SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ----------------------------------------------------x
In the Matter of CERTIFICATE
Cinergy Corp. OF
File No. 70-8427 NOTIFICATION
(Public Utility Holding
Company Act of 1935)
- ----------------------------------------------------x
This Certificate of Notification is filed by Cinergy Corp. ("Cinergy"), a
Delaware corporation and a registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the "Act"), in connection with the
following transactions proposed in Cinergy's Form U-1 Application-Declaration,
as amended (the "Application-Declaration") and authorized by the order of the
Securities and Exchange Commission (the "Commission") dated October 21, 1994
(the "Order"), in this file:
(I) the merger of Cinergy Sub, Inc. ("Cinergy Sub") with and into The
Cincinnati Gas & Electric Co. ("CG&E") and the merger of PSI Resources, Inc.
("PSI Resources") with and into Cinergy, and the resulting acquisition of
ownership by Cinergy of all issued and outstanding shares of common stock of
CG&E and PSI Energy, Inc. ("PSI Energy");
(ii) the issuance of Cinergy Common Stock in connection with such mergers
pursuant to the Merger Agreement;
(iii) the establishment by Cinergy of a new subsidiary, Cinergy Investments,
Inc. ("Cinergy Investments"), to serve as a subholding company for certain of
the Cinergy system's non-utility companies and interests, and the acquisition by
Cinergy of the common stock of Cinergy Investments;
(iv) the acquisition by Cinergy Investments of the common stock of Wholesale
Power Services, Inc., PSI Recycling, Inc., Power Equipment Supply Co., Power
International, Inc. (formerly called Enertech Associates International, Inc.),
Cinergy Resources, Inc. (formerly called CG&E Resource Marketing, Inc.), PSI
Argentina, Inc., PSI T&D International, Inc., CGE ECK, Inc., PSI Power Resource
Development, Inc., PSI Power Resource Operations, Inc., PSI International, Inc.,
PSI Sunnyside, Inc., and Cinergy Technology, Inc. (formerly called PSI
Environmental Corp.) pursuant to the realignment of certain of the Cinergy
system's non-utility companies and interests under Cinergy Investments as a
subholding company; and
(v) the issuance by Cinergy of Cinergy Common Stock, and the purchase by
Cinergy of Cinergy Common Stock in open-market transactions, between October 25,
1994, when Cinergy registered as a holding company pursuant to the Act, and
December 31, 1995, inclusive (the "Authorization Period"), pursuant to the
Cinergy stockholder dividend reinvestment and stock purchase plan ("DRSPP"), the
Cinergy Stock Option Plan, the Cinergy Employees Stock Purchase and Savings
Plan, the Cinergy Performance Shares Plan, the Cinergy Directors Deferred
Compensation Plan, the CG&E Savings Incentive Plan, the CG&E Deferred
Compensation and Investment Plan, the PSI Energy Employees' 401(k) Savings Plan,
and the PSI Energy Union Employees' 401(k) Savings Plan.
Filed herewith are conformed copies of the Non-Utility Service Agreement,
revised as contemplated in Item 1.B.1.c.iii of the Application-Declaration; the
PSI Energy, Inc. Employees' 401(k) Savings Plan and the PSI Energy, Inc. Union
Employees' 401(k) Savings Plan indexed as Exhibits C-5.3 and C-5.4 to the
Application-Declaration, respectively; and the final opinion of counsel indexed
as Exhibit F-2 to the Application-Declaration. Capitalized terms used herein
without definition have the meanings ascribed to them in the Application-
Declaration.
1. On October 24, 1994, a certificate of merger was duly and validly filed with
the Secretary of State of the State of Ohio, thereby merging Cinergy Sub with
and into CG&E, and a certificate of merger and articles of merger were duly and
validly filed with the Secretaries of State of the States of Delaware and
Indiana, respectively, thereby merging PSI Resources with and into Cinergy. As
a result of such mergers, CG&E and PSI Energy (and certain non-utility
subsidiaries of PSI Resources) became subsidiaries of Cinergy, and the separate
corporate existence of PSI Resources ceased.
2. On October 24, 1994, a certificate of incorporation providing for the
incorporation of a new non-utility subholding company, Cinergy Investments, Inc.
("Cinergy Investments"), was filed with the Secretary of State of the State of
Delaware, and the capital stock thereof was issued to and acquired by Cinergy.
