Document:

Exhibit
10-uu

 

 

ASSET PURCHASE
AGREEMENT

 

 

BY AND AMONG

 

 

CINERGY CAPITAL
& TRADING, INC.,

 

CINCAP VII, LLC

 

 

AND

 

 

PSI ENERGY, INC.

 

 

Dated as of
February 5, 2003

 

 

	
  ARTICLE I

  
	
  DEFINITIONS

  
	
   

  
	
  ARTICLE II

  
	
  PURCHASE AND
  SALE

  
	
   

  	
   

  
	
  Section 2.01.

  	
  Transfer of Assets

  
	
  Section 2.02.

  	
  Excluded Assets

  
	
  Section 2.03.

  	
  Assumed Liabilities

  
	
  Section 2.04.

  	
  Excluded Liabilities

  
	
   

  	
   

  
	
  ARTICLE III

  
	
  PURCHASE
  PRICE; CLOSING

  
	
   

  	
   

  
	
  Section 3.01.

  	
  Purchase Price

  
	
  Section 3.02.

  	
  Inventory

  
	
  Section 3.03.

  	
  Proration

  
	
  Section 3.04.

  	
  Closing

  
	
  Section 3.05.

  	
  Closing Deliveries

  
	
   

  	
   

  
	
  ARTICLE IV

  
	
  REPRESENTATIONS AND
  WARRANTIES

  
	
   

  	
   

  
	
  Section 4.01.

  	
  Representations and Warranties of Parent
  and Seller

  
	
  Section 4.02.

  	
  Representations and Warranties of Buyer

  
	
   

  	
   

  
	
  ARTICLE V

  
	
  COVENANTS

  
	
   

  	
   

  
	
  Section 5.01.

  	
  Books and Records

  
	
  Section 5.02.

  	
  Finder’s Fees

  
	
  Section 5.03.

  	
  Tax Matters

  
	
  Section 5.04.

  	
  Further Assurances

  
	
   

  	
   

  
	
  ARTICLE VI

  
	
  INDEMNIFICATION

  
	
   

  	
   

  
	
  Section 6.01.

  	
  Survival

  
	
  Section 6.02.

  	
  Indemnification

  
	
  Section 6.03.

  	
  Procedure for Indemnification

  
	
   

  	
   

  
	
  ARTICLE VII

  
	
  MISCELLANEOUS
  PROVISIONS

  
	
   

  	
   

  
	
  Section 7.01

  	
  Notices

  

 

 

	
  Section 7.02.

  	
  Waiver

  
	
  Section 7.03.

  	
  Entire Agreement; Amendment etc.

  
	
  Section 7.04.

  	
  Assignment

  
	
  Section 7.05.

  	
  Severability

  
	
  Section 7.06.

  	
  Bulk Sales Laws

  
	
  Section 7.07.

  	
  Governing Law

  
	
  Section 7.08.

  	
  Counterparts; Facsimile Execution

  
	
  Section 7.09.

  	
  Schedules

  
	
  Section 7.10

  	
  U.S. Dollars

  
	
  Section 7.11.

  	
  Dispute Resolution

  
	
  Section 7.12.

  	
  Ratemaking

  
	
  Section 7.13.

  	
  State Review

  
	
   

  	
   

  
	
  SCHEDULES

  
	
   

  	
   

  
	
  Schedule I

  	
  Form
  of Deed

  
	
  Schedule II

  	
  Form of Bill of Sale

  
	
  Schedule III

  	
  Form of
  Assumption Agreement

  
	
   

  	
   

  
	
  DISCLOSURE SCHEDULES

  
	
   

  	
   

  
	
  Schedule 2.01(b)

  	
  Tangible
  Personal Property

  
	
  Schedule 2.01(d)

  	
  Transferred
  Contracts

  
	
  Schedule 2.01(e)

  	
  Transferred
  Permits

  
	
  Schedule 4.01(c)(ii)

  	
  Seller’s
  Required Governmental and Third Party Consents

  
	
  Schedule 4.01(g)(i)

  	
  Real Property

  
	
  Schedule 4.01(k)

  	
  Environmental
  Permits

  
	
  Schedule 4.01(m)

  	
  Seller Contracts

  
	
  Schedule 4.01(o)

  	
  Permits

  
	
  Schedule 4.02(c)(ii)

  	
  Buyer’s
  Required Governmental and Third Party Consents

  
			

 

 

ASSET PURCHASE
AGREEMENT

 

ASSET PURCHASE AGREEMENT
(this “Agreement”), dated as of February 5, 2003, by and among Cinergy Capital
& Trading, Inc., an Indiana corporation (“Parent”), CinCap VII, LLC, a
Delaware limited liability company and indirect wholly-owned subsidiary of
Parent (“Seller”), and PSI
Energy, Inc., an Indiana corporation (“Buyer”
and, together with Parent and Seller, “Parties”
and individually, a “Party”).

 

W  I  T
N  E  S  S  E  T  H

 

WHEREAS, Seller owns the
Henry County Generating Station (“Henry County Station”), a simple cycle,
natural gas-fired electric generating station located in Henry County, Indiana,
comprised of three GE Model LM 6000 combustion turbines with an aggregate summer
rated capacity of approximately 136.5 megawatts, together with certain other
assets, properties, facilities and rights associated therewith or ancillary
thereto; and

 

WHEREAS, Buyer desires to
purchase and assume from Seller, and Seller desires to sell and assign to
Buyer, the Purchased Assets (as hereinafter defined) and certain associated
liabilities, upon the terms and conditions hereinafter set forth;

 

NOW, THEREFORE, in
consideration of the premises and the mutual covenants, agreements, representations
and warranties hereinafter set forth, the Parties, intending to be legally
bound, hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

SECTION
1.01.          Definitions.          (a)          As
used in this Agreement, the following terms have the following meanings::

 

“Affiliate” means a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.  The term “control”
(including the terms “controlling,” “controlled by” and “under common control
with”) means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

 

“Ancillary Agreements” means the Assumption
Agreement, the Bill of Sale and the Deed.

 

“Assumption Agreement” means the form of
Assumption Agreement of Buyer in favor of Seller attached hereto as
Schedule III.

 

1

 

“Assumed Liabilities” has the meaning set forth
in Section 2.03.

 

“Bill of Sale” means the form of Bill of Sale
from Seller to Buyer attached hereto as Schedule II.

 

“Buyer” has the
meaning set  in the first paragraph of this Agreement.

 

“Buyer Indemnitee”
has the meaning set forth in Section 6.02.

 

“Buyer’s
Required Consents” means Buyer’s Required Governmental Consents and
Buyer’s Required Third-Party Consents.

 

“Buyer’s Required Governmental Consents” means
the consents, approvals, filings and/or notices of, with, from or to
Governmental Authorities listed in Section I of Schedule 4.02(c)(ii).

 

“Buyer’s Required Third-Party Consents” means
the consents, approvals, filings and/or notices of, with, from or to Third
Parties (other than Governmental Authorities) listed in Section II of
Schedule 4.02(c)(ii).

 

“Carrying Costs” means an amount in dollars
equal to the financing costs associated with Henry County Station incurred from
the earlier of (1) the date of the Indiana Utility Regulatory Commission Order
in Cause No. 42145 granting Buyer a certificate of public convenience and
necessity to purchase the Henry County Station, or (2) December 1, 2002, to and
including the Closing Date, to be calculated at Buyer’s weighted cost of
capital using the return on equity from Buyer’s last retail base rate case (11%
ROE).

 

“CERCLA” means the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended from time to time.

 

“Closing” has
the meaning set forth in Section 3.04.

 

“Closing Date” has
the meaning set forth in Section 3.04.

 

“Closing Inventory” means an amount in dollars
equal to all Inventories on the Closing Date.

 

“Deed” means the form of
Warranty Deed and Assignment of Adjoining Easement Interest from Seller to
Buyer attached hereto as Schedule I.

 

“Direct Claim” has
the meaning set forth in Section 6.03(c).

 

“Encumbrance” means any
security interest, pledge, mortgage, lien, charge, option to purchase, lease,
claim, restriction, covenant, title defect, hypothecation,

 

2

 

assignment, deposit arrangement or other encumbrance of any kind or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including any conditional sale or title
retention agreement).

 

“Environmental Condition” means the presence or
Release  to
the environment, whether at the Real Property or otherwise, of Hazardous
Substances, including any migration of Hazardous Substances through air, soil
or groundwater at, to or from the Real Property or at, to or from any Off-Site
Location, regardless of when such presence or Release occurred or is
discovered.

 

“Environmental
Laws” means all (a) Laws relating to pollution or protection of the
environment, natural resources or human health and safety, including Laws
relating to Releases or threatened Releases of Hazardous Substances or
otherwise relating to the manufacture, formulation, generation, processing,
distribution, use, treatment, storage, Release, transport, Remediation,
abatement, cleanup or handling of Hazardous Substances, (b) Laws with regard to
recordkeeping, notification, disclosure and reporting requirements respecting
Hazardous Substances and (c) Laws relating to the management or use of natural
resources.

 

“Environmental Liabilities” has the meaning set
forth in Section 2.03.

 

“Environmental
Permit” has the meaning set forth in Section 4.01(k).

 

“Excluded Assets”
has the meaning set forth in Section 2.02.

 

“Excluded Liabilities”
has the meaning set forth in Section 2.04.

 

“GAAP” means  United
States generally accepted accounting principles as in effect from time to time,
applied on a consistent basis.

 

“Good
Utility Practice” means any of the practices, methods and acts
engaged in or approved by a significant portion of the electric utility
industry during the relevant time period, or any of the practices, methods or
acts which, in the exercise of reasonable judgment in light of the facts known
at the time the decision was made, could have been expected to accomplish the
desired result at a reasonable cost consistent with good business practices,
reliability, safety and expedition.

 

“Governmental Authority” means any: (a) nation, state,
county, city, town, village, district, or other jurisdiction of any nature; (b)
federal, state, local, municipal, foreign, or other government; (c)
governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal); (d) multi-national organization or body; or (e) body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power of any nature.

 

3

 

“Hazardous Substances” means (a)
any petrochemical or petroleum products, oil or coal ash, radioactive
materials, radon gas, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation and transformers or other equipment that
contain dielectric fluid which may contain levels of polychlorinated biphenyls;
(b) any chemicals, materials or substances defined as or included in the
definition of “hazardous substances,” “hazardous wastes,” “hazardous
materials,” “hazardous constituents,” “restricted hazardous materials,”
“extremely hazardous substances,” “toxic substances,” “contaminants,”
“pollutants,” “toxic pollutants,” or words of similar meaning and regulatory
effect under any applicable Environmental Law; and (c) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
applicable Environmental Law.

 

“Henry County Station” has the meaning given in
the recitals to this Agreement.

 

“Improvements” means all buildings,
structures,  machinery and equipment,
fixtures, construction in progress, and other improvements, including all
piping, cables and similar equipment forming part of the mechanical,
electrical, plumbing or HVAC infrastructure of any building, structure or
equipment, located on and affixed to the Real Property.

 

“Indemnifiable
Loss” has the meaning set forth in Section 6.02(a).

 

“Indemnifying
Party” has the meaning set forth in Section 6.02(d).

 

“Indemnitee” has the meaning set forth in
Section 6.02(c).

 

“Inventories” means all inventories of fuels,
supplies, materials and spare parts of Seller located on or in transit to the
Real Property.

 

“Knowledge” means the
actual knowledge of the corporate officer or officers of the specified Person
charged with responsibility for the particular function as of the date of this
Agreement, or, with respect to any certificate delivered pursuant to this
Agreement, the date of delivery of the certificate, after reasonable inquiry by
each such officer of selected employees of the specified Person whom such
officer believes, in good faith, to be the persons generally responsible for
the subject matters to which the knowledge is pertinent.

 

“Laws” means all
laws, statutes, rules, regulations, ordinances and other pronouncements having
the effect of law of the United States, any foreign country and any domestic or
foreign state, county, city or other political subdivision or of any
Governmental Authority.

 

“Liability” means any liability or obligation,
whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
whether incurred or consequential, and whether due or to become due.

 

4

 

“Material Adverse Effect”
means (i) any event, circumstance or condition materially impairing the
ability of Seller or Parent to perform its obligations under this Agreement or
any Ancillary Agreement, or (ii) any change in or effect on Seller or the
Purchased Assets that is materially adverse to the Purchased Assets, other than
(a) any change resulting from changes in the international, national, regional
or local wholesale or retail markets for electricity, (b) any change resulting
from changes in the international, national, regional or local markets for fuel
used at Henry County Station, (c) any change resulting from changes in the
North American, national, regional or local electric transmission system, and
(d) any change in Law generally applicable to similarly situated Persons.

 

“Net Book Value” means an amount in dollars, as set
forth in the balance sheet of Seller as of the applicable date, equal to total
fixed assets net of accrued depreciation.

 

“Off-Site Location” means any real property
other than the Real Property.

 

“Organizational Documents”
means (a) the articles or certificate of incorporation and the bylaws of
a corporation; (b) the limited liability company or operating agreement and
certificate of formation of a limited liability company; (c) the partnership
agreement and any statement of partnership of a general partnership; (d) the
limited partnership agreement and the certificate of limited partnership of a
limited partnership; (e) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person; and (f)
any amendment to any of the foregoing.

 

“Parent” has the meaning set forth in the first
paragraph of this Agreement.

 

“Party” has the meaning set forth in the first
paragraph of this Agreement.

 

“Permits”
has the meaning set forth in Section 4.01(o).

 

“Permitted Encumbrances”
means (i) the respective rights and obligations of the Parties under this
Agreement and the Ancillary Agreements; (ii) all matters that would be
disclosed in a current title commitment or title policy or survey for the Real
Property; (iii) Encumbrances for Taxes not yet due or which are being contested
in good faith by appropriate proceedings and that would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect; (iv)
carriers’, warehousemen’s, materialmen’s, mechanics’, repairman’s or other like
Encumbrances arising in the ordinary course of business that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; (v) zoning, planning, conservation restriction and other land
use and environmental regulations by Governmental Authorities; (vi)
Encumbrances resulting from legal proceedings being contested in good faith by
appropriate proceedings that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect; and (vii) other
Encumbrances that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

5

 

“Person” means any
individual, corporation (including any non-profit corporation), general or
limited partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or Governmental
Authority.

 

“Prime Rate” means as of any date, the prime
rate as published in The Wall Street Journal on such date or, if not published
on such date, on the most recent date of publication.

 

“Purchase Price” has the meaning set forth in
Section 3.01.

 

“Purchased Assets” has the meaning set forth in
Section 2.01.

 

“Real Property” has the meaning set forth in
Section 4.01(g)(i).

 

“Real Property
Lease” has the meaning set forth in Section 4.01(g)(ii).

 

“Release”
means any release, spill, leak, discharge, disposal of, pumping, pouring,
emitting, emptying, injecting, leaching, dumping or allowing to escape into or
through the environment.

 

“Remediation” means an action of any kind to
address an Environmental Condition or a Release of Hazardous Substances or the
presence of Hazardous Substances at the Real Property or an Off-Site Location,
including the following activities to the extent they relate to, result from or
arise out of the presence of a Hazardous Substance at the Real Property or an
Off-Site Location:  (a) monitoring,
investigation, assessment, treatment, cleanup, containment, removal,
mitigation, response or restoration work; (b) obtaining any permits, consents,
approvals or authorizations of any Governmental Authority necessary to conduct
any such activity; (c) preparing and implementing any plans or studies for any
such activity; (d) obtaining a written notice from a Governmental Authority
with jurisdiction over the Real Property or an Off-Site Location under
Environmental Laws that no material additional work is required by such
Governmental Authority; (e) the use, implementation, application, installation,
operation or maintenance of removal actions on the Real Property or an Off-Site
Location, remedial technologies applied to the surface or subsurface soils,
excavation and treatment or disposal of soils at an Off-Site Location, systems
for long-term treatment of surface water or groundwater, engineering controls
or institutional controls; and (f) any other activities reasonably determined
by a Party to be necessary or appropriate or required under Environmental Laws
to address an Environmental Condition or a Release of Hazardous Substances or
the presence of Hazardous Substances at the Real Property or an Off-Site
Location.

