Document:

exv4w1

Exhibit 4.1

 

 

 

SIXTY-SECOND SUPPLEMENTAL

INDENTURE

TO

INDENTURE DATED SEPTEMBER 1, 1939

 

DUKE ENERGY INDIANA, INC.

TO

DEUTSCHE BANK NATIONAL TRUST COMPANY

AS TRUSTEE

 

DATED AS OF JULY 9, 2010

 

CREATING FIRST MORTGAGE BONDS, SERIES PPP, 3.75%, DUE JULY 15, 2020

AND

OTHERWISE SUPPLEMENTING AND AMENDING THE INDENTURE

 

 

 

 

TABLE OF CONTENTS

 

	 	 	 	 	 
	 	 	Page	 
	Parties:
	 	 	 	 
	Company (Duke Energy Indiana, Inc., formerly named each of PSI Energy,
Inc. and Public Service Company of Indiana, Inc., and successor by
consolidation to Initial Mortgagor (Public Service Company of Indiana)),
and Trustee 
	 	 	1	 
	 
	 	 	 	 
	Recitals:
	 	 	 	 
	Indenture of the Initial Mortgagor, dated September 1, 1939, and First
Supplemental Indenture thereto of the Initial Mortgagor, dated
as of March 1, 1941 
	 	 	1	 
	Consolidation of Initial Mortgagor (and four other companies) into the
Company 
	 	 	1	 
	Execution by Company of Second Supplemental Indenture to the original
Indenture 
	 	 	1	 
	Company substituted for Initial Mortgagor under Indenture 
	 	 	1	 
	Execution by Company of Third through the Sixty-First Supplemental
Indentures to the original Indenture 
	 	 	2	 
	Deutsche Bank National Trust Company appointed as Successor Trustee 
	 	 	3	 
	Change of name of Company from Public Service Company of Indiana,
Inc. to PSI Energy, Inc., and thereafter to Duke Energy Indiana, Inc.
	 	 	3	 
	Amount of bonds presently outstanding under the Indenture 
	 	 	3	 
	Sixty-Second Supplemental Indenture and Bonds of Series PPP authorized 
	 	 	4	 
	Conditions precedent performed 
	 	 	4	 
	 
	 	 	 	 
	Executing Clause
	 	 	4	 

- i -

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	ARTICLE I.	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	First Mortgage Bonds, Series PPP, 3.75%, Due July 15, 2020.	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.
	 	Creation and designation of Bonds of Series PPP 	 	 	4	 
	Section 2.
	 	Bonds of Series PPP to be in registered form only 	 	 	4	 
	 
	 	Form of face of Bonds of Series PPP 	 	 	8	 
	 
	 	Form of reverse of Bonds of Series PPP 	 	 	10	 
	 
	 	Form of Trustee’s certificate 	 	 	13	 
	Section 3.
	 	Date of Bonds of Series PPP 	 	 	14	 
	Section 4.
	 	Maturity dates and interest rates of Bonds of Series PPP 	 	 	14	 
	Section 5.
	 	Place and manner of payment of Bonds of Series PPP 	 	 	14	 
	Section 6.
	 	Denominations and numbering of definitive Bonds of Series PPP 	 	 	14	 
	 
	 	Temporary Bonds of Series PPP and exchange thereof for definitive bonds 	 	 	14	 
	Section 7
	 	Maintenance and Renewal Fund shall not apply to Bonds of Series PPP 	 	 	15	 
	Section 8.
	 	Inspection requirements shall not apply to Bonds of Series PPP 	 	 	15	 
	Section 9.
	 	Company’s right to further amend the original Indenture 	 	 	15	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE II.	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	Issuance of Bonds of Series PPP.	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.
	 	Aggregate principal amount of Bonds of Series PPP issuable at once	 	 	16	 
	Section 2.
	 	Issuance of additional Bonds of Series PPP 	 	 	16	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE III.	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 Indenture Amendments.	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.
	 	Amendments to Article I of the original Indenture 	 	 	17	 
	Section 2.
	 	Amendments to Article VII of the original Indenture 	 	 	17	 
	Section 3.
	 	No sinking fund for Bonds of Series PPP 	 	 	19	 

- ii -

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	ARTICLE IV.	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	Concerning the Trustee.	 	 	 	 
	 
	 	 	 	 	 	 
	Acceptance of trust by Trustee	 	 	19	 
	Trustee not responsible for validity or sufficiency of Sixty-Second
Supplemental Indenture, etc.	 	 	19	 
	Terms and conditions of Article XVII of the original Indenture to be applied
to the Sixty-Second Supplemental Indenture	 	 	19	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE V.	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	Miscellaneous Provisions.	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.
	 	References in any article or section of the original Indenture refer
to such article or section as amended by all Sixty-Two Supplemental Indentures thereto 	 	 	19	 
	Section 2.
	 	Operation and construction of amendments to the original Indenture	 	 	19	 
	Section 3.
	 	All covenants, etc., for sole benefit of parties to the Sixty-Second
Supplemental Indenture and holders of bonds 	 	 	20	 
	Section 4.
	 	Table of contents and headings of articles not part of Sixty-Second
Supplemental Indenture 	 	 	20	 
	Section 5.
	 	Execution of Sixty-Second Supplemental Indenture in counterparts 	 	 	20	 
	Section 6.
	 	Payments Due on Legal Holidays 	 	 	20	 
	 
	 	 	 	 	 	 
	Attestation Clause	 	 	21	 
	Signatures	 	 	21	 
	Acknowledgment by Company	 	 	23	 
	Acknowledgment by Trustee	 	 	24	 

- iii -

 

     Sixty-Second Supplemental Indenture dated as of the 9th day of July, 2010, made and
entered into by and between Duke Energy Indiana, Inc. (hereinafter commonly referred to as
the “Company”), a corporation organized and existing under the laws of the State of Indiana,
formerly named each of PSI Energy, Inc. and Public Service Company of Indiana, Inc., and the
successor by consolidation to Public Service Company of Indiana, an Indiana corporation, party of
the first part, and Deutsche Bank National Trust Company, a national banking association
organized and existing under the laws of the United States and having its office or place of
business in the City of Chicago, State of Illinois, successor trustee to Bank of America, N.A., as
successor by merger to LaSalle Bank National Association, which was the successor trustee to The
First National Bank of Chicago (hereinafter commonly referred to as the “Trustee”), party of the
second part,

     Witnesseth:

     Whereas, Public Service Company of Indiana (hereinafter commonly referred to as the
“Initial Mortgagor”), prior to its consolidation with certain other corporations to form the
Company, executed and delivered to the Trustee a certain indenture of mortgage or deed of trust
(hereinafter called the “original Indenture” when referred to as existing prior to any amendment
thereto, and the “Indenture” when referred to as heretofore, now or hereafter amended), dated
September 1, 1939, and a First Supplemental Indenture thereto, dated as of March 1, 1941, to secure
the bonds of the Initial Mortgagor, its successors and assigns, issued from time to time under the
Indenture in series for the purposes of and subject to the limitations specified in the Indenture;
and

     Whereas, the Company on September 6, 1941, became, through a consolidation, the
successor of the Initial Mortgagor (and four other companies) and succeeded to all the rights and
became liable for all the obligations of the Initial Mortgagor (and such other companies); and

     Whereas, after said consolidation, the Company executed and delivered a Second
Supplemental Indenture, dated as of November 1, 1941, to the original Indenture for the purposes,
among others, of (i) the making by the Company of an agreement of assumption and adoption by it of
the Indenture, (ii) the assumption by the Company of the bonds (and interest and premium, if any,
thereon) issued or to be issued under the Indenture, and of all terms, covenants and conditions
binding upon it under the Indenture, and the agreeing by the Company to pay, perform and fulfill
the same, and (iii) the conveying to the Trustee upon the trusts declared in the Indenture, but
subject to any outstanding liens and encumbrances, all the property which the Company then owned or
which it might thereafter acquire, except property of a character similar to the property of the
Initial Mortgagor which is excluded from the lien of the Indenture; and

     Whereas, all conditions have been met and all acts and things necessary have been
done and performed to make the Indenture the valid and binding agreement of the Company and to
substitute the Company for the Initial Mortgagor under the Indenture, and to vest the Company with
each and every right and power of the Initial Mortgagor, including the right and power to issue
bonds thereunder; and

- 1 -

 