3. On October 24, 1994, ownership of the issued and outstanding shares of
capital stock of CGE Corp., a Delaware corporation and a holding company for
certain non-utility interests of CG&E, and PSI Investments, Inc. ("PSI
Investments"), an Indiana corporation and a holding company for certain non-
utility interests of PSI Resources, was transferred to Cinergy Investments. On
November 3, 1994, CGE Corp. was merged with and into Cinergy Investments by and
upon the filing of a certificate of ownership and merger with the Secretary of
State of the State of Delaware, and PSI Investments was merged with and into
Cinergy Investments by and upon the filing of a certificate of ownership and
merger with the Secretary of State of the State of Delaware and articles of
ownership and merger with the Secretary of State of the State of Indiana. As a
result of such mergers, the separate corporate existence of CGE Corp. and PSI
Investments ceased. To complete the realignment of non-utility subsidiary
companies contemplated by the Application-Declaration, ownership of the issued
and outstanding capital stock of PSI Argentina, Inc., PSI Recycling, Inc. and
PSI T&D International, Inc. (which had been direct subsidiaries of PSI Resources
and which became direct subsidiaries of Cinergy as a result of the merger of PSI
Resources into Cinergy), was transferred by Cinergy to Cinergy Investments. As
a result of the foregoing mergers and stock transfers, Cinergy Investments
wholly owns the following non-utility direct subsidiaries: Wholesale Power
Services, Inc.; PSI Recycling, Inc.; Power Equipment Supply Co.; Power
International, Inc. (formerly called Enertech Associates International, Inc.);
Cinergy Resources, Inc. (formerly called CG&E Resource Marketing, Inc.); PSI
Argentina, Inc.; PSI T&D International, Inc.; CGE ECK, Inc.; PSI Power Resource
Development, Inc.; PSI Power Resource Operations, Inc.; PSI International, Inc.;
PSI Sunnyside, Inc.; and Cinergy Technology, Inc. (formerly called PSI
Environmental Corp.).
4. Upon the consummation of the mergers of PSI Resources into Cinergy and
Cinergy Sub into CG&E on October 24, 1994, in accordance with the Merger
Agreement, each issued and outstanding share of CG&E Common Stock was converted
into the right to receive one share of Cinergy Common Stock, and each issued and
outstanding share of PSI Common Stock was converted into the right to receive
1.023 shares of Cinergy Common Stock.
5. On October 20, 1995, the Non-Utility Service Agreement was executed by the
parties thereto retroactive to October 25, 1994, having previously been revised
as contemplated in Item 1.B.1.c.iii of the Application-Declaration, so as to
provide that, except with respect to certain foreign associate companies,
charges for services will be at cost, determined in accordance with Rule 90 and
other applicable rules and regulations under the Act.
6. The Cinergy Stock Option Plan, the Cinergy Employees Stock Purchase and
Savings Plan, the Cinergy Performance Shares Plan, and the Cinergy Directors
Deferred Compensation Plan were adopted by Cinergy, and have been maintained,
substantially in the form set forth in Exhibits C-4.1, C-4.2, C-4.3 and C-4.4 to
the Application-Declaration, respectively, and the shares of Cinergy Common
Stock issued pursuant to such plans during the Authorization Period were issued
in accordance with the respective terms and conditions thereof. The Cinergy
DRSPP was adopted by Cinergy, and has been maintained, substantially in the form
described in Exhibits C-2 and C-3 to the Application-Declaration, and the shares
of Cinergy Common Stock issued pursuant to such plan during the Authorization
Period were issued in accordance with the terms and conditions described
therein. The CG&E Savings Incentive Plan, the CG&E Deferred Compensation and
Investment Plan, the PSI Energy Employees' 401(k) Savings Plan, and the PSI
Energy Union Employees' 401(k) Savings Plan have been maintained in
substantially the form (and with the changes) described in Item 1.F of the
Application-Declaration and Exhibits C-5.1, C-5.2, C-5.3 and C-5.4 thereto, and
the shares of Cinergy Common Stock issued pursuant to such plans during the
Authorization Period were issued in accordance with the terms and conditions
described therein. During the Authorization Period, Cinergy issued (or acquired
in open-market transactions) an aggregate of 3,231,961 shares of Cinergy Common
Stock pursuant to the Cinergy DRSPP, the Cinergy Stock Option Plan, the Cinergy
Employees Stock Purchase and Savings Plan, the Cinergy Performance Shares Plan,
the Cinergy Directors Deferred Compensation Plan, the CG&E Savings Incentive
Plan, the CG&E Deferred Compensation and Investment Plan, the PSI Energy
Employees' 401(k) Savings Plan, and the PSI Energy Union Employees' 401(k)
Savings Plan.