 

“Representatives” means,
with respect to a Party, such respective directors (or parties
performing similar functions), officers, employees, representatives, agents and

 

6

 

advisors (including accountants, legal counsel, environmental
consultants and financial advisors).

 

“Seller” has the meaning set forth in the
first paragraph of this Agreement.

 

“Seller Indemnitee”
has the meaning set forth in Section 6.02(a).

 

“Seller’s Required Consents” means Seller’s
Required Governmental Consents and Seller’s Required Third-Party Consents.

 

“Seller’s Required Governmental Consents” means
the consents, approvals, filings and/or notices of, with, from or to
Governmental Authorities listed in Section I of Schedule 4.01(c)(ii).

 

“Seller’s Required Third-Party Consents” means
the consents, approvals, filings and/or notices of, with, from or to Third
Parties (other than Governmental Authorities) listed in Section II of
Schedule 4.01(c)(ii).

 

“Tax” means any
tax, charge, fee, levy, penalty or other assessment imposed by any federal,
state, local or foreign taxing authority, including, but not limited to, any
income, gross receipts, excise, property, sales, transfer, use, franchise,
payroll, withholding, social security or other tax, including any interest,
penalty or addition attributable thereto.

 

“Third Party Claim”
has the meaning set forth in Section 6.03(a).

 

“Transferred Contracts” has the meaning set
forth in Section 2.01(d).

 

“Transferred Intellectual Property” has the
meaning set forth in Section 2.01(h).

 

“Transferred Permits” has the meaning set forth
in Section 2.01(e).

 

(b)                                 Interpretation.                    In this
Agreement, unless otherwise specified or where the context otherwise requires:

 

(i)                                     a
reference, without more, to a recital is to the relevant recital to this
Agreement, to an Article or 
Section is to the relevant Article or Section of this
Agreement, and to a Schedule is to the relevant Schedule to this
Agreement;

 

(ii)                                  words
importing any gender shall include other genders;

 

(iii)                               words
importing the singular only shall include the plural and vice versa;

 

(iv)                              the
words “include,” “includes” or “including” shall be deemed to be followed by
the words “without limitation;”

 

7

 

(v)                                 reference to any agreement,
document or instrument means such agreement, document or instrument as amended
or modified and in effect from time to time in accordance with the terms
thereof;

 

(vi)                              reference to any applicable Law
means, if applicable, such Law as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to time, including
rules and regulations promulgated thereunder,

 

(vii)                           “or” is used in the inclusive sense
of “and/or”;

 

(viii)                        references to documents,
instruments or agreements shall be deemed to refer as well to all addenda,
exhibits, schedules or amendments thereto;

 

(ix)                                the
words “hereof,” “herein” and “herewith” and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole and
not to any particular provision of this Agreement; and

 

(x)                                   references
to any party hereto or any other agreement or document shall include such
party’s successors and permitted assigns, but, if applicable, only if such successors and assigns are not
prohibited by this Agreement.

 

ARTICLE II

 

PURCHASE AND SALE

 

Section 2.01.                             Transfer of Assets.          Upon the terms and conditions set forth in this Agreement, at the
Closing, Seller shall sell, convey, assign, transfer and deliver to Buyer, and
Buyer shall purchase and acquire from Seller, free and clear of all
Encumbrances other than Permitted Encumbrances, all of Seller’s right, title
and interest in, to and under the real and personal property, tangible and
intangible, constituting, or used in connection with the operation of, Henry
County Station, except as otherwise provided in Section 2.02, each as of
the Closing Date, including all of Seller’s right, title and interest in, to
and under the following assets (collectively, the “Purchased Assets”):

 

(a)                                  the Real Property;

 

(b)                                 the machinery, fixtures, equipment
(including communications equipment), vehicles, furniture and other personal
property located on the Real Property, including the items of tangible personal
property listed on Schedule 2.01(b);

 

(c)                                  all Inventories;

 

8

 

(d)                                 subject to the receipt of any
necessary consents and approvals, the contracts or agreements (including any
licenses or real or personal property leases, other than any thereof
constituting Transferred Permits or Transferred Intellectual Property) listed
on Schedule 2.01(d) (the “Transferred Contracts”);

 

(e)                                  subject to the receipt of any
necessary consents and approvals, the permits, licenses, certificates,
certifications, orders and other governmental authorizations listed on
Schedule 2.01(e) (the “Transferred Permits”);

 

(f)                                    all
unexpired, transferable warranties and guarantees from manufacturers, vendors
and other third parties with respect to any item of real or tangible personal
property referred to in clauses (a), (b) and (c) of this Section 2.01;

 

(g)                                 all
books, expired purchase orders, operating records, operating, safety and
maintenance manuals, engineering design plans, blueprints and as-built plans,
specifications, procedures, studies, reports, equipment repair, safety,
maintenance or service records, and similar items (subject to the right of
Seller to retain copies of same for its use), other than such items that are
proprietary to third parties and accounting records (to the extent that any of
the foregoing is contained in an electronic format, Seller shall cooperate with
Buyer to transfer such items to Buyer in a format that is reasonably acceptable
to Buyer); and

 

(h)                                 subject to the receipt of any
necessary consents and approvals, any intellectual property (the “Transferred
Intellectual Property”).

 

Notwithstanding the foregoing, the transfer of the Purchased
Assets pursuant to this Agreement shall not include the assumption of any
Liability related to the Purchased Assets unless Buyer expressly assumes that
Liability pursuant to Section 2.03.

 

Section 2.02.                             Excluded Assets.          Notwithstanding anything to the
contrary contained in Section 2.01 or elsewhere in this Agreement, the
following assets of Seller (collectively, the “Excluded Assets”) are not part
of the sale and purchase contemplated hereunder, are excluded from the
Purchased Assets and shall remain the property of Seller after the Closing:

 

(a)                                  all cash, cash equivalents, bank
deposits, accounts and notes receivables (trade or otherwise), prepaid expenses
and any income, sales, payroll or other Tax receivables;

 

(b)                                 all minute books, limited liability
company interest transfer books, corporate seals and other corporate records;

 

(c)                                  any
refund, credit penalty payment, adjustment or reconciliation (i) related to
Taxes paid prior to the Closing Date in respect of the Purchased Assets,
whether such refund, adjustment or reconciliation is received as a payment or,
subject to

 

9

 

Section 3.03, as a credit against future Taxes payable, or (ii)
arising under Assigned Contract and relating to a period before the Closing
Date;

 

(d)                                 the
rights of Seller in, to and under all contracts, agreements, arrangements, permits
or licenses of any nature, of which the obligations of Seller thereunder are
not expressly assumed by Buyer pursuant to Section 2.03;

 

(e)                                  any
insurance policies; and

 

(f)                                    the
rights of Seller under this Agreement and the Ancillary  Agreements.

 

Section 2.03.                             Assumed Liabilities.          On
the Closing Date, Buyer shall execute and deliver in favor of Seller the
Assumption Agreement, pursuant to which Buyer shall assume and agree to pay,
perform and discharge, without recourse to Seller or Parent, the following
Liabilities of Seller, solely to the extent such Liabilities accrue or arise
from and after the Closing, other than Excluded Liabilities (as defined below),
in accordance with the respective terms and subject to the respective
conditions thereof (collectively, the “Assumed Liabilities”):

 

(a)                                  All
Liabilities of Seller under the Transferred Contracts, Transferred Permits and
Transferred Intellectual Property, in each case in accordance with the terms
thereof, except to the extent that such Liabilities, but for a breach or
default by Seller, would have been paid, performed or otherwise discharged on
or prior to the Closing Date or to the extent the same arise out of any such
breach or default or out of any event which after the giving of notice would
constitute a default by Seller;

 

(b)                                 all
Liabilities with respect to Henry County Station arising under or relating to
Environmental Laws or relating to any claim in respect of Environmental
Conditions or Hazardous Substances, including settlements, judgments, costs and
expenses, including reasonable attorneys fees, whether based on common law or
Environmental Laws (collectively, “Environmental Liabilities”), but in each
case solely to the extent accruing or arising from and after the Closing Date,
with respect to (i) any violation or alleged violation of Environmental Laws
with respect to the ownership, lease, maintenance or operation of any of the
Purchased Assets, including any fines or penalties that arise in connection
with the ownership, lease, maintenance or operation of the Purchased Assets,
and the costs associated with correcting any such violations; (ii) loss of
life, injury to persons or property or damage to natural resources caused (or
allegedly caused) by any Environmental Condition or the presence or Release of
Hazardous Substances at, on, in, under, adjacent to or migrating from the
Purchased Assets, including any Environmental Condition or Hazardous Substances
contained in building materials at or adjacent to the Purchased Assets or in the
soil, surface water, sediments, groundwater, landfill cells, or in other
environmental media at or near the Purchased Assets; (iii) any Remediation of
any Environmental Condition or Hazardous Substances that are present or have
been Released at, on, in, under, adjacent to or 

 

10

 

migrating from, the Purchased Assets or in the soil, surface water,
sediments, groundwater, landfill cells or in other environmental media at or
adjacent to the Purchased Assets; (iv) any bodily injury, loss of life,
property damage, or natural resource damage arising from the storage,
transportation, treatment, disposal, discharge, recycling or Release, at any
Off-Site Location, or arising from the arrangement for such activities, of
Hazardous Substances generated in connection with the ownership, lease,
maintenance or operation of the Purchased Assets; (v) any Remediation of any
Environmental Condition or Release of Hazardous Substances arising from the
storage, transportation, treatment, disposal, discharge, recycling or Release,
at any Off-Site Location, or arising from the arrangement for such activities,
of Hazardous Substances generated in connection with the ownership, lease,
maintenance or operation of the Purchased Assets; and (vi) any obligation to
repower, replace, decommission, deactivate, dismantle, demolish or close the
Purchased Assets or any  portion
thereof, or any surface impoundments or other waste or effluent handling or
storage units on owned or leased adjacent properties used in connection with
the operation of the Purchased Assets;

 

(c)                                  all
liabilities or obligations to third parties for personal injury or tort, or
similar causes of action arising solely out of the ownership, lease,
maintenance or operation of the Purchased Assets (collectively, “Tort
Liabilities”), but in each case solely to the extent accruing or arising from
and after the Closing Date; and

 

(d)                                 any
Tax that may be imposed by any federal, state or local government on the
ownership, sale, operation or use of the Purchased Assets on or after the
Closing Date, except for any income Taxes attributable to income received by
Seller.

 

Section 2.04.                             Excluded
Liabilities.          Except
for the Assumed Liabilities, Buyer shall not assume by virtue of this
Agreement, the Assumption Agreement or any other Ancillary Agreement, or the
transactions contemplated hereby or thereby, or otherwise, and shall have no
liability for, any Liabilities of Seller (the “Excluded Liabilities”),
including any of the following Liabilities:

 

(a)                                  any
Liabilities of Seller in respect of any Excluded Assets or other assets of
Seller that are not Purchased Assets, except to the extent caused by the acts
or omissions of Buyer or its Representatives or Buyer’s ownership, lease,
maintenance or operation of the Purchased Assets;

 

(b)                                 any
Liabilities in respect of Taxes attributable to the Purchased Assets for
taxable periods ending before the Closing Date;

 

(c)                                  any
Liabilities of Seller (i) arising from the breach or default by Seller, prior to the Closing Date, of
any Transferred Contract, Transferred Permit or Transferred Intellectual
Property or (ii) in respect of any other contract, agreement, personal property
lease, permit, license or other arrangement or instrument entered into by Seller;

 

11

 

(d)                                 subject
to Section 3.03, any payment obligations of Seller, including accounts or
notes payable, arising prior to the Closing Date;

 

(e)                                  any
fines and penalties imposed by any Governmental Authority resulting from any
act or omission by Seller that occurred prior to the Closing Date;

 

(f)                                    any
income Taxes attributable to income received by Seller;

 

(g)                                 any
Liability of Seller arising as a result of its execution and delivery of this
Agreement or any Ancillary Agreement, the performance of its obligations hereunder or thereunder, or
the consummation by Seller of the transactions contemplated hereby or thereby;

 

(h)                                 any
Liability of Seller based on Seller’s acts or omissions after the Closing; and

 

(i)                                     any
and all Environmental Liabilities and Tort Liabilities accruing, arising,
existing or occurring prior to the Closing Date.

 

ARTICLE III

 

PURCHASE PRICE; CLOSING

 

Section 3.01.                             Purchase
Price.          The
purchase price payable by Buyer to Seller for the Purchased Assets is
$69,602,024.64, such amount being equal to (a) the Net Book Value at the
earlier of (1) the date of the Indiana Utility Regulatory Commission Order in
Cause No. 42145 granting Buyer a certificate of public convenience and necessity
to purchase the Henry County Station, or (2) December 1, 2002, plus (b) the
Carrying Costs, minus (c) $5 million (collectively, the “Purchase Price”).

 

Section 3.02.                             Inventory.          At
Closing, in addition to payment of the Purchase Price, Buyer shall also
compensate Seller for the Closing Inventory, at cost.

 

Section 3.03.                             Proration.          (a)          Buyer
and Seller agree that all of the items normally prorated, including those
listed below, relating to the business and operation of the Purchased Assets
shall be prorated as of the Closing Date, with Seller liable to the extent such
items relate to any time period through the Closing Date, and Buyer liable to
the extent such items relate to periods subsequent to the Closing Date:

 

(i)                                     personal
property, real estate, occupancy and any other Taxes, assessments and other
charges, if any, on or with respect to the business and operation of the
Purchased Assets;

 

12

 

(ii)                                  rent,
Taxes and other items payable by or to Seller under any of the Seller
Agreements to be assigned to and assumed by the Buyer hereunder;

 

(iii)                               any
permit, license or registration fees with respect to any Environmental Permit
or other Permit; and

 

(iv)                              sewer
rents and charges for water, telephone, electricity and other utilities.

 

(b)                                 In
connection with such proration, in the event that actual figures are not
available at the Closing Date, the proration shall be based upon the actual
amount of such Taxes or fees for the preceding year (or appropriate period) for
which actual Taxes or fees are available and such Taxes or fees shall be
reprorated upon request of either the Seller or the Buyer made within 60 days
of the date that the actual amounts become available.  Seller and Buyer agree to furnish each other with such documents
and other records as may be reasonably requested in order to confirm all
adjustment and proration calculations made pursuant to this Section 3.03.

 

Section 3.04.                             Closing.          The
sale, assignment, conveyance, transfer and delivery of the Purchased Assets,
the payment of the Purchase Price, and the consummation of the other
transactions contemplated by this Agreement shall take place at a closing (the
“Closing”), to be held at the offices of Cinergy Corp., 139 East Fourth Street,
Cincinnati Ohio 45201 at 10:00 a.m. eastern standard time (or another mutually
acceptable time and location), on the date of execution and delivery of this
Agreement by each of the Parties (or on such other date as may be mutually
agreed upon by the Parties) (the “Closing Date”)  The Closing shall be effective for all purposes as of the close
of business on the Closing Date.