     Whereas, the Company has subsequently executed and delivered, for purposes authorized
under the Indenture, a Third Supplemental Indenture dated as of March 1, 1942, a Fourth
Supplemental Indenture dated as of May 1, 1943, a Fifth Supplemental Indenture dated as of August
1, 1944, a Sixth Supplemental Indenture dated as of September 1, 1945, a Seventh Supplemental
Indenture dated as of November 1, 1947, an Eighth Supplemental Indenture dated as of January 1,
1949, a Ninth Supplemental Indenture dated as of May 1, 1950, a Tenth Supplemental Indenture dated
as of July 1, 1952, an Eleventh Supplemental Indenture dated as of January 1, 1954, a Twelfth
Supplemental Indenture dated as of October 1, 1957, a Thirteenth Supplemental Indenture dated as of
February 1, 1959, a Fourteenth Supplemental Indenture dated as of July 15, 1960, a Fifteenth
Supplemental Indenture dated as of June 15, 1964, a Sixteenth Supplemental Indenture dated as of
January 1, 1969, a Seventeenth Supplemental Indenture dated as of March 1, 1970, an Eighteenth
Supplemental Indenture dated as of January 1, 1971, a Nineteenth Supplemental Indenture dated as of
January 1, 1972, a Twentieth Supplemental Indenture dated as of February 1, 1974, a Twenty-First
Supplemental Indenture dated as of August 1, 1974, a Twenty-Second Supplemental Indenture dated as
of August 1, 1975, a Twenty-Third Supplemental Indenture dated as of January 1, 1977, a
Twenty-Fourth Supplemental Indenture dated as of October 1, 1977, a Twenty-Fifth Supplemental
Indenture dated as of September 1, 1978, a Twenty-Sixth Supplemental Indenture dated as of
September 1, 1978, a Twenty-Seventh Supplemental Indenture dated as of March 1, 1979, a
Twenty-Eighth Supplemental Indenture dated as of May 1, 1979, a Twenty-Ninth Supplemental Indenture
dated as of March 1, 1980, a Thirtieth Supplemental Indenture dated as of August 1, 1980, a
Thirty-First Supplemental Indenture dated as of February 1, 1981, a Thirty-Second Supplemental
Indenture dated as of August 1, 1981, a Thirty-Third Supplemental Indenture dated as of December 1,
1981, a Thirty-Fourth Supplemental Indenture dated as of December 1, 1982, a Thirty-Fifth
Supplemental Indenture dated as of March 30, 1984, a Thirty-Sixth Supplemental Indenture dated as
of November 15, 1984, a Thirty-Seventh Supplemental Indenture dated as of August 15, 1985, a
Thirty-Eighth Supplemental Indenture dated as of October 1, 1986, a Thirty-Ninth Supplemental
Indenture dated as of March 15, 1987, a Fortieth Supplemental Indenture dated as of June 1, 1987, a
Forty-First Supplemental Indenture dated as of June 15, 1988, a Forty-Second Supplemental Indenture
dated as of August 1, 1988, a Forty-Third Supplemental Indenture dated as of September 15, 1989, a
Forty-Fourth Supplemental Indenture dated as of March 15, 1990, a Forty-Fifth Supplemental
Indenture dated as of March 15, 1990, a Forty-Sixth Supplemental Indenture dated as of June 1,
1990, a Forty-Seventh Supplemental Indenture dated as of July 15, 1991, a Forty-Eighth Supplemental
Indenture dated as of July 15, 1992, a Forty-Ninth Supplemental Indenture dated as of February 15,
1993, a Fiftieth Supplemental Indenture dated as of February 15, 1993, a Fifty-First Supplemental
Indenture dated as of February 1, 1994, a Fifty-Second Supplemental Indenture dated as of April 30,
1999, a Fifty-Third Supplemental Indenture dated as of June 15, 2001, a Fifty-Fourth Supplemental
Indenture dated as of September 1, 2002, a Fifty-Fifth Supplemental Indenture dated as of February
15, 2003, a Fifty-Sixth Supplemental Indenture dated as of December 1, 2004, a Fifty-Seventh
Supplemental Indenture dated as of August 21, 2008, a Fifty-Eighth Supplemental Indenture dated as
of December 19, 2008, a Fifty-Ninth Supplemental Indenture dated as

- 2 -

 

of March 23, 2009, a Sixtieth Supplemental Indenture dated as of June 1, 2009, and a Sixty-First
Supplemental Indenture dated as of October 1, 2009, each supplementing and amending the Indenture;
and

     Whereas, the Thirty-Fifth Supplemental Indenture authorized and appointed LaSalle
Bank National Association, a national banking association duly organized and existing under the law
of the United States of America with its principal office in Chicago, Illinois and formerly named
LaSalle National Bank, as Successor Trustee to The First National Bank of Chicago, which
appointment was accepted, and all trust powers under the Indenture were thereby transferred from
The First National Bank of Chicago to LaSalle Bank National Association; and

     Whereas, by an Instrument of Resignation, Appointment and Acceptance dated as of
December 15, 2008, Bank of America, N.A., as successor by merger to LaSalle Bank National
Association, resigned as trustee and the Company appointed the Trustee as Successor Trustee
thereto, which appointment was thereby accepted by the Trustee effective as of that date, and all
trust powers were thereby transferred from Bank of America, N.A. to the Trustee; and

     Whereas, the Forty-Sixth Supplemental Indenture amended the Indenture to reflect a
change in the name of the Company from Public Service Company of Indiana, Inc. to PSI Energy, Inc.
effective as of April 20, 1990, and the Fifty-Seventh Supplemental Indenture amended the Indenture
to reflect a change in the name of the Company from PSI Energy, Inc. to Duke Energy Indiana, Inc.,
effective as of October 1, 2006; and

     Whereas, as of July 9, 2010, the only bonds that have been heretofore issued under
the Indenture which are now outstanding are $7,500,000 aggregate principal amount of “PSI Energy,
Inc. First Mortgage Bonds, Series VV, Due July 15, 2026” and $28,000,000 aggregate principal amount
of “PSI Energy, Inc. First Mortgage Bonds, Series WW, Due August 15, 2027” and $53,055,000
aggregate principal amount of “PSI Energy, Inc. First Mortgage Bonds, Series CCC, 8.85%, Due
January 15, 2022” and $38,000,000 aggregate principal amount of “PSI Energy, Inc. First Mortgage
Bonds, Series DDD, 8.31%, Due September 1, 2032” and $24,600,000 aggregate principal amount of “PSI
Energy, Inc. First Mortgage Bonds, Series GGG, Due March 1, 2019” and $35,000,000 aggregate
principal amount of “PSI Energy, Inc. First Mortgage Bonds, Series HHH, Due April 1, 2022” and
$500,000,000 aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series
LLL, 6.35%, Due August 15, 2038” and $48,395,000 aggregate principal amount of “Duke Energy
Indiana, Inc. First Mortgage Bonds, 2005A Pledge Series, Due July 1, 2035” and $450,000,000
aggregate principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series MMM,
6.45%, Due April 1, 2039” and $55,000,000 aggregate principal amount of “Duke Energy
Indiana, Inc. First Mortgage Bonds, Series NNN, 6%, Due August 1, 2039” and $50,000,000 aggregate
principal amount of “Duke Energy Indiana, Inc. First Mortgage Bonds, Series OOO, 4.95%, Due October
1, 2040”; and

- 3 -

 

     Whereas, in accordance with the provisions of Section 1 of Article XVIII of the
Indenture, the Board of Directors has authorized the execution and delivery by the Company of a
Sixty-Second Supplemental Indenture, substantially in the form of this Sixty-Second Supplemental
Indenture, for the purpose of creating a sixty-first series of bonds to be issued under the
Indenture, to be known as “Duke Energy Indiana, Inc. First Mortgage Bonds, Series PPP, 3.75%, Due
July 15, 2020” (such bonds being hereinafter referred to as the “Bonds of Series PPP”), and
prescribing the form and substance of the Bonds of Series PPP and the terms, provisions and
characteristics thereof, and for the purpose of adding to the covenants and agreements of the
Company for the protection of the bondholders and of the trust estate, of providing the terms and
conditions for the redemption of the Bonds of Series PPP, of adding certain other covenants and
undertakings with respect to the Bonds of Series PPP and of making such changes in the Indenture as
are deemed necessary or desirable and as are permitted by the Indenture; and

     Whereas, all conditions and requirements necessary to make this Sixty-Second
Supplemental Indenture a valid, binding and legal instrument have been done, performed and
fulfilled and the execution and delivery hereof have been in all respects duly authorized:

     Now, Therefore, in consideration of the premises, and of the acceptance and purchase
of the Bonds of Series PPP by the holders and registered owners thereof, and of the sum of One
Dollar ($1.00) duly paid by the Trustee to the Company, the receipt whereof is hereby acknowledged,
and in accordance with and subject to the terms and provisions of the Indenture, the Company and
the Trustee, respectively, have entered into, executed and delivered this Sixty-Second Supplemental
Indenture for the uses and purposes hereinafter expressed, that is to say:

ARTICLE I.

First Mortgage Bonds, Series PPP, 3.75%, Due July 15, 2020

     Section 1. There are hereby created a sixty-first series of bonds to be issued under and
secured by the Indenture, to be designated as “Duke Energy Indiana, Inc. First Mortgage Bonds,
Series PPP, 3.75%, Due July 15, 2020” (such series being the Bonds of Series PPP hereinbefore
referred to).

     Section 2. The following provisions shall apply to the Bonds of Series PPP.

     (a) The Bonds of Series PPP shall be issued in fully registered form only. However,
except as provided elsewhere in this Section, the registered owner of all of the Bonds of
Series PPP initially shall be The Depository Trust Company (“DTC”) or its nominee, and such
Bonds of Series PPP initially shall be registered in the name of DTC or its nominee.
Payment of the principal of or interest on Bonds of Series PPP registered in the name of
DTC or its nominee shall be made

- 4 -

 

in the manner specified in DTC’s rules and by-laws. DTC (and any successor securities
depository) and its (or their) participating institutions (collectively “Participants”)
shall maintain a book-entry registration and transfer system with respect to ownership of
beneficial interests in the Bonds of Series PPP (the “Book-Entry System”).

     (b) The Bonds of Series PPP, initially shall be issued in the form of one or more
authenticated, fully registered bonds for such series (each a “Global Security”) which (i)
need not be in the form of a lithographed or engraved certificate, but may be typewritten
or printed on ordinary paper or such paper as the Trustee may reasonably request, (ii)
shall represent and be denominated in an amount equal to 100% of the aggregate principal
amount of the Bonds of Series PPP issued under this Supplemental Indenture, (iii) shall be
executed by the Company and authenticated by the Trustee in accordance with the provisions
of the Indenture, (iv) shall be registered in the name of DTC or its nominee, and delivered
to DTC or its nominee or a custodian therefor, and (v) shall contain the following legend
on the face thereof:

Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation (“DTC”), to issuer or its agent for registration
of transfer, exchange or payment, and any certificate issued
is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as
is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL inasmuch as the registered holder
hereof, Cede & Co., has an interest herein.

Unless and until it is exchanged in whole or in part for Bonds of Series PPP in definitive
certificated form, each Global Security representing the Bonds of Series PPP may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor securities depository
or a nominee of any such successor securities depository.

