Document:

WAIVER AND AMENDMENT NO. 1

      To

      AMENDED AND RESTATED CREDIT FACILITIES AGREEMENT

      (that was Effective March 20, 2001)

      by and between

      BANK OF AMERICA, N.A.

      as Administrative Agent and a Lender

      and

      THE OTHER LENDERS SIGNATORY THERETO

      and

      YOUNG INNOVATIONS, INC.

      as Borrower

       

      In consideration of their mutual agreements herein and for other sufficient consideration, the receipt of which is hereby acknowledged, YOUNG INNOVATIONS, INC. ("Borrower"), BANK OF AMERICA, N.A. (as "Administrative Agent") agree as follows:

       

      1.      Definitions; Section References.  The term "Original Loan Agreement" means the Amended and Restated Credit Facilities Agreement effective as of November 28, 2006, between Borrower, Administrative Agent and the Lenders signatory thereto, as amended, including without limitation, as amended by that certain Assignment and Assumption between Administrative Agent, Lenders, JPMorgan Chase Bank, N.A. and Borrower, of even date herewith that is effective simultaneously herewith (the “Assignment and Assumption”).  The term "this Amendment" means this Amendment.  Capitalized terms used and not otherwise defined herein have the meanings defined in the Original Loan Agreement, except that the term “this Agreement” in the Original Loan Agreement shall be deemed to mean the Original Loan Agreement as amended by
      this Amendment. Section references are to sections of the Original Loan Agreement unless otherwise indicated.

       

      2.            Effective Date of this Amendment.  Provided that Administrative Agent has received this Amendment fully executed by all parties hereto and each of the documents and other items listed or described on Exhibit A hereto as being required to be obtained, delivered or satisfied on or before the Effective Date (as hereinafter defined), with each being satisfactory to Administrative Agent and (as applicable) duly executed and (also as applicable) sealed, attested, acknowledged, certified, or authenticated, this Amendment shall be effective as of October 1, 2007 (the “Effective Date”), simultaneously with the effectiveness of the Assignment and Assumption. If this Amendment does not become effective, the Original Loan Agreement shall continue in full force and effect as it existed in
      the absence of this Amendment.

       

      3.            Waiver.  Effective as of September 28, 2007, Lenders hereby waive any and all Event(s) of Default that occurred under Sections 16.1.5 and 16.1.6 as a result of Borrower’s failure to timely notify Administrative Agent of its creation of 2720 Corporate Parkway LLC (2720), an Illinois limited liability company on January 2, 2007, as required under Section 13.9.11 and its failure to cause 2720 to timely execute and deliver to Administrative Agent an unconditional guaranty of the Loan Obligations as required under Sections 8 and 14.15. The waivers contained in this paragraph are specific in intent and are valid only for the specific purpose for which given. Nothing contained herein obligates Administrative Agent or any Lender to agree to
      any additional waiver of any provision of any of the Loan Documents. The waivers contained in this paragraph are waivers of known Events of Default only, and shall not operate as a waiver of Administrative Agent's or any Lender’s right to exercise remedies resulting from (i) existing and/or continuing Defaults or Events of Default of which Administrative 

       

      1406276.06

       

      
      

      

      

      Agent or such Lender is not actually aware, or (ii) other future Defaults or Events of Default, whether or not of a similar nature and whether or not known to Administrative Agent or such Lender.