 

Section 3.05.                             Closing Deliveries.          (a)          At
the Closing, Parent will deliver, or cause to be delivered, to Buyer:

 

(i)                                     the
Deed, duly executed and acknowledged by Seller and in recordable form;

 

(ii)                                  the
Bill of Sale, duly executed by Seller;

 

(iii)                               copies
of all Seller’s Required Consents obtained by Parent or Seller ;

 

(iv)                              the
certificate of incorporation, certificate of formation or similar formation
document of each of Parent and Seller, certified as of a date not earlier than
15 days prior to the Closing Date, by the office of the Secretary of State of
such entity’s organization;

 

13

 

(v)                                 a
certificate of good standing with respect to (A) Seller , dated as of a date
not earlier than 20 days prior to the Closing Date, from the office of the
Secretary of State of such entity’s organization and from the office of
Secretary of State of each state in which Seller is qualified or licensed to do
business as a foreign limited liability company, and (B) Parent, dated as of a
date not earlier than 20 days prior to the Closing Date, from the office of the
Secretary of State of such entity’s organization;

 

(vi)                              copies,
certified on the Closing Date by the Secretary or Assistant Secretary of each
of Parent and Seller of corporate or limited liability company resolutions, as
applicable, authorizing the execution and delivery of this Agreement and each
Ancillary Agreement to which Parent or Seller is a party, and the consummation
of the transactions contemplated hereby and thereby;

 

(vii)                           a
certificate dated the Closing Date of the Secretary or Assistant Secretary of
each of Parent and Seller identifying the name and title and bearing the
signatures of the respective officers thereof authorized to execute and deliver
this Agreement and each Ancillary Agreement to which Parent or Seller is a
party;

 

(viii)                        a complete
copy of the Organizational Documents as in effect on the Closing Date of each
of Parent and Seller, certified by the Secretary or Assistant Secretary of each
of Parent and Seller; and

 

(ix)                                such
other documents as Buyer may reasonably request to carry out the purposes of
this Agreement.

 

(b)                                 At
the Closing, Buyer will issue to Cinergy Corp. in full satisfaction of the
Purchase Price one or more promissory notes, each in substantially the form
attached as Exhibit A to the Buyer’s Petition filed with the Indiana Utility
Regulatory Commission in Cause No. 42311 on October 18, 2002.  In addition, Buyer will deliver, or cause to
be delivered, to Seller:

 

(i)                                     the
Assumption Agreement, duly executed by Buyer;

 

(ii)                                  copies
of all Buyer’s Required Consents obtained by Buyer;

 

(iii)                               the
certificate of incorporation, certificate of formation or similar formation
document of Buyer , certified as of a date not earlier than 20 days prior to
the Closing Date, by the office of the Secretary of State of such entity’s organization;

 

(iv)                              copies,
certified on the Closing Date by the Secretary or Assistant Secretary of Buyer,
of corporate resolutions authorizing the execution and delivery of this
Agreement and each Ancillary Agreement to which Buyer is a party, and the
consummation of the transactions contemplated hereby and thereby;

 

(v)                                 a
certificate dated the Closing Date of the Secretary or Assistant Secretary of
Buyer identifying the name and title and bearing the signatures of the

 

14

 

officers thereof authorized to execute and deliver
this Agreement and each Ancillary Agreement to which Buyer is a party;

 

(vi)                              a
complete copy of the Organizational Documents as in effect on the Closing Date
of Buyer, certified by the Secretary or Assistant Secretary of Buyer; and

 

(vii)                           such
other documents as Seller or Parent may reasonably request to carry out the
purposes of this Agreement.

 

ARTICLE IV

 

REPRESENTATIONS AND
WARRANTIES

 

Section 4.01.                             Representations and
Warranties of Parent and Seller. 
Parent and Seller jointly and severally represent and warrant to Buyer
as follows:

 

(a)                                  Organization and
Good Standing; Qualification.          Parent
is a corporation duly formed, validly existing and in good standing under the
laws of the State of Indiana.  Seller is
a limited liability company duly formed, validly existing and in good standing
under the laws of the State of Delaware. 
Seller has all requisite power and authority to own, lease or operate
the Purchased Assets and to carry on its business as it is now being
conducted.  Parent has all requisite
power and authority to own the outstanding limited liability company interests
of Seller and to carry on its business with respect to Seller as it is now
being conducted.  Seller does not own,
directly or indirectly, any capital stock or other equity securities of, or
have any other direct or indirect equity or other ownership interest in, any
other corporation, limited liability company, partnership, entity or business.  Seller is duly qualified or licensed to do
business as a foreign limited liability company and is in good standing as a
foreign limited liability company in each jurisdiction in which the character
or location of the properties owned or used by it or the nature of the business
conducted by it makes such qualification or license necessary, except for
jurisdictions in which the failure to be so qualified, licensed or in good
standing would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.

 

(b)                                 Authority and
Enforceability.          Each of
Parent and Seller has full corporate or limited liability company (as
applicable) power and authority to execute and deliver, and carry out its
obligations under, this Agreement and each Ancillary Agreement to which it is a
party and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance by
Parent and Seller of this Agreement and each Ancillary Agreement to which it is
a party, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate or
limited liability company (as applicable) action on the part of Parent and
Seller.  Assuming the due authorization,
execution and delivery of this Agreement and each Ancillary Agreement to which
it is a party by Buyer, and

 

15

 

subject to the receipt of Seller’s Required Consents, each of this
Agreement and each such Ancillary Agreement constitutes a legal, valid and
binding obligation of Parent and/or Seller, as the case may be, enforceable
against Parent and/or Seller in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency and other
similar laws affecting the rights and remedies of creditors generally and by
general principles of equity.

 

(c)                                  No Violation;
Consents and Approvals.          (i)          Subject
to obtaining Seller’s Required Consents, neither the execution, delivery and
performance by Parent and Seller of this Agreement and each Ancillary Agreement
to which Parent or Seller is a party, nor the consummation by Parent and Seller
of the transactions contemplated hereby and thereby, will (A) conflict with or
result in any breach of any provision of the Organizational Documents of Parent
or Seller; (B) result in a default (or give rise to any right of termination,
cancellation or acceleration), or require a consent, under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which Parent or Seller is a
party or by which it or any of the Purchased Assets may be bound, except for
any such defaults or consents (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect; or (C) constitute a violation of any law,
regulation, order, judgment or decree applicable to Parent or Seller, except
for any such violations as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

(ii)                                  Except
as set forth in Section I of Schedule 4.01(c)(ii) (listing each of
Seller’s Required Governmental Consents) or Section II thereof (listing
each of Seller’s Required Third-Party Consents), no consent or approval of,
filing with, or notice to, any Governmental Authority or other Person is
necessary for the execution, delivery and performance of this Agreement by
Parent or Seller or of any Ancillary Agreement to which Parent or Seller is a
party, or the consummation by Parent or Seller of the transactions contemplated
hereby and thereby, other than such consents, approvals, filings or notices
which, if not obtained or made, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

(d)                                 Ownership.          Parent
owns beneficially and of record all the outstanding limited liability company
interests of CinCap VIII, LLC, a Delaware limited liability company (“CinCap
VIII”), free and clear of all Encumbrances. 
CinCap VIII owns beneficially and of record all the outstanding limited
liability company interests of Seller, free and clear of all Encumbrances.

 

(e)                                  Financial
Statements; No Material Adverse Effect; No Undisclosed Liabilities.          (i)          Seller has delivered to Buyer a balance sheet of Seller as at December 31,
2001, and the related statement of income for the fiscal year then ended,
including the notes thereto.  Such
financial statements fairly present the financial condition and the results of
operations of Seller as of the date and for the period referred to in such
financial statements, all in accordance with GAAP.

 

16

 

(ii)                                  Since
December 31, 2001, there has not been any Material Adverse Effect and, to the
Knowledge of Parent and Seller, no event has occurred or circumstance exists
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.

 

(iii)                               Seller has no
liabilities or obligations of any nature except for (A) liabilities or
obligations reflected in the financial statements referred to in paragraph (i)
of this Section 4.01(e), including the notes thereto; (B) liabilities or
obligations incurred in the ordinary course of business, whether before or
after the respective dates of the financial statements referred to in paragraph
(i) of this Section 4.01(e); and (C) liabilities or obligations which in
the aggregate are not material to the Purchased Assets.

 

(f)                                    Insurance.          All
material policies of fire, liability, workers’ compensation and other forms of
insurance owned or held by, or on behalf of, Parent or Seller and insuring the
Purchased Assets are in full force and effect, all premiums with respect
thereto covering all periods up to and including the date hereof have been paid
(other than retroactive premiums which may be payable with respect to comprehensive
general liability and workers’ compensation insurance policies), and no notice
of cancellation or termination has been received with respect to any such
policy which was not replaced on substantially similar terms prior to the date
of such cancellation.

 

(g)                                 Real Property.          (i)          Schedule 4.01(g)(i)
sets forth all real property owned, used or occupied by Seller (the “Real
Property”), including a description of all land, and all encumbrances,
easements or rights of way of record (or, if not of record, of which Seller or
Parent has Knowledge) granted on or appurtenant to or otherwise affecting such
Real Property, and all plants, buildings, structures or other Improvements
located thereon.  To the Knowledge of
Parent and Seller, encumbrances, easements or rights of way which are not of
record, if any, would not have a Material Adverse Effect.  There are now in full force and effect duly
issued certificates of occupancy permitting the Real Property and Improvements
located thereon to be legally used and occupied as the same are now
constituted.  To the Knowledge of Parent
and Seller, no fact or condition exists which would prohibit or adversely
affect the ordinary rights of access to and from the Real Property from and to
the existing highways and roads and there is no pending or, to the Knowledge of
Parent or Seller, threatened restriction or denial, governmental or otherwise,
upon such ingress and egress.  To the
Knowledge of Parent and Seller, there is not (i) any claim of adverse possession
or prescriptive rights involving any of the Real Property, (ii) any structure
located on any Real Property which encroaches on or over the boundaries of
neighboring or adjacent properties or (iii) any structure of any other party
which encroaches on or over the boundaries of any such Real Property.  To the Knowledge of Parent and Seller, no
public improvements have been commenced and none are planned which in either
case may result in special assessments or otherwise would, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

 

17

 

(ii)                                  There
are no material Real Property leases (the “Real Property Leases”) relating to
the Purchased Assets under which the Seller is a lessee, lessor or under which
Seller has any interest.

 

(h)                                 Conveyance
of Real Property.          No
state, municipal, or other governmental approval regarding the division,
platting, or mapping of real estate is required as a prerequisite to the
conveyance by Seller to Buyer (or as a prerequisite to the recording of any
conveyance document) of any Real Property pursuant to the terms hereof.

 

(i)                                     Improvements.          Neither
Seller nor any Affiliate thereof has received any written notices from any
Governmental Authority stating or alleging that any Improvements have not been
constructed in compliance with applicable Laws.  No written notice has been received by the Seller or any
Affiliate thereof from any Governmental Authority requiring or advising as to the
need for any repair, alteration, restoration or improvement in connection with
the Purchased Assets.

 

(j)                                     Title;
Condition and Sufficiency of Assets.          (i)          Subject
to Permitted Encumbrances, Seller is the holder of record title to the Real
Property and has good and valid title to the other Purchased Assets which it
purports to own, free and clear of all Encumbrances.

 

(ii)                                  The
tangible assets (real and personal) at, related to, or used in connection with
Henry County Station, taken as a whole, (A) are in good operating and usable
condition and repair, free from any defects (except for ordinary wear and tear,
in light of their respective ages and historical usages, and except for such
defects as do not materially interfere with the use thereof in the conduct of
the normal operation and maintenance of the Purchased Assets taken as a whole)
and (B) have been maintained consistent with Good Utility Practice.

 

(iii)                               Except for immaterial
omissions, the Purchased
Assets (A) constitute all of the assets, tangible and intangible, of any nature
whatsoever, necessary to operate Seller’s business in the manner presently
operated by Seller and (B) include all of the operating assets of Seller.

 

(k)                                  Environmental
Matters.          (i)          Seller
or its Affiliate, Cinergy Power Generation Services, LLC, a Delaware limited
liability company (“GGPS”) holds, and is in compliance with, all permits,
certificates, certifications, licenses and other authorizations issued by
Governmental Authorities under Environmental Laws (collectively, “Environmental Permits”) that are
required for Seller to conduct the business and operations of the Purchased
Assets, and Seller is otherwise in compliance with all applicable Environmental
Laws with respect to the business and operations of the Purchased Assets,
except for any such failures to hold or comply with required Environmental
Permits, or such failures to be in compliance with applicable Environmental
Laws, as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect;

 

18

 

(ii)                                  neither
Seller nor Parent has received any written request for information, or been
notified of any violation, or that it is a potentially responsible party, under
CERCLA or any other Environmental Law for contamination or air emissions at
Henry County Station or the Real Property, except for any such requests or
notices that would result in liabilities under such laws as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, and there are no claims, actions, proceedings or investigations
pending or, to the Knowledge of Seller or Parent, threatened against Seller
before any Governmental Authority or body acting in an adjudicative capacity
relating in any way to any Environmental Laws or against Seller or Parent
concerning contamination or air emissions at Henry County Station or the Real
Property; and

 

(iii)                               there are no outstanding
judgments, decrees or judicial orders relating to the Purchased Assets
regarding compliance with any Environmental Law or to the investigation or
cleanup of Hazardous Substances under any Environmental Law relating to the
Purchase Assets, except for such outstanding judgments, decrees or judicial
orders as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

(iv)                              Schedule 4.01(k)
lists all Environmental Permits.

 

The representations and warranties made in this
Section 4.01(k) are the exclusive representations and warranties of Parent
and Seller relating to environmental matters.

 

(l)                                     Condemnation.               There are no
pending or, to the Knowledge of Parent or Seller, threatened proceedings or
governmental actions to condemn or take by power of eminent domain all or any
part of the Purchased Assets.

 

(m)                               Contracts
and Leases.          (i)          Schedule 4.01(m)
lists all written contracts, agreements, licenses (other than Environmental
Permits, Permits or Intellectual Property) or personal property leases that are
material to the business or operations of the Purchased Assets, other than any
such agreements, licenses, or personal property leases that are expected to
expire or terminate on or prior to the Closing Date.

 

(ii)                                  Except
as disclosed in Schedule 4.01(m), each Transferred Contract (A)
constitutes a legal, valid and binding obligation of Seller and, to Parent’s
and Seller’s Knowledge, constitutes a valid and binding obligation of the other
parties thereto, (B) is in full force and effect and Seller has not delivered
or received any written notice of termination thereunder, and (C) may be
transferred to Buyer pursuant to this Agreement without the consent of the
other parties thereto and will continue in full force and effect thereafter, in
each case without breaching the terms thereof or resulting in the forfeiture or
impairment of any rights thereunder.

 

(iii)                               Except as set forth in
Schedule 4.01(m), there is not under any Transferred Contract any default
or event which, with notice or lapse of time or both, (A) would

 

19

 

constitute a default by Seller or, to Parent’s or Seller’s Knowledge,
any other party thereto, (B) would constitute a default by Seller or, to
Parent’s or Seller’s Knowledge, any other party thereto which would give rise
to an automatic termination, or the right of discretionary termination,
thereof, or (C) would cause the acceleration of any of Seller’s obligations
thereunder or result in the creation of any Encumbrance (other than any
Permitted Encumbrance) on any of the Purchased Assets.  There are no claims, actions, proceedings or
investigations pending or, to the Knowledge of Seller or Parent, threatened
against Seller or any other party to any Transferred Contract before any
Governmental Authority or body acting in an adjudicative capacity relating in
any way to any Transferred Contract or the subject matter thereof.  Seller and Parent have no Knowledge of any
defense, offset or counterclaim arising under any Transferred Contract.

 

(n)                                 Legal
Proceedings.          There
are no actions or proceedings pending or, to the Knowledge of Seller or Parent,
threatened against Seller before any court, arbitrator or Governmental
Authority, which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect. 
Seller is not subject to any outstanding judgments, rules, orders,
writs, injunctions or decrees of any court, arbitrator or Governmental
Authority which, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect.