7. The transactions described in paragraphs 1 through 6 have been carried out in
accordance with the terms and conditions of, and for the purposes requested in,
the Application-Declaration, and in accordance with the terms and conditions of
the Order.
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding Company Act of 1935,
as amended, the undersigned company has duly caused this document to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: January 10, 1996
Cinergy Corp.
By:/s/William L. Sheafer
Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit Transmisison
Number Exhibit Method
1 Past-Tense Opinion of Counsel Electronic
(Exhibit F-2 to the
Application-Declaration)
2 Non-Utility Service Agreement Electronic
3 PSI Energy Employees' 401(k) Savings By Reference
Plan (Exhibit C-5.3 to the
Application-Declaration) (exhibit to
Cinergy's Form S-8 Registration
Statement filed October 18, 1994,
No. 33-56067)
4 PSI Energy Union Employees' 401(k) By Reference
Savings Plan (Exhibit C-5.4 to the
Application-Declaration) (exhibit to
Cinergy's Form S-8 Registration
Statement filed October 18, 1994,
No. 33-56067)
<PAGE>
EXHIBIT 1
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005
January 10, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Cinergy Corp.
Form U-1 Application-Declaration
(File No. 70-8427)
Dear Sirs:
We refer to (i) the Form U-1 Application-Declaration, as amended (the
"Application-Declaration"), under the Public Utility Holding Company Act of
1935, as amended (the "Act"), filed with the Securities and Exchange Commission
(the "Commission") by Cinergy Corp. ("Cinergy"), a Delaware corporation and a
registered holding company under the Act, in File No. 70-8427, (ii) the order of
the Commission dated October 21, 1994 granting the Application-Declaration and
permitting the Application-Declaration to become effective (the "Order"), and
(iii) the Certificate of Notification of even date herewith filed with the
Commission by Cinergy with respect to the Application-Declaration (the
"Certificate of Notification"). Capitalized terms used in this letter without
definition have the meanings ascribed to such terms in the Application-
Declaration.
This letter relates to the following transactions described in the Application-
Declaration, the Order and the Certificate of Notification (the "Transactions"):
(i) the merger of Cinergy Sub, Inc. ("Cinergy Sub") with and into The
Cincinnati Gas & Electric Co. ("CG&E") and the merger of PSI Resources, Inc.
("PSI Resources") with and into Cinergy, and the resulting acquisition of
ownership by Cinergy of all issued and outstanding shares of common stock of
CG&E and PSI Energy, Inc. ("PSI Energy");
(ii) the issuance of Cinergy Common Stock in connection with such mergers
pursuant to the Merger Agreement;
(iii) the establishment by Cinergy of a new subsidiary, Cinergy Investments,
Inc. ("Cinergy Investments"), to serve as a subholding company for certain of
the Cinergy system's non-utility companies and interests, and the acquisition by
Cinergy of the common stock of Cinergy Investments;
(iv) the acquisition by Cinergy Investments of the common stock of Wholesale
Power Services, Inc., PSI Recycling, Inc., Power Equipment Supply Co., Power
International, Inc. (formerly called Enertech Associates International, Inc.),
Cinergy Resources, Inc. (formerly called CG&E Resource Marketing, Inc.), PSI
Argentina, Inc., PSI T&D International, Inc., CGE ECK, Inc., PSI Power Resource
Development, Inc., PSI Power Resource Operations, Inc., PSI International, Inc.,
PSI Sunnyside, Inc., and Cinergy Technology, Inc. (formerly called PSI
Environmental Corp.) pursuant to the realignment of certain of the Cinergy
system's non-utility companies and interests under Cinergy Investments as a
subholding company; and
(v) the issuance by Cinergy of Cinergy Common Stock, and the purchase by
Cinergy of Cinergy Common Stock in open-market transactions, during the period
between October 25, 1994, when Cinergy registered as a holding company pursuant
to the Act, and December 31, 1995, inclusive (the "Authorization Period"),
pursuant to the Cinergy Dividend Reinvestment and Stock Purchase Plan, the
Cinergy Stock Option Plan, the Cinergy Employees Stock Purchase and Savings
Plan, the Cinergy Performance Shares Plan, the Cinergy Directors Deferred
Compensation Plan, the CG&E Savings Incentive Plan, the CG&E Deferred
Compensation and Investment Plan, the PSI Energy Employees' 401(k) Savings Plan,
and the PSI Energy Union Employees' 401(k) Savings Plan (collectively, the
"Cinergy Stock Plans").