      4.            Amendments to Original Loan Agreement.  The Original Loan Agreement is amended as follows, all such amendments to be effective on September 28, 2007, unless otherwise indicated:

       

      15.1.  Special Definitions-Revisions.  The definitions of “EBITDA” and “Adjusted EBITDA” in Section 15.1 are deleted and replaced with the following definitions:

       

      Adjusted EBITDA means, with respect to any fiscal period of Borrower, EBITDA for such fiscal period, minus the amount of EBITDA for such period which was attributable to any line of business which has been sold, transferred or otherwise disposed of during such period; provided, however, that, if any Covered Person makes any Permitted Acquisition during such fiscal period of Borrower, and the Applicable Target Company Financial Statements are in form and substance reasonably satisfactory to Administrative Agent (including that they are prepared in accordance with past practices), then the reported EBITDA of the Target for the applicable fiscal periods ending prior to the date of consummation of the Permitted Acquisition will be included in determining Adjusted EBITDA for any such applicable fiscal period of Borrower (including Borrower’s four fiscal quarters
      then ended); provided further, however, that in determining EBITDA for such Target Company for such applicable fiscal period of Borrower, reasonable cost savings, expenses and other income statement adjustments which are attributable to the change in ownership and/or management resulting from such Permitted Acquisition that are (i) set forth in a schedule delivered to the Administrative Agent concurrent with the consummation of such Permitted Acquisition, and (ii) approved by the Administrative Agent, shall be deemed to have been realized on the first day of the applicable fiscal period of Borrower (including the four fiscal quarters then ended).

       

      EBITDA means, with respect to any fiscal period of Borrower, the net income of Borrower for such fiscal period, as determined in accordance with GAAP and reported on the Financial Statements for such period, plus (i) (A) Interest Expense in such period, (B) income tax expense in such period, (C) depreciation and amortization expense in such period, (D) total expenses associated with the non-cash portion of employee stock compensation and (E) any extraordinary loss in such period, minus (ii) any extraordinary gain in such period, in each case calculated for Borrower for such period.

       

      15.1.  Special Definitions-New.  The definition of “Applicable Target Company Financial Statements” is hereby added to Section 15.1 in alphabetical order:

       

      Applicable Target Company Financial Statements means, with respect to any Target Company acquired in a Permitted Acquisition, the audited annual financial statements of such Target Company for any applicable fiscal period(s), or, to the extent such Target Company has no audited historical financial statements, the management-prepared annual financial statements of such Target Company for any applicable fiscal period(s), in either case, together with any management-prepared interim financial statements of such Target Company for any applicable fiscal period(s).

       

      5.            New Exhibit 3.  Exhibit 3 is hereby deleted and replaced with Exhibit 3 attached to this Amendment which reflects the Lenders and their pro rata shares of the Commitments as of the Effective Date.

       

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      1406276.06

       

      
      

      

      

      6.            Effect of Amendment.  The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under the Original Loan Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Original Loan Agreement, or any of the other Loan Documents.  Each reference in the Original Loan Agreement to "the Agreement", "hereunder", "hereof", "herein", or words of like import, shall be read as referring to the Original Loan Agreement as amended hereby.

       

      7.            Representations and Warranties of Borrower.  Borrower hereby represents and warrants to Lenders that (i) execution, delivery and performance of this Amendment, and all transactions contemplated by the Amendment, have been duly authorized by all requisite action of Borrower; (ii) no consents are necessary from any third parties for Borrower’s execution, delivery or performance of this Amendment or in connection with any transaction contemplated by this Amendment, (iii) this Amendment and the Original Loan Agreement constitute the legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms, except to the extent that the enforceability thereof against Borrower may be limited by bankruptcy, insolvency or other laws affecting the
      enforceability of creditors rights generally or by equity principles of general application, (iv) except as disclosed on the supplemental disclosure schedule attached hereto as Exhibit B and the disclosure schedule attached to the Original Loan Agreement, all of the representations and warranties contained in Section 11 of the Original Loan Agreement, as amended hereby, are true and correct with the same force and effect as if made on and as of the Effective Date, and (v) there is no Existing Default and no Default or Event or Default will occur immediately or with the passage of time or giving of notice as a consequence of this Amendment becoming effective.