 

(o)                                 Permits.          (i)          Seller
has all permits, licenses, franchises-and other governmental authorizations,
consents and approvals (other than Environmental Permits, which are addressed
in Section 4.01(k)) (collectively, “Permits”) necessary to own and operate
the Purchased Assets, except where any failures to have such Permits would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  Neither Seller nor
Parent has received any written notification that Seller is in violation, nor
does Parent or Seller have Knowledge of any violations, of any such Permits, or
any Law or judgment of any Government Authority applicable to Seller with respect
to the Purchased Assets, except for violations that would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(ii)                                  Schedule 4.01(o)
lists all material Permits.

 

(p)                                 Taxes.          Seller
has-filed all Tax Returns that are required to be filed by it with respect to
any Tax, and Seller has paid all Taxes that have become due as indicated
thereon, except where such Tax is being contested in good faith by appropriate
proceedings, or where any failures to so file or pay would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.  There are no Encumbrances for
Taxes on the Purchased Assets that are not Permitted Encumbrances.

 

(q)                                 Intellectual
Property.          Seller
has such ownership of or such rights by license or other agreement to use all
Intellectual Property necessary to permit Seller to conduct its business as
currently conducted, except where any failures to have such ownership, license
or right to use would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 
Seller is not, nor has Parent or Seller

 

20

 

received any notice that Seller is, in default (or with the giving of
notice or lapse of time or both, would be in default) under any contract to use
such Intellectual Property, and there are no material restrictions on the
transfer of any material contract, or any interest therein, held by Seller in
respect of such Intellectual Property. 
Neither Parent nor Seller has received notice that Seller is infringing
any Intellectual Property of any other Person in connection with the operation
or business of the Purchased Assets.

 

(r)                                    Compliance
with Laws.          Seller
is in compliance with all applicable Laws with respect to the ownership or
operation of the Purchased Assets, except where any such failures to be in
compliance would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

(s)                                  EWG
Status.          Seller
is an “exempt wholesale generator” and Henry County Station is an “eligible
facility,” each within the meaning of Section 32(a) of the Public Utility
Holding Company Act of 1935.

 

(t)                                    Employees.          Seller
has no employees or employee benefit plans nor has had any employees or
employee benefit plans since the date of its formation.  Seller has not assumed (voluntarily or by
operation of Law or order) or incurred any liabilities associated with
employees or employee benefit plans, including without limitation under or
pursuant to the Employee Retirement Income Security Act of 1974, as amended.

 

(u)                                 Limitation of
Representations and Warranties.          EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT AND IN ANY
ANCILLARY AGREEMENT, PARENT AND SELLER ARE NOT MAKING, AND HEREBY DISCLAIM, ANY
OTHER REPRESENTATIONS AND WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR
IMPLIED, CONCERNING SELLER, PARENT, HENRY COUNTY STATION OR THE PURCHASED
ASSETS OR ANY PART THEREOF.

 

Section 4.02.                             Representations and
Warranties of Buyer.  Buyer
represents and warrants to Seller and Parent as follows:

 

(a)                                  Organization
and Good Standing.          Buyer
is a corporation duly formed, validly existing and in good standing under the
laws of the State of Indiana and has all requisite power and authority to own,
lease or operate its properties and to carry on its business as it is now being
conducted.

 

(b)                                 Authority and
Enforceability.          Buyer
has full corporate power and authority to execute and deliver and carry out its
obligations under this Agreement and each Ancillary Agreement to which it is a
party, and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance by
Buyer of this Agreement and each such Ancillary Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action by Buyer.  Assuming the due authorization, execution and

 

21

 

delivery of this Agreement and each such Ancillary Agreement by the
other party or parties thereto, and subject to the receipt of Buyer’s Required
Consents, each of this Agreement and each such Ancillary Agreement constitutes
a legal, valid and binding obligation of Buyer , enforceable against Buyer in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency and other similar laws affecting the rights
and remedies of creditors generally and by general principles of equity.

 

(c)                                  No
Violation; Consents and Approvals.          (i)          Subject
to obtaining Buyer’s Required Consents, neither the execution, delivery and
performance by Buyer of this Agreement and each Ancillary Agreement to which
Buyer is a party, nor the consummation by Buyer of the transactions
contemplated hereby and thereby, will (A) conflict with or result in any breach
of any provision of the Organizational Documents of Buyer; (B) result in a
default (or give rise to any right of termination, cancellation or
acceleration), or require a consent, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, material agreement or other
instrument or obligation to which Buyer is a party or by which any of their
respective material properties or assets may be bound, except for any such
defaults or consents (or rights of termination, cancellation or acceleration)
as to which requisite waivers or consents have been obtained or which would
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of Buyer to perform its obligations
under this Agreement and the Ancillary Agreements; or (iii) constitute a
violation of any law, regulation, order, judgment or decree applicable to
Buyer, except for any such violations as would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of Buyer to perform its obligations under this Agreement and the
Ancillary Agreements.

 

(ii)                                  Except
as set forth in Section I of Schedule 4.02(c)(ii) (listing each of
Buyer’s Required Governmental Consents) or Section II thereof (listing
each of Buyer’s Required Third-Party Consents), no consent or approval of,
filing with, or notice to, any Governmental Authority or other Person is
necessary for the execution and delivery of this Agreement or any Ancillary
Agreement by Buyer, or the consummation by Buyer or Company of the transactions
contemplated hereby and thereby, except for any such consents, approvals,
filings or notices which, if not obtained or made, would not, individually or
in the aggregate, reasonably be expected to have a material adverse effect on
the ability of Buyer to perform its obligations under this Agreement and the
Ancillary Agreements.

 

(d)                                 Legal
Proceedings.          There
are no actions or proceedings pending or, to the Knowledge of Buyer, threatened
against Buyer before any court, arbitrator or Governmental Authority, which,
individually or in the aggregate, would reasonably be expected to have a
material adverse effect on the ability of Buyer to perform its obligations
under this Agreement and the Ancillary Agreements.  Buyer is not subject to any outstanding judgments, rules, orders,
writs, injunctions or decrees of any court, arbitrator or Governmental
Authority which, individually or in the aggregate, would

 

22

 

reasonably be expected to have a material adverse effect on the ability
of Buyer to perform its obligations under this Agreement and the Ancillary
Agreements.

 

(e)                                  Availability
of Funds.          Buyer
has or will have liquid capital or committed sources therefor sufficient to
permit Buyer to perform in full when due all of its obligations under this
Agreement and any Ancillary Agreement to which it is a party.

 

ARTICLE V

 

COVENANTS

 

Section 5.01.                             Books and Records.          For
a period of 7 years after the Closing Date (or such other date as the Parties
may mutually determine), each Party and its Representatives shall have
reasonable access to all books and records of the Purchased Assets , to the
extent that such access may reasonably be required by such Party in connection
with the Assumed Liabilities or the Excluded Liabilities, or other matters
affected by the operation of the Purchased Assets.  Such access shall be afforded by the Party in possession of any
such books and records upon receipt of reasonable advance notice and during
normal business hours.  The Party
exercising this right of access shall be solely responsible for any costs or
expenses incurred by it or the other Party with respect to such access pursuant
to this Section 5.01.  If the Party
in possession of such books and records desires to dispose of any such books
and records upon or prior to the expiration of such seven-year period, such
Party shall, prior to such disposition, give the other Party a reasonable
opportunity, at such other Party’s expense, to segregate and remove such books and
records as such other Party may select.

 

Section 5.02.                             Finder’s Fees.          Seller
and Parent, on the one hand, and Buyer, on the other hand, represent and
warrant to the other that no broker, finder or other Person is entitled to any
brokerage fees, commissions or finder’s fees in connection with the
transactions contemplated hereby by reason of any action taken by the Party
making such representation.  Seller and
Parent, on the one hand, and Buyer, on the other hand, will pay to the other or
otherwise discharge, and will indemnify and hold the other harmless from and
against, any and all claims or liabilities for all brokerage fees, commissions
and finder’s fees incurred by reason of any action taken by the indemnifying
party.

 

Section 5.03.                             Tax Matters.          All
transfer, use, stamp, sales and similar Taxes incurred in connection with this
Agreement and the transactions contemplated hereby shall be the sole
responsibility of Seller and, to the extent paid by Buyer, Seller shall
promptly reimburse Buyer upon request.

 

Section 5.04.                             Further Assurances.          (a)          Subject
to the terms and conditions of this Agreement, each of Seller and Parent, on
the one hand, and Buyer, on the other hand, shall use commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable

 

23

 

Laws to consummate and make effective the transfer of the Purchased
Assets pursuant to this Agreement and the assumption of the Assumed
Liabilities, including using commercially reasonable efforts with a view to
obtaining all necessary consents, approvals and authorizations of, and making
all required notices or filings with, third parties required to be obtained or
made in order to consummate the transactions hereunder, including the transfer
of the Transferred Permits to Buyer. 
Neither Seller and Parent, on the one hand, nor Buyer, on the other
hand, shall, without prior written consent of the other, take or fail to take
any action which might reasonably be expected to prevent or materially impede,
interfere with or delay the transactions contemplated by this Agreement.

 

(b)                                 In
the event that any portion of the Purchased Assets shall not have been conveyed
to Buyer at the Closing, Seller shall, subject to paragraphs (c) and (d)
immediately below, convey such asset to Buyer as promptly as practicable after
the Closing.

 

(c)                                  To
the extent, if any, that Seller’s rights under any Transferred Contract may not
be assigned without the consent of any other party thereto, which consent has
not been obtained by the Closing Date, this Agreement shall not constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof or be unlawful.  Seller
and Buyer agree that if any consent to an assignment of any Transferred
Contract has not been obtained at the Closing Date, or if any attempted
assignment would be ineffective or would impair Buyer’s rights and obligations
under the Transferred Contract in question, so that Buyer would not in effect
acquire the benefit of all such rights and obligations, Seller, at its option
and to the maximum extent permitted by law and such Transferred Contract,
shall, after the Closing Date, (i) appoint Buyer to be Seller’s agent with
respect to such Transferred Contract or (ii) to the maximum extent permitted by
law and such Transferred Contract, enter into such reasonable arrangements with
Buyer or take such other commercially reasonable actions to provide Buyer with
the same or substantially similar rights and obligations of such Transferred
Contract.  From and after the Closing
Date, Seller, Parent and Buyer shall cooperate and use commercially reasonable
efforts to obtain an assignment to Buyer of any such Transferred Contract.

 

(d)                                 To
the extent that Seller’s rights under any warranty or guaranty described in
Section 2.01(f) may not be assigned without the consent of another Person,
which consent has not been obtained by the Closing Date, this Agreement shall
not constitute an agreement to assign the same, if an attempted assignment
would constitute a breach thereof or be unlawful.  The Parties agree that if any consent to an assignment of any
such warranty or guaranty has not been obtained or if any attempted assignment
would be ineffective or would impair Buyer’s rights and obligations under the
warranty or guaranty in question, so that Buyer would not in effect acquire the
benefit of all such rights and obligations, Seller shall use commercially
reasonable efforts to the extent permitted by law and such warranty or
guaranty, to enforce such warranty or guaranty for the benefit of Buyer to the
maximum extent possible so as to provide Buyer with the benefits and
obligations of such warranty or guaranty. 
Notwithstanding the foregoing, Seller shall not

 

24

 

be obligated to bring or file suit against any third party, provided
that if Seller determines not to bring or file suit after being requested by
Buyer to do so, Seller shall assign, to the extent permitted by law or any
applicable agreement, its rights in respect of the claims so that Buyer may
bring or file such suit.

 

ARTICLE VI

 

INDEMNIFICATION

 

Section 6.01.                             Survival.          (a)          The
representations and warranties of the Parties contained herein shall survive
the Closing for a period of one year and thereafter shall be of no further
force and effect, except that (i) the representations and warranties set forth
in Section 4.01(k) shall survive the Closing for a period of three years,
(ii) the representations and warranties set forth in Section 4.01(p) shall
survive the Closing for the period of the applicable statute of limitations,
(iii) the representations and warranties set forth in Section 4.01(a), (b)
and (c) and Section 4.02(a), (b) and (c) shall survive indefinitely, and
(iv) any representation or warranty as to which a claim has been asserted
during the survival period shall continue in effect with respect to such claim
until such claim has been finally resolved or settled.

 

(b)                                 The
covenants and agreements of the Parties contained in this Agreement shall
survive the Closing in accordance with their respective terms.

 

Section 6.02.                             Indemnification.          (a)          From
and after the Closing, Buyer shall indemnify, defend and hold harmless Seller
and Parent and their Representatives (each, a “Seller Indemnitee”) from and against any and all claims, demands,
suits, losses, liabilities, penalties, damages, obligations, payments, costs
and expenses (including, without limitation, the costs and expenses of any and
all actions, suits, proceedings, assessments, judgments, settlements and
compromises relating thereto and reasonable attorneys’ fees and reasonable disbursements
in connection therewith) (each, an “Indemnifiable
Loss”) asserted against or suffered by any Seller Indemnitee relating
to, resulting from or arising out of (i) any breach by Buyer of any
representation, warranty, covenant or agreement of Buyer contained in this
Agreement or the Ancillary Agreements, or (ii) the Assumed Liabilities.

 

(b)                                 From
and after the Closing, Parent and Seller shall indemnify, defend and hold
harmless Buyer and its Representatives (each, a “Buyer Indemnitee”) from and against any and all Indemnifiable
Losses asserted against or suffered by any Buyer Indemnitee relating to,
resulting from or arising out of (i) any breach by Parent or Seller of any of
their representations, warranties, covenants or agreements contained in this Agreement
or the Ancillary Agreements, (ii) the Excluded Liabilities, or (iii)
noncompliance with any bulk sales or transfer laws as provided in
Section 7.06.

 

25

 

 

(c)                                  The
amount of any Indemnifiable Loss shall be reduced (i) to the extent that any
Person entitled to receive indemnification under this Agreement (an “Idemnitee”) receives any insurance
proceeds with respect to such Indemnifiable Loss, and (ii) to take into account
any net Tax benefit realized by the Indemnitee arising from the recognition of
such Indemnifiable Loss (but only to the extent that the Parties, following
good faith negotiations for a period of 30 days, jointly agree that such Tax
benefit would be realized by the Indemnitee).

 

(d)                                 The
expiration or termination of any covenant, agreement, representation or
warranty shall not affect the Parties’ obligations under this Section 6.02
if the Indemnitee provided the Person required to provide indemnification under
this Agreement (the “Indemnifying Party”) with proper notice of the claim or
event for which indemnification is sought prior to such expiration, termination
or extinguishment.

 

(e)                                  The
rights and remedies of the Parties under this Article VI are exclusive and
in lieu of any and all other rights and remedies which the Parties may have
under this Agreement or otherwise for declaratory, injunctive or monetary
relief with respect to any breach of or failure to perform any representation,
warranty, covenant or agreement set forth in this Agreement, after the
occurrence of the Closing.

 

(f)                                    Each
Party waives any provision of law to the extent that it would limit or restrict
the agreements contained in this Section 6.02.  Notwithstanding any provisions in this Agreement to the contrary,
each Party retains its remedies at law or in equity with respect to willful,
knowing or intentional misrepresentations or breaches of this Agreement.

 

(g)                                 Notwithstanding
anything to the contrary herein, no Party (including an Indemnitee) shall be
entitled to recover from any other Party (including an Indemnifying Party) for
any liabilities, damages, obligations, payments, losses, costs, or expenses
under this Agreement or any amount in excess of the actual compensatory
damages, court costs and reasonable attorney’s fees suffered by such
party.  The Parties waive any right to
recover punitive, special, exemplary and consequential damages arising in
connection with or with respect to this Agreement.  The provisions of this Section 6.02(g) shall not apply to
indemnification for a Third Party Claim.

 

(h)                                 An
Indemnitee shall use commercially reasonable efforts to mitigate all
Indemnifiable Losses, including availing itself of any defenses, limitations,
rights of contribution, claims against third parties and other rights at law or
equity.  Commercially reasonable efforts
shall include the reasonable expenditure of money to mitigate or otherwise
reduce or eliminate any losses or expenses for which indemnification would
otherwise be due hereunder, and, in addition to its other obligations
hereunder, the Indemnifying Party shall reimburse the Indemnitee for the
Indemnitee’s reasonable expenditures in undertaking such mitigation.

