exh101.htm


    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

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    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

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    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.


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    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

            


    

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    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

            


    

     

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    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


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    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


    
      
         

      

      
         

        
          

        

      

      
         

      

    


     

    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.


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    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,

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    (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.

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    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