     (c) The Trustee and the Company may treat Cede & Co. or its nominee, or any successor
securities depository or nominee thereof (collectively, the “Depository”) as the sole and
exclusive owner of the Bonds of Series PPP, registered in its name for the purposes of
payment of the principal or redemption price of or interest on the Bonds of Series PPP,
giving any notice permitted or required to be given to holders of the Bonds of Series PPP,
under the Indenture or this Supplemental Indenture, registering the transfer of the Bonds
of Series PPP, obtaining any consent or other action to be taken by holders of the Bonds of
Series PPP, and for all other purposes whatsoever and neither the Trustee nor the Company

- 5 -

 

shall be affected by any notice to the contrary. Neither the Company nor the Trustee
nor any registrar nor any paying agent shall have any responsibility or obligation to any
Participant, any person claiming a beneficial ownership interest in the Bonds of Series PPP
under or through the Depository or any Participant, or any other person which is not shown
on the registration books as being a holder of the Bonds of Series PPP with respect to (i)
the accuracy of any records maintained by the Depository or any Participant; (ii) the
payment by the Depository to any Participant of any amount in respect of the principal or
redemption price of or interest on the Bonds of Series PPP; (iii) the payment by any
Participant to any owner of a beneficial ownership interest in the Bonds of Series PPP, in
respect of the principal of or interest on the Bonds of Series PPP or (iv) any consent or
other action taken by the Depository as owner of the Bonds of Series PPP. The Trustee
shall pay all principal of and interest on the Bonds of Series PPP only to or upon the
order of the registered holder or holders of the Bonds of Series PPP, as shown on the
registration books, and all such payments shall be valid and effective to fully satisfy and
discharge the Company’s obligations with respect to the principal or redemption price of
and interest on the Bonds of Series PPP, to the extent of the sum or sums so paid. No
person other than a holder of the Bonds of Series PPP, as shown on the registration books
of DTC, shall receive an authenticated Bond evidencing the obligation of the Company to
make payment of the principal of and interest on the Bonds of Series PPP, pursuant to the
Indenture and this Supplemental Indenture. Upon delivery by DTC to the Trustee of written
notice to the effect that DTC has determined to substitute a new nominee for Cede & Co, and
subject to the provisions of the Indenture and this Supplemental Indenture, the word “Cede
& Co.”, as used in this Supplemental Indenture, shall refer to each new nominee of DTC.

     (d) In the event that after the occurrence of an event of default that has not been
cured or waived, holders of a majority in aggregate principal amount of the beneficial
interests in the Bonds of Series PPP, as reflected in the books and records of the
Depository, notify the Trustee, through the Depository or any Participant, that the
continuation of the Book-Entry System is no longer in the best interests of such holders of
beneficial interests in the Bonds of such Series, then the Trustee shall notify the
Depository and the Company, and the Depository will notify the Participants of the
availability through the Depository of definitive certificated Bonds of such Series. In
such event, the Company shall execute, and the Trustee, upon receipt of a written order of
the Company, signed by its President or a Vice President and by its Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary (an “Issuer Order”), for the authentication and
delivery of definitive certificated Bonds of Series PPP, will authenticate and deliver
Bonds of such Series in definitive certificated form, in any authorized denominations, all
pursuant to the provisions of the Indenture, to the person or persons specified to the
Trustee in writing by the Depository in the aggregate principal amount of the applicable
Global Security or Securities and in exchange for such Global Security or Securities.

     (e) If at any time the Depository notifies the Company that it is unwilling or unable
to continue as Depository for the Bonds of Series PPP, or if at any time the Depository
shall no longer be registered as a clearing agency in good standing under the Securities
Exchange Act of 1934, as amended, or other applicable statute or

- 6 -

 

regulation, the Company may appoint a successor Depository with respect to the Bonds
of such Series. If a successor Depository for the Bonds of such Series is not appointed by
the Company within 90 days after the Company receives such notice or becomes aware of such
condition, the Company will execute, and the Trustee, upon receipt of an Issuer Order for
the authentication and delivery of definitive certificated Bonds of Series PPP, will
authenticate and deliver Bonds of such Series in definitive certificated form, in any
authorized denominations, all pursuant to the provisions of the Indenture, to the person or
persons specified to the Trustee in writing by the Depository in the aggregate principal
amount of the applicable Global Security or Securities and in exchange for such Global
Security or Securities.

     (f) The Company may at any time and in its sole discretion determine that the Bonds
of Series PPP shall no longer be represented by a Global Security or Securities. In such
event the Company will execute, and the Trustee, upon receipt of an Issuer Order for the
authentication and delivery of definitive certificated Bonds of such Series, will
authenticate and deliver Bonds of Series PPP in definitive certificated form, in any
authorized denominations, all pursuant to the provisions of the Indenture, to the person or
persons specified to the Trustee in writing by the Depository in the aggregate principal
amount of the Global Security or Securities and in exchange for such Global Security or
Securities.

     (g) Upon the exchange of any Global Security for the Bonds of Series PPP in
definitive certificated form, in authorized denominations, the Global Security or
Securities shall be cancelled by the Trustee.

     (h) Whenever the Depository requests the Company and the Trustee to do so, the
Trustee and the Company will cooperate with the Depository in taking appropriate action
after reasonable notice to (i) make available one or more separate Global Securities
evidencing the Bonds of Series PPP to any Participant having Bonds of such Series credited
to its account at the Depository, or (ii) arrange for another Depository to maintain
custody of the Global Security or Securities evidencing the Bonds of Series PPP.

     (i) In connection with any notice or other communication to be provided to holders of
the Bonds of Series PPP pursuant to the Indenture and this Supplemental Indenture by the
Company or the Trustee with respect to any consent or other action to be taken by holders
of the Bonds of such Series, the Company or the Trustee, as the case may be, shall
establish a record date for such consent or other action and give the Depository notice of
such record date not less than 15 calendar days in advance of such record date to the
extent possible. Such notice to the Depository shall be given only so long as a Depository
or its nominee is the sole holder of the Bonds of Series PPP.

     The Bonds of Series PPP and the Trustee’s certificate to be endorsed thereon shall be
substantially in the following form:

[The remainder of this page has been left blank intentionally.]

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(Form of Face of Bond of Series PPP)

[Unless this certificate is presented by an authorized representative of The Depository Trust
Company, a New York corporation (“DTC”), to issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any payment is made to Cede
& Co. or to such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered holder hereof, Cede & Co., has an interest herein.]1

				
	No. PPP-R-
	 	$        
        	 
	CUSIP No: 263901 AC 4	 	 
	ISIN: US263901AC42	 	 

Duke Energy Indiana, Inc.

First Mortgage Bond, Series PPP, 3.75%, 

Due July 15, 2020

     Duke Energy Indiana, Inc., an Indiana corporation (hereinafter called the “Company”), for
value received, hereby promises to pay to                     , or registered assigns, the principal sum
of                                          Dollars ($  ) on the fifteenth day of July, 2020 and to pay
interest on said sum from the date hereof, until said principal sum is paid, at the rate of 3.75%
per annum, payable semi-annually on the fifteenth day of January and July in each year. Both the
principal of and the interest on this bond shall be payable in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment of public and
private debts at the office or agency of the Company in Plainfield, Indiana, or, at the option of
the registered owner hereof, at the office or agency of the Company in the Borough of Manhattan,
the City of New York, State of New York, except that interest on this bond may be paid, at the
option of the Company, by check or draft mailed to the address of the person entitled thereto as it
appears on the books of the Company maintained for that purpose.

     REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF.
SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT
THIS PLACE.

     This bond shall not be valid or become obligatory for any purpose unless and until it shall
have been authenticated by the execution by the Trustee, or its successor in trust under the
Indenture, of the certificate endorsed hereon.

 

			
	1	 	This should be included only if the Bonds of
Series PPP are being issued in global form.

- 8 -

 

     In Witness Whereof, Duke Energy Indiana, Inc. has caused this bond to be executed in
its name by the manual or facsimile signature of its President or an Executive Vice President or
one of its Vice Presidents, and its corporate seal or a facsimile thereof to be hereto affixed and
attested by the manual or facsimile signature of its Secretary or one of its Assistant Secretaries.

Dated as of:

	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	Duke Energy Indiana, Inc.	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	President	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Attest:	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Secretary	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

- 9 -

 

(Form of Reverse of Bond of Series PPP)

     This bond is one of the bonds of the Company issued and to be issued from time to time under
and in accordance with and all secured by an indenture of mortgage or deed of trust, dated
September 1, 1939, from Public Service Company of Indiana (predecessor of the Company) to The First
National Bank of Chicago, as Trustee, to which Deutsche Bank National Trust Company is successor
trustee (which indenture as amended by all supplemental indentures is hereinafter referred to as
the “Indenture”). Said Trustee or its successor in trust under the Indenture is hereinafter
sometimes referred to as the “Trustee.” Reference is hereby made to the Indenture for a description
of the property mortgaged and pledged and the nature and extent of the security for said bonds. By
the terms of the Indenture, the bonds secured thereby are issuable in series which may vary as to
date, amount, dates of maturity, rate of interest and in other respects as in the Indenture
provided.

     This bond is one of a series designated as “Duke Energy Indiana, Inc. First Mortgage Bonds,
Series PPP, 3.75%, Due July 15, 2020” (hereinafter referred to as the “Bonds of Series PPP”) of the
Company issued under and secured by the Indenture and created by a Sixty-Second Supplemental
Indenture, dated as of July 9, 2010 (the “Sixty-Second Supplemental Indenture”), which also amends
the Indenture.

     The rights and obligations of the Company and of the bearers and registered owners of bonds
may be modified or amended with the consent of the Company by an affirmative vote of the bearers or
registered owners entitled to vote of at least seventy-five per centum (75%) in principal amount of
the bonds then outstanding at a meeting of bondholders called for the purpose (and by an
affirmative vote of the bearers or registered owners entitled to vote of at least seventy-five per
centum (75%) in principal amount of bonds of any series affected by such modification or amendment
in case one or more, but less than all, series of bonds are so affected), all in the manner and
subject to the limitations set forth in the Indenture, any consent by the bearer or registered
owner of any bond being conclusive and binding upon such bearer or registered owner and upon all
future bearers or registered owners of such bond, irrespective of whether or not any notation of
such consent is made on such bond; provided that no such modification or amendment shall, among
other things, extend the maturity or reduce the amount of, or reduce the rate of interest on, or
otherwise modify the terms of the payment of the principal of, or interest or premium (if any) on
this bond, which obligations are absolute and unconditional, or permit the creation of any lien
ranking prior to or equal with the lien of the Indenture on any of the mortgaged property. The
Sixty-Second Supplemental Indenture provides that at any time when no bonds issued under the
Indenture prior to the issuance of the “PSI Energy, Inc. First Mortgage Bonds, Series BBB, 8%, Due
July 15, 2009” are outstanding, the Company reserves the right to amend the Indenture, without the
consent or other action by the holders of the bonds outstanding at that time, to decrease the
seventy-five per centum (75%) vote requirement referred to above to sixty-six and two-thirds per
centum (66-2/3%).