       

      8.            Reaffirmation.  Borrower hereby acknowledges and confirms that (i) except as expressly amended hereby, the Original Loan Agreement and other Loan Documents remain in full force and effect, (ii) the Original Loan Agreement, as amended hereby, is in full force and effect, (iii) Borrower has no defenses to its obligations under the Original Loan Agreement and the other Loan Documents, and (iv) Borrower has no claim of any nature against Administrative Agent or any Lender arising from or in connection with the Original Loan Agreement or the other Loan Documents.

       

      9.            Counterparts.  This Amendment may be executed by the parties hereto on any number of separate counterparts, and all such counterparts taken together shall constitute one and the same instrument.  It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart signed by the party to be charged.

       

      10.          Counterpart Facsimile Execution.  This Amendment, or a signature page thereto intended to be attached to a copy of this Amendment, signed and transmitted by facsimile machine or telecopier shall be deemed and treated as an original document.  The signature of any Person thereon, for purposes hereof, is to be considered as an original signature, and the document transmitted is to be considered to have the same binding effect as an original signature on an original document.  At the request of any party hereto, any facsimile or telecopy document is to be re-executed in original form by the Persons who executed the facsimile or telecopy document.  No party hereto may raise the use of a facsimile machine or telecopier or the fact that any signature was transmitted through the use of a facsimile or
      telecopier machine as a defense to the enforcement of this Amendment.

       

      11.          Reproductions as Evidence.  This Amendment, the Original Loan Agreement, and the other Loan Documents, including but not limited to (a) consents, waivers, amendments, and modifications which may hereafter be executed, and (b) financial statements, certificates and other information previously or hereafter furnished to Administrative Agent or any Lender, may be reproduced by Administrative Agent or any Lender by any photographic, photostatic, microfilm, microcard, miniature photographic, computer 

       

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      1406276.06

       

      
      

      

      

      imaging or other similar process, and Administrative Agent or any Lender may destroy any such original document so reproduced.  Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business of lender), and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

      12.          Governing Law.  This Amendment and the rights and obligations of the parties hereunder shall be governed by and construed and interpreted in accordance with the internal laws of the State of Missouri applicable to contracts made and to be performed wholly within such state, without regard to choice or conflict of laws provisions.

       

      13.          Final Expression; No Course of Dealing.  This Amendment is intended by the parties as a final expression of their agreement evidenced hereby and is intended as a complete and exclusive statement of the terms and conditions thereof.

       

      14.          Incorporation by Reference.  Administrative Agent, the undersigned Lenders and Borrower hereby agree that all of the terms of the Loan Documents are incorporated in and made a part of this Amendment by this reference.

       

      15.          Statutory Notice.  The following notice is given pursuant to Section 432.047 of the Missouri Revised Statutes; nothing contained in such notice will be deemed to limit or modify the terms of the Loan Documents or this Amendment:

       

      ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE, REGARDLESS OF THE LEGAL THEORY UPON WHICH IT IS BASED THAT IS IN ANY WAY RELATED TO THIS AGREEMENT. TO PROTECT YOU (BORROWER) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.

       

      BORROWER, ADMINISTRATIVE AGENT, AND LENDERS HEREBY AFFIRM THAT THERE ARE NO OTHER AGREEMENTS BETWEEN THEM, ORAL OR WRITTEN, CONCERNING THE SUBJECT MATTER OF THIS AMENDMENT AND THAT ALL PRIOR AGREEMENTS CONCERNING THE SUBJECT MATTER OF THIS AMENDMENT, INCLUDING ANY PROPOSAL, TERM SHEET OR COMMITMENT LETTER, ARE MERGED INTO THIS AMENDMENT AND THEREBY EXTINGUISHED.

       

      [remainder of page intentionally blank]

       

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      1406276.06

       

      
      

      

      

      IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by appropriate duly authorized officers as of the Effective Date.