 

(i)                                     The
rights and obligations of indemnification under this Section 6.02 shall
not be limited or subject to set-off based on any violation or alleged
violation of any

 

26

 

obligation under this
Agreement or otherwise, including but not limited to breach or alleged breach
by the Indemnitee of any representation, warranty, covenant or agreement
contained in this Agreement.

 

Section 6.03.                             Procedure for
Indemnification.          (a)          If
any Indemnitee receives notice of the assertion of any claim or of the
commencement of any claim, action, or proceeding made or brought by any Person
who is not a party to this Agreement or any Affiliate of a Party to this
Agreement (a “Third Party Claim”)
with respect to which indemnification is to be sought from an Indemnifying
Party, the Indemnitee shall give such Indemnifying Party reasonably prompt
written notice thereof, but in any event such notice shall not be given later
than 20 days after the Indemnitee’s receipt of notice of such Third Party
Claim.  Such notice shall describe the
nature of the Third Party Claim in reasonable detail and shall indicate the
estimated amount, if practicable, of the Indemnifiable Loss that has been or
may be sustained by the Indemnitee.  The
Indemnifying Party will have the right to participate in or, by giving written
notice to the Indemnitee, to elect to assume the defense of any Third Party
Claim at such Indemnifying Party’s expense and by such Indemnifying Party’s own
counsel, provided that the counsel for the Indemnifying Party who shall conduct
the defense of such Third Party Claim shall be reasonably satisfactory to the
Indemnitee.  The Indemnitee shall
cooperate in good faith in such defense at such Indemnitee’s own expense.  If an Indemnifying Party elects not to
assume the defense of any Third Party Claim, the Indemnitee may compromise or
settle such Third Party Claim over the objection of the Indemnifying Party,
which settlement or compromise shall conclusively establish the Indemnifying
Party’s liability pursuant to this Agreement.

 

(b)                                 If,
within 20 days after an Indemnitee provides written notice to the Indemnifying
Party of any Third Party Claims, the Indemnitee receives written notice from
the Indemnifying Party that such Indemnifying Party has elected to assume the
defense of such Third Party Claim as provided in Section 6.03(a), the
Indemnifying Party will not be liable for any legal expenses subsequently
incurred by the Indemnitee in connection with the defense thereof; provided,
however, that if the Indemnifying Party shall fail to take reasonable steps necessary
to defend diligently such Third Party Claim within 20 days after receiving
notice from the Indemnitee that the Indemnitee believes the Indemnifying Party
has failed to take such steps, the Indemnitee may assume its own defense and
the Indemnifying Party shall be liable for all reasonable expenses
thereof.  Without the prior written
consent of the Indemnitee, the Indemnifying Party shall not enter into any
settlement of any Third Party Claim which would lead to liability or create any
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder.  If a firm offer is made to settle a Third
Party Claim without leading to liability or the creation of a financial or
other obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party shall give written
notice to the Indemnitee to that effect. 
If the Indemnitee fails to consent to such firm offer within 10 days
after its receipt of such notice, the Indemnifying Party shall be relieved of
its obligations to defend such Third

 

27

 

Party Claim and the
Indemnitee may contest or defend such Third Party Claim.  In such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim will be the amount of such
settlement offer plus reasonable costs or expenses paid or incurred by
Indemnitee up to the date of said notice.

 

(c)                                  Any
claim by an Indemnitee on account of an Indemnifiable Loss which does not
result from a Third Party Claim (a “Direct
Claim”) shall be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, stating the nature of such claim in reasonable
detail and indicating the estimated amount, if practicable, but in any event
such notice shall not be given later than 30 days after the Indemnitee becomes
aware of such Direct Claim, and the Indemnifying Party shall have a period of
30 days within which to respond to such Direct Claim.  If the Indemnifying Party does not respond within such thirty 30
day period, the Indemnifying Party shall be deemed to have accepted such claim.  If the Indemnifying Party rejects such
claim, the Indemnitee will be free to seek enforcement of its right to
indemnification under this Agreement.

 

(d)                                 If
the amount of any Indemnifiable Loss, at any time subsequent to the making of
an indemnity payment in respect thereof, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any
claim, recovery, settlement or payment by, from or against any other entity,
the amount of such reduction, less any costs, expenses or premiums incurred in
connection therewith (together with interest thereon from the date of payment
thereof at the Prime Rate) shall promptly be repaid by the Indemnitee to the
Indemnifying Party.  Upon making any
indemnity payment, the Indemnifying Party, to the extent of such indemnity
payment, shall be subrogated to all rights of the Indemnitee against any third
party in respect of the Indemnifiable Loss to which the indemnity payment
relates; provided, however, that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, any and all claims of the Indemnifying Party against such
third party on account of said indemnity payment are hereby made subordinate in
right of payment to the Indemnitee’s rights against such third party.  Without limiting the generality or effect of
any other provision hereof, each such Indemnitee and Indemnifying Party shall
duly execute upon request all instruments reasonably necessary to evidence and
perfect the above-described subrogation and subordination rights, and otherwise
cooperate in the prosecution of such claims at the direction of the
Indemnifying Party.  Nothing in this
Section 6.03(d) shall require any Party hereto to obtain or maintain any
insurance coverage.

 

(e)                                  A
failure to give timely notice as provided in this Section 6.03 shall not
affect the rights or obligations of any Party hereunder except if, and only to
the extent that, as a result of such failure, the Party which was entitled to
receive such notice was actually and materially prejudiced as a result of such
failure.

 

28

 

ARTICLE VII

 

MISCELLANEOUS PROVISIONS

 

Section 7.01                                Notices.          All
notices and other communications hereunder shall be in writing and shall
be deemed given (i) on the day when delivered personally or by e-mail (with
confirmation) or facsimile transmission (with confirmation), (ii) on the next
business day when delivered to a nationally recognized overnight delivery
service, or (iii) 5 business days after deposited as registered or certified
mail (return receipt requested), in each case, postage prepaid, addressed to
the recipient Party at its address set forth below (or to such other addresses
and e-mail and facsimile numbers for a Party as shall be specified by like
notice; provided, however, that any notice of a change of address or e-mail
or  facsimile number shall be effective
only upon receipt thereof):

 

If to Seller or Parent,
to:

 

Cinergy Capital
& Trading, Inc.

c/o CinCap VII, LLC 

139 East Fourth Street

Cincinnati, OH 45202

M. Stephen Harkness

Vice President, Chief Operations and 

Financial Officer 

Facsimile No.: 513-419-5719

e-mail: sharkness@cinergy.com

 

If to Buyer, to:

 

PSI Energy, Inc.

1000 East Main Street

Plainfield, Indiana  46168

Douglas F. Esamann/President

Facsimile No:
317/838-2987

e-mail:
desamann@cinergy.com

 

Section 7.02.                             Waiver.          The
rights and remedies of the Parties are cumulative and not alternative.  Neither the failure nor any delay by any
Party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or
privilege.  To the maximum extent
permitted by applicable Law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one Party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by each other Party; (b) no waiver that may be
given by a

 

29

 

Party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one Party will be deemed to be a waiver of any obligation of such
Party or of the right of the Party giving such notice or demand to take further
action without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.

 

Section 7.03.                             Entire Agreement;
Amendment etc.

(a)                                  This
Agreement and the Ancillary Agreements, including the Schedules, documents,
certificates and instruments referred to herein or therein, embody the entire
agreement and understanding of the Parties hereto in respect of the
transactions contemplated by this Agreement. 
There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein or therein.  This Agreement
supersedes all prior agreements and understandings between the Parties, whether
written or oral, with respect to the transactions contemplated hereby.

 

(b)                                 This
Agreement may not be amended, supplemented, terminated or otherwise modified
except by a written agreement executed by Seller, Parent and Buyer.  In addition, any proposed amendment hereto
is subject to Section 7.13.

 

(c)                                  This
Agreement shall be binding upon and inure solely to the benefit of each Party
hereto and, other than with respect to Sections 7.12 and 7.13, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.

 

Section 7.04.                             Assignment.          This
Agreement and all the of the provisions hereof shall be binding upon and inure
to the benefit of the Parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder may be assigned by, on the one hand, Seller and
Parent, and on the other hand, Buyer, in whole or in part (whether by operation
of law or otherwise), without the prior written consent of the other Party, and
any attempt to make any such assignment without such consent will be null and
void.  Notwithstanding the foregoing,
Seller or Buyer may assign or otherwise transfer its rights hereunder and under
any Ancillary Agreement to any bank, financial institution or other lender
providing financing to Seller or Buyer, as applicable, as collateral security
for such financing; provided, however, that no such assignment shall (x) impair
or materially delay the consummation of the transactions contemplated hereby or
(y) relieve or discharge Seller or Buyer, as the case may be, from any of its
obligations hereunder and thereunder.

 

Section 7.05.                             Severability.          If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any law or public policy, all other terms and provisions
of this Agreement will nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party hereto.  Upon such determination that any

 

30

 

term or other provision
is invalid, illegal or incapable of being enforced, the Parties will negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.

 

Section 7.06.                             Bulk Sales Laws.          Buyer
hereby acknowledges that, notwithstanding anything in this Agreement to the
contrary, Seller will not comply with the provisions of the bulk sales laws of
any jurisdiction in connection with the transactions contemplated by this
Agreement; and Buyer hereby irrevocably waives compliance by Seller with the
provisions of the bulk sales laws of all applicable jurisdictions.

 

Section 7.07.                             Governing Law.          This
Agreement will be governed by and construed in accordance with the laws of the
State of Indiana, without giving effect to choice of law principles
thereof.

 

Section 7.08.                             Counterparts;
Facsimile Execution.   This Agreement may be
executed in one or more counterparts, all of which will be considered one and
the same agreement and will become effective when one or more counterparts have
been signed by each of the Parties and delivered to each other Party, it being understood
that the Parties need not sign the same counterpart.  This Agreement may be executed by facsimile signature(s).

 

Section 7.09.                             Schedules.          The
Schedules to this Agreement are intended to be and hereby are specifically made
a part of this Agreement

 

Section 7.10                                U.S. Dollars.   Unless
otherwise stated, all dollar amounts set forth herein are United States (U.S.)
dollars.

 

Section 7.11.                             Dispute
Resolution.   (a)          If
a dispute arises between the Parties relating to this Agreement, the Parties
agree to use the following alternative dispute resolution (“ADR”) procedures
prior to any Party pursuing other available remedies:

 

(i)                                     A
meeting shall be held promptly between the Parties, attended by individuals
with decision-making authority regarding the dispute, to attempt in good faith
to negotiate a resolution of the dispute.

 

(ii)                                  If,
within 30 days after such meeting, the Parties have not succeeded in
negotiating a resolution of the dispute, they will jointly appoint a mutually

 

31

 

acceptable neutral person
not affiliated with either Party (the “Neutral”) to act as a mediator.  If the Parties are unable to agree on the
Neutral within 20 days, they shall seek assistance in such regard from the CPR
Institute for Dispute Resolution, Inc. (“CPR”).  The Parties shall share the fees of the Neutral and all other
common fees and expenses equally.

 

(iii)                               The
mediation may proceed in accordance with CPR’s Model Procedure for Mediation of
Business Disputes, or the Parties may establish their own procedure.

 

(iv)                              The
Parties shall pursue mediation in good faith and in a timely manner.  In the event the mediation does not result
in resolution of the dispute within 60 days, then, upon 7 days” written notice
to the other Party, either Party may propose another form of ADR (e.g.,
arbitration, a mini-trial, or a summary jury trial) or may pursue other
available remedies.

 

(b)                                 All
ADR proceedings shall be strictly confidential and used solely for the purposes
of settlement.  Any materials prepared
by one Party for the ADR proceedings shall not be used as evidence by the other
Party in any subsequent litigation; provided, however, that the underlying
facts supporting such materials may be subject to discovery.

 

(c)                                  Each
Party fully understands its specific obligations under the ADR provisions of
this Agreement.  Neither Party considers
such obligations to be vague or in any way unenforceable, and neither Party
will contend to the contrary at any future time or in any future proceeding.

 

Section 7.12.                             Ratemaking.          Buyer
shall not seek to overturn, reverse, set aside, change or enjoin, whether
through appeal or the initiation or maintenance of any action in any forum, a
decision or order of the Indiana Utility Regulatory Commission (“IURC”) which
pertains to recovery, disallowance, deferral or ratemaking treatment of any
expense, charge, cost or allocation incurred or accrued by Buyer in or as a
result of this Agreement (or any amendment hereto) on the basis that this
Agreement and any such expense, charge, cost or allocation was filed with or
approved by the Securities and Exchange Commission (“SEC”).

 

Section 7.13.                             State
Review.          In
the event the Parties execute an amendment to this Agreement, the Parties shall
fulfill the following obligations, where applicable (it being understood that
none of such obligations are intended to detract from the authority of the SEC
under the Public Utility Holding Company Act of 1935):

 

(a)                                  Prior
to filing any amendment with the SEC, the Parties shall file with the IURC and
provide to the Indiana Utility Consumer Counselor (and, provide, upon request,
to other appropriate parties) a copy of such amendment.

 

(b)                                 In
the event that the amendment is finally rejected or disapproved or found to be
unreasonable by the IURC prior to filing with the SEC, the amendment

 

32

 

shall not become
effective and the Parties shall not request SEC approval of the amendment.

 

(c)                                  In
the event that the amendment is rejected or disapproved or found to be
unreasonable by IURC after it has been filed with but before it has been
approved by the SEC, the amendment shall be terminated and the Parties agree to
request withdrawal of the filing.

 

(d)                                 Notwithstanding
“(b)” and “(c)” immediately above, in the event that the amendment is rejected,
disapproved or found to be unreasonable by IURC before it has been approved by
the SEC, the Parties shall have the right to request further revisions of the
amendment in order to cure or remove the cause of the IURC’s rejection,
disapproval or finding of unreasonableness. 
Upon request by a Party, the other Parties shall agree promptly to
negotiate in good faith to revise the amendment and thereafter to file for any
necessary regulatory authorization of the renegotiated amendment.  If the Parties are unable to reach agreement
satisfactory to each of them and to the IURC after good faith negotiations,
then “(b)” or “(c)” immediately above, as applicable, shall apply.

 

(e)                                  In
the event that the IURC has previously approved the amendment prior to SEC
approval, “(f)” immediately below shall not apply.

 

(f)                                    In
the event that an amendment has become effective and is subsequently rejected,
disapproved or found to be unreasonable by IURC, the Parties shall make a good
faith effort to terminate, amend or modify the amendment in a manner which
remedies the IURC’s adverse findings without adverse impact on any of the
Parties.  The Parties shall request to
meet with representatives of the IURC and make a good faith attempt to resolve
any differences regarding the subject amendment.  If agreement can be reached to terminate the amendment or amend
or modify the amendment in a manner satisfactory to the Parties and to the
representatives of the IURC, then the Parties shall file such amendment with
the appropriate state and federal regulatory agencies, seeking all necessary
regulatory authorizations.  If the
Parties are unable to reach agreement satisfactory to each of them and to the IURC
after good faith negotiations, then they shall be under no further obligation
to amend the amendment.

 

[REMAINDER OF PAGE
LEFT INTENTIONALLY BLANK]

 

33

 

IN WITNESS WHEREOF, each
of the Parties has caused this Asset Purchase Agreement to be executed on its
behalf by its respective officer thereunto duly authorized, all as of the day
and year first above written.