- 10 -

 

     The Bonds of Series PPP may be redeemed at the option of the Company, as a whole or in part at
any time, at a redemption price equal to the greater of (1) 100% of the principal amount of the
Bonds of Series PPP to be redeemed and (2) the sum of the present values of the remaining scheduled
payments of principal and interest thereon (exclusive of interest accrued to the redemption date),
discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 0.15% (15 basis points), plus, in each case,
accrued interest to the redemption date. For the avoidance of doubt, interest that is due and
payable on an interest payment date falling on or prior to a redemption date will be payable on
such interest payment date in accordance with the Bonds of Series PPP and the Indenture. The
Company shall notify the Trustee of the redemption price with respect to any redemption pursuant to
this paragraph promptly after the calculation thereof. The Trustee shall not be responsible for
calculating said redemption price.

     “Business Day” means any day other than a day on which banks in New York City are required or
authorized to be closed.

     “Comparable Treasury Issue” means the United States Treasury security or securities selected
by the Quotation Agent as having an actual or interpolated maturity comparable to the remaining
term of the Bonds of Series PPP to be redeemed that would be utilized, at the time of selection and
in accordance with customary financial practice, in pricing new issues of corporate debt securities
of a comparable maturity to the remaining term of the Bonds of Series PPP.

     “Comparable Treasury Price” means, with respect to any redemption date for the Bonds of Series
PPP, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Quotation
Agent obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such
quotations.

     “Quotation Agent” means one of the Reference Treasury Dealers appointed by the Company.

     “Reference Treasury Dealer” means each of BNP Paribas Securities Corp., Deutsche Bank
Securities Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated, plus one other
financial institution appointed by the Company at the time of any redemption or their affiliates
which are primary U.S. Government securities dealers, and their respective successors; provided,
however, that if any of the foregoing or their affiliates shall cease to be a primary U.S.
Government securities dealer in the United States (a “Primary Treasury Dealer”), the Company shall
substitute therefor another Primary Treasury Dealer.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any redemption date, the average, as determined by the Quotation Agent, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the Quotation Agent by

- 11 -

 

the Reference Treasury Dealers at 3:30 p.m. New York time on the third Business Day preceding
such redemption date.

     “Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the
semiannual equivalent yield to maturity or interpolated maturity (on a day count basis) of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for such redemption
date.

     Notice of any redemption by the Company will be mailed at least 30 days but not more than 60
days before any redemption date to each holder of Bonds of Series PPP to be redeemed. If less than
all the Bonds of Series PPP are to be redeemed at the option of the Company, and if the Bonds of
Series PPP are not Global Securities, the Trustee shall select, in such manner as it shall deem
fair and appropriate, the Bonds of Series PPP to be redeemed in whole or in part.

     Unless the Company defaults in payment of the redemption price, on and after any redemption
date, interest will cease to accrue on the Bonds of Series PPP or portions thereof called for
redemption.

     In the case of any of certain events of default specified in the Indenture, the principal of
this bond may be declared or may become due and payable prior to the stated date of maturity hereof
in the manner and with the effect provided in the Indenture.

     No recourse shall be had for the payment of the principal of or interest on this bond, or for
any claim based hereon, or otherwise in respect hereof or of the Indenture, to or against any
incorporator, shareholder, officer or director, past, present or future, of the Company or of any
predecessor or successor company, either directly or through the Company or such predecessor or
successor company, under any constitution or statute or rule of law, or by the enforcement of any
assessment or penalty, or otherwise, all such liability of incorporators, shareholders, directors
and officers being waived and released by the registered owner hereof by the acceptance of this
bond and being likewise waived and released by the terms of the Indenture.

     The Bonds of Series PPP are issuable only in registered form without coupons. This bond is
transferable by the registered owner hereof, in person or by an attorney duly authorized, at the
principal office or place of business of Deutsche Bank National Trust Company, the Trustee, or its
successor in trust under the Indenture, or, if the Bonds of Series PPP are not Global Securities,
at the option of the registered owner, at the office or agency of the Company in the Borough of
Manhattan, the City of New York, State of New York, upon the surrender and cancellation of this
bond, and upon any such transfer a new registered bond or bonds of the same series and maturity
date and for the same aggregate principal amount will be issued to the transferee in exchange
herefor.

     The Bonds of Series PPP are issuable in denominations of $2,000 and multiples of $1,000 in
excess thereof as shall from time to time be determined and authorized by the

- 12 -

 

Board of Directors of the Company. In the manner and subject to the limitations provided in
the Indenture, Bonds of Series PPP are exchangeable as between authorized denominations, upon
presentation thereof for such purpose by the registered owner, at the principal office or place of
business of Deutsche Bank National Trust Company, the Trustee, or its successor in trust under the
Indenture, or, at the option of the registered owner, at the office or agency of the Company in the
Borough of Manhattan, the City of New York, State of New York.

     No service charge will be made for any transfer or exchange of this bond, but the Company may
require a sum sufficient to cover any tax or other governmental charge payable in connection
therewith.

(Form of Trustee’s Certificate)

TRUSTEE’S CERTIFICATE

     This bond is one of the Bonds of Series PPP designated therein referred to and described in
the within mentioned Indenture and Sixty-Second Supplemental Indenture.

	 	 	 	 	 
	 	Deutsche Bank National Trust Company,
 as
Trustee

 	 
	 	By:  	 	 
	 	 	Authorized Officer 	 
	 	 	 	 
	 

[The remainder of this page has been left blank intentionally.]

- 13 -

 

     Section 3. Each Bond of Series PPP issued prior to the first interest payment date shall
be dated as of July 9, 2010, and otherwise shall be dated as provided in Section 1 of Article II of
the Indenture.

     Section 4. All Bonds of Series PPP shall be due and payable on July 15, 2020, and shall bear
interest from the date thereof at the rate of 3.75% per annum, payable semi-annually on the
fifteenth day of January and July in each year, commencing January 15, 2011.

     Section 5. Subject to agreements with or the rules of the Depository or any successor
book-entry security system or similar system with respect to Global Securities, both the principal
of and the interest on the Bonds of Series PPP shall be payable in any coin or currency of the
United States of America which at the time of payment is legal tender for the payment of public and
private debts, at the office or agency of the Company in Plainfield, Indiana, or, at the option of
the holder thereof, at the office or agency of the Company in the Borough of Manhattan, the City of
New York, State of New York, except that interest on the Bonds of Series PPP may be paid, at the
option of the Company, by check or draft mailed to the address of the person entitled thereto as it
appears on the books of the Company maintained for that purpose.

     Section 6. Definitive Bonds of Series PPP shall be issuable in denominations of $2,000 and
multiples of $1,000 in excess thereof, numbered consecutively from “PPP-R-1” upward.

     The Bonds of Series PPP shall be executed on behalf of the Company by the manual or facsimile
signature of its President or an Executive Vice President or one of its Vice Presidents and shall
have affixed thereto the seal of the Company or a facsimile thereof attested by the manual or
facsimile signature of its Secretary or one of its Assistant Secretaries and shall be authenticated
by the execution by the Trustee of the certificate endorsed on said bonds.

     No service charge will be made by the Company for the transfer or for the exchange of Bonds of
Series PPP except, in the case of transfer, a charge sufficient to reimburse the Company for any
tax or other governmental charge payable in connection therewith.

     Pursuant to the provisions of Section 11 of Article II of the Indenture, Bonds of Series PPP
may be issued in temporary form, and if temporary bonds be issued, the Company shall, with all
reasonable dispatch, at its own expense and without charge to the holders of the temporary bonds,
prepare and execute definitive Bonds of Series PPP and exchange the temporary bonds for such
definitive bonds in the manner provided for in said section, provided, however, no presentation or
surrender of temporary Bonds of Series PPP shall be necessary in order for the holders entitled to
interest thereon to receive such interest.

- 14 -

 

     Section 7. Article IX of the Indenture, “Maintenance and Renewal Fund and Sinking Fund
Provisions”, as heretofore amended or supplemented shall not apply to the “PSI Energy, Inc. First
Mortgage Bonds, Series BBB, 8%, Due July 15, 2009” (such bonds being hereinafter referred to as the
“Bonds of Series BBB”) or to any subsequently created series of bonds (which includes the Bonds of
Series PPP) from and after the date on which no series of bonds created under the Indenture prior
to the Bonds of Series BBB are outstanding.

     Section 8. Section 22 of Article V of the Indenture as heretofore amended or supplemented
which, among other things, requires an inspection of the mortgaged property every two years by an
independent engineer, shall not apply to the Bonds of Series BBB or to any subsequently created
series of bonds (which includes the Bonds of Series PPP), from and after the date on which no
series of bonds created under the Indenture prior to the Bonds of Series BBB are outstanding.

     Section 9. The Company reserves the right, without consent or other action by the holders of
the Bonds of Series BBB or of any subsequently created series of bonds (which includes the Bonds of
Series PPP), to amend the Indenture, as heretofore amended or supplemented, at any time after all
bonds of any series created prior to the Bonds of Series BBB are no longer outstanding under the
Indenture, as follows:

(a) by substituting for the words “in principal amount not greater than sixty per
centum (60%) of” in Section 3 of Article IV thereof the following:

“in principal amount not greater than sixty-six and two-thirds per centum
(66-2/3%) of ”.

(b) by substituting for the words “shall exceed sixty per centum (60%) of the
value of bondable property so acquired” in Section 9 of Article V thereof the
following:

“shall exceed sixty-six and two-thirds per centum (66-2/3%) of the value
of bondable property so acquired”.

(c) by substituting for the words “shall be deemed to be paid within the meaning
of this article; provided, that the date for the payment or redemption of such
bonds shall be not more than one (1) year after such moneys shall have been so set
apart or paid.” in the first paragraph of Article XIV thereof the following:

“shall be deemed to be paid within the meaning of this article.”.

(d) by substituting for the words “with the consent of holders of at least
seventy-five per centum (75%) in aggregate principal amount of the bonds

- 15 -

 

at the time outstanding;” in sub-section (a) of Section 3 of Article XVIII thereof
the following:

“with the consent of holders of at least sixty-six and two-thirds per
centum (66-2/3%) in aggregate principal amount of the bonds at the time
outstanding;”.

(e) by substituting for the words “holders (or persons entitled to vote the bonds)
of not less than seventy-five per centum (75%) in aggregate principal amount of the
bonds entitled to be voted” in sub-section (l) of Section 3 of Article XVIII
thereof the following:

“holders (or persons entitled to vote the bonds) of not less than
sixty-six and two-thirds per centum (66-2/3%) in aggregate principal
amount of the bonds entitled to be voted”.