We have acted as special counsel for Cinergy in connection with the Transactions
and, as such counsel, we are familiar with certain corporate proceedings taken
by Cinergy, Cinergy Sub, CG&E, PSI Resources, PSI Energy and Cinergy Investments
in connection with the Transactions. We have examined originals, or copies
certified to our satisfaction, of such corporate records of Cinergy, Cinergy
Sub, CG&E, PSI Resources, PSI Energy and Cinergy Investments; certificates of
public officials; certificates (including the Certificate of Notification) of
officers and representatives of Cinergy, Cinergy Sub, CG&E, PSI Resources, PSI
Energy and Cinergy Investments; and other documents as we have deemed it
necessary to examine as a basis for the opinions hereinafter expressed. In such
examination we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies. As to various
questions of fact material to such opinions we have, when relevant facts were
not independently established, relied upon certificates of officers of Cinergy,
Cinergy Sub, CG&E, PSI Resources, PSI Energy and Cinergy Investments, and other
appropriate persons and statements contained in the Application-Declaration and
the exhibits thereto. The opinions herein are addressed solely to (i) the
federal laws of the United States of America, (ii) the applicable state laws of
the States of Ohio and Indiana and the General Corporation Law of the State of
Delaware, and (iii) the applicable laws of the Commonwealth of Kentucky but only
to the extent that the Transactions involve The Union Light, Heat and Power
Company ("ULH&P") or KO Transmission, or both, the securities and holders of
securities of ULH&P or KO Transmission, or both, and only to the extent that the
Transactions relate to the laws of the Commonwealth of Kentucky (such laws of
the States of Ohio, Indiana and Delaware and the Commonwealth of Kentucky being
hereinafter referred to as "State Laws"). We express no opinion on the laws of
any other state or country. In addition, as to certain matters governed by the
state laws of the States of Ohio and Indiana and the Commonwealth of Kentucky,
we have relied on opinions of even date herewith of Messrs. Jerome A. Vennemann,
Esq., Frank Lewis, Esq., and Taft, Stettinius & Hollister, respectively.
Based upon and subject to the foregoing, and having regard to legal
considerations which we deem relevant, we are of the opinion that, through and
as of the date hereof:
1. The Transactions have been consummated in accordance with the terms and
conditions of the Application-Declaration and the Order.
2. All State Laws applicable to the Transactions have been complied with.
3. Cinergy is validly organized and duly existing under the laws of the State of
Delaware. CG&E is validly organized and duly existing under the laws of the
State of Ohio. PSI Energy is validly organized and duly existing under the laws
of the State of Indiana. Cinergy Investments is validly organized and duly
existing under the laws of the State of Delaware. Wholesale Power Services,
Inc., PSI Recycling, Inc., Power Equipment Supply Co., PSI Argentina, Inc., PSI
T&D International, Inc., PSI Power Resource Development, Inc., PSI Power
Resource Operations, Inc., PSI International, Inc., PSI Sunnyside, Inc. and
Cinergy Technology, Inc. (formerly called PSI Environmental Corp.) are validly
organized and duly existing under the laws of the State of Indiana. Power
International, Inc. (formerly called Enertech Associates International, Inc.) is
validly organized and duly existing under the laws of the State of Ohio.
Cinergy Resources, Inc. (formerly called CG&E Resource Marketing, Inc.) and CGE
ECK, Inc. are validly organized and duly existing under the laws of the State of
Delaware.
4. The shares of Cinergy Common Stock issued in connection with the mergers of
PSI Resources into Cinergy and Cinergy Sub into CG&E are validly issued, fully
paid and nonassessable, and the holders thereof are entitled to the rights and
privileges appertaining thereto set forth in the Certificate of Incorporation of
Cinergy. The shares of common stock of CG&E issued to Cinergy in connection
with the merger of Cinergy Sub into CG&E and the shares of common stock of
PSI Energy acquired by Cinergy as a result of the merger of PSI Resources into
Cinergy are validly issued, fully paid and nonassessable, and Cinergy, as the
holder thereof, is entitled to the rights and privileges appertaining thereto
set forth in the Articles of Incorporation of CG&E and the Amended Articles of
Consolidation of PSI Energy, respectively. The shares of common stock of
Cinergy Investments acquired by Cinergy in connection with the organization of
Cinergy Investments are validly issued, fully paid and nonassessable, and
Cinergy, as the holder thereof, is entitled to the rights and privileges
appertaining thereto set forth in the certificate of incorporation of Cinergy
Investments. The shares of common stock of Wholesale Power Services, Inc., PSI
Recycling, Inc., Power Equipment Supply Co., Power International, Inc. (formerly
called Enertech Associates International, Inc.), Cinergy Resources, Inc.