       

       

      

      	
                  YOUNG INNOVATIONS, INC., as Borrower

      By its Vice President, Chief Financial Officer, and Secretary

       

       

       

       

      Name: Christine R. Boehning 

       

       

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

      by its                                                                                                               

       

       

       

      Name:                                                                                                                                                                                                    

       

       

       
 
	
                  THE NORTHERN TRUST COMPANY, as a Lender

      by its Commercial Banking Officer

       

       

       

       

      Name: David E. Graham

       
 	
                  BANK OF AMERICA, N.A., as a Lender

      by its Vice President

       

       

       

      Name: Jonathan M. Phillips

       
 
	
                  JPMORGAN CHASE BANK, N.A., as a Lender

      by its Vice President

       

       

       

       

      Name: Andrew P. Salski

       
 	
                   
 

      

       

      1406276.06

       

      
      

      

      

      EXHIBIT 3

       

      LENDERS’ COMMITMENTS AND PRO-RATA SHARES

       

       

      

      	
                  LENDER
  	
                  REVOLVING LOAN COMMITMENT
  	
                  PRO-RATA SHARES
  
	
                  Bank of America, N.A.
 	
                  $40,000,000.00
 	
                  53.33333333%
 
	
                  The Northern Trust Company
 	
                  $20,000,000.00
 	
                  26.66666667%
 
	
                  JPMorgan Chase Bank, N.A.
 	
                  $15,000,000.00
 	
                  20.00000000%
 
	
                  AGGREGATES
 	
                  $75,000,000.00
 	
                  100.00000000%
 

      

       

       

       

      

      	
                  LENDER
 	
                  SWINGLINE LOAN COMMITMENT
 	
                  PRO RATA SHARES
 
	
                  Bank of America, N.A.
 	
                  $3,000,000.00
 	
                  100.00000000%
 

      

       

      1406276.06

       

      
      

      

      

      EXHIBIT A

      Documents and Requirements List

       

      

      	
                  Items To Be Obtained, Delivered, or Satisfied Executed On or Before the Effective Date
 
	
                  1.   Assignment and Assumption
 
	
                  2.   Waiver and Amendment No. 1 to Amended and Restated Credit Facilities Agreement, together with all exhibits and schedules thereto (including the Supplement to Disclosure Schedule)
 
	
                  3.   Revolving Notes:

      a.    $40,000,000 - Amended and Restated - Bank of America

      b.   $20,000,000 - Amended and Restated - The Northern Trust Company

      c.    $15,000,000 - JPMorgan Chase Bank, N.A.
 
	
                  4.   Certificate of the Secretary of Borrower (certifying (a) that the Articles of Incorporation, together with any and all amendments thereto, last delivered and certified to Bank of America, N.A. pursuant to the Certificate of the Secretary of Borrower dated as of November 28, 2006, have not been amended, modified, annulled, rescinded, revoked or changed in any manner whatsoever and remain in full force and effect, (b) the Bylaws of the Borrower, with all amendments thereto, (c) resolutions adopted by the Board of Directors of Borrower, and (c) incumbency of officers of the Borrower, specifying the names, titles, and true signatures).
 
	
                  5.   Evidence of good standing of the Borrower
 
	
                  6.   Unlimited Guaranty and Joinder to Contribution and Subordination Agreement executed by 2720 Corporate Parkway LLC
 
	
                  7.   Administrative Agent and Lenders’ Expenses and Legal Fees (including payment of Lewis, Rice & Fingersh invoice)
 

      

       

       

       

      1406276.06

       

      
      

      

      

      EXHIBIT B

      (Supplemental Disclosure Schedule)

       

       

      There are no supplemental disclosures if nothing is listed below.

       

       

      SEE ATTACHED

       

      1406276.06exh101.htm

    Exhibit
      10.1

    

    

    PEP
      Divestiture Incentive Program

    

    

    

    Purpose

    The
      Peoples Energy
      Production Company ("PEP" or the "Company") Divestiture Incentive Program (the
      "Program") provides a means to reward PEP personnel for maximizing the value
      achieved in the sale of PEP to an unrelated purchaser. The purpose of the
      Program is to maximize performance of the business unit prior to its sale and
      to
      maximize the sale price.