(f) by substituting for the words “holders (or persons entitled to vote the bonds)
of at least seventy-five per centum (75%) in principal amount of the bonds
outstanding” in sub-section (m) of Section 3 of Article XVIII thereof the
following:

“holders (or persons entitled to vote the bonds) of at least sixty-six and
two-thirds per centum (66-2/3%) in principal amount of the bonds
outstanding”.

ARTICLE II.

Issuance of Bonds of Series PPP.

     Section 1. An initial issue of Bonds of Series PPP, in the aggregate principal amount not
exceeding five hundred million dollars ($500,000,000), may be executed by the Company and delivered
to the Trustee for authentication, and shall be authenticated and delivered by the Trustee to or
upon the order of the Company (which authentication and delivery may be made without awaiting the
filing or recording of this Sixty-Second Supplemental Indenture), upon receipt by the Trustee of
the resolutions, certificates, orders, opinions and other instruments required by the provisions of
Section 2 of Article IV of the Indenture to be received by the Trustee as a condition to the
authentication and delivery by the Trustee of bonds pursuant to said Section 2.

     Section 2. Subject to the limitations provided in Section 24 of Article V of the Indenture,
additional Bonds of Series PPP may be issued by the Company under the provisions of Sections 2, 3
or 4 of Article IV of the Indenture.

- 16 -

 

ARTICLE III.

Indenture Amendments.

     Section 1. Article I of the Indenture, as heretofore amended, is hereby further amended (i)
by adding immediately after subdivision “(101)” thereof an additional subdivision numbered “(102)”
and reading as follows:

“(102) The term ‘Sixty-Second Supplemental Indenture’ shall mean the Sixty-Second
Supplemental Indenture executed by the Company and the Trustee, dated as of July 9, 2010,
supplementing and amending the Indenture; and the term ‘Bonds of Series PPP’ shall mean the
‘Duke Energy Indiana, Inc. First Mortgage Bonds, Series PPP, 3.75%, Due July 15, 2020’
created by the Sixty-Second Supplemental Indenture.”

and (ii) by changing the numbering of the present subdivision “(102)” thereof to “(103)”.

     Section 2. Article VII of the Indenture, as heretofore amended, is hereby further amended by
inserting therein immediately after Section 45 thereof, a new section designated “Section 46” and
reading as follows:

     “Section 46. The Bonds of Series PPP may be redeemed at the option of the Company, as
a whole or in part at any time, at a redemption price equal to the greater of (1) 100% of
the principal amount of the Bonds of Series PPP to be redeemed and (2) the sum of the
present values of the remaining scheduled payments of principal and interest thereon
(exclusive of interest accrued to the redemption date), discounted to the redemption date
on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 0.15% (15 basis points), plus, in each case, accrued interest to the
redemption date. For the avoidance of doubt, interest that is due and payable on an
interest payment date falling on or prior to a redemption date will be payable on such
interest payment date in accordance with the Bonds of Series PPP and the Indenture. The
Company shall notify the Trustee of the redemption price with respect to any redemption
pursuant to this paragraph promptly after the calculation thereof. The Trustee shall not be
responsible for calculating said redemption price.

     ‘Business Day’ means any day other than a day on which banks in New York City are
required or authorized to be closed.

     ‘Comparable Treasury Issue’ means the United States Treasury security or securities
selected by the Quotation Agent as having an actual or interpolated maturity comparable to
the remaining term of the Bonds of Series PPP to be redeemed that would be utilized, at the
time of selection and in accordance with

- 17 -

 

customary financial practice, in pricing new issues of a corporate debt securities of
a comparable maturity to the remaining term of such bonds.

     ‘Comparable Treasury Price’ means, with respect to any redemption date for the Bonds
of Series PPP, (A) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Quotation Agent obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such quotations.

     ‘Quotation Agent’ means one of the Reference Treasury Dealers appointed by the
Company.

     ‘Reference Treasury Dealer’ means each of BNP Paribas Securities Corp., Deutsche Bank
Securities Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated, plus one other
financial institution appointed by the Company at the time of any redemption or their
affiliates which are primary U.S. Government securities dealers, and their respective
successors; provided, however, that if any of the foregoing or their affiliates shall cease
to be a primary U.S. Government securities dealer in the United States (a “Primary Treasury
Dealer”), the Company shall substitute therefor another Primary Treasury Dealer.

     ‘Reference Treasury Dealer Quotations’ means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Quotation Agent, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Quotation Agent by the
Reference Treasury Dealers at 3:30 p.m., New York time, on the third Business Day preceding
such redemption date.

     ‘Treasury Rate’ means, with respect to any redemption date, the rate per annum equal
to the semiannual equivalent yield to maturity or interpolated maturity (on a day count
basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable Treasury Price
for such redemption date.

     Notice of any redemption by the Company will be mailed at least 30 days but not more
than 60 days before any redemption date to each holder of Bonds of Series PPP to be
redeemed. If less than all the Bonds of Series PPP are to be redeemed at the option of the
Company, and if the Bonds of Series PPP are not Global Securities, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the Bonds of Series PPP to be
redeemed in whole or in part.

     Unless the Company defaults in payment of the redemption price, on and after any
redemption date, interest will cease to accrue on the Bonds of Series PPP or portions
thereof called for redemption.

- 18 -

 

     The Company shall indemnify and hold harmless the Trustee from any and all losses,
costs, damages, expenses, fees (including attorneys’ fees), court costs, judgments,
penalties, obligations, suits, disbursements and liabilities of any kind or character
whatsoever which may at any time be imposed upon, incurred by or asserted against the
Trustee by reason of or arising out of or caused, directly or indirectly by any act or
omission of the Trustee with respect to this Section 46, except for such that would arise
out of the willful misconduct or gross negligence of the Trustee and except for costs and
expenses arising in the ordinary course of the Trustee’s business.”

     Section 3. The Bonds of Series PPP shall not be entitled to the benefit of a sinking fund.

ARTICLE IV.

Concerning the Trustee.

     The Trustee hereby accepts the trusts hereby declared and agrees to perform the same upon the
terms and conditions in the Indenture and in this Sixty-Second Supplemental Indenture set forth.
The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Sixty-Second Supplemental Indenture or the due execution hereof by the Company
or for or in respect of the recitals contained herein, all of which recitals are made by the
Company solely. In general, each and every term and condition contained in Article XVII of the
Indenture shall apply to this Sixty-Second Supplemental Indenture.

ARTICLE V.

Miscellaneous Provisions.

     Section 1. Wherever in the original Indenture or in any of the sixty-two supplemental
indentures thereto reference is made to any article or section of the original Indenture, such
reference shall be deemed to refer to such article or section as amended by such supplemental
indentures.

     Section 2. Upon the execution and delivery hereof, the Indenture shall thereupon be deemed to
be amended as hereinabove set forth as fully and with the same effect as if the amendments made
hereby were set forth in the original Indenture and each of the sixty-two supplemental indentures
to the Indenture shall henceforth be read, taken and construed as one and the same instrument; but
such amendments shall not operate so as to render invalid or improper any action heretofore taken
under the original Indenture or said supplemental indentures.

- 19 -

 

     Section 3. All the covenants, stipulations and agreements in this Sixty-Second Supplemental
Indenture contained are and shall be for the sole and exclusive benefit of the parties hereto,
their successors and assigns, and of the holders from time to time of the bonds.

     Section 4. The table of contents to, and the headings of the different articles of, this
Sixty-Second Supplemental Indenture are inserted for convenience of reference, and are not to be
taken to be any part of the provisions hereof, nor to control or affect the meaning, construction
or effect of the same.

     Section 5. This Sixty-Second Supplemental Indenture may be simultaneously executed in any
number of counterparts, and all such counterparts shall constitute but one and the same instrument.

     Section 6. Whenever a payment of principal or interest in respect of the Bonds of Series PPP
are due on any day other than a business day (as hereinafter defined), such payment shall be
payable on the first business day next following such date, and, in the case of a principal
payment, interest on such principal payment shall accrue to the date of such principal payment. For
the purposes of this Section 6 the term business day shall mean any day other than a day on which
the Trustee is authorized by law to close.

[The remainder of this page has been left blank intentionally.]

- 20 -

 

     In Witness Whereof, said Duke Energy Indiana, Inc. has caused this instrument to be
executed in its corporate name by its President or one of its Vice Presidents and to be attested by
its Secretary or one of its Assistant Secretaries and said Deutsche Bank National Trust Company has
caused this instrument to be executed in its corporate name by one of its Vice Presidents and to be
attested by one of its Vice Presidents, in several counterparts, all as of the day and year first
above written.

	 	 	 	 	 
	 	Duke Energy Indiana, Inc.

 	 
	(Corporate Seal)	By	 	   /s/ David S. Maltz
 	 
	 	 	 	David S. Maltz 	 
	 	 	 	Vice President 	 
	 

	 	 	 	 	 
	Attest:

 	 
	/s/ Robert T. Lucas III
 	 
	Robert T. Lucas III,
 Assistant Secretary 	 
	 	 	 

- 21 -

 

	 	 	 	 	 

	 	 	 	 	 
	 	Deutsche Bank National Trust Company,

solely as Trustee and not in its individual capacity

 	 

	 	 	 	 	 
	(Corporate Seal)	By	 	   /s/ Victoria Y. Douyon
 	 
	 	 	 	Victoria Y. Douyon 	 
	 	 	 	Vice President 	 

	 	 	 	 	 
	Attest:

 	 
	/s/ Katherine Cokic
 	 
	Katherine Cokic, 
Vice President 	 
	 	 	 

- 22 -

 

	 	 	 	 	 

	State of North Carolina

	 	)	 	 
	 

	 	)ss:

	County of Mecklenburg 

	 	)	 	 

     Be It Remembered, that on this 8th day of July, 2010, before me, the undersigned, a
notary public in and for the County and State aforesaid, duly commissioned and qualified,
personally appeared David S. Maltz and Robert T. Lucas III, personally known to me to be the same
persons whose names are subscribed to the foregoing instrument, and personally known to me to be a
Vice President and an Assistant Secretary, respectively, of Duke Energy Indiana, Inc., an Indiana
corporation, and acknowledged that they signed and delivered said instrument as their free and
voluntary act as such Vice President and Assistant Secretary, respectively, and as the free and
voluntary act of said Duke Energy Indiana, Inc., for the uses and purposes therein set forth; in
pursuance of the power and authority granted to them by resolution of the Board of Directors of
said Company.