(formerly called CG&E Resource Marketing, Inc.), PSI Argentina, Inc., PSI T&D
International, Inc., CGE ECK, Inc., PSI Power Resource Development, Inc., PSI
Power Resource Operations, Inc., PSI International, Inc., PSI Sunnyside, Inc.,
and Cinergy Technology, Inc. (formerly called PSI Environmental Corp.) acquired
by Cinergy Investments in the realignment of certain of the Cinergy system's
non-utility companies and interests are validly issued, fully paid and
nonassessable, and Cinergy Investments, as the holder thereof, is entitled to
the rights and privileges appertaining thereto set forth in the respective
governing corporate documents of such companies. The shares of Cinergy Common
Stock issued during the Authorization Period pursuant to the Cinergy Stock Plans
are validly issued, fully paid and nonassessable, and the holders thereof are
entitled to the rights and privileges appertaining thereto set forth in the
Certificate of Incorporation of Cinergy.
5. Cinergy has legally acquired (a) the shares of common stock of CG&E issued to
Cinergy in connection with the merger of Cinergy Sub into CG&E, (b) the shares
of common stock of PSI Energy as a result of the merger of PSI Resources into
Cinergy, (c) the shares of Cinergy Investments issued to Cinergy in connection
with the organization of Cinergy Investments, and (d) the shares of Cinergy
Common Stock purchased by Cinergy in open-market transactions during the
Authorization Period pursuant to the Cinergy Stock Plans. Cinergy Investments
has legally acquired the common stock of Wholesale Power Services, Inc., PSI
Recycling, Inc., Power Equipment Supply Co., Power International, Inc. (formerly
called Enertech Associates International, Inc.), Cinergy Resources, Inc.
(formerly called CG&E Resource Marketing, Inc.), PSI Argentina, Inc., PSI T&D
International, Inc., CGE ECK, Inc., PSI Power Resource Development, Inc., PSI
Power Resource Operations, Inc., PSI International, Inc., PSI Sunnyside, Inc.,
and Cinergy Technology, Inc. (formerly called PSI Environmental Corp.).
6. The consummation of the Transactions has not violated the legal rights of the
holders of any securities issued by Cinergy or any associate company of Cinergy.
We hereby consent to the use of this opinion as an exhibit to the Certificate of
Notification and the Application-Declaration. We do not assume or undertake any
responsibility to advise you of changes in either fact or law which may come to
our attention after the date hereof.
<PAGE>
Very truly yours,
/s/Milbank, Tweed, Hadley & McCloy
<PAGE>
EXHIBIT 2
NONUTILITY SERVICE AGREEMENT
This Service Agreement is executed this 20th day of October, 1995,
retroactive to October 25, 1994, by and among Cinergy Corp. ("Cinergy"); Cinergy
Services, Inc., a service company (the "Service Company"); and the other
companies listed on the signature pages hereto (each such other company, a
"Client Company", and collectively, the "Client Companies").
WITNESSETH
WHEREAS, the Securities and Exchange Commission (hereinafter referred to as
the "SEC") has approved and authorized as meeting the requirements of Section
13(b) of the Public Utility Holding Company Act of 1935 (hereinafter referred to
as the "Act"), the organization and conduct of the business of the Service
Company in accordance herewith, as a wholly owned subsidiary service company of
Cinergy Corp.; and
WHEREAS, the Service Company and the Client Companies have entered into this
Service Agreement whereby the Service Company agrees to provide and the Client
Companies agree to accept and pay for various services as provided herein
determined in accordance with applicable rules and regulations under the Act,
which require the Service Company to fairly and equitably allocate costs among
all associate companies to which it renders services, including the Client
Companies and other associate companies which are not a party to this Service
Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties to this Service Agreement covenant and agree as
follows:
ARTICLE I - SERVICES
Section 1.1 The Service Company shall furnish to a Client Company, as
requested by a Client Company, upon the terms and conditions hereinafter set
forth, such of the services described in Appendix A hereto, at such times, for
such periods and in such manner as the Client Company may from time to time
request and which the Service Company concludes it is equipped to perform. The
Service Company shall also provide a Client Company with such special services,
in addition to those services described in Appendix A hereto, as may be
requested by a Client Company and which the Service Company concludes it is
equipped to perform. In supplying such services, the Service Company may
arrange, where it deems appropriate, for the services of such experts,
consultants, advisers and other persons with necessary qualifications as are
required for or pertinent to the rendition of such services.