     

    Eligibility

    Personnel
      may
      qualify for benefits under this Program if they were an employee of PEP on
      February 21, 2007 (the day that the plan to sell PEP was publicly announced)
      and
      remain an employee through the day that the sale closes ("Participant").
      Employees who are involuntarily terminated without cause, die or become disabled
      prior to the day that the sale closes will be eligible for benefits under the
      Program. Employees who are involuntarily terminated for cause prior to the
      closing of the sale will not be eligible for benefits under this Program.
      Employees who voluntary terminate employment with PEP including retiring prior
      to the closing of the sale will not be eligible for benefits under this
      Program.

     

    Incentive
      Funds

    The
      total dollars
      available for payment of Incentive Awards will be determined per the Guidelines
      for Determining Incentive Funds ("Incentive Funds"). The incentive Funds
      available from this Program will not be reduced in the event of employee
      terminations either for cause or voluntary terminations including
      retirement.

     

    Incentive
      Awards

    The
      "Incentive
      Award" means the award granted to each Participant as determined hereunder.
      The
      Incentive Award for the President of PEP, assuming satisfaction of the
      eligibility requirement above, will be (1) 34% of the first $1 million of the
      Incentive Funds, and (2) 20% of the remainder of the Incentive Funds. The
      percentages for the President may be adjusted upward in the event of employee
      terminations. The Incentive Award for all other Participants will be determined
      by the President of PEP using objective criteria such as grade level, salary,
      prior long term incentive compensation awards, length of service and actual
      or
      anticipated contribution in the

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

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

    

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

    

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

    

    The
      Incentive Award
      will be reflected as a bonus payment subject to appropriate tax withholdings.
      It
      will be direct deposited into the employee's primary account and will not be
      considered earnings for pension, 401(k), change in control or retention
      agreement payments, or other employee benefit purposes.

     

    Guidelines
      for Determining Incentive Funds

    The
      Incentive Funds
      will be determined based on the Adjusted Sales Price using the Baseline Value
      Matrix.

    

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    or
      prior to the
      date final bids are due (anticipated to be mid to late July, 2007), and (2)
      on
      the date final bids are due in order to reflect any partial month from the
      most
      recent 21st day
      of a month through the date final bids are due. The increase for the final
      partial month period will be prorated.

     

    Baseline
      Value Matrix

    This
      matrix
      provides the guideline for computing the Incentive Funds. The Incentive Funds
      will equal the sum of the amounts separately calculated with respect to each
      increment of the Adjusted Sales Price.

     

    
      	
              Adjusted
                Sales Price

              Increments

              in
                $
                millions

            	
              Applicable

              Incentive

              Funds

            	
              Applicable

              Sharing

              Percentage

            
	
              $0
<
                BV-10

            	
              $1.0
                M

            	 
	
              $BV-10
<
                BV

            	
              $0.5
                M

            	 
	
              $BV
<
                BV+10

            	
              $0.5
                M

            	 
	
              $BV+10
<
                BV+20

            	
              $0.5
                M

            	 
	
              $BV+20
<
                BV+30

            	
              $0.5
                M

            	 
	
              $
                BV+30 <
                BV+40

            	
              $0.5
                M

            	 
	
              $
                BV+40 <
                BV+90*

            	
              $1.0
                M

            	
              5%

            
	
              $
                BV+90 <
                BV+140

            	 	
              6%

            
	
              $
                BV+140 <
                BV+190

            	 	
              8%

            
	
              $
                BV+190 <
                BV+240

            	 	
              9%

            
	
              >
                BV+240

            	 	
              12%

            

    

     

    Adjusted
      Sales Price

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

    

    ________________

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

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

     

    Incentive
      Funds Calculation

     

    Example:

    

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

    

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

    

    Incentive
      Funds for
      Adjusted Sales Price from $650 million to $700 million (the increment between
      Baseline Value plus $40 million and Baseline Value plus $90 million)
      are

