applicable withholding, in satisfaction of the Employee's
interest under any retention agreement or contract.

[In addition, the Employee shall receive (i) continuation of welfare benefits,
(ii) out-placement assistance, and (iii) the "tax gross up payment" (if Code
Sections 4999 aplles to amounts received from the Company), each as described in
Section [3] of the Employee's Change in Control Severance Agreement.** No
payments will be made prior to the date on which both (1) the Employee's
executed Release of Claims and Covenant Not to Sue has been delivered to the
Company, and (2) the seven day revocation period has expired without the
Employee revoking the Release of Claims and Covenant Not to Sue. [In addition,
payment under subparagraph (c) above will be deferred for six months in order to
comply with Internal Revenue Code Section 409A.]***

5.  Modification and Waiver.

This Release may not be modified or amended except by an instrument in writing
signed by the Employee and Integrys Energy Group, Inc. No term or condition of
this Release shall be deemed to have been waived, nor shall there be any
estoppel against the enforcement of any provision of this Release except by
written instrument signed by the party charged with such waiver or estoppel. No
such written waiver shall be deemed a continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or condition
for the future or as to any act other than that specifically waived.

6.  Governing Law.

To the extent not governed by federal law, this Release and its validity,
interpretation, performance, and enforcement shall be governed by the laws of
the State of Texas without giving effect to the choice of law provisions in
effect in such State.

_________________
*Items (b), (c) and (d) will be included in an employee's release to the extent
those items are applicable to the employee.
**Bracketed language to be included for employees who had Change in Control
contracts.
***Only for those employees with Change in Control contracts.
 

 
 

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IN WITNESS WHEREOF, Integrys Energy Group, Inc. and the Employee have executed
this Release of Claims and Covenant Not to Sue.
 

Employee                                                            

Date:                                                              

INTEGRYS ENERGY GROUP, INC.

By                                                               

Date                                                               
 

 
 

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