     In Witness Whereof, I have hereunto set my hand and affixed my notarial seal the day
and year aforesaid.

(Notarial Seal)

	 	 	 	 	 
	 	 	 
	 	/s/ Patricia C. Ross
 	 
	 	Notary Public 	 
	 	 	 

- 23 -

 

	 	 	 	 	 

	State Of Illinois

	 	)	 	 
	 

	 	) ss:

	County Of Cook

	 	)	 	 

     Be It Remembered, that on this 8th day of July, 2010, before me, the undersigned, a
notary public in and for the County and State aforesaid, duly commissioned and qualified,
personally appeared Victoria Y. Douyon and Katherine Cokic personally known to me to be the same
persons whose names are subscribed to the foregoing instrument, and personally known to me to be
Vice Presidents of Deutsche Bank National Trust Company, a national banking association, and
acknowledged that they signed and delivered said instrument as their free and voluntary act as such
Vice Presidents, respectively, and as the free and voluntary act of said Deutsche Bank National
Trust Company, for the uses and purposes therein set forth; in pursuance of the power and authority
granted to them by the bylaws of said association.

     In Witness Whereof, I have hereunto set my hand and affixed my notarial seal the day
and year aforesaid.

(Notarial Seal)

	 	 	 	 	 
	 	 	 
	 	/s/ Lisette Miller
 	 
	 	Notary Public 	 
	 	 	 
	 

This instrument was prepared by:

Bradley C. Arnett, Esq.*

Frost Brown Todd LLC

201 E. Fifth Street, Suite 2200

Cincinnati, Ohio 45202-4182

 

*     Admitted in Ohio; not admitted in Indiana
 

- 24 -Exhibit 10.1

Exhibit 10.1

CHANGE IN CONTROL

SEVERANCE AGREEMENT

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	1. Purpose
	 	 	1	 
	2. Your Agreement
	 	 	1	 
	3. Events That Trigger Severance Benefits
	 	 	1	 
	a. Termination After a Change in Control
	 	 	1	 
	b. Termination After a Potential Change in Control
	 	 	1	 
	c. Successor Fails to Assume This Agreement
	 	 	1	 
	4. Events That Do Not Trigger Severance Benefits
	 	 	1	 
	5. Termination Procedures
	 	 	2	 
	6. Severance Benefits
	 	 	2	 
	a. In General
	 	 	2	 
	b. Lump-Sum Payment in Lieu of Future Compensation
	 	 	2	 
	c. Incentive Compensation and Options
	 	 	2	 
	d. Group Insurance Benefit Continuation
	 	 	3	 
	e. Group Benefit Continuation
	 	 	3	 
	f. Officer Benefits
	 	 	3	 
	g. Medical Benefits
	 	 	3	 
	7. Time for Payment
	 	 	3	 
	8. Payment Explanation
	 	 	4	 
	9. Potential Limitations
	 	 	4	 
	a. Golden Parachute Limitation
	 	 	4	 
	b. Section 162(m) Limitation
	 	 	4	 
	10. Disability
	 	 	4	 
	11. Effect of Reemployment
	 	 	5	 
	12. Successors
	 	 	5	 
	a. Assumption Required
	 	 	5	 
	b. Heirs and Assigns
	 	 	5	 
	13. Amendments
	 	 	5	 
	14. Governing Law
	 	 	5	 
	15. Claims
	 	 	5	 
	a. When Required; Attorneys’ Fees
	 	 	5	 
	b. Initial Claim
	 	 	5	 
	c. Claim Decision
	 	 	6	 
	d. Appeal of Denied Claims
	 	 	6	 
	e. Appeal Decision
	 	 	6	 
	f. Procedures
	 	 	6	 
	g. Arbitration
	 	 	7	 
	16. Limitation on Employee Rights
	 	 	7	 
	17. Validity
	 	 	7	 
	18. Counterparts
	 	 	7	 
	19. Giving Notice
	 	 	7	 
	a. To the Company
	 	 	7	 
	b. To You
	 	 	7	 
	20. Definitions
	 	 	8	 
	a. Agreement
	 	 	8	 

 

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	b. Beneficial Owner
	 	 	8	 
	c. Board
	 	 	8	 
	d. Cause
	 	 	8	 
	e. Change in Control
	 	 	8	 
	(1) Acquisition of Controlling Interest
	 	 	8	 
	(2) Change in Board Control
	 	 	8	 
	(3) Merger Approved
	 	 	9	 
	(4) Sale of Assets
	 	 	9	 
	(5) Liquidation or Dissolution
	 	 	9	 
	(6) Private Transaction
	 	 	9	 
	f. Code
	 	 	9	 
	g. Company
	 	 	9	 
	h. Disability
	 	 	9	 
	i. Exchange Act
	 	 	9	 
	j. Good Reason
	 	 	10	 
	(1) Demotion
	 	 	10	 
	(2) Pay Cut
	 	 	10	 
	(3) Relocation
	 	 	10	 
	(4) Breach of Contract
	 	 	10	 
	(5) Improper Termination
	 	 	10	 
	k. Incentive Compensation
	 	 	10	 
	l. Management Action
	 	 	11	 
	m. Person
	 	 	11	 
	n. Potential Change in Control
	 	 	11	 
	(1) Agreement Signed
	 	 	11	 
	(2) Notice of Intent to Seek Change in Control
	 	 	11	 
	(3) Board Declaration
	 	 	11	 
	o. Separation from Service
	 	 	11	 
	p. Severance Benefits
	 	 	11	 
	q. Term of this Agreement
	 	 	11	 
	(2) Change in Control
	 	 	11	 
	21. Section 409A
	 	 	12	 

 

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CHANGE IN CONTROL

SEVERANCE AGREEMENT

This Agreement between Anthony L. Otten (“you”) and VERSAR, INC.(“Company”) has been entered into
as of May 24, 2010. This Agreement promises you severance benefits if, following a Change of
Control, you are terminated without Cause or resign for Good Reason during the Term of this
Agreement. Capitalized terms are defined in the last section of this Agreement.

1. Purpose

The Company considers a sound and vital management team to be essential. Management
personnel who become concerned about the possibility that the Company may undergo a Change
in Control may terminate employment or become distracted. Accordingly, the Board has
determined that appropriate steps should be taken to minimize the distraction certain
executives may suffer from the possibility of a Change in Control. One step is to enter into
this Agreement with you while you hold the position as Chief Executive Officer. Once you no
longer hold this position, except following or in connection with the triggering of
severance benefits as set forth in Section 3 below, this Severance Agreement shall
immediately terminate and be null and void as set forth in Section 20q hereof.

2. Your Agreement

If one or more Potential Changes in Control occur during the Term of this Agreement, you
agree not to resign for at least six full calendar months after a Potential Change in
Control occurs, except as follows: (a) you may resign after a Change in Control occurs; (b)
you may resign if you are given Good Reason to do so; and (c) you may terminate employment
on account of retirement on or after age 65 or because you become unable to work due to
serious illness or injury.

3. Events That Trigger Severance Benefits

a. Termination After a Change in Control

You will receive Severance Benefits under this Agreement if, during the Term of this
Agreement and after a Change in Control has occurred, your employment is terminated
by the Company without Cause (other than on account of your Disability or death) or
you resign for Good Reason.

b. Termination After a Potential Change in Control

You also will receive Severance Benefits under this Agreement if, during the Term of
this Agreement and after a Potential Change in Control has occurred but before a
Change in Control actually occurs, your employment is terminated by the Company
without Cause or you resign for Good Reason, but only if either: (i) you are
terminated at the direction of a Person who has entered into an agreement with the
Company that will result in a Change in Control; or (ii) the event constituting Good
Reason occurs at the direction of such Person.

c. Successor Fails to Assume This Agreement

You also will receive Severance Benefits under this Agreement if, during the Term of
this Agreement, a successor to the Company fails to assume this Agreement, as
provided in Section 12(a).

 

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4. Events That Do Not Trigger Severance Benefits

You will not be entitled to Severance Benefits if your employment ends because you are
terminated for Cause or on account of Disability or because you resign without Good Reason,
retire, or die. Except as provided in Section 3(c), you will not be entitled to Severance
Benefits while you remain protected by this Agreement and remain employed by the Company,
its affiliates, or their successors.

5. Termination Procedures

If you are terminated by the Company after a Change in Control and during the Term of this
Agreement, the Company shall provide you with 30 days’ advance written notice of your
termination, unless you are being terminated for Cause. The notice will indicate why you are
being terminated and will set forth in reasonable detail the facts and circumstances claimed
to provide a basis for your termination. If you are being terminated for Cause, your notice
of termination will include a copy of a resolution duly adopted by the affirmative vote of
not less than 51 % of the entire membership of the Board (at a meeting of the Board called
and held for the purpose of considering your termination (after reasonable notice to you and
an opportunity for you and your counsel to be heard before the Board)) finding that, in the
good faith opinion of the Board, Cause for your termination exists and specifying the basis
for that opinion in detail. If you are purportedly terminated without the notice required by
this Section, your termination shall not be effective.

6. Severance Benefits

a. In General

If you become entitled to Severance Benefits under this Agreement, you will receive
all of the Severance Benefits described in this Section.

b. Lump-Sum Payment in Lieu of Future Compensation

In lieu of any further cash compensation for periods after your employment ends,
other than cash compensation paid pursuant to any agreement governing the terms of a
Change in Control payable to all similarly situated persons, you will be paid a cash
lump sum equal to 2 times your annual base salary in effect when your employment
ends or, if higher, in effect immediately before the Change in Control, Potential
Change in Control, or Good Reason event for which you terminate employment. In
addition, and without duplication, you will be paid a cash lump sum equal to 2 times
the higher of the amounts paid to you (if any) under any existing bonus or incentive
plans in the calendar year preceding the calendar year in which your employment ends
or in the calendar year preceding the calendar year in which the Change in Control
occurred (or in which the Potential Change in Control occurred, if benefits are
payable under Section 3(b)hereof).

c. Incentive Compensation and Options

The Company will pay you a cash lump sum equal to any unpaid incentive compensation
(that is not otherwise paid to you) that you have been allocated or awarded under
any existing bonus or incentive plans for measuring periods completed before you
became entitled to Severance Benefits under this Agreement. All unvested options to
purchase Company common stock will immediately vest and remain exercisable for the
longest period of time permitted under the applicable stock option plan. All unvested restricted stock awards
awarded to you will immediately vest.