    $50,000,000
      x .05 =
      $2,500,000

    

    Incentive
      Funds for
      Adjusted Sales Price from $700 million to $750 million (the increment between
      Baseline Value plus $90 million and Baseline Value plus $140 million)
      are

    $50
      million x .06 =
      $3,000,000

    

    Incentive
      Funds for
      Adjusted Sales Price from $750 million to $800 million (the increment between
      Baseline Value plus $140 million and Baseline Value plus $190 million)
      are

    $50
      million x .08 =
      $4,000,000

    

    Total
      Incentive
      Funds = $14,000,000

     

    Terms
      and
      Conditions

    All
      the following
      terms and conditions apply for awards under this Program:

     

    
      	
              1)  

            	
              Participants
                who are terminated for cause as defined in Peoples Energy Corporation's
                Employee Handbook prior to the close of the sale or
                Participants

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    who
      voluntarily
      terminate employment or retire prior to the close of the sale of PEP will
      forfeit any Incentive Award.

     

    
      	
              2)  

            	
              Participants
                must comply with all Integrys policies and agreements, including
                but not
                limited to policies concerning confidentiality, non-solicitation
                and
                non-competition. Integrys policies include all applicable PEC and
                PEP
                policies.

            

    

     

    
      	
              3)  

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

            

    

     

    
      	
              4)  

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

            

    

     

    
      	
              5)  

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

            

    

     

    
      	
              6)  

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

            

    

     

    
      	
              7)  

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

            

    

     

    
      	
              8)  

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

            

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    of
      Exhibit A, has been delivered to the Company and the seven day revocation period
      has expired without the employee having revoked the release.

     

    
      	
              9)  

            	
              Except
                to the
                extent that Integrys reasonably determines that disclosure is required
                under applicable law, the Program nor any details regarding participation,
                payments or otherwise will not be disclosed to anyone including,
                but not
                limited to, the Buyer or any prospective Buyer of
                PEP.

            

     

    Administration

     

    Authority
      and
      Process

     

    Integrys
      has
      obtained all necessary approvals for the Program.

    

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

    

    Termination

    

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

    

    Funding

     

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

    

    Taxes

    

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

    Section
      409A
      Compliance

    

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

    

    

    Agreed
      to this
  17th   day of   July  ,
      2007.

    

    

    /s/
      Larry L.
      Weyers

    Larry
      L.
      Weyers

    Chief
      Executive
      Officer

    Integrys
      Energy
      Group, Inc.

    

    

    /s/
      Bernard J.
      Treml

    Bernard
      J.
      Treml

    Chief
      Human
      Resources Officer

    Integrys
      Energy
      Group, Inc.

    

    

    /s/
      S. W.
      Nance

    Steven
      W.
      Nance

    President

    Peoples
      Energy
      Production Company

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

     

    RELEASE
      OF
      CLAIMS

     

    AND

     

    COVENANT
      NOT TO SUE

    

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

    

    1.  Release
      and Covenant.

     

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

     

    _________________

    *Bracketed
      language
      to be included for employees who had previously received Percentage Interest
      and/or Equity Interest Awards.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

    2.  Due
      Care.

    

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

    

    3.  No
      Assignment of
      Claims.

    

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

    

    4.  Payments
      to the
      Employee

    

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

    

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

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

    

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

    

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

    

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

    

    5.  Modification
      and
      Waiver.

    

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

    

    6.  Governing
      Law.

    

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

    

    _________________

    *Items
      (b), (c) and
      (d) will be included in an employee's release to the extent those items are
      applicable to the employee.

    **Bracketed
      language to be included for employees who had Change in Control
      contracts.

    ***Only
      for those
      employees with Change in Control contracts.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

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

     

    

    Employee                                                            

    

    Date:                                                              

    

    

    

    INTEGRYS
      ENERGY
      GROUP, INC.

    

    By                                                               

    

    Date

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