Section 1.2 Each Client Company shall take from the Service Company such
of the services described in Section 1.1, and such additional general or special
services, whether or not now contemplated, as are requested from time to time by
such Client Company and which the Service Company concludes it is equipped to
perform.
Section 1.3 The services described herein shall be directly assigned,
distributed or allocated by activity, project, program, work order or other
appropriate basis. A Client Company shall have the right from time to time to
amend, alter or rescind any activity, project, program or work order provided
that (i) any such amendment or alteration which results in a material change in
the scope of the services to be performed or equipment to be provided is agreed
to by the Service Company, (ii) the cost for the services covered by the
activity, project, program or work order shall include any expense incurred by
the Service Company as a direct result of such amendment, alteration or
rescission of the activity, project, program or work order, and (iii) no
amendment, alteration or rescission of an activity, project, program or work
order shall release a Client Company from liability for all costs already
incurred by or contracted for by the Service Company pursuant to the activity,
project, program or work order, regardless of whether the services associated
with such costs have been completed.
ARTICLE II - COMPENSATION
Section 2.1. As compensation for the services to be rendered hereunder,
each Client Company (other than companies exempted in whole or in part from the
standards established by Section 13(b) of the Act pursuant to SEC Rule 83 or
otherwise ("Cinergy Foreign Associate Companies")) shall pay to the Service
Company the cost of such services, determined in accordance with Rule 90 and
other applicable rules and regulations under the Act, and each Cinergy Foreign
Associate Company shall pay to the Service Company the fair market value of such
services, but in any event no less than the cost of such services. Where more
than one Client Company is involved in or has received benefits from a service
performed, costs will be directly assigned, distributed or allocated, as set
forth in Appendix A hereto, between or among such companies on a basis
reasonably related to the service performed to the extent reasonably
practicable.
Section 2.2. The method of assignment, distribution or allocation of costs
described in Appendix A shall be subject to review annually, or more frequently
if appropriate. Such method of assignment, distribution or allocation of costs
may be modified or changed by the Service Company without the necessity of an
amendment to this Service Agreement provided that in each instance, costs of all
services rendered hereunder shall be fairly and equitably assigned, distributed
or allocated, all in accordance with the requirements of the Act and any orders
promulgated thereunder. The Service Company shall advise the Client Companies
from time to time of any material changes in such method of assignment,
distribution or allocation.
Section 2.3. The Service Company shall render a monthly statement to each
Client Company which shall reflect the billing information necessary to identify
the costs charged for that month. By the twentieth (20th) day of each month,
each Client Company shall remit to the Service Company all charges billed to it.
Section 2.4. It is the intent of this Service Agreement that the payment
for services rendered by the Service Company to the Client Companies under this
Service Agreement shall cover all the costs of its doing business (less the cost
of services provided to affiliated companies not a party to this Service
Agreement and to other non-affiliated companies, and credits for miscellaneous
income items), including, but not limited to, salaries and wages, office
supplies and expenses, outside services employed, property insurance, injuries
and damages, employee pensions and benefits, miscellaneous general expenses,
rents, maintenance of structures and equipment, depreciation and amortization,
profit and compensation for use of capital as permitted by Rule 91 of the SEC
under the Act.
ARTICLE III - TERM
Section 3.1. This Service Agreement shall become effective as of the 25th
day of October, 1994, and shall continue in force with respect to a Client
Company until terminated by the Service Company with respect to such Client
Company or until terminated by unanimous agreement of all Client Companies, in
each case upon not less than one year's prior written notice to all other
parties. This Service Agreement shall also be subject to termination or
modification at any time, without notice, if and to the extent performance under
this Service Agreement may conflict with the Act or with any rule, regulation or
order of the SEC adopted before or after the date of this Service Agreement.
ARTICLE IV - MISCELLANEOUS
Section 4.1. All accounts and records of the Service Company shall be kept
in accordance with the General Rules and Regulations promulgated by the SEC
pursuant to the Act, in particular, the Uniform System of Accounts for Mutual
Service Companies and Subsidiary Service Companies in effect from and after the
date hereof.
Section 4.2. New direct or indirect non-utility subsidiaries of Cinergy
Corp., which may come into existence after the effective date of this Service
Agreement, may become additional Client Companies (collectively, the "New Client
Companies") subject to this Service Agreement. In addition, the parties hereto
shall make such changes in the scope and character of the services to be
rendered and the method of assigning, distributing or allocating costs of such
services among the Client Companies and the New Client Companies under this
Service Agreement as may become necessary.