 

 

	
   

  	
  CINERGY CAPITAL &
  TRADING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ M. Stephen Harkness

  	
   

  
	
   

  	
   

  	
  M. Stephen Harkness

  
	
   

  	
   

  	
  Vice President, Chief
  Operations and

  
	
   

  	
   

  	
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CINCAP VII, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ M. Stephen Harkness

  	
   

  
	
   

  	
   

  	
  M. Stephen Harkness

  
	
   

  	
   

  	
  Vice President, Chief
  Operations and

  
	
   

  	
   

  	
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PSI ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Douglas F. Esamann

  	
   

  
	
   

  	
   

  	
  Douglas F. Esamann

  
	
   

  	
   

  	
  President

  

 

34

 

SCHEDULE
I:  FORM OF DEED

 

THIS INDENTURE
WITNESSETH that CinCap VII, LLC, a Delaware limited liability company
(“Grantor”), CONVEYS AND WARRANTS unto PSI
Energy, Inc., an Indiana corporation (“Grantee”), for the sum of One
Dollar ($1.00) and other valuable consideration, the receipt of which is hereby
acknowledged, the following described real estate in Henry County, Indiana
(“Real Estate”), to-wit:

 

Part of the east half of
Section 4, Township 17 North, Range 9 East, Henry County, Indiana, bounded
and described as follows, to-wit:

 

Beginning at a point on
the east line of said Section 4 and in the centerline of State Road 38,
Pendleton Pike, said point being Due North (an assumed bearing) 2845.99 feet
from the Southeast Corner of said Section; thence along the east line of said
Section 4, passing a set concrete monument at 36.29 feet, Due South 400.96
feet to a corner fence post; thence S89o40’54”W, passing a set concrete
monument at 877.07 feet, 892.07 feet to a corner fence post; thence S00o03’25”E
1052.92 feet to a set iron pin; thence S89o40’54”W 561.24 feet to a fence post;
thence N00o13’24”E, passing a set concrete monument at 1822.12 feet, 1858.37
feet to a point in the centerline of State Road 38; thence with the centerline
of said State Road S74o39’34”E 1498.39 feet to the point of beginning,
containing 33.542 acres, more or less.

 

The above-described tract
conveys all of the real estate, described in that certain Affidavit
(recorded on May 11, 1994 in the Office of the Auditor of Henry County,
Indiana), which is located south of the centerline of State Road 38 a/k/a
Pendleton Pike.

 

Being and intended to be
the same real estate conveyed to Grantor by S. Robert Abshire, Gary R. Abshire
and Janice E. Carter as tenants in common, each an undivided one-third (1/3)
interest, by that certain Warranty Deed dated November 19, 1999 and recorded
November 22, 1999 as Instrument No.
99010989 in the Office of the Recorder of Henry County, Indiana.

 

AND
ALSO, Out Lot number 1 in the Northwest Quarter of
Section 3, Township 17 North, Range 9 East; beginning at the Southwest
corner of the Northwest Quarter of Section 3, Township 17 North, Range 9
East; thence running North 14 rods and 6 links; thence South 70 degrees East 44
rods; thence West

 

35

 

41 rods and 3 links to
the place of beginning, containing 1.82 acres.

 

Being and intended to be
the same real estate conveyed to Grantor by Timothy Berg and Connie Diane Berg,
husband and wife, by that certain Warranty Deed dated August 22, 2000 and
recorded August 23, 2000 as Instrument No.
20006497 in the Office of the Recorder of Henry County, Indiana.

 

Grantor also
assigns and transfers to Grantee, and its successors and assigns, all right,
title and interest which Grantor derives from that certain Legal Drain
Easement dated June 27, 2000 and recorded August 30, 2000 as Instrument No. 20006691 in the Office
of the Recorder of Henry County, Indiana.

 

Grantor states
that there is no Indiana Gross Income Tax due and owing on this transaction.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

 

36

 

IN WITNESS WHEREOF,
Grantor has caused this Warranty Deed and Assignment of Adjoining Easement
Interest to be executed by its duly authorized officer,
this           day of
                       ,
200  .

 

	
   

  	
  CinCap VII, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  M. Stephen
  Harkness,

  	
   

  
	
   

  	
   

  	
  Vice President
  and

  	
   

  
	
   

  	
   

  	
  Chief Operations
  and Financial Officer

  	
   

  

 

	
  STATE OF

  	
  )

  	
   

  
	
   

  	
  )

  	
  SS:

  
	
  COUNTY OF

  	
  )

  	
   

  

 

Personally
appeared before me this day M. Stephen Harkness, Vice President and Chief
Operations and Financial Officer of CinCap VII, LLC, a Delaware limited
liability company, and acknowledged the execution of this Warranty Deed and
Assignment of Adjoining Easement Interest to be his voluntary act and deed
for and on behalf of such company, and having been duly sworn states that any
representations contained therein are true to the best of his personal
knowledge.

 

IN WITNESS
WHEREOF, I have hereunto set my hand and affixed my Notarial Seal, on this
             day of
            ,
200  .

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Printed Name:

  	
   

  	
   

  
	
  My Commission Expires:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  My County of Residence:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

 

	
  Please send tax
  statements to:

  	
   

  	
  This instrument
  prepared by:

  
	
  PSI
  Energy, Inc.

  	
   

  	
  John
  B. Scheidler

  
	
  Attention:  Tax Department

  	
   

  	
  Attorney
  at Law

  
	
  1000
  East Main Street

  	
   

  	
  1000
  East Main Street

  
	
  Plainfield,
  Indiana  46168

  	
   

  	
  Plainfield,
  Indiana 46l68

  

 

37

 

SCHEDULE
II:  FORM OF BILL OF SALE

 

BILL OF SALE made,
executed and delivered as of this      day of
         , 200   
by CinCap VII, LLC, a Delaware limited liability company (“Seller”) to PSI
Energy, Inc., an Indiana corporation (“Buyer”).  (Capitalized terms used herein but not defined herein have the
respective meanings assigned in that certain Asset Purchase Agreement of even
date herewith (the “Asset Purchase Agreement”) by and among Seller, Buyer and
Cinergy Capital & Trading, Inc., an Indiana corporation (“CC&T”).)

 

WHEREAS,
Seller, Buyer and CC&T are parties to the Asset Purchase Agreement
providing for, among other things, the sale and transfer to Buyer of all of
Seller’s right, title and interest in, to and under the real and personal
property, tangible and intangible, constituting, or used in connection with the
operation of, that certain natural gas-fired electric generating station known
as the Henry County Generating Station, located in Henry County, Indiana (as
more fully described in the Asset Purchase Agreement), in exchange for the
consideration, and subject to the other terms and conditions, specified
therein; and

 

WHEREAS, the parties to
the Asset Purchase Agreement having executed and delivered such agreement
contemporaneously herewith, Seller now desires to carry out the intent and
purposes of the Asset Purchase Agreement by its execution and delivery to Buyer
of this instrument, evidencing the vesting in Buyer (together with such other
instruments as Buyer shall have otherwise received concurrently herewith or may
hereafter request, including the Deed and certain Assignment and Assumption
Agreements) of substantially all of the properties and assets constituting, or
used in connection with the operation of, the Henry County Generating Station;

 

NOW, THEREFORE, in consideration of the premises, and
for good and valuable consideration paid by Buyer, the receipt, adequacy and
legal sufficiency of which are hereby acknowledged, Seller, intending to be
legally bound, hereby agrees as follows:

 

ARTICLE I

SALE AND TRANSFER
OF ASSETS

 

Seller hereby irrevocably
and unconditionally sells, transfers, assigns, conveys, grants and delivers to
Buyer, effective as of the execution and delivery hereof, free and clear of all
Encumbrances (other than Permitted Encumbrances), all of Seller’s right, title
and interest in and to the following (collectively, the “Purchased Assets”):

 

(a)                                  the machinery, fixtures, equipment
(including communications equipment), vehicles, furniture and other personal
property located on the Real Property, including the items of tangible personal
property listed on Schedule 2.01(b) of the Asset Purchase Agreement;

 

(b)                                 all Inventories;

 

38

 

(c)                                  subject to the receipt of any
necessary consents and approvals, the contracts or agreements (including any
licenses or real or personal property leases, other than any thereof
constituting Transferred Permits or Transferred Intellectual Property) listed
on Schedule 2.01(d) of the Asset Purchase Agreement;

 

(d)                                 subject to the receipt of any
necessary consents and approvals, the permits, licenses, certificates,
certifications, orders and other governmental authorizations listed on
Schedule 2.01(e) of the Asset Purchase Agreement;

 

(e)                                  all
unexpired, transferable warranties and guarantees from manufacturers, vendors
and other third parties with respect to any item of real or tangible personal
property referred to in the preceding clauses (a) and (b);

 

(f)                                    all
books, expired purchase orders, operating records, operating, safety and
maintenance manuals, engineering design plans, blueprints and as-built plans,
specifications, procedures, studies, reports, equipment repair, safety, maintenance
or service records, and similar items (subject to the right of Seller to retain
copies of same for its use), other than such items that are proprietary to
third parties and accounting records (to the extent that any of the foregoing
is contained in an electronic format, Seller shall cooperate with Buyer to
transfer such items to Buyer in a format that is reasonably acceptable to
Buyer);

 

(g)                                 subject to the receipt of any
necessary consents and approvals, any intellectual property; and .

 

(h)                                 all
other assets and properties used in connection with the Henry County Generating
Station.

 

ARTICLE II

FURTHER ACTIONS

 

Seller covenants and agrees to warrant and defend the sale, transfer,
assignment, conveyance, grant and delivery of the Purchased Assets hereby made
against all persons whomsoever, to take all steps reasonably necessary to
establish the record of Buyer’s title to the Purchased Assets and, at the
request of Buyer, to execute and deliver further instruments of transfer and
assignment and take such other action as Buyer may reasonably request to more
effectively transfer and assign to and vest in Buyer each of the Purchased
Assets, all at the sole cost and expense of Seller.

 

39

 

ARTICLE III

POWER OF ATTORNEY

 

Without limiting Article 2 hereof, Seller hereby constitutes
and appoints Buyer the true and lawful agent and attorney in fact of Seller,
with full power of substitution and resubstitution, in whole or in part, in the
name and stead of Seller but on behalf and for the benefit of Buyer and its
successors and assigns, from time to time:

 

(a)                                  to demand, receive and collect any
and all of the Purchased Assets and to give receipts and releases for and with
respect to the same, or any part thereof;

 

(b)                                 to institute and prosecute, in the
name of Seller or otherwise, any and all proceedings at law, in equity or
otherwise, that Buyer or its successors and assigns may deem proper in order to
collect or reduce to possession any of the Purchased Assets and in order to
collect or enforce any claim or right of any kind hereby assigned or
transferred, or intended so to be; and

 

(c)                                  to do all things legally
permissible, required or reasonably deemed by Buyer to be required to recover
and collect the Purchased Assets and to use Seller’s name in such manner as
Buyer may reasonably deem necessary for the collection and recovery of same,

 

Seller hereby declaring that the foregoing powers are coupled with
an interest and are and shall be irrevocable by Seller.

 

ARTICLE IV

TERMS OF ASSET
PURCHASE AGREEMENT

 

The terms of the Asset Purchase Agreement, including but not
limited to Seller’s representations, warranties, covenants, agreements and
indemnities relating to the Purchased Assets, are incorporated herein by this
reference.  Seller acknowledges and
agrees that the representations, warranties, covenants, agreements and
indemnities contained in the Asset Purchase Agreement shall not be superseded
hereby but shall remain in full force and effect to the full extent provided
therein.  In the event of any conflict
or inconsistency between the terms of the Asset Purchase Agreement and the
terms hereof, the terms of the Asset Purchase Agreement shall govern.

 

40

 

 

IN WITNESS WHEREOF,
Seller has caused this Bill of Sale to be duly signed on its behalf as of the
date first above written.

 

	
   

  	
  CINCAP
  VII, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	 

	
   

  	
  Name:

  	
  M.
  Stephen Harkness

  
	
   

  	
  Title:

  	
  Vice
  President, Chief Operations

  and Financial Officer

  
								

 

41

 

SCHEDULE
III:  FORM OF ASSUMPTION AGREEMENT

 

ASSUMPTION AGREEMENT made
and effective as of
          , 200  
by PSI Energy, Inc., an Indiana corporation (“Buyer”), in favor of CinCap VII,
LLC, a Delaware limited liability company (“Seller”).  (Capitalized
terms used herein but not defined herein have the respective meanings assigned
in that certain Asset Purchase Agreement of even date herewith (the “Asset
Purchase Agreement”) by and among Buyer, Seller and Cinergy Capital &
Trading, Inc., an Indiana corporation (“Parent”).)

 

WHEREAS, pursuant to the
Asset Purchase Agreement, and by means of various agreements and instruments
executed and delivered in connection therewith (including without limitation
the Deed, Bill of Sale and certain assignment and assumption agreements),
concurrently with the execution and delivery hereof, Seller is selling and
conveying to Buyer, and Buyer is purchasing from Seller, for the consideration
and upon the terms and conditions set forth in the Asset Purchase Agreement,
all of Seller’s right, title and interest in and to the assets (tangible and
intangible) comprising, or used in connection with, the Henry County Generating
Station (the “Purchased Assets”); and

 

WHEREAS, the Asset
Purchase Agreement contemplates in Section 2.03 thereof that, on the
Closing Date, in consideration of the foregoing, Buyer shall also execute this
instrument in favor of Seller, agreeing to assume various liabilities and
obligations of Seller relating to the Purchased Assets, as more specifically
set forth below;

 

NOW,
THEREFORE, in consideration of the premises and the transactions contemplated
by the Asset Purchase Agreement, including without limitation the execution and
delivery simultaneously herewith of the Bill of Sale and the Deed, Buyer,
intending to be legally bound, hereby agrees as follows:

 

ARTICLE I

ASSUMPTION OF
ASSUMED LIABILITIES

 

Section 1.1              Assumption of
Assumed Liabilities.  Effective upon
the execution and delivery hereof, Buyer hereby assumes and agrees to pay,
perform and discharge, without recourse to Seller or Parent, the following
Liabilities of Seller (excluding, however, for the avoidance of doubt, for all
purposes whatsoever any Excluded Liabilities), solely to the extent such
Liabilities accrue or arise from and after the Closing, in each case in
accordance with the respective terms and subject to the respective conditions
thereof (collectively, the “Assumed Liabilities”):

 

(a)                                  All
Liabilities of Seller under the Transferred Contracts, Transferred Permits and
Transferred Intellectual Property, in each case in accordance with the terms
thereof, except to the extent that such Liabilities, but for a breach or
default by Seller, would have been paid, performed or otherwise discharged on
or prior to the Closing Date or to the extent the same arise out of any such
breach or default or out of any event which after the giving of notice would
constitute a default by Seller;

 

42

 

(b)                                 all
Liabilities with respect to Henry County Station arising under or relating to
Environmental Laws or relating to any claim in respect of Environmental
Conditions or Hazardous Substances, including settlements, judgments, costs and
expenses, including reasonable attorneys fees, whether based on common law or
Environmental Laws, but in each case solely to the extent accruing or arising
from and after the Closing Date, with respect to (i) any violation or alleged
violation of Environmental Laws with respect to the ownership, lease,
maintenance or operation of any of the Purchased Assets, including any fines or
penalties that arise in connection with the ownership, lease, maintenance or
operation of the Purchased Assets, and the costs associated with correcting any
such violations; (ii) loss of life, injury to persons or property or damage to
natural resources caused (or allegedly caused) by any Environmental Condition
or the presence or Release of Hazardous Substances at, on, in, under, adjacent
to or migrating from the Purchased Assets, including any Environmental
Condition or Hazardous Substances contained in building materials at or
adjacent to the Purchased Assets or in the soil, surface water, sediments,
groundwater, landfill cells, or in other environmental media at or near the
Purchased Assets; (iii) any Remediation of any Environmental Condition or
Hazardous Substances that are present or have been Released at, on, in, under,
adjacent to or migrating from, the Purchased Assets or in the soil, surface
water, sediments, groundwater, landfill cells or in other environmental media
at or adjacent to the Purchased Assets; (iv) any bodily injury, loss of life,
property damage, or natural resource damage arising from the storage,
transportation, treatment, disposal, discharge, recycling or Release, at any
Off-Site Location, or arising from the arrangement for such activities, of
Hazardous Substances generated in connection with the ownership, lease,
maintenance or operation of the Purchased Assets; (v) any Remediation of any Environmental
Condition or Release of Hazardous Substances arising from the storage,
transportation, treatment, disposal, discharge, recycling or Release, at any
Off-Site Location, or arising from the arrangement for such activities, of
Hazardous Substances generated in connection with the ownership, lease,
maintenance or operation of the Purchased Assets; and (vi) any obligation to
repower, replace, decommission, deactivate, dismantle, demolish or close the
Purchased Assets or any  portion
thereof, or any surface impoundments or other waste or effluent handling or
storage units on owned or leased adjacent properties used in connection with
the operation of the Purchased Assets;

 

(c)                                  all
liabilities or obligations to third parties for personal injury or tort, or
similar causes of action arising solely out of the ownership, lease,
maintenance or operation of the Purchased Assets, but in each case solely to
the extent accruing or arising from and after the Closing Date; and

 

(d)                                 any
Tax that may be imposed by any federal, state or local government on the
ownership, sale, operation or use of the Purchased Assets on or after the
Closing Date, except for any income Taxes attributable to income received by
Seller.