 

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d. Group Insurance Benefit Continuation

During the period that begins when you become entitled to Severance Benefits under
this Agreement and ends on the last day of the 18th calendar month beginning
thereafter, the Company shall provide, at no cost to you or your spouse or
dependents, health and dental insurance benefits (or substantially similar benefits)
it was providing to you and your spouse and dependents immediately before you became
entitled to Severance Benefits under this Agreement. The Company subsidized health
and dental insurance coverage shall be treated as satisfying the Company’s COBRA
obligations. After this subsidized coverage ends, you, your spouse and dependents
may continue any remaining COBRA coverage at your sole cost and expense.

e. Group Benefit Continuation

During the period that begins when you become entitled to Severance Benefits under
this Agreement and ends on the last day of the 24th calendar month
beginning thereafter, the Company shall provide, at no cost to you or your spouse or
dependents, the life, disability and accident benefits (or substantially similar
benefits) it was providing to you and your spouse and dependents before you became
entitled to Severance Benefits under this Agreement (or immediately before a benefit
reduction that constitutes Good Reason, if you terminate employment for that Good
Reason).

f. Officer Benefits

In lieu of the medical and tax accounting benefits available to the Company’s
officers, you will be entitled to a lump sum payment of $16,000.00.

g. Medical Benefits

The Company provides certain medical benefits to retired CEO’s and Vice Presidents.
If you become entitled to Severance Benefits under this Agreement, then you are
deemed to have retired for purposes of this benefit and the Company shall provide,
at no cost to you, continued medical benefits it was providing you and your spouse
and dependents immediately before you became entitled to Severance Benefits under
this Agreement.

7. Time for Payment

Subject to the provisions of Section 21 hereof, you will be paid your cash Severance
Benefits within five days after you become entitled to Severance Benefits under this
Agreement (e.g., within five days following your termination of employment). If the amount
you are due cannot be finally determined within that period, you will receive the minimum
amount to which you are clearly entitled, as estimated in good faith by the Company. The
Company will pay the balance you are due (together with interest at the rate provided in
Internal Revenue Code Section 1274(b)(2)(B)) as soon as the amount can be determined, but in
no event later than 30 days after you terminate employment. If your estimated payment
exceeds the amount you are due, the excess will be a loan to you, which you must repay to
the Company within five business days after demand by the
Company (together with interest at the rate provided in Code Section 1274(b)(2)(B)). In no
event will any cash Severance Benefits be paid to you later than March 15 of the calendar
year following the calendar year in which you become entitled to such Severance Benefits.

 

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8. Payment Explanation

When payments are made to you, the Company will provide you with a written statement
explaining how your payments were calculated and the basis for the calculations. This
statement will include any opinions or other advice the Company has received from auditors
or consultants as to the calculation of your benefits. If your benefit is affected by the
golden parachute limitation in Section 9, the Company will provide you with calculations
relating to that limitation and any supporting materials you reasonably need to permit you
to evaluate those calculations.

9. Potential Limitations

a. Golden Parachute Limitation

Your aggregate payments and benefits under this Agreement and all other contracts,
arrangements, or programs shall not exceed the maximum amount that may be paid
without triggering golden parachute penalties under Section 280G and related
provisions of the Internal Revenue Code, as determined in good faith by the
Company’s independent auditors. The preceding sentence shall not apply to the extent
the shareholder approval requirements of Code Section 280G(b)(5) are satisfied. If
your benefits must be reduced to avoid triggering such penalties, the Company shall
reduce your benefits that are not considered deferred compensation subject to Code
Section 409A before it reduces any benefits that are considered deferred
compensation subject to Code Section 409A. If an amount in excess of the limit set
forth in this Section is paid to you, you must repay the excess amount to the
Company on demand, with interest at the rate provided in Code Section 1274(b)(2)(B).
You and the Company agree to cooperate with each other reasonably in connection with
any administrative or judicial proceedings concerning the existence or amount of
golden parachute penalties on payments or benefits you receive.

b. Section 162(m) Limitation

To the extent payments or benefits under this Agreement would not be deductible
under Code Section 162(m) if made or provided when otherwise due under this
Agreement, they shall be made or provided later, immediately after Section 162(m)
ceases to preclude their deduction, with interest thereon at the rate provided in
Code Section 1274(b)(2)(B).

10. Disability

Following a Change in Control, while you are absent from work as a result of physical or
mental illness, the Company will continue to pay you your full salary and provide you all
other compensation and benefits payable to you under the Company’s compensation or benefit
plans, programs, or arrangements. These payments will stop if and when your employment is
terminated by the Company for Disability as described in Section 20(h) hereof or at the end
of the Term of this Agreement, whichever is earlier. Severance
Benefits under this Agreement are not payable if you are terminated on account of your
Disability.

 

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11. Effect of Reemployment

Your Severance Benefits will not be reduced by any other compensation you earn or could have
earned from another source.

12. Successors

a. Assumption Required

In addition to obligations imposed by law on a successor to the Company, during the
Term of this Agreement the Company will require any successor to all or
substantially all of the business or assets of the Company expressly to assume and
to agree to perform this Agreement in the same manner and to the same extent that
the Company was required to perform. If the Company fails to obtain such an
assumption and agreement before the effective date of a succession, you will be
entitled to Severance Benefits as if you were terminated by the Company without
Cause on the effective date of that succession.

b. Heirs and Assigns

This Agreement will inure to the benefit of, and be enforceable by, your personal or
legal representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If you die while any amount is still payable to you under
this Agreement, that amount will be paid to the executor, personal representative,
or administrator of your estate.

13. Amendments

This Agreement may be modified only by a written agreement executed by you and an authorized
officer of the Company.

14. Governing Law

This Agreement creates a “top hat” employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, and it shall be interpreted, administered, and enforced in
accordance with that law; the Company is the “plan administrator.” To the extent that state
law is applicable, the statutes and common law of the State of Virginia (excluding its
choice of laws statutes or common law) shall apply.

15. Claims

a. When Required; Attorneys’ Fees

You do not need to present a formal claim to receive benefits payable under this
Agreement. However, if you believe that your rights under this Agreement are being
violated, you must file a formal claim with the Company in accordance with the
procedures set forth in this Section. The Company will pay your reasonable
attorneys’ fees and related costs in enforcing your rights under this Agreement.

b. Initial Claim

Your claim must be presented to the Company in writing. Within 30 days after
receiving the claim, a claims official appointed by the Company will consider your
claim and issue his or her determination thereon in writing. With your consent, the
initial claim determination period can be extended further. If you can
establish that the claims official failed to respond to your claim in a timely
manner, you may treat the claim as having been denied by the claims official.

 

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c. Claim Decision

If your claim is granted, the benefits or relief you are seeking will be provided.
If your claim is wholly or partially denied, the claims official shall, within three
days, provide you with written notice of the denial, setting forth, in a manner
calculated to be understood by you: (i) the specific reason or reasons for the
denial; (ii) specific references to the provisions on which the denial is based;
(iii) a description of any additional material or information necessary for you to
perfect your claim, together with an explanation of why the material or information
is necessary; and (iv) an explanation of the procedures for appealing denied claims.
If you establish that the claims official has failed to respond to your claim in a
timely manner, you may treat the claim as having been denied by the claims official.

d. Appeal of Denied Claims

You may appeal the claims official’s denial of your claim in writing to an appeals
official designated by the Company (which may be a person, committee, or other
entity) for a full and fair appeal. You must appeal a denied claim within five days
after your receipt of written notice denying your claim, or within 60 days after
such written notice was due, if the written notice was not sent. In connection with
the appeals proceeding, you (or your duly authorized representative) may review
pertinent documents and may submit issues and comments in writing. You may only
present evidence and theories during the appeal that you presented during the
initial claims stage, except for information the claims official requested you to
provide to perfect the claim. You will irrevocably waive any theories you do not in
good faith pursue through the appeal stage, such as by failing to file a timely
appeal request.

e. Appeal Decision

The decision by the appeals official will be made within 60 days after your appeal
request, unless special circumstances require an extension of time, in which case
the decision will be rendered as soon as possible, but not later than ten days after
your appeal request, unless you agree to a greater extension of that deadline. The
appeal decision will be in writing, set forth in a manner calculated to be
understood by you; it will include specific reasons for the decision, as well as
specific references to the pertinent provisions of this Agreement on which the
decision is based.

f. Procedures

The Company will adopt procedures by which initial claims and appeals will be
considered and resolved; different procedures may be established for different
claims. All procedures will be designed to afford you full and fair consideration of
your claim.

 

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g. Arbitration

In the event that any dispute arises, following satisfaction of the claim procedures
outlined in this Section 15, related to the validity, interpretation, enforcement or
performance of this Agreement, the dispute shall be submitted to binding arbitration
in accordance with the Employment Rules of the American Arbitration Association.
The aggrieved party must give written notice of any claim to the other party no
later than the expiration of the statute of limitations (deadline for filing) that
the law prescribes for the claim. Otherwise, the claim shall be void and deemed
waived. The arbitrator may award any remedy that would otherwise be available to a
court of competent jurisdiction. The decision of the arbitrator shall be final and
binding and shall be fully enforceable in any court having jurisdiction and venue
over the parties. The arbitrator shall have no power to alter, modify, ignore, or
otherwise deviate from the express terms of this Agreement, and the arbitrator shall
be bound by controlling law. The arbitrator’s decision shall be provided to the
parties in writing and shall succinctly set forth the arbitrator’s findings of fact,
conclusions of law, and remedy, if any. The cost of such arbitration shall be paid
by the Company, except you shall pay an administrative fee equivalent to the filing
fee to initiate a similar claim in the local court of general jurisdiction if you
are the party initiating the claim. The parties hereto agree that any action to
compel arbitration pursuant to this Agreement may be brought in the appropriate
Virginia state court, and in connection with such action to compel, the laws of
Virginia shall control. Application may also be made to such court for confirmation
of any decision or award of the arbitrator, for an order of enforcement and for any
other remedies which may be necessary to effectuate such decision or award. The
parties hereto hereby consent to the jurisdiction of the arbitrator and of such
court and waive any objection to the jurisdiction of such arbitrator and court.