Section 4.3. The Service Company shall permit a Client Company's access to
its accounts and records, including the basis and computation of allocations.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Service Agreement to
be executed as of the date and year first above written.
CINERGY CORP.
By: /s/William L. Sheafer
Treasurer
CINERGY SERVICES, INC.
By: /s/William L. Sheafer
Treasurer
CINERGY INVESTMENTS, INC.
By: /s/William L. Sheafer
Treasurer
PSI RECYCLING, INC.
By: /s/William L. Sheafer
Treasurer
CINERGY RESOURCES, INC.
By: /s/William L. Sheafer
Treasurer
WHOLESALE POWER SERVICES, INC.
By: /s/William L. Sheafer
Treasurer
POWER EQUIPMENT SUPPLY CO.
By: /s/William L. Sheafer
Treasurer
POWER INTERNATIONAL, INC.
By: /s/William L. Sheafer
Treasurer
TRI-STATE IMPROVEMENT CO.
By: /s/William L. Sheafer
Treasurer
KO TRANSMISSION CO.
By: /s/William L. Sheafer
Treasurer
SOUTH CONSTRUCTION COMPANY, INC.
By: /s/William L. Sheafer
Treasurer
PSI POWER RESOURCE DEVELOPMENT, INC.
By: /s/William L. Sheafer
Treasurer
PSI POWER RESOURCE OPERATIONS, INC.
By: /s/William L. Sheafer
Treasurer
PSI SUNNYSIDE, INC.
By: /s/William L. Sheafer
Treasurer
PSI INTERNATIONAL, INC.
By: /s/William L. Sheafer
Treasurer
CINERGY TECHNOLOGY, INC.
By: /s/William L. Sheafer
Treasurer
COSTANERA POWER CORP.
By: /s/William L. Sheafer
Treasurer
PSI ARGENTINA, INC.
By: /s/William L. Sheafer
Treasurer
PSI ENERGY ARGENTINA, INC.
By: /s/William L. Sheafer
Treasurer
PSI T&D INTERNATIONAL, INC.
By: /s/William L. Sheafer
Treasurer
PSI YACYRETA, INC.
By: /s/William L. Sheafer
Treasurer
<PAGE>
Appendix A to Nonutility
Service Agreement
Description of Services and Determination
of Charges for Services
I. The Service Company will maintain an accounting system for accumulating
all costs on an activity, project, program, work order or other appropriate
basis. To the extent practicable, time records of hours worked by Service
Company employees will be kept by activity, project, program or work order.
Charges for salaries will be determined from such time records and will be
computed on the basis of employees' effective hourly rates, including the cost
of fringe benefits and payroll taxes. Records of employee-related expenses and
other indirect costs will be maintained for each functional group within the
Service Company (hereinafter referred to as "Function"). Where identifiable to
a particular activity, project, program or work order, such indirect costs will
be directly assigned to such activity, project, program or work order. Where
not identifiable to a particular activity, project, program or work order, such
indirect costs within a Function will be allocated in relationship to the
directly assigned costs of the Function. For purposes of this Appendix A, any
costs not directly assigned by the Service Company will be allocated monthly.
II. Service Company costs accumulated for each activity, project, program or
work order will be directly assigned, distributed or allocated to the Client
Companies or other Functions within the Service Company as follows:
1. Costs accumulated in an activity, project, program or work order
for services specifically performed for a single Client Company or Function will
be directly assigned and charged to such Client Company or Function.
2. Costs accumulated in an activity, project, program or work order
for services specifically performed for two or more Client Companies or
Functions will be distributed among and charged to such Client Companies or
Functions. The appropriate method of distribution will be determined by the
Service Company on a case-by-case basis consistent with the nature of the work
performed. The distribution method will be provided to each such affected
Client Company or Function.
3. Costs accumulated in an activity, project, program or work order
for services of a general nature which are applicable to all Client Companies or
Functions or to a class or classes of Client Companies or Functions will be
allocated among and charged to such Client Companies or Functions by application
of one or more of the allocation ratios described in paragraphs III and IV of
this Appendix A.
III. The following ratios, determined on an annual basis or as otherwise
required, will be applied, as specified in paragraph IV of this Appendix A, to
allocate costs for services of a general nature.
1. Number of Employees Ratio
A ratio, based on the sum of the number of employees at the end of each
month for the immediately preceding twelve consecutive calendar months, the
numerator of which is for a Client Company or Service Company Function and the
denominator of which is for all Client Companies (and Cinergy Corp.'s domestic
utility affiliates, where applicable) and/or the Service Company.