 

43

 

ARTICLE II

FURTHER ACTIONS

 

Buyer hereby covenants and agrees, at its own expense, to execute
and deliver, at the request of Seller, from time to time after the Closing
Date, such further instruments of assumption and to take such other actions as
Seller may reasonably request to more effectively consummate the assumptions
provided in this Assumption Agreement.

 

ARTICLE III

TERMS OF ASSET
PURCHASE AGREEMENT

 

The terms of the Asset Purchase Agreement, including but not
limited to Buyer’s representations, warranties, covenants, agreements and
indemnities relating to the Assumed Liabilities, are incorporated herein by
this reference.  Buyer acknowledges and
agrees that its representations, warranties, covenants, agreements and
indemnities contained in the Asset Purchase Agreement shall not be superseded
hereby but shall remain in full force and effect to the full extent provided
therein.  In the event of any conflict
or inconsistency between the terms of the Asset Purchase Agreement and the
terms hereof, the terms of the Asset Purchase Agreement shall govern.

 

 

[REMAINDER OF PAGE
LEFT INTENTIONALLY BLANK]

 

44

 

IN WITNESS WHEREOF, Buyer
has caused this Assumption Agreement in favor of CinCap VII, LLC, as Seller, to
be duly signed on its behalf as of the date first above written.

 

 

	
   

  	
  PSI
  ENERGY, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:
  Douglas F. Esamann

  	
   

  
	
   

  	
  Title:  President

  	
   

  
					

 

45

 

SCHEDULE
2.01(B):  TANGIBLE PERSONAL PROPERTY

 

•                  Three General Electric Model LM6000
PC gas turbine generator units:

 

•                  Fuel system, including fuel oil
forwarding skids and dual fuel burners;

 

•                  Plant high voltage power system &
interconnection, including three two-winding generator step-up transfomers;

 

•                  Water supply and treatment systems,
including 6” 327-ft deep raw water well and submersible pump, 440,000 gallon
raw water storage tank, 573,000 gallon demineralized water storage tank and
related pumps, and chemical feed system;

 

•                  Chilled water system, including three
2,200 ton, motor-driven Trane absorption chillers;

 

•                  Cooling tower and circulating water
system, including an eight cell, mechanical draft, evaporative, cross-flow
cooling tower and three 33% horizontal centrifuge pumps;

 

•                  Fire protection system, including
fire hydrant, CO2 suppression systems, and fire detection system;

 

•                  Plant auxiliary power system,
including auxiliary transformers, DC power supply system and AC uninterruptible
power supply system;

 

•                  Continuous emissions monitoring;

 

•                  Plant control systems;

 

•                  Communications systems;

 

•                  Security and access, including chain
link security fence topped with barbed wire enclosing plant site,
electronically operated access gate, and security cameras;

 

•                  Wastewater holding pond;

 

•                  Storm water drainage; and

 

•                  Maintenance/warehouse facilities

 

46

 

SCHEDULE
2.01(D):  TRANSFERRED CONTRACTS

 

Fuel Supply and
Management Agreement dated as of April 1, 2001 between Seller and Cinergy
Marketing & Trading, LP

 

47

 

SCHEDULE
2.01(E):  TRANSFERRED PERMITS

 

Air construction permit
(CP-065-1049-00032) issued by Indiana Department of Environmental Management
(“IDEM”)

 

Title V operating permit
(permit pending) issued by IDEM

 

Title IV acid rain permit
(AR-065-10505-00032) issued by IDEM

 

Water withdrawal permit
(Reg. No. 33-04367) issued by Indiana Department of Natural Resources

 

NPDES discharge permit
(INj0061361) issued by IDEM

 

48

 

SCHEDULE
4.01(C)(II):  SELLER’S REQUIRED
GOVERNMENTAL AND THIRD PARTY CONSENTS

 

Section I:
Seller’s Required Governmental Consents

 

Federal Energy Regulatory
Commission under Section 203 of Federal Power Act

 

Indiana Utility Regulatory
Commission under applicable provisions of the Indiana Code in respect of the
sale of the Henry County Station to Buyer.

 

Section II:
Seller’s Required Third-Party Consents

 

Cinergy Marketing &
Trading, LP in respect of Fuel Supply and Management Agreement with Seller

 

49

 

SCHEDULE
4.01(G)(I):  REAL PROPERTY

 

1.               For
a description of all land owned, used or occupied by Seller, see
Schedule I to this Asset Purchase Agreement.

 

2.               Legal
Drain Easement granted by S. Robert Abshire to Seller upon adjoining land
dated June 27, 2000 and recorded on August 30, 2000 as Instrument No.
20006691 in the Office of the Recorder of Henry County, Indiana.

 

3.               Unrecorded
Farm License Agreement granted by Buyer to Shenandoah High School FFA
Chapter dated May 1, 2002.

 

4.               Easement
Agreement For Ingress and Egress granted to S. Robert Abshire, an adult,
dated June 26, 2000 and recorded on August 30, 2000 as Instrument No.
20006692 in the Office of the Recorder of Henry County, Indiana.

 

5.               For
a description of plants, buildings, structures or other Improvements located on
the Real Property, see Schedule 2.01(b) to this Asset Purchase Agreement.

 

50

 

SCHEDULE
4.01(K):  ENVIRONMENTAL PERMITS

 

The permits listed in
Schedule 2.01(e) are hereby incorporated by reference herein.

 

51

 

SCHEDULE
4.01(M):  SELLER CONTRACTS

 

The contracts listed in
Schedule 2.01(d) are hereby incorporated by reference herein.

 

52

 

SCHEDULE
4.01(0):  PERMITS

 

EWG certification (CinCap
VII, LLC, 91 FERC par. 62,209(2000))

 

Market-based wholesale
rate authority (CinCap VII, LLC, FERC Docket No. ER00-1831 (letter order, May
4, 2000)

 

In addition, the permits
listed in Schedule 2.01(e) are hereby incorporated by reference herein.

 

53

 

SCHEDULE
4.02(C)(II):  BUYER’S REQUIRED
GOVERNMENTAL AND THIRD PARTY CONSENTS

 

Section I:
Buyer’s Required Governmental Consents

 

Federal Energy Regulatory
Commission under Section 203 of Federal Power Act

 

Indiana Utility
Regulatory Commission under applicable provisions of the Indiana Code in
respect of (i) the purchase of the Henry County Station by Buyer and (ii) the
issuance by Buyer of long-term promissory notes in consideration therefor.

 

Section II:
Buyer’s Required Third-Party Consents

 

None

 

54Exhibit
10.(u)

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT is made as of the 15th
day of May, 2003 by and between BRAM GOLDSMITH (“Goldsmith”), on the one hand,
and CITY NATIONAL CORPORATION, a Delaware corporation (“CNC”) and CITY NATIONAL
BANK, a National Banking Association (“CNB”). 
CNC and CNB are sometimes referred to collectively herein as “CNB” and
“CNC”.

 

1.
Employment. CNC hereby employs Goldsmith, and Goldsmith hereby
accepts employment, under the terms and conditions hereafter set forth.

 

2.
Duties. Goldsmith shall be employed as the Chairman of the Board of
CNC and as an untitled officer of CNB, and his duties shall be consistent with
such office and position. Substantially all of Goldsmith’s duties shall be
performed in Los Angeles and Beverly Hills, California and unless mutually
agreed upon by Goldsmith and CNC, Goldsmith shall be headquartered in Beverly
Hills, California.

 

3.
Term. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement shall be deemed to commence on May 15,
2003 and shall terminate two (2) years thereafter.

 

4.
Annual Compensation. In addition to fringe benefits and
reimbursement of expenses consistent with Goldsmith’s duties and position, CNC
shall pay Goldsmith as annual compensation, payable in equal semimonthly
payments, the sum of Three Hundred Fifty Thousand Dollars ($350,000) during the
term hereof.  In addition, on May 15,
2003, CNC shall transfer title to Goldsmith of that certain 1987 Mercedes 560
SEL automobile with an approximate value of Six Thousand Dollars ($6,000), and,
commencing May 15, 2003, CNC shall pay Goldsmith a car allowance of One
Thousand Dollars ($1,000) per month during the term of this Agreement in lieu
of providing Goldsmith with the use of any CNC-owned automobile.

 

1

 

5.
Incentive Bonus.  For the
fiscal years 2003 and 2004, Goldsmith shall be eligible for an annual incentive
bonus based upon company and individual performance, with a target of 55% of
Goldsmith’s then annual salary, but in no event shall the bonus paid for these
fiscal years exceed $150,000, nor shall the total amount paid to Mr. Goldsmith
pursuant to Paragraphs 4 and 5 of this Agreement with respect to any fiscal
year of CNC and CNB after 2003 exceed $500,000.  The parties hereto recognize that incentive bonuses paid for
services rendered during a fiscal year are generally paid during the first
quarter of the fiscal year following the fiscal year in which such services
were performed. In such event, the annual compensation paid to Goldsmith with
respect to each fiscal year after 2003 pursuant to Paragraph 4 of the Agreement
will be added to the incentive bonus paid in the following fiscal year, for
purposes of calculating whether the $500,000 limit has been reached. For the
purpose of determining the amount of bonus to be paid Goldsmith for any
calendar year, his then annual salary shall be an amount equal to twenty-four
times the semimonthly salary paid to Goldsmith (exclusive of any incentive
bonus) for the calendar year in question.

 

6.
Life Insurance. CNB has previously provided Goldsmith with a whole
life insurance policy on the joint lives of Goldsmith and Mrs. Elaine Goldsmith
in an insured amount of Seven Million Dollars ($7,000,000) (the “Joint
Policy”).  Nothing in this Agreement
affects or modifies the parties’ rights and obligations with respect to the
Joint Policy.

 

7.
Extent of Service. Goldsmith shall devote his time, attention and
energies to the business of CNC and CNB and shall not, during the term of this
Agreement, be engaged in any other activity which will interfere with the
performance of his duties hereunder. Time expended by Goldsmith on
philanthropic activities and in connection with real estate investments shall
be deemed not to interfere with the performance of his duties hereunder;
provided however, that during the term hereof, Goldsmith shall not

 

2

 

become an active participant (as opposed to a passive investor or
consultant) in any real estate investment or venture in which he does not
presently have a direct or indirect interest.

 

8.
Termination of Employment.

 

(a)
Termination by CNC for Good Cause. CNC may terminate the employment
of Goldsmith for “good cause” by written notice to Goldsmith. For purposes of
this Agreement, “good cause” shall mean only (i) conviction of a crime directly
related to his employment hereunder, (ii) conviction of a felony involving
moral turpitude, (iii) willful and gross mismanagement of the business and
affairs of CNC or CNB, or (iv) breach of any material provision of this Agreement.
In the event the employment of Goldsmith is terminated pursuant to this
subparagraph 8(a), CNC and CNB shall have no further liability to Goldsmith
other than for compensation accrued but not yet paid.  In the event CNC contends that it has good cause to terminate
Goldsmith pursuant to clause (iii) or (iv) of this subparagraph 8(a), CNC shall
provide Goldsmith with written notice specifying in reasonable detail the
services or matters which it contends Goldsmith has not been adequately
performing, or the material provisions of this Agreement of which Goldsmith is
in violation, why CNC has good cause to terminate this Agreement, and what
Goldsmith should do to adequately perform his obligations hereunder. If within
thirty (30) days of receipt of the notice Goldsmith performs the required
services or modifies his performance to correct the matters complained of,
Goldsmith’s breach will be deemed cured, and Goldsmith’s employment shall not
be terminated. However, if the nature of the service not performed by Goldsmith
or the matters complained of are such that more than thirty (30) days are
reasonably required to perform the required service or to correct the matters
complained of, then his breach will be deemed cured if he commences to perform
such service or to correct such matters within the thirty (30) day period and
thereafter diligently prosecutes such performance or correction to completion.
If Goldsmith does not perform the required services or modify his performance
to correct the matter complained of within the thirty (30)

 

3

 

day period or the extension thereof, CNC shall have the right to
terminate this Agreement at the end of the thirty (30) day period or extension
thereof. It is understood that Goldsmith’s performance hereunder shall not be
deemed unsatisfactory solely on the basis of any economic performance of CNC
because this performance will depend in part on a variety of factors over which
Goldsmith has little control.

 

(b)
Termination by CNC Without Good Cause. CNC may terminate the employment
of Goldsmith without “good cause” (as defined in subparagraph 8(a) above) at
any time by written notice to Goldsmith. In the event the employment of
Goldsmith is terminated pursuant to this subparagraph 8(b), CNC shall continue
to be obligated to pay to and compensate Goldsmith pursuant to Paragraphs 4 and
5 of this Agreement for the full term of this Agreement. Goldsmith shall have
no duty to mitigate and CNC shall have no right to offset any other
compensation paid to Goldsmith during the applicable time period.

 

(c)
Termination by Death or Disability. CNC may terminate the employment
of Goldsmith by written notice to Goldsmith if, during the term of this
Agreement, Goldsmith shall become incapable of fulfilling his obligations
hereunder because of injury or physical or mental illness which shall exist or
may reasonably be anticipated to exist for a period of twelve (12) consecutive
months or for an aggregate of twelve (12) months during any twenty-four (24)
month period. The death of Goldsmith during the term of this Agreement shall
likewise operate to terminate the Agreement, except that Goldsmith’s base
salary shall continue in effect and be paid to his wife, if she is then living,
and if she is not then living, to his Revocable Living Trust for a period equal
to the lesser of two years or the remaining term of this Agreement. In the
event the employment of Goldsmith is terminated by CNC pursuant to this
subparagraph 8(c) because of injury, physical or mental illness, CNC shall
continue to be obligated to pay Goldsmith while he is alive his base salary and
Incentive Bonus which Goldsmith would otherwise have been entitled to receive
pursuant to Paragraph 5 to the same extent and in the

 

4

 

same manner as if Goldsmith had remained employed by CNC for the full
term of this Agreement less any amount Goldsmith receives in lieu of salary
while he is alive during the term of this Agreement from private or government
insurance programs, exclusive of reimbursement of medical costs.

 

(d)
Optional Termination by Goldsmith. Goldsmith shall have the right,
at any time following a “Change of Control” (as that term is defined in the
Agreement between Goldsmith and CNC dated as of March 3l, l997, a copy of which
is attached hereto marked Exhibit “A” and incorporated by reference herein)
(the “Change of Control Agreement”), to declare the Change of Control Agreement
in effect, from which time forward, except for rights pursuant to this
Agreement vested in Goldsmith, his spouse, designees, successors or representatives
prior to the Effective Date, as that term is defined in the Change of Control
Agreement (which rights will remain in full force and effect), from and after
the Effective Date, in the event of inconsistencies or conflicts between this
Agreement and the Change of Control Agreement, the terms of the Change of
Control Agreement will govern.