16. Limitation on Employee Rights

This Agreement does not give you the right to be retained in the service of the Company.

17. Validity

The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.

18. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed an
original, but all of which will constitute one and the same instrument.

19. Giving Notice

a. To the Company

All communications from you to the Company relating to this Agreement must be sent
to the Company to its principal business office in Springfield, Virginia, in
writing, by registered or certified mail, or delivered personally.

b. To You

All communications from the Company to you relating to this Agreement must be sent
to you in writing, by registered or certified mail, or delivered personally,
addressed as indicated at the end of this Agreement.

 

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20. Definitions

a. Agreement

“Agreement” means this contract, as amended.

b. Beneficial Owner

“Beneficial Owner” has the meaning set “forth in Rule 13d-3 under the Exchange Act.

c. Board

“Board” means the Board of Directors of the Company.

d. Cause

“Cause” means any of the following:

	 	(1)	 	you fail to carry out assigned duties after being given prior
warning and an opportunity to remedy the failure,

	 	(2)	 	you breach any material term of any employment agreement with
the Company,

	 	(3)	 	you engage in fraud, dishonesty, willful misconduct, gross
negligence, or breach of fiduciary duty (including without limitation any
failure to disclose a conflict of interest)in the performance of your duties
for the Company, or

	 	(4)	 	you are convicted of a felony or crime involving moral
turpitude.

e. Change in Control

“Change in Control” means the first of the following to occur after the date of this
Agreement:

	 	(1)	 	Acquisition of Controlling Interest

Any Person becomes the Beneficial Owner, directly or indirectly, of securities
of the Company representing 25% or more of the combined voting power of the
Company’s then outstanding securities. In applying the preceding sentence,
securities acquired directly from the Company or its affiliates with the
company’s approval by or for the Person shall not be taken into account.

	 	(2)	 	Change in Board Control

	 
	 	 	 	During the term of this Agreement, individuals who constituted the Board as of
the date of this Agreement (or their approved replacements, as defined in the
next sentence) cease for any reason to constitute a majority of the Board. A new
director shall be considered an “approved replacement” director if his or her
election (or nomination for election) was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or were themselves approved replacement directors;
provided that any individual whose initial assumption of office occurs as a
result of an actual or threatened election contest (as the term is used in Rule
14a-11 of Regulation 14A issued under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board shall not be considered an “approved replacement”.

 

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	 	(3)	 	Merger Approved

	 
	 	 	 	The shareholders of the Company approve a merger or consolidation of the Company
with any other corporation unless: (a) the voting securities of the Company
outstanding immediately before the merger or consolidation would continue to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 75% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; and (b) no Person acquires more
than 25% of the combined voting power of the Company’s then outstanding
securities.

	 	(4)	 	Sale of Assets

	 
	 	 	 	The shareholders of the Company approve an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets.

	 
	 	(5)	 	Liquidation or Dissolution

	 
	 	 	 	A complete liquidation or dissolution of the Company.

	 
	 	(6)	 	Private Transaction

	 
	 	 	 	Any transaction or series of transactions not covered in paragraphs (1) through
(5) above the result of which is the suspension of the Company’s duty to file
reports under the Exchange Act as a result of the remaining number of holders of
the Company’s common stock following such transaction or series of transactions.

f. Code

“Code” means the Internal Revenue Code of 1986, as amended.

g. Company

“Company” means Versar, Inc. and any successor to its business or assets that (by
operation of law, or otherwise) assumes and agrees to perform this Agreement.
However, for purposes of determining whether a Change in Control has occurred in
connection with such a succession, the successor shall not be considered to be the
Company.

h. Disability

“Disability” means that, due to physical or mental illness which is determined to be
total and permanent by a physician selected by the Company or its insurer and
acceptable to you or your legal representative: (i) you have been absent on a
full-time basis from your duties with the Company for 180 consecutive business days;
(ii) the Company has notified you more than 30 days prior to your intended
termination date that it intends to terminate you on account of Disability; and
(iii) you do not resume the full-time performance of your duties within 30 days
after receiving notice of your intended termination on account of Disability.
Following the expiration of the 30 day period specified above, unless you have
resumed full- time performance of your duties, your employment with the Company
shall terminate immediately.

i. Exchange Act

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

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j. Good Reason

“Good Reason” means the occurrence of any of the following events arising without
your consent:

	 	(1)	 	Demotion

	 
	 	 	 	Your duties and responsibilities are materially and adversely altered from those
in effect immediately before the Change in Control (or, with respect to Section
3(b), the Potential Change in Control), or there is a material and adverse
change in your reporting responsibilities or in the size of the budget you
administer in effect immediately before the Change in Control (or, with respect
to Section 3(b), the Potential Change in Control), provided that no demotion
will be deemed to occur solely as a result of the Company ceasing to be a public
company, a change in your title, or your transfer to an affiliate.

	 
	 	(2)	 	Pay Cut

	 
	 	 	 	Your annual base salary is materially reduced.

	 
	 	(3)	 	Relocation

	 
	 	 	 	Your principal office is materially relocated, which increases your one-way
commute to work by more than 50 miles, based on your residence when the transfer
was announced.

	 
	 	(4)	 	Breach of Contract

	 
	 	 	 	The Company materially breaches this Agreement, your employment agreement or any
other agreement between you and the Company pursuant to which you perform
services for the Company or compensation and benefits are provided to you.

	 
	 	(5)	 	Improper Termination

	 
	 	 	 	The Company terminates your employment, other than pursuant to a notice of
termination satisfying the requirements of Section 5 hereof.

However, an event that is or would constitute Good Reason shall cease to be Good Reason if:
(a) you fail to provide written notice to the Company within 90 days following the initial
existence of the event described in paragraphs (1) through (4) above; (b) the Company
reverses or otherwise cures the event within 30 days of receiving such notice; (c) you do
not terminate employment within 180 days after the event occurs; or (d) you were a primary
instigator of the Good Reason event and the circumstances make it inappropriate for you to
receive benefits under this Agreement (e.g., you agree temporarily to relinquish your
position on the occurrence of a merger transaction you negotiate). If you have Good Reason
to terminate employment, you may do so even if you are on a leave of absence due to physical
or mental illness or any other reason.

k. Incentive Compensation

“Incentive Compensation” means the amount of cash and/or securities paid to you
under all bonus, incentive or other programs for performance adopted by the Company
for its executive officers and other key employees.

 

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l. Management Action

“Management Action” means any event, circumstance, or transaction occurring during
the six-month period following a Potential Change in Control that results from the
action of a Management Group.

m. Person

“Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified
and used in Section 13(d) of that Act, and shall include a “group,” as defined in
Rule 13d-5 promulgated thereunder. However, a Person shall not include: (i) the
Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its subsidiaries;
(iii) an underwriter temporarily holding securities pursuant to an offering of such
securities; or (iv) a corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock of
the Company.

n. Potential Change in Control

“Potential Change in Control” means that any of the following has occurred during
the term of this Agreement, excluding any event that is Management Action:

	 	(1)	 	Agreement Signed

	 
	 	 	 	The Company enters into an agreement that will result in a Change in Control.

	 
	 	(2)	 	Notice of Intent to Seek Change in Control

	 
	 	 	 	The Company or any Person publicly announces an intention to take or to consider
taking actions that will result in a Change in Control.

	 
	 	(3)	 	Board Declaration

	 
	 	 	 	With respect to this Agreement, the Board adopts a resolution declaring that a
Potential Change in Control has occurred.

o. Separation from Service

“Separation from Service” shall have the meaning set forth in Treas. Reg. §
1.409A-1(h).

p. Severance Benefits

“Severance Benefits” means your benefits under Section 6 of this Agreement.

q. Term of this Agreement

“Term of this Agreement” means the period that commences on the date of this
Agreement and ends on the

	 	(1)	 	earlier of:

	 	a.	 	May 23, 2012; or

	 
	 	b.	 	Your ceasing to serve in the position of Chief
Executive Officer prior to the occurrence of a Potential Change in
Control or Change in Control; or

	 	(2)	 	Change in Control

 

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The last day of the 24th calendar month beginning after the calendar month in
which a Change in Control occurred during the Term of this Agreement. After a
Change in Control occurs, the end of the Term of this Agreement shall solely be
determined under this Section 20 (q)(2).

21. Section 409A

	 	a.	 	Notwithstanding anything in this Agreement to the contrary, if any amounts that
become due under this Agreement on account of your termination of employment constitute
“nonqualified deferred compensation” within the meaning of Code Section 409A, payment
of such amounts shall not commence until you incur a Separation from Service.

	 
	 	b.	 	Notwithstanding any provision to the contrary in this Agreement (other than
Section 21(c) below) no payments to which you become entitled under this Agreement
shall be made or paid to you prior to the earlier of (1) the expiration of the
six-month period measured from the date of your Separation from Service with the
Company or (2) the date of your death, if you are deemed at the time of the Separation
from Service a “specified employee” within the meaning of Code Section 409A, and such
delayed commencement is otherwise required in order to avoid a prohibited distribution
under Code Section 409A(a)(2). Upon expiration of the applicable deferral period, all
payments deferred pursuant to this Section 21(b) shall be paid to you in a lump sum,
and any remaining payments due under this Agreement shall be paid in accordance with
the remaining payment dates specified herein.

	 
	 	c.	 	The six-month holdback set forth in Section 21(b) above shall not be applicable
to any cash Severance Benefits under Section 6 that are paid to you by March 15 of the
calendar year following the calendar year in which you become entitled to Severance
Benefits.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as if the date set forth above.

	 	 	 	 	 
	Date June 29, 2010                     	By: Versar, Inc.

 	 
	 	/S/ Paul J. Hoeper
 	 
	 	Chairman of the Board 	 
	 	 	 
	 
	 	 	 
	Date July 2, 2010                     	/S/ Anthony L. Otten
 	 
	 	Anthony L Otten 	 
	 	 	 
	 

Company notices to you shall be addressed as follows (or in any other manner you notify the Company
to use):

4821 Woodway Lane, N.W.

Washington, DC 20016

 

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