2. Number of Central Processing Unit Seconds Ratio
A ratio, based on the sum of the number of central processing unit
seconds expended to execute mainframe computer software applications for the
immediately preceding twelve consecutive calendar months, the numerator of which
is for a Client Company or Service Company Function, and the denominator of
which is for all Client Companies, the Service Company (and Cinergy Corp.'s
domestic utility affiliates, where applicable).
IV. A description of each Function's activities which may be modified from
time to time by the Service Company, is set forth below in paragraph "a" under
each Function. As described in paragraph II, "1" and "2" of this Appendix A,
where identifiable, costs will be directly assigned or distributed to the Client
Companies or to other Functions of the Service Company. Costs of any of the
Functions set forth below may be directly assigned or distributed to the Client
Companies. For costs accumulated in activities, projects, programs or work
orders of the Information Systems, Transportation, Human Resources and
Facilities Functions which are for services of a general nature that cannot be
directly assigned or distributed, as described in paragraph II, "3" of this
Appendix A, the method or methods of allocation, are set forth below in
paragraph "b" under each of such Functions. To the extent that a specific
method of allocation for costs of a general nature is not set forth below, a
study will be performed, and updated annually, to determine the appropriate
proportion, if any, of such costs to be allocated. Substitution or changes may
be made in the methods of allocation hereinafter specified, as may be
appropriate, and will be provided to state regulatory agencies and to each
Client Company.
1. Information Systems
a. Description of Function
Provides communications and electronic data processing services.
The activities of the Function include:
(1) Development and support of mainframe computer software
applications.
(2) Procurement and support of personal computers and related
network and software applications.
(3) Operation of data center.
(4) Installation and operation of communications systems
b. Method of Allocation
(1) Development and support of mainframe computer software
applications - allocated to the Client Companies and other Functions of the
Service Company based on the number of Central Processing Unit Seconds Ratio.
(2) Procurement and support of personal computers and related
network and software applications - allocated to the Client Companies and to
other Functions of the Service Company based on the Number of Employees Ratio.
(3) Operation of data center - allocated to the Client Companies
and to other Functions of the Service Company based on the Number of Central
Processing Unit Seconds Ratio.
(4) Installation and operation of communications systems -
allocated to the Client Companies and to other Functions of the Service Company
based on the Number of Employees Ratio.
2. Transportation
a. Description of Function
Procures and maintains vehicles and other equipment.
b. Method of Allocation
Allocated to the Client Companies and to other Functions of the
Service Company based on the Number of Employees Ratio.
3. Human Resources
a. Description of Function
Establishes and administers policies and supervises compliance
with legal requirements in the areas of employment, compensation, benefits
and employee health and safety. Processes payroll and employee benefit
payments. Supervises contract negotiations and relations with labor unions.
b. Method of Allocation
Allocated to the Client Companies and to other Functions of the
Service Company based on the Number of Employees Ratio.
4. Facilities
a. Description of Function
Operates and maintains office and service buildings. Provides
security and housekeeping services for such buildings and procures office
furniture and equipment.
b. Method of Allocation
Allocated to other Functions of the Service Company based on the
Number of Employees Ratio.
5. Accounting
a. Description of Function
Maintains the books and records of Cinergy Corp. and its
affiliates, prepares financial and statistical reports, processes payments to
vendors, prepares tax filings and supervises compliance with tax laws and
regulations.
6. Public Affairs
a. Description of Function
Prepares and disseminates information to employees, customers,
government officials, communities and the media. Provides graphics,
reproduction lithography, photography and video services.
7. Legal
a. Description of Function
Renders services relating to labor and employment law, litigation,
contracts, rates and regulatory affairs, environmental matters, financing,
financial reporting, real estate and other legal matters.
8. Finance
a. Description of Function
Renders services to Client Companies with respect to investments,
financing, cash management, risk management, claims and fire prevention.
Prepares reports to the SEC, budgets, financial forecasts and economic analyses.
9. Internal Audit
a. Description of Function
Reviews internal controls and procedures to ensure that assets are
safeguarded and that transactions are properly authorized and recorded.
10. Investor Relations
a. Description of Function
Provides communications to investors and the financial community,
performs transfer agent and shareholder recordkeeping functions, administers
stock plans and performs stock-related regulatory reporting.
11. Planning
a. Description of Function
Facilitates preparation of strategic and operating plans, monitors
trends and evaluates business opportunities.
12. Executive
a. Description of Function
Provides general administrative and executive management services.