 

9.
Entire Agreement; Modification; Waiver. This Agreement and the
agreements referred to in the Exhibits attached hereto constitute the entire
agreement between the parties pertaining to the subject matter contained
therein and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties, except for those contained
in the Change of Control Agreement. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provisions, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.

 

10.
Separability Clause. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.

 

5

 

11.
Benefit. Except as herein and otherwise specifically provided, this
Agreement shall be binding upon and inure to the benefit of the parties, their
personal representatives, heirs, administrators, executors, successors, and
permitted assigns.

 

12.
Notices. Any notice, request, or other communication required to be
given pursuant to the provisions of this Agreement shall be in writing and
shall be deemed to be duly given if delivered in person or mailed by registered
or certified United States mail, postage prepaid, and mailed to the parties at
the following addresses:

 

BRAM GOLDSMITH

 

Mr. Bram Goldsmith

City National Corporation

400 No. Roxbury Drive

Beverly Hills, California 90210

 

CITY NATIONAL CORPORATION/CITY NATIONAL BANK

 

City National Corporation/City National Bank

400 No. Roxbury Drive

Beverly Hills, CA 90210

Attn: General Counsel

 

The parties hereto may change the above addresses from time to time by
giving notice thereof to each other in conformity with this Paragraph 12.

 

13.
Non-Competition. Goldsmith agrees not to compete with CNC in any
form whatsoever. Without limiting the generality of the foregoing, Goldsmith
covenants and agrees with CNC that Goldsmith shall not, during or after the
term of this Agreement, disclose to anyone any confidential information
concerning the business or operations of CNC which Goldsmith may acquire in the
course of or incident to the performance of his duties hereunder, including,
without limitation, processes, customer lists, business or trade secrets, or
methods or techniques used by CNC in its business or operations.

 

6

 

Goldsmith covenants and agrees that he shall not, during the term of
this Agreement, directly or indirectly (whether for compensation or otherwise),
alone or as an agent, principal, partner, shareholder or in any other capacity,
own, manage, operate, join, control or participate in the ownership,
management, operation or control of or furnish any capital to or be connected
in any manner with or provide any services for any business, operation or
entity which competes with the business or operations of CNC.

 

14.
Construction. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.

 

15.
Captions. The paragraph headings and captions contained herein are
for reference purposes and convenience only and shall not in any way affect the
meaning or interpretation of this Agreement.

 

16.
Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

17.
Amendments. This Agreement shall not be modified, amended, or in any
way altered except by an instrument in writing and signed by both of the
parties hereto.

 

18.
Mandatory Arbitration. At the request of Goldsmith or City National
Corporation, any dispute, claim, controversy of any kind (whether in contract
or tort, statutory or common law, legal or equitable) now existing or hereafter
arising out of, pertaining to or in connection with this Agreement and/or any
renewals, extensions, or amendments thereto, shall be resolved through final
and binding arbitration conducted at a location determined by the arbitrator in
Los Angeles or Beverly Hills, California, and administered by the American
Arbitration Association (“AAA”) in accordance with the Federal Arbitration Act,
9 U.S.C. §1, et seq., and the then existing Commercial Arbitration Rules of the
AAA. Judgment upon any award rendered by the arbitrator(s) may be entered in
any State or Federal courts having jurisdiction thereof.

 

7

 

IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written at Beverly Hills, California.

 

 

	
  CITY NATIONAL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Frank P.
  Pekny

  	
   

  	
  /s/ Bram Goldsmith

  	
   

  
	
   

  	
  Frank
  Pekny

  	
  Bram
  Goldsmith

  
	
   

  	
  Executive Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CITY NATIONAL BANK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Frank P.
  Pekny

  	
   

  	
   

  
	
   

  	
  Frank
  Pekny

  	
   

  
	
   

  	
  Vice Chairman

  	
   

  
						

 

8

 

EMPLOYMENT AGREEMENT
 
AGREEMENT by and between City National Corporation, a Delaware corporation (the “Company”) and             (the “Executive”), dated as of the 31st day of March, 1997.
 

The Board of Directors of the Company (the “Board”),
has determined that it is in the best interest of the Company and its
shareholders to assure that the Company will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of the Company. The Board believes it is imperative
to diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive’s full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives, the Board has caused the Company to enter into this
Agreement.

 

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

 

1. CERTAIN DEFINITIONS. (a) The “Effective Date” shall
mean the first date during the Change of Control Period (as defined in Section
1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything
in this Agreement to the contrary notwithstanding, if a Change of Control
occurs and if the Executive’s employment with the Company is terminated prior
to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this Agreement
the “Effective Date” shall mean the date immediately prior to the date of such
termination of employment.

 

(b) The “Change of Control Period” shall mean the
period commencing on the date hereof and ending on the second anniversary of
the date hereof; provided, however that commencing on the date one year after
the hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the “Renewal
Date”), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.

 

2. CHANGE OF CONTROL. For the purpose of this Agreement,
a “Change of Control” shall mean:

 

(a) The acquisition by any individual, entity or group
(within the

 

9

 

meaning of Section 13(d) (3) or 14(d) (2) or the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% of more of either (i) the then outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”) or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company, (iv)
any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2, or (v)
any acquisition by the Goldsmith family or any trust or partnership for the
benefit of any member of the Goldsmith family; or

 

(b) Individuals who, as of the date hereof, constitute
the Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company’s shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors of other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or

 

(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a “Business Combination”), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company of all or substantially all of the Company’s assets either directly
or through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding

 

10

 

shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or

 

(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.

 

3. EMPLOYMENT PERIOD. The Company hereby agrees to
continue the Executive in its employ, and the executive hereby agrees to remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
second anniversary of such date (the “Employment Period”).

 

4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES.

(i) During the Employment Period, (A) the Executive’s
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive’s services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.

 

(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary
to discharge the responsibilities assigned to the Executive hereunder, to use
the Executive’s reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a violation
of this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive’s responsibilities as an employee of the Company in accordance with
this Agreement.

 

It is expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive’s
responsibilities to the Company.

 

(b) COMPENSATION. (i) BASE SALARY. During the
Employment Period, the Executive shall receive an annual base salary (“Annual
Base Salary”), which shall be paid at a monthly rate, at least equal to twelve
times the highest

 

11

 

monthly base salary paid or payable, including any base salary which
has been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months after
the last salary increase awarded to the Executive prior to the Effective Date
and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased. As used in this Agreement, the term “affiliated
companies” shall include any company controlled by, controlling or under common
control with the Company.

 

(ii) ANNUAL BONUS. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal
to the Executive’s highest bonus under the Company’s annual incentive plans for
the last three full fiscal years prior to the Effective Date (annualized in the
event that the Executive was not employed by the Company for the whole of such
fiscal year) (the “Recent Annual Bonus”). Each such Annual Bonus shall be paid
no later that the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.

 

(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS.

 

During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices, policies
and programs applicable generally to other executive of the Company and its
affiliated companies, but in no event shall such plans, practice, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent, if
any, that such distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable in the aggregate, than the
most favorable of those provided by the Company and its affiliated companies
for the Executive under such plans, practices, policies and programs as in
effect at any time during the 120-day period immediately preceding the
Effective Date or if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company
and its affiliated companies.

 

(iv) WELFARE BENEFIT PLANS. During the employment
Period, the Executive and/or the Executive’s family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated

 

12

 

companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to the
other peer executive of the Company and its affiliated companies.

 

(v) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.

 

(vi) FRINGE BENEFITS. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and if
applicable, automobile allowance and/or use of an automobile and payment of
related expenses, in a accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in effect for
the Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company and
it’s affiliated companies.

 

(vii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated companies.

 

(viii) VACATION. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, of more favorable
to the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.

 

5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY.
The Executive’s employment shall terminate automatically upon the Executive’s
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this

 

13

 

Agreement of its intention to terminate the Executive’s employment. In
such event, the Executive’s employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive (the
“Disability Effective Date”), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of the
Executive’s duties. For purposes of this Agreement, “Disability” shall mean the
absence of the Executive from the Executive’s duties with the Company on a
full-time basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and permanent by
a physician selected by the Company of its insurers and acceptable to the
Executive or the Executive’s legal representative.

 

(b) CAUSE. The Company may terminate the Executive’s
employment during the Employment Period for Cause. For purposes of this
Agreement, “Cause” shall mean:

 

(i) the willful and
continued failure of the Executive to perform substantially the Executive’s
duties with the Company or one of its affiliated (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the Board
or the Chief Executive Officer of the Company which specifically identifies the
manner in which the Board or Chief Executive Officer believes that the
Executive has not substantially performed the Executive’s duties, or

 

(ii) the willful engaging
by the Executive in illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company

 

For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered “willful” unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable belief that the
Executive’s action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive Officer
or a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.

 

14

 

(c) GOOD REASON. The Executive’s employment may be
terminated By the Executive for Good Reason. For purpose of this Agreement,
“Good Reason” shall mean:

 

(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive’s position (including status,
offices, titles and reporting requirement), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;

 

(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than in isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;

 

(iii) the Company’s requiring the Executive to be
based at any office or location other than as provided in Section 4(a) (i) (B)
hereof or the Company’s requiring the Executive to travel on Company business
to a substantially greater extent than required immediately prior to the
Effective Date;

 

(iv) any purported termination by the Company of the
Executive’s employment otherwise than as expressly permitted by this Agreement;
or

 

(v) any failure by the Company to comply with and
satisfy Section 11 (c) of this Agreement.

 

For purposes of this Section 5 (c), any good faith determination of
“Good Reason” made by the Executive shall be conclusive. Anything in the
Agreement to the Contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.

 

(d) NOTICE OF TERMINATION. Any TERMINATION by the
Company for Cause, or by the Executive for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in accordance with
Section 12(b) of this Agreement. For purposes of this Agreement, a “Notice of
Termination” means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive’s employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies that termination
date (which date shall be not more than thirty days after the giving of such
notice). The failure by the Executive or the Company to set forth in the notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of

 

15

 

the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive’s or the Company’s rights hereunder.

 

(e) DATE OF TERMINATION. “Date of Termination” means
(i) if the Executive’s employment is terminated by the Company for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive’s employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.

 

6. OBLIGATIONS OF THE COMPANY UPON TERMINATION

 

(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR
DISABILITY. If, during the Employment Period, the Company shall terminate the
Executive’s employment other than for Cause or Disability or the Executive
shall terminate employment for Good Reason:

 

(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:

 

A. the sum of (1) the Executive’s Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of

 

(i) the Recent Annual Bonus and (ii) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full months), for
the most recently completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the “Highest Annual Bonus”) and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to as the “Accrued
Obligations”); and

 

B. the amount equal to the product of (1)     and (2) the sum of (x) the Executive’s
Annual Base Salary and (y) the Highest Annual Bonus; and

 

C. an amount equal to the contributions to the
Executive’s account in the Company’s Profit Sharing Plan which the Executive
would receive if the Executive’s employment continued for     years after the Date of Termination
assuming for this purpose that all such contributions are fully vested, and,
and assuming that the Company’s contribution to the Profit Sharing Plan in

 

16

 

each such year is in an amount equal to the greatest amount contributed
by the Company in any of the three years ending prior to the Effective Date.

 

(ii) for     years after the
Executive’s Date of Termination, or such longer period as may be provided by
the terms of the appropriate plan, program, practice or policy, the Company
shall continue benefits to the Executive and/or the Executive’s family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4 (b)(iv) of the
Agreement if the Executive’s employment has not been terminated or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility.

 

(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement services the scope and
provider of which shall be selected by the Executive in his sole discretion;
and

 

(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the “Other Benefits”).

 

(b) DEATH. If the Executive’s employment is terminated
by reason of the Executive’s death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive’s legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive’s estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6 (b) shall include, without limitation, and the
Executive’s estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of peer executives of the Company
and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive’s estate and/or the Executive’s beneficiaries, as in effect on the
date of Executive’s death with respect to other peer

 

17

 

executive of the Company and its affiliated companies and their
beneficiaries.

 

(c) DISABILITY. If the Executive’s employment is
terminated by reason of the Executive’s Disability during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other Benefits as utilized
in this Section 6(c) shall include, and the Executive shall be entitled after
the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable of those generally provided by the Company
and its affiliated Companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive and/or the
Executive’s family, as in effect at any time thereafter generally with respect
to other peer executives of the Company and its affiliated companies and their
families.

 

(d) CAUSE; OTHER THAN FOR GOOD REASON. If the
Executive’s employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive (x) his Annual Base
Salary through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.

 

7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive’s continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.

 

8. FULL SETTLEMENT. The Company’s obligation to make
the payment provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment,

 

18

 

defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section 7872(f)
(2) (A) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a “Payment”) would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the “Excise
Tax”), then the Executive shall be entitled to receive an additional payment (a
“Gross-Up Payment”) in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 9(a), if it shall be determined that the Executive
is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of
the greatest amount (the “Reduced Amount”) that could be paid to the Executive
such that the receipt of Payments would not give rise to any Excise Tax, then
no Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.

 

(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick or such other certified public accounting firm as may be
designated by the Executive (the “Accounting Firm”) which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Company. In the event that
the Accounting Firm is serving as accountant or auditor for

 

19

 

the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm’s
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
(“Underpayment”), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9 (c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.

 

(c) The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment.  Such notification shall be given as soon as practicable but no
later than ten business days after the Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. 
The Executive  shall not pay such
claim prior to the expiration of the 30-day period following the date on which
it gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due).  If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:

 

(i) give the Company any information reasonably
requested by the Company relating to such claim,

 

(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company.

 

(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and

 

(iv) permit the Company to participate in any
proceedings relating to such claim;

 

provide, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.  Without limitation on the foregoing provisions of this Section
9(c), the Company shall control all proceedings

 

20

 

taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. 
Furthermore, the Company’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.

 

(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9 (c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject the Company’s complying with the requirements of Section 9 (c)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9 (c), a determination is
made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.

 

10. 
CONFIDENTIAL INFORMATION:  The
Executive shall hold in a fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to the Company
or any of its affiliated companies, and their respective businesses, which
shall have been obtained by the Executive during the Executive’s employment by
the Company or any of its affiliated companies and which shall not be or become
public knowledge (other than by acts by the Executive or representative of the
Executive in violation of this Agreement). 
After termination of the Executive’s employment with the Company, the
Executive shall not, without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.  In no event shall an
asserted violation of the provisions of this Section 10 constitute a basis for
deferring or

 

21

 

withholding any amounts otherwise payable to the Executive under this
Agreement.

 

11. 
SUCCESSORS. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of
and be enforceable by the Executive’s legal representative.

 

(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.

 

(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, “Company” shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise

 

12. MISCELLANEOUS. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.

 

(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or
by registered certified mail, return receipt requested, postage prepaid,
addressed as follows:

 

IF TO THE EXECUTIVE:

 

IF TO THE COMPANY:    City National Bank

400 North Roxbury Drive

Beverly Hills, CA 90210

Attention: General Counsel

 

or to such other address as either party shall have furnished to the
other in

 

22

 

writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.

 

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

 

(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.

 

(e) The Executive’s or the Company’s failure to insist
upon strict compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)

 

(i) - (v) of this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of the Agreement.

 

(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company
is “at will” and, subject to Section 1(a) hereof, prior to the Effective Date,
the Executive’s employment and/or this Agreement may be terminated by either
the Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement. From and
after the Effective Date of this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof.

 

IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

 

 

	
   

  	
  CITY NATIONAL CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By /s/ RICHARD SHEEHAN, JR.

  	
   

  
	
   

  	
  Richard Sheehan, Jr.

  	
   

  

 